From Novinite

The Bulgaria 2010 Review: Energy

Energy

NUCLEAR ENERGY

Bulgaria's Second Nuclear Power Plant Belene - Seems Like It's Gonna Happen

2010 saw much uncertainty on part of the Borisov Cabinet with respect to the fate of the Belene Nuclear Power Plant. On the one hand, PM Borisov slammed the project as having been used by former goverments to drain budget money, on the other he eventually came around with respect to declaring the importance of the project for the future of the Bulgarian economy. While the Cabinet declared that it would not provide money from the state budget for the construction, it set out in search of potential foreign investors to fuel the construction of the plant. By the end of the year, it reached a certain level of progress in talks with Russia and Rosatom's subsidiary Atomstroyexport, and with some foreign companies interested in having shares in the project.

Bulgaria, Russia Strike Key Memorandum on Belene NPP;
French, Finnish Companies Subscribe to Project

In November, shortly after a visit to Sofia by Russian PM Putin, Bulgaria's National Electric Company NEK and Russian state company Rosatom signed a memorandum providing for a final fixed price for the two reactors of EUR 6.298 B.

This sum is still not final since the document is not binding;
a final binding agreement for the establishing of a joint company for Belene is expected to emerge in 4-5 months, according to Rosatom head Sergey Kirienko, who was in Sofia to sign the document.

The other non-binding documents on Belene signed at the same time provided for participation in the project of Finnish company Fortum with a share of 1%, and of French company Altran Technologies with a share of 1%-25%. NEK is to keep a majority share of 51%, while Rosatom is also expected to have a share of 25%.

Serbia has expressed interest in acquiring a share of 5%-10% but the talks for that have not been finalized yet.

After it was first started in the 1980s, the construction of Bulgaria's second nuclear power plant at Belene on the Danube was stopped in the early 1990s over lack of money and environmental protests.

After selecting the Russian company Atomstroyexport, a subsidiary of Rosatom, to build a two 1000-MW reactors at Belene and signing a deal for the construction, allegedly for the price of EUR 3.997 B, with the Russians during Putin's visit to Sofia in January 2008, in September 2008, former Prime Minister Stanishev gave a formal restart of the building of Belene. At the end of 2008, German energy giant RWE was selected as a strategic foreign investor for the plant.

The Belene NPP was de facto frozen in the fall of 2009 when the previously selected strategic investor, the German company RWE, which was supposed to provide EUR 2 B in exchange for a 49% stake, pulled out.

Subsequently, in the last months of the Stanishev government in early 2009, Putin offered Bulgaria a Russian state loan of EUR 4 B, which ex PM Stanishev refused.

In late 2009, after the Borisov government took over, Rosatom offered Bulgaria a loan of EUR 2 B so that the construction can continue, in exchange for a stake in the future plant that the Bulgarian government could then buy out by returning the money. The offer was refused by the Borisov Cabinet which also made it clear it would construct the Belene plant only if an European (apparently meaning EU or Western European) strategic investor can be found.

Under Bulgaria's preliminary contract with Atomstroyexport signed in 2008, the construction of the Belene plant with two 1000-MW VVER nuclear reactors is supposed to cost EUR 3.997 B.

As the contract expired on September 30, 2010, Bulgaria and Russia decided to extend it by 6 months until they reach a final agreement on how much the construction of the Belene NPP will cost.

In mid November, the Bulgarian Energy Holding, NEK's parent company, picked HSBC, one of UK's biggest banks, for a consultant to help it decide how to proceed and attract new investors for the planned Belene nuclear power plant.

During his visit to Sofia in November, Sergey Kiriyenko, CEO of Russian state nuclear energy company Rosatom admitted that Bulgaria and Russia had made a mistake by not specifying the exact raise of cost for the construction of the Belene nuclear power plant,

Will Serbia Back Bulgaria's Belene NPP?

In 2010, Bulgaria, searching investment for its project for a second NPP, invited Serbia, Croatia, and Macedonia to have small shares in the future plan.

Only Serbia appears to have picked up the offer, with President Boric Tadic and Deputy Prime Minister Bozidar Djelic confirming Serbia's interest. While Bulgaria offered a share of 1%-2% to Serbia, subsequent reports said Serbia wanted a larger share – 5%-10%. The exact fate of Serbia's role in Belene remains unclear as Serbian Environment Minister Oliver Dulic has suggested that his country's participation in the project in unfeasible.

WikiLeaks: Bulgarian Nuclear Project Belene Reeks of Side Deals

In December, information that appeared from US diplomatic cables on WikiLeaks said German utility RWE abandoned (in the fall of 2009) plans to participate in the construction of a 2000MW nuclear plant in the Bulgarian Danube town of Belene after realizing that working with Russian and Bulgarian companies in the energy sector is a 'poisonous combination' for European investment"
.

The cables published by the Guardian newspaper claim the deal "
reeked of side deals"
even before RWE bought the 49% stake. The cables claim that despite its due diligence, RWE's confidence had turned to "
buyer's remorse"
within weeks. In the cable, the US ambassador cited local contacts as saying there was a rush to start construction so that the project would keep RWE on board. RWE had reportedly said that it would not provide funding until it sees the "
first concrete poured"
, signalling the start of construction. RWE's partner, the state-owned Bulgarian electricity company, NEK, which held 51% of the project, declined to comment on any of the allegations.

