Analyst: Politics have marred Bulgaria’s energy sector

Slavcho Neykov []

Politicians in Bulgaria tend to forget national interests. The end result is that there are no big energy-related projects on the Bulgarian horizon – either in the sphere of electricity or in the sphere of gas, Slavcho Neykov, energy policy expert, told EURACTIV in an exclusive interview.

Slavcho Neykov is an energy policy expert and a former Director of the Energy Community Secretariat.

He spoke to EURACTIV’s Senior Editor, Georgi Gotev.

Prime Minister Boyko Borissov was recently in Brussels and warned of an energy catastrophe looming in Bulgaria. He was referring to the lost South Stream project, but this is probably not the only problem. What are the shortcomings in Bulgaria’s energy system? Are the problems of a structural nature? Is it more an issue of clientelism or monopolies, or lack of adequate regulation?

Unfortunately, the Prime Minister is right about the status of the Bulgarian energy sector. Some of the reasons for this are long-lasting and are linked to both political, policy and economic issues.

In my opinion there are two basic problems. The first one is linked to the lack of updated strategic energy priorities. The government has adopted an excellent programme, linked to the energy sector. However, it is not only the government in charge – the parliament and the energy regulatory authority also have to contribute substantially. Normally, preparation of new energy strategy takes time. In the Bulgarian case, it will be much easier that the competent institutions look for a consensus on several key priorities. In relation this, I will mention a few factors – the process of liberalization of the energy market, the development of the nuclear sector, the steps towards improving the energy efficiency and the update of the regulatory framework are key.

The second basic problem is linked to the social dimension of the energy sector developments. In recent years, the politicians talk about market principles of developing the energy sector, but de facto they still do not separate the from social issue. Sadly, energy poverty is a huge national problem with variety of dimensions, but it should be treated separately from the energy sector development.

The optimistic part of the current energy equation is that this government has changed completely its approach to the sector – there is much more transparency, much more and much better communication with the private business and much stronger readiness for reforms. Besides, it put Bulgaria back on the European energy map with a proactive position towards energy developments of regional and European value. The Regulator has also undergone substantial changes in the last month – for the first time since its existence the commissioners have been appointed by parliament, thus increasing its independence. The parliament, however, needs to undergo substantial changes – first of all to be more precise in following EU requirements when adopting laws and secondly – to stay away from politically motivated interventions in the work of the Regulator. Unfortunately, so far there have been discrepancies in its work in both directions.

When it comes to the monopolies, the situation is very specific – within the last years the monopolies in the energy field (particularly the private companies) were more manipulated than regulated. The former energy regulator was using its powers under political dictations – thus, further to pushing down the prices without any market related explanation, it even started unjustified procedures for revocation of licences from the electricity supply companies, which was even subject to strong reactions both by the European Commission and by Eurelectric etc. I hope all this will change now and all political and populist talks about the “bad” private investors will remain in the past.

What prevents Bulgaria from being a major producer of energy and an exporting country in the region? Greece and Turkey would surely like to import cheap electricity?

In general, the sad truth is that there are no big energy related projects on the Bulgarian horizon – either in the sphere of electricity or in the sphere of gas.

When it comes to electricity, for many years Bulgaria and Romania were the only countries in South East Europe, which could plan – even on a strategic basis – the export of electricity. Currently, the situation changes – this is due to some objective reasons, but also to substantial mistakes on the national level.

Objectively, at this stage there is surplus of electricity in the region and with the gradual opening of the regional market the niches are filled in very quickly. I personally am more worried about the mistakes which were made on national level, as these have long lasting effects. This is particularly true when it comes to the timely reaction about construction of new capacities. Thus, for example, Bulgaria lost eleven years so far when it comes to the development of new capacities for its nuclear sector. In between, the situation changed completely from economic and policy perspective – in 2004, when it was reopened, the project of Belene NPP (two units) was estimated to cost €3.850 billion. Now its price is considered to be more than €10 billion. Moreover, we have an open arbitrage case [regarding the frozen Belene project], and on the top of this, there is no clear cut idea what is next. It is more or less the same with the planned Unit 7 in the Kozloduy nuclear power plant. The country lost more than a year discussing with Westinghouse a prototype AP 1000 reactor to find out that the company does not want to be an investor but just to sell technology, which does not fit the government’s programme.

In parallel, if it was clear what Bulgaria wants when it comes to Unit 7 in Kozloduy, one should recall that there is a last generation [Russian-built] reactor ready to be used, which could also solve additional set of issues on bilateral level. At the same time, Turkey undertook very concrete steps towards constructing a new NPP with 4800 MW capacity, which will additionally change the market. Therefore, any delay is crucial and the politicians need to provide rapidly clear answer – what is next in the electricity sphere from the perspective of the nuclear sector.

Considering gas, the situation is more complex as it refers to projects, which are not strictly Bulgarian, but which affect the country very strongly. The abandoned South Stream project is a good example in this relation. The so-called Turkish Stream is planned to bypass Bulgaria. Thus, the country started quickly to reconsider interconnections and potential local resources, some of which are on the table for more than ten years.

The improper thing in both electricity and gas spheres is that the energy sector development is very much politicized – this is to a big extent due to a lack of continuity on national level. Politicians normally think within four years frame, which does not fit within the long lasting frame of energy investments. From today’s perspective, on international level, the EU relations with Russia bring additional complexity – and for Bulgaria this is of particular relevance, as in the energy sphere Russia is not an enemy, but a long lasting partner with Bulgaria and will certainly remain such for many years ahead – and in our case this is linked not only to gas. The politicians should take note of this fact very carefully. We should never forget that Bulgaria is an EU member, but we should also clearly note our national interests – in the EU we all share common values and general priorities in the energy field, but we suffer individually.

You have been the Director General of the Energy Community for many years. Is the region well connected to the rest of Europe, or is it an energy island? What are the major energy problems in the region, and what should the EU do to help to solve them in the medium and longer term?

Southeast Europe continues to be very picturesque, when it comes to the energy field. Legally, all countries – regardless whether they are members of the EU or not – are to follow the same key rules on the market developments. Factually, the process of the integration of the energy markets continues, but more and more difficulties seem to occur on practical level. Here are few examples, related to the energy market developments – the situation in Ukraine (aside the political problems) does not presuppose quick steps ahead; there are substantial problems in Moldova, FYR of Macedonia, Bosnia and Herzegovina etc. The lack of investments is substantial, and to a big extent this is due to the non-harmonized environment – the national markets are too small, so the investors look for a broader regional perspective. The blocked EU – Russia energy relations complicate additionally the situation as Russia is a major energy investor and supplier in some of these countries. Furthermore, a big problem in the region is the insufficient administrative capacity.

The EU is doing its best to effectively use a set of regional initiatives, for example, the Energy Community, the Danube Strategy and others, as well as the bilateral relations with the countries. Further, it mobilizes additional support via the donors (World Bank, EBRD, EIB etc.). However, for me the biggest problems seem to be within the countries as these have to create adequate conditions to absorb the offered support. Therefore, all steps towards improving the situation should be result of mutual coordination and cooperation. Besides, the countries from the region should not only wait to the EU initiative – they should approach the EU with initiatives from their side. In this aspect, the EU members in the region of South-Eastern Europe like Bulgaria, Greece, Romania should also be proactive; and I am glad to note that the current Bulgarian government has already undertaken its own steps and supports similar steps by others in this direction. Let’s hope that all these efforts will bring concrete tangible results very soon.

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