Austrian, Bavarian Companies Said to Have Interest in Belene NPP

In the fall of 2010, there were various announcements that German companies from Bavaria and Austrian companies could become investors in the second Bulgarian Nuclear Power Plant (NPP) in the Danube town of Belene. According to the Austrian Embassy in Sofia, Austrian companies could become subcontractors.

Earlier Bulgarian Prime Minister Borisov announced he had secured a Bavarian strategic investor for Belene – news that found little confirmation in the following months to date in spite of the fact they were also backed by the Bavarian Economy Ministry.

Bulgaria's Key Economic Ministers Diverge on Belene NPP

In December, as throughout 2010 Bulgaria's two key ministers with economic portfolios have expressed somewhat differing views on the future of the project for the country's second nuclear power plant at Belene. Finance Minister Djankov continued to be a "
pessimist"
with respect to the necessity to build a new nuclear plant, saying he would not let any budget money be spent on it.

Meanwhile, Minister of Economy, Energy, and Tourism Traicho Traikov has been a proponent of Belene NPP as long as Bulgaria manages to get a more favorable conditions from Russia;
he did suggest occasionally, however, that Belene is not an absolute must for Bulgaria.

NEK: Belene NPP to Solidify Bulgaria's Role as Electricity Exporter in 2020

The construction of Bulgaria's second nuclear power plant at Belene will make sense for the country if it gets long-term contracts for exporting electricity, according to a report of the National Electric Company NEK, released in November.

If the 2000-MW Belene plant is completed, by 2020 Bulgaria's electricity consumption will be secured, and the country will have free quantities of electricity for exports, says a NEK analysis presented at the Bulgarian Economic Forum in Sofia.

One of the scenarios described in the paper says that Bulgaria's energy consumption will not change over the next 10 years because improvements in energy efficiency;
another scenario says that it might grow by about 1.4% annually, which means it could reach 42 billion kW/h by 2020.

At the same time, if the Belene NPP is completed by that date, Bulgaria will be producing about 52 billion of kW/h per year, meaning that 10 billion kW/h could be exported.

In that respect, Dimcho Kanev, head of the "
Forecasts, Development and Scientific Services"
Department of NEK says that Bulgaria needs to seek long-term electricity exports contracts with neighboring states, or otherwise the Belene plant could "
fall prey"
to other similar projects in the region.

Kanev said that in addition to the Belene plant, there will be other new electricity production capacities launched in Bulgaria before 2020 – such as the notorious Tsankov Kamak hydro power plant and expansions of the AES thermal power plant Galabovo, as well as plants producing power from renewable sources.

Kanev's report pointed out that after the launch of Units 5 and 6 of the existing Kozloduy NPP in the 1980s and early 1990s Bulgaria stopped importing electricity from the then Soviet Union, and became an exporter, exporting about 5-8 billion kW/h of electricity annually. In 2010 so far, Bulgaria has exported about 6 billion kW/h of electricity, he said.

Bulgaria Moves to Extend Life of Kozloduy NPP

In 2010, the Bulgarian authorities have started procedures to extend the lifespan of the two operational reactors of the Kozloduy nuclear power plant. According to the new CEO of Bulgaria's only operational NPP, Konstantin Dimitrov, who was appointed in November week, the plant will start a tender for a technical survey of the reactors as preparation of the measures to extend their life. He also said the Kozloduy NPP was negotiating with the Russian supplier TVEL for smaller prices of the nuclear fuel.

Only the 1000-MW reactors, Unit 5 and Unit 6. are operational at the Kozloduy NPP after Bulgaria shut down the 440-MW reactors 1, 2, 3, and 4 as part of its EU accession negotiations. Unless it is extended, the life of Units 5 and 6 is to expire in 2017-2020.

The Bulgarian government has been working on a project for constructing a second nuclear power plant at Belene, another Danube town not far from Kozloduy, and has also considered building a 7th and 8th reactor at Kozloduy.

Unit 6 of Bulgaria's Kozloduy NPP Back in Business

One of the two functioning reactors of Kozloduy NPP, Unit 6, was turned off for scheduled annual repairs and refueling on September 18 and was expected to begin functioning again at the end of October.

However, the check of the system managing the reactor's safety protection located damage in the equipment's cap and the need to replace 31 out of 61 pipes total. The new parts were shipped by the manufacturer – the Russian "
Hydropress"
owned by Rosatom.

Bulgaria's Economy Minister, Traicho Traikov, said at the time that each day of the delay would amount to BGN 1.5 M in losses. Initially, the Russian company replied they would need about 7 to 8 months to make and deliver the parts, however, after not only the Minister's interference, but also the personal one of Prime Minister, Boyko Borisov, who spoke on the phone with his Russian counterpart, Vladimir Putin, the fast delivery was given a green light.



Bulgaria's Nuclear Power Competitors: Turkey, Romania

Japan Snatches Deal for Turkey's 2nd Nuclear Plant from South Korea

After months of talks, at the end of 2010 Japan appeared to have grabbed from South Korea a deal for the construction of a nuclear power plant in Turkey.

Turkey's Minister of Energy and Natural Resources Tanev Yildiz and Japan's Minister of Economy, Trade, and Industry, Akihiro Ohata signed Friday in Tokyo a memorandum of understanding for the construction for a nuclear power plant in Turkey.

When asked when the construction of a nuclear power plant in Turkey would begin, Ohata said the Turks would like to complete the preparations in three month's time, so they expect to start within the next three months.

According to a Saturday's article of the Korea Times, a South Korea-based English-language publication, citing a Korean government source, however, Turkey has not made any decision on selecting a partner to build a new nuclear power plant on its Black Sea coast.

The Korea Times points out that South Korea is competing with Japan for a multibillion-dollar power-generating nuclear reactor project in Turkey;
it says that Turkey is now in talks with Japan for the project after its earlier negotiations with South Korea apparently failed to make a breakthrough.

South Korea and Turkey began formal talks in March and were expected to reach an intergovernmental agreement during last month's G20 summit in Seoul, but a deal was not reached due to outstanding differences such as establishing "
fair"
electricity prices, according to the report.

Turkey began negotiating with Japan on the construction of a nuclear power plant in the province of Sinop, in the Black Sea region, at the beginning of December of this year after talks with South Korea failed last month when the two sides failed to reach a common understanding on issues such as price and purchasing guarantees and the state's share.

Earlier in 2010, in May, Turkey reached an agreement with Russia for the construction of what will become Turkey's first nuclear power plant in Mersin's Akkuyu district.

According to the agreement, Russia's state-run Atomstroyexport JSC will construct four 1000 MW reactors at the Akkuyu nuclear power plant, and will have a controlling stake in the project. The project is estimated to cost about billion and was approved by Turkey's Parliament in mid-July.

Turkey's Akkuyu NPP is viewed in Bulgaria as a competitor to the potential second Bulgarian NPP at Belene on the Danube where Atomstroyexport is supposed to construct two 1000 MW reactors.

CEZ Quits Romania's Cernavoda NPP Expansion Project

Czech energy company CEZ has sold its shares from the holding for the construction of a third and fourth reactor at the Romanian nuclear power plant Cernavoda. Czech group CEZ said in a statement that it sold its 9.15% at the holding for the expansion of Cernavoda before the end of 2010.

The initial announcement of an intention to sell the 9.15% share held by CEZ in the Energonuclear SA company was first made in late 2010. CEZ sold its shares to the Romanian state company Nuclearelectrica SA, the majority shareholder in the project to build reactors 3 and 4 of the Cernavoda plant. Romanian news site HotNews.ro, cited CEZ as saying it sold the shares for RON 7.4 M.

According to CEZ, the sale comes in line with the company plans to focus on its main investments in the Czech Republic and on consolidating existing acquisitions abroad. In Bulgaria, CEZ owns one of the country's three power utilities;
CEZ Bulgaria is the electricity distribution company in the Western and North-central part of the country.

The two 706-MW reactors at the Cernavoda NPP currently produce about 18% of Romania's total electricity consumption. The second operational reactor at Romania's NPP Cernavoda was launched in 2007;
the two existing reactors are Canadian-made. The construction of Cernavoda Units 3 and 4 would double Romania's production of electricity from nuclear energy. The Energonuclear holding company was established for the expansion project with two 720-MW units, which is estimated to cost EUR 4 B.

Energonuclear shareholders are: Nuclearelectrica SA – now with 60.15%, holding 51% before the CEZ pullout;
Germany's RWE, France's GDF Suez, Italy's Enel with 9.15% each, and ArcelorMittal and Iberdrola with 6.2% each. The Romanian state plans to sell part of its stake so it will become a minority shareholder. In Bulgaria, the Romanian Cernavoda NPP has often been seen as a competitor to the project for the second Bulgarian nuclear power plant at the town of Belene on the Danube. The Belene NPP has been planned to have at least two Russian 1000 MW reactors at first.



NATURAL GAS

Bulgaria, Russia Ink Long-Anticipated Deal, South Stream Full Speed Ahead

In November, after months of exhausting talks, Bulgaria and Russia signed an intergovernmental agreement for the construction of the Bulgarian section of the South Stream gas transit pipeline in the presence of their Prime Ministers, Boyko Borisov and Vladimir Putin, in Sofia. The two state delegations of Bulgaria and Russia formally signed the South Stream agreement, consisting of two documents, which had been prepared in advance in the past few weeks. It was inked by the CEO of the Bulgarian Energy Holding (BEH), Maya Hristova, and the CEO of the Russian energy giant Alexei Miller.

The deal stipulates the establishment of a joint venture, South Stream AD, which will manage the construction and the operation of the South Stream gas transit pipeline on Bulgarian territory – which will be the most crucial land section of the pipe. BEH and Gazprom will each have a 50% share.

As the Borisov government has used South Stream as a bargaining chip in its energy negotiations with Russia, the singining of the agreement has efficiently removed all doubts about the fate of South Stream and has been hailed as a major international diplomatic victory for Russia.

The South Stream gas transit pipeline might be launched four months ahead of schedule thanks to the progress achieved with Bulgaria, Gazprom CEO Alexei Miller declared in Sofia after the signing.

Later in November Bulgaria announced it will ask the European Commission for a derogation, so that a substantial part of the South Stream pipe be used only by shareholders. This development came after an EC spokesperson announced Monday that the EC wants Bulgaria to make sure third-party companies are given access to the South Stream pipeline.

Economy Minister Traikov confirmed earlier information that Bulgaria will request a derogation from the EU principle which requires a strong liberalization of access to infrastructure.

According to Traikov, Bulgaria will request that 50-70% of the South Stream pipe be accessible only to the joint venture shareholders, while the rest be liberalized. Traikov was confident that this adjustment will be completely feasible and in no way will hamper the execution of the project

Economy Minister Traicho Traikov believes it is practically impossible for Romania to replace Bulgaria as the major Balkan hub of the Russian gas transit pipeline South Stream.

Fears in Sofia about such a scenario were raised by a memorandum signed Wednesday in Bucharest between Gazprom and the Romanian company Transgas. According to Russian analysts and media, this move was aimed at pressuring Bulgaria to fulfill its promises for the realization of South Stream. It might have produced the desired results as oGazprom CEO Alexei Miller and the Bulgarian government agreed to set up a 50/50 joint venture for the construction of the Bulgarian section of South Stream.

The South Stream gas transit pipeline is supposed to be ready by 2015. Its construction is expected to cost between EUR 19 B and EUR 24 B. It will be transporting 63 billion cubic meters of natural gas annually, or 35% of Russia's total annual natural gas export to Europe.

The South Stream pipe will start near Novorosiysk on the Russian Black Sea coast, and will go to Bulgaria's Varna;
the underwater section will be 900 km long.

In Bulgaria, the pipe is supposed to split in two - one pipeline going to Greece and Southern Italy, and another one going to Austria and Northern Italy through Serbia, Croatia and Slovenia.

The project was initiated by Gazprom and the Italian company Eni, and the French company EdF is also planned to join as a shareholder. It is seen as a competitor to the EU-sponsored project Nabucco seeking to bring non-Russian gas to Europe.

At a recent meeting in St. Petersburg, Berlusconi and Putin welcomed the idea of having German companies join in as shareholders. There is no indication as to how the joining of RWE or some other German company would re-apportion the stakes.

The ownership of the Russian-Bulgarian joint company to build and manage the Bulgarian South Stream section will be split 50-50%.

Bright Future for Nabucco as Turkmenistan Promises More Natural Gas Project Can Handle

In November, Turkmenistan announced it was ready to provide the project with more natural gas that it can handle, a revolutionary statement of Turkmenistan's First Deputy Prime Minister Baymurad Khojamukhamedov described the Nabucco Consortium as very promising leaving the Nabucco Consortium convinced that it will strike a supply contract with Turkmenistan.

Khojamukhamedov said Turkmenistan could provide up to 40 billion cubic meters of natural gas per year, more than the planned capacity of Nabucco which is 31 billion per year.

Christian Dolezal, Spokesperson of Nabucco Gas Pipeline International GmbH, the Vienna-based project company, said that in order to secure international funding for the construction of the pipeline, Nabucco Gas Pipeline International GmbH needs to secure between 10 and 18 billion cubic meters of natural gas per year.

At the present the project company is involved in talks with the European Bank for Reconstruction and Development, the European Investment Bank, and the International Finance Corporation, a member of the World Bank Group, asking for an EUR 4 B loan. These negotiations are expected to be completed in 2011.

Dolezal said the first gas supplies for Nabucco are expected to come from Azerbaijan – about 8 billion cubic meters per year at first, of which 6 billion could come from the Shah Deniz 2 field. Another 10 billion cubic meters are expected from Iraqi Kurdistan, and the consortium is awaiting the outcome of talks with the Iraqi government.

The construction of the Nabucco gas transit pipeline will start in 2012, and the first natural gas deliveries through it should be a fact in 2015, he explained.

From that, the direct investments in the Bulgarian economy from the construction of Nabucco will be about EUR 400 M and a few hundred jobs. Another about 1000 jobs will be created indirectly by the project.

Despite the neat timeline for the construction and entering into operation of Nabucco, Dolezal indicated that 2011 will be key for the project because this is when the first contracts with the natural gas suppliers will be signed by the consortium.

The Nabucco shareholders are: Bulgarian Energy Holding (Bulgaria), Botas (Turkey), MOL (Hungary), OMV (Austria), RWE (Germany) and Transgaz (Romania), Each shareholder holds an equal share of 16.67% of Nabucco Gas Pipeline International GmbH.

The Nabucco gas transit pipeline is supposed to be ready by 2015. The CEO of the project company Mitschek has made it clear that the project company is certain of Bulgaria's commitment. He has also expressed confidence that the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), and IFC - a member of the World Bank Group, will support the project with respect to finding funding.

Deficit Worries Trouble Bulgaria with Respect to Nabucco Gas Pipeline

A bank guarantee for Bulgaria in order to participate in the project to build the "
Nabucco"
gas pipeline would lead to over deficit, Prime Minister, Boyko Borisov, said in November. According to the PM, a bank guarantee of EUR 2 B becomes deficit immediately after it is absorbed only for the sake of Bulgaria proving it is a reliable European partner..

Bulgaria's Cabinet has been working to convince the EU that the EUR 1.3 B that the country will have to pay for the construction of the Nabucco gas transit pipeline should be counted as part of its budget deficit.

Bulgarian PM Borisov has mentioned that his government will ask the European Commission to agree that any loans and credits that his Cabinet might take in order to fund the construction of Nabucco, the EU-sponsored gas pipeline, should not be factored in the country's budget deficit. Otherwise, it is very likely that Bulgaria will not be able to reduce its budget deficit below the 3.0% required by the EU Stability and Growth Pact.

This idea that the funding for Nabucco, a project recognized by the EC as an EU priority, should not be counted when calculating the participant's deficits, was presented on Tuesday by Bulgarian Foreign Minister Nikolay Mladenov to Reinhard Mitschek, Managing Director of Nabucco Gas Pipeline International GmbH, the international consortium based in Vienna, established for building and managing Nabucco.

Mitschek declared that the issue about the shareholders' budget deficits and the way they will secure funding for Nabucco does not affect directly the project company. Securing the money for their shares is the job of the shareholding countries, Mitschek said.

He explained that Nabucco is estimated to cost EUR 8 B, and that Bulgaria, as a partner with 1/6 of the shares, will be expected to provide 1/6 of the total sum, or about EUR 1.3 B, rather than finance just the section on its territory. He also mentioned that the technical documents on Nabucco have already been signed with Austria, Bulgaria, and Romania, and that some technical issues are still be worked out with Hungary and Turkey.

Earlier in November, Bulgarian Foreign Minister Mladenov visited Mitschek in Vienna to express Bulgaria's support for Nabucco. His visit comes after last week Turkmenistan said it could provide 40 billion cubic meters, more than Nabucco's planned capacity of 31 billion cubic meters. For the time being, only Azerbaijan and Iraqi Kurdistan have been confirmed as official Nabucco suppliers but their quantities might not be enough to fill up the pipe completely.

Mladenov's meeting with Mitschek also takes place a couple of weeks after Russian President Putin's visit in Sofia when Bulgaria and Russia signed the agreement to set up a joint venture for constructing the South Stream gas transit pipeline, the Russian-sponsored competitor of Nabucco.

Also in November, EU Energy Commissioner Guenther Oettinger for the first time formally conceded that the two pipelines are competitors.

In June, the center-right Bulgarian cabinet revised the state budget increasing its 2010 target for deficit to 4.8% of GDP on a cash basis and 3.9% of GDP under EU accounting rules, far wider than initial estimates.

Final Eurostat data released recently showed that in 2009, Bulgaria's budget deficit actually was 4.7%.

The 2011 state budget provides for a deficit of 2.5%, without factoring in any loans and contributions to the construction of Nabucco.

Bulgaria to Have Full Gas Interconnections with Greece, Romania

In November, Bulgaria and Greece signed a contract for interconnection of their natural gas networks that must be built by 2013, an agreement concluded between the Bulgarian Energy Holding and the Greek company IGI Poseidon. Each of the two companies will have a 50% share of the project, which is estimated at EUR 160 M, 45 of which come from EU funds.

At the same time, it was announced that Bulgaria and Romania have planned the project for the construction of an inter-system link for the transfer of natural gas in the section Ruse-Giurgiu.

Bulgarian state owned company "
Bulgartransgaz"
and Romanian Transgaz are ready with the "
road map"
for the project and have decided to carry it out faster than previously announced. Bulgaria sees this inter-system link as an opportunity to diversify its natural gas sources.

The project must enter its investment phase by the end of 2010, as both sides will make use of the opportunity to use partial financing from the European funds for the construction of the link.

EU has planned a total of EUR 8.9 M within its European Energy Program for Recovery for the project. A further EUR 11 M has to be invested by "
Bulgartransgaz"
.

The linked is designed to be 23.8 km long and to have a maximum capacity of 1.5 B cubic meters of natural gas each year.

Both arrangements – with Greece and with Romania – were made during the "
Energy without frontiers"
conference in Sofia.

Bulgarian PM: Russian Gas for Bulgaria Will Be Cheaper

In November, Bulgarian PM Boyko Borisov has stated that his country will be buying Russian gas at lower prices, just a day after talks with Russian PM Vladimir Putin appeared to end at stalemate on that matter.

It was hoped that Bulgaria might request lower gas prices in return for contributing for the swifter development of Russian-sponsored South Stream natural gas pipeline project.

Shortly before that the Russian energy giant Gazprom said it is willing to reduce gas prices for Bulgaria by 5% to 7% in the wake of the visit of Russian Prime Minister, Vladimir Putin, to Sofia.

The reduction is made possible by taking into account latest gas prices while Russia and Bulgaria have reached a prior agreement to eliminate intermediaries in the delivery of Russian gas, effective from January, 2012, the report points out.

US Ambassador: Chevron Wants to Help Bulgaria Diversify Gas Supply

Bulgaria needs to put some serious consideration into diversifying its energy sources, according to US ambassador to Sofia James Warlick. The US diplomat, pointing out in particular shale gas and the interest of oil and gas giant Chevron in exploring.

"
Chevron has been expressing a strong interest in exploring for shale gas since May, and it is still waiting to receive a permit,"
complained Warlick, counseling the Bulgarian cabinet to extend the permit as soon as possible. As things stand, Bulgarian legislation, in particular the Law on Underground Resources, requires that permits for exploration for oil and gas be issued after a formal contest and cannot just be granted at will. According to Warlick, Chevron's own estimates are that some 20-25 B cubic meters of shale gas might be lying untapped in Bulgaria, which would satisfy domestic demand for some 7 years. The US diplomat advised Bulgaria to take advantage of the new opportunities that shale gas gives, which could transform the local gas market as they have already done in the States.

Bulgaria's Energy Watchdog Lowers Natural Gas Prices by 5%

In December, Bulgaria's State Commission for Energy and Water Regulation (DKEVR) approved a price reduction of 5% for natural gas from January 1, 2011. The new prices will be effective for 3 months. The cumulative decrease of natural gas price from October 1, 2010 and from January 1, 2011 is 6.1%.

Melrose Resources Begins Work on Bulgarian Gas Deposits

In 2010, British oil and gas explorer Melrose Resources starting work on its Bulgarian deposits Kaliakra and Kavarna. In the summer, the Bulgarian government granted a ten-year concession for the extraction of natural gas to the UK company. The stock of both deposits amounts to 2,5 billion cubic meters and is expected to provide at least 255 million cubic meters of natural gas per year by 2015. The company foresees a production of 500 million cubic meters.

Data from the Economy Ministry shows that the expected revenues for the duration of the concession are over 73 million dollars. However, there is no information from Melrose Resources about the price of the natural gas extracted in Bulgaria and to whom it would be sold. Until now, the company was exploiting the Galata deposit, which is already depleted.

Bulgaria Negotiates Transit of Azerbaijan Gas with Georgia

In the fall of 2010, Bulgaria got in negotiations with Georgia for the transit of 2 billion cubic meters of natural gas from Azerbaijan. This was confirmed after a meeting of the Prime Ministers of Bulgaria and Georgia, Boyko Borisov and Nikoloz Gilauri.

Bulgaria wants to buy the compressed liquefied natural gas from Azerbaijan through Georgia and the Black Sea, PM Borisov said. Bulgaria's Minister of Economy, Energy, and Transport Traicho Traikov explained that there are ongoing talks with Georgi to secure the transit of the 2 billion cubic meters of natural gas that the Bulgarian state gas company Bulgargaz (via its subsidiary Bulgartransgaz) is hoping to be buying each year from its Azerbaijan counterpart SOCAR.

"
Bulgartransgaz is very close to reaching a deal with SOCAR. Once this happens, the next step will be striking a contract for a transit solution,"
Traikov explained."
By 2012, Bulgaria hopes to have a working transit of natural gas from Azerbaijan via Georgia and the Black Sea as one of its options for diversified natural gas supplies,"
the Economy Minister said.

In this respect, however, Bulgaria is lagging behind its northern neighbor Romania, which already has agreements with Azerbaijan and Georgia for the purchase and transit of liquefied natural gas in the so called Azerbaijan-Georgia-Romania Interconnector (AGRI) project.



OIL

Bulgaria on Way to Killing Burgas-Alexandroupolis Pipeline

The Burgas-Alexandroupolis oil pipeline – one of the three major Bulgarian-Russian energy projects – appears to have run into much disrepute with the Bulgarian government in 2010.

In December, news emerged that Bulgaria failed to pay the EUR 6 M that it owes as its contribution to the joint project company with Greece and Russia, which is supposed to construct the Burgas-Alexandroupolis oil pipeline.

Even though at the last meeting in Amsterdam of the shareholders of the Trans-Balkan Pipeline company, the joint Bulgarian-Greek-Russian venture that should construct and manage the pipe, the Bulgarian government pledged to pay its dues by December 15, 2010, it failed to do so, revealed Mikhail Barkov, Vice President of the Russian oil company Transneft. He revealed that as a result Greece has made the payment of its own contribution to the joint project company conditional on the payment by the Bulgarian government.

He explicitly declared that even if Bulgaria ultimately refuses to participate in a trans-Balkan pipeline for the transport of Russian and Caspian oil from the Black Sea to the Mediterranean, Russia will not give up and will seek other ways to construct such a pipe.

Barkov did not mention explicitly if he meant the construction of the Samsun-Ceyhan oil pipeline through Turkey, which is seen as the major competitor and alternative to the oil pipeline through Bulgaria and Greece.

Ever since the center-right government of Bulgarian Prime Minister Boyko Borisov took office in the summer of 2009, it has been balking at the construction of the Burgas-Alexandroupolis oil pipeline, which had been promoted vigorously by the formed Socialist-led Stanishev Cabinet and the Socialist President of Bulgaria, Georgi Parvanov. It has also been met with staunch resistance along Bulgaria's southern Black Sea coast over environmental concerns.

In the summer of 2010, Borisov said that Sofia has no money to participate in the construction of the pipeline. Later Sofia has agreed to pay EUR 4.88 M as a contribution to the project company, Trans-Balkan Pipeline. The Bulgarian authorities, however, have made the construction of the pipeline conditional on complex environmental assessment procedures.

In November 2010, the Bulgarian Environment Ministry said the environmental impact assessment of the Burgas-Alexandroupolis oil pipeline is inadequate and needs to be reworked;
the ultimate decision about whether Bulgarian will take part in the project has been put off for 2011.

Bulgarian Prime Minister Borisov, however, has written off the project on a number of occasions, declaring that there is no way the ultimate environmental assessment would be positive.

Also in November 2010, Plamen Rusev, ex-director of Bulgarian branch of the project company who got sacked shortly before that by the Borisov government, commented that the decision of the Bulgarian government that the environmental impact assessment of the Burgas-Alexandroupolis oil pipeline is inadequate is aimed at buying time for financial reasons;
in his words, the decision was "
politically motivated"
and was connected with the financial trouble of the Bulgarian state.

Earlier this week, Greece's Deputy Prime Minister Theodoros Pangalos was especially critical of Bulgaria as regards the issue of the construction of the Burgas-Alexandroupolis pipeline claiming that the rightist governments in Bulgaria in the past 15 years – including the current Borisov government – have served American interests by blocking the progress of the oil pipeline. Greece has been a strong proponent of the pipe.

Russian Prime Minister Putin and Energy Minister Shmatko have generally expressed "
understanding"
for the "
environmental concerns"
of the Bulgarian state but have also insisted on the realization of the project.

Bulgaria, Greece and Russia agreed to build the pipeline between Burgas and Alexandroupolis, taking Caspian oil to the Mediterranean skirting the congested Bosphorus, in 2007 after more than a decade of intermittent talks.

The agreement for the company which will construct the Burgas-Alexandroupolis oil transit pipeline was signed by Bulgaria during Russian President Putin's visit to Bulgaria in 2008.

The 280-km pipeline, with 166 km passing through Bulgaria, would have an initial annual capacity of 35 million tons of crude oil, which could be later expanded to 50 million tons. Its costs are estimated at up to USD 1.5 B, up from initial estimates at USD 900 M.

The Trans-Balkan Pipeline company, which is in charge of the construction and subsequent operation of the future pipeline, and is headquartered in the Netherlands, was set up in 2008.

The Russian participant in the project, Pipeline Consortium Burgas-Alexandroupolis Ltd, has a share of 51%. It was founded jointly by three companies: AK Transneft (33.34%), NK Rosneft (33.33%), and Gazrpom Neft (33.33%).

The Bulgarian Joint stock company "
Project Company Oil Pipeline Burgas-Alexandroupolis – BG"
AD has a share of 24.5%. It was initially founded as jointly by two state companies, Bulgargaz (50%) and Technoexportstroy (50%) but was transferred in full to the Finance Ministry in February 2010.

The Greek participants are Helpe Thraki AE with 23.5% and the Greek government with 1%. The Helpe-Thraki AE was founded jointly by "
Hellenic Petroleum"
(25%) and "
Thraki"
(75%).

On July 16, 2010, the Bulgarian government completed the restructuring of its Project Company Oil Pipeline Burgas-Alexadroupolis – BG"
AD, which sealed the transfer of the company under the responsibility of the Finance Minister.

Construction of the pipeline has been on ice even after Bulgaria's government balked at the potential environmental damage that the pipeline could inflict on its resort-dotted coastline. The cabinet has stated that its final decision on the country's participation in the project will depend on its upcoming international environmental assessment.

During the summer, Bulgaria's Prime Minister Boyko Borisov unexpectedly said that the country was "
giving up"
on Burgas-Alexandroupolis oil pipeline project.

In a dramatic twist that left all of Europe confused, Borisov retracted his statements shortly afterwards, saying that the Bulgarian government hasn't made a final decision regarding the construction of the pipeline.

After it took office in July 2009, Bulgaria's new center-right government of the GERB party made it clear it was going to reconsider the country's participation in the three large-scale energy projects - South Stream gas pipeline, Burgas-Alexadroupolis oil pipeline, and Belene Nuclear Power Plant.

Three Bulgarian Black Sea municipalities - Burgas, Pomorie, and Sozopol - have voted against the pipe in local referendums over environmental concerns.

Municipalities neighboring Pomorie and nearby Burgas are also harboring fears that the pipeline could damage their lucrative tourism business, while environmental NGOs have branded the existing plans to build an oil terminal out at sea a disaster waiting to happen.

Key Bulgarian Projects Seem to Be 'Off the List' for Chevron, Westinghouse

Two potentially major energy projects in Bulgaria – the Burgas-Alexandroupolis oil pipeline and new reactors at the Kozloduy NPP – appear to be "
off the list"
for leading US companies Chevron and Westinghouse, Bulgarian Ambassador to USA Elena Poptodorova and US Ambassador to Bulgaria James Warlick have indicated.

After a visit to the USA in April 2010, Bulgaria's Economy Minister Traikov said Westinghouse would be interested in a project to build a 7th and even an 8th reactor at Bulgaria's Kozloduy Nuclear Power Plant. Traikov has talked numerous times of building new reactors at Kozloduy but the government has not announced any official tenders yet.

While numerous unofficial reports have indicated that major American companies such as Chevron could be interested in buying stakes in the future Burgas-Alexandroupolis oil pipeline, a Russian-Bulgarian-Greek project for transiting crude Russian oil from the Black Sea to the Mediterranean, the two senior diplomats have indicated their understanding that the realization of the pipeline is in question over environmental concerns, which would rule out Chevron's potential participation in it.

Poptodorova has expressed optimism with respect to large-scale energy projects in Bulgaria pointing out the fact that the Bulgarian government just recently selected HSBC as a consultant for the construction of the Belene Nuclear Power Plant, and that "
following consultation with the EU Energy Commission, the Bulgaria-Russia government agreement on the 'South Stream' gas project will have to be amended in order to incorporate a text about the supremacy of the EU law over any other legal arrangements."




RESOURCE EXPLORATION in Bulgaria: Sitting on a Sea of Oil and Gas?

Bulgaria Announces New Bids for Oil and Gas Exploration

In December, the Bulgarian government announced Thursday three new bids for exploration for oil and gas in the northern parts of the country.

Bulgarian legislation has it that companies must compete to get a permit to either explore or produce undergroun natural resources. Of the three new territories open for prospecting, two are in the northeastern and one in the northwestern part of the country.

In November, the Cabinet said it was planning 6 new tenders for natural gas exploration permits in the near future. This information comes in a context where shale gas - a novel approach of extracting gas dissolved in clay-like rocks - is becoming popular in Bulgaria.

This far two companies involved in shale gas production - Direct Petroleum and Park Place Energy - have received permits from the government. Major US company Chevron has also been expressing strong interest, backed by US ambassador to Sofia James Warlick.

Direct Petroleum has already announced a sizeable shale gas discovery and might start production at a smaller site by 2011.

Major Companies Find Bulgarian Black Sea Oil Bid Unattractive

Major oil companies such as Total and Anadarko did not find the bid to explore for oil in the Bulgarian Black Sea attractive. The bid was announced in March 2010 in the Official Journal of the EU for exploration in Bulgaria's southern Black Sea sector (so-called Silistar block).

The contest was initially thought to be exciting, with major companies like Total, Statoil, and Americans Anadarko expressing interest. But in the end, only four smaller companies actually applied. There were different reasons brandied by Bulgarian media for this development, including deadlines that were allegedly too short for a major companies, or the geological terrain being not the right kind.

According to Diana Yaneva, director of the Underground Resources and Concessions Directorate at the Bulgarian Ministry of Economy, Energy and Tourism (the entity in charge of bids for exploration and drilling permits), who spoke to this site, the actual reason was that the area did not seem lucrative.

The Silistar block had not been adequately carved out and as a result is non-homogenic, as it includes both shelf and deepwater areas. She specified that the officers responsible for this error have been fired from the ministry. Among the companies who applied is Overgas, a Gazprom-controlled Bulgarian gas distribution company, which has already ventured in gas prospecting and drilling. Another is Prouchvane i Dobiv na Neft i Gaz (PDNG), the heir to the old state-owned oil and gas communist-era company, which is the largest – and until recently the sole – Bulgarian extractor of hydrocarbon fuels (and is owned by the Chimimport conglomerate).

UK JKX Oil &
Gas Spuds Shkorpilovtci Well in Bulgaria

Britain's JKX Oil &
Gas said the Shkorpilovtci South West R-01 exploration well in east Bulgaria spudded successfully on October 17. The company noted that the well is targeting an amplitude supported channel sand complex of late Eocene age. Prospective resources for this feature are estimated at 20-30 Bcf (gross). Earlier this month the British company, operator of the B1-Golitza license in Bulgaria, announced it has plugged and abandoned the Staro Oryahovo South R-01 exploration well in the eastern part of the country. The company started at the beginning of September a two-well drill program in the country to test targets with an estimated resource of up to 60 billion cubic feet (Bcf).



ELECTRICITY Production and Distribution;
Thermal Power Plants

Bulgaria's Largest Thermal Power Plant under Investigation

The second biggest energy company in Bulgaria, the Maritsa East 2 Thermal Power Plant, has come under investigation for law violations, according to Plovdiv's Regional Prosecutor's Office. The violations have allegedly cost millions of Euro to the Bulgarian state. A reason for the investigation is reportedly the deal between Maritsa East 2 and the Japanese company Mitsui, which should have rehabilitated the plant's 4 older power units.

Due to a delay in Mitsui's work, though, the plants former executives had to pay a EUR 8 M forfeit. Maritsa East 2 is the largest thermal power plant in the Balkans. It has a total installed capacity of 1,465 MW and generates 30 % of Bulgaria's electricity. Maritsa East -2 consists of eight generating units, two of which are equipped with flue gas desulphurization plants. Maritsa East 2 is wholly state-owned. It is a subsidiary of the Bulgarian Energy Holding.

Bulgarian Govt Proceeds with Shutdown of Tycoon's Thermal Plant

In the fall of 2010, the Bulgarian authorities closed down most of the troubled thermal power plant Brikel owned by controversial energy tycoon Hristo Kovachki in accordance with a government plant to shut the plant because of its lack of sulfur purification facilities as required by EU law.

After the several hundred workers of the plant located near the town of Galabovo in the Maritsa East thermal power complex staged protest rallies in October, once the fate of the facility became clear, the government made an agreement with the trade unions to allow a part of the Brikel TPP to function for six more months in order to provide heating for the local communities during the winter and to preserve the respective number of jobs for a while longer. Thus, two of the six units of Brikel will be allowed to function until April 30, 2011.

The government closure of Brikel is an administrative measure undertaken in accordance with the complex permit that the plant got in 2006, in which its management committed to fulfilling Directive 2001/80 of the EC. It allows the plant to function for 20 000 hours without sulfur filters.

The inspection of the state has shown that the Brikel management failed to invest in the respective environment-friendly facilities, and that by June 2010, it had functioned without any for 21 000 hours. On October 20, the state terminated all coal supplies to the Brikel thermal power plant.

After talks between Kovachki, the ministries of environment and economy, and trade unions, the Cabinet has agreed to extend the operation of the plant by 6 months in order to provide central heating for the town of Galabovo over the winter. As a result of the talks, the government agreed to called up a meeting of the 137 companies in the country with carbon dioxide quotas, in order to work out a compromise for allocating additional quotas to Brikel. The representatives of the companies, most of them private, however, refused to back a compromise plan saying that Kovachki's firm should have done the required investments when it was urged to do so.

Brikel EAD was set up on 30 June 2000. The Company has been created by integration from "
Briquette production plant"
EAD and "
Maritsa - East 1"
Thermal Power Station EAD.

Brikel is owned by Bulgarian energy tycoon Hristo Kovachki, who has been investigated for tax evasion. In 2008, Kovachki, in his capacity as an informal leader, set up a political party called LIDER, with the former CEO of Brikel, Kancho Filipov, becoming its chair. In 2009, LIDER came close to making it to the Bulgarian Parliament amidst allegations that the management of the plants owned by Kovachki pressured the workers to vote for the party.

B