Bulgaria Rethinks Pro-Russian Energy Policy

Long one of Russia's most reliable energy customers, Bulgaria is now reconsidering its dependence in favor of diversifying suppliers and investors

By Boryana Dzhambazova

Bulgaria's energy minister recently likened his country's energy sector to the way English football used to be played – "with lots of energy, lots of running around the field, and comparatively little efficiency in achieving its goals."

It's been that way for a long time. Critics say that under the previous Socialist-led government, the industry's development was shaped more by the country's close bonds with Russia than by the needs of the national economy.

Finance Minister Simeon Dyankov recently said that until now Bulgaria's energy landscape has been dominated by the "anything Russia wants" principle.

Until, that is, a new government, installed after July elections moved recently to freeze the country's participation in three major projects dear to Moscow: a new nuclear plant in Belene, the South Stream gas corridor, and the Burgas-Alexandroupolis oil pipeline.

Although the Kremlin has urged Sofia to make a decision as soon as possible, the government is taking its time. Some analysts say it is also searching for a way to loosen Moscow's grip on its energy industry.

SECOND THOUGHTS

Bulgaria is extremely dependent on Russian gas and oil. In 2007 Moscow provided 92 percent of the roughly 4 billion cubic meters of natural gas delivered by Bulgargaz, the state-run gas monopoly. Bulgaria's Neftochim Burgas, the biggest refinery in the Balkans, is controlled by Lukoil (LKOH.RTS), and the country's Kozloduy nuclear power plant uses Russian fuel.

Bulgaria was one of the Soviet Union's closest satellites during the Cold War, and Sofia continued to nurture close ties with Moscow after the democratic changes in 1989. But those good relations with the Kremlin didn't help in January when Moscow cut off gas supplies to Europe for almost a month. The gas crisis hit Bulgaria hard, leaving tens of thousands of homes without heat and forcing local schools to close.

In the face of an economic downturn, the current cabinet has begun to scrutinize closely the costs and benefits of the three major energy projects.

The government intends to reduce its 51 percent stake in Belene, a project whose soaring costs the government estimates could reach 10 billion euros. Sofia's goal is to finance the Belene nuclear plant entirely by private funding, without state guarantees (although that approach could further entrench Russia, as investors from that country have shown interest in picking up the released shares).

Some experts insist that a new 2,000-megawatt power plant is unnecessary in any event.

"The construction of Belene is not justified, as there is no domestic need for such an enormous facility," said Ruslan Stefanov from the Center for the Study of Democracy think tank. Given that Bulgaria's demand for electricity is unlikely to increase, Stefanov said, it's not reasonable to build a second nuclear power plant just to export electricity.

Meanwhile, RWE (RWEG.DE), a key German investor in Belene, has walked away from a preliminary agreement it had with the previous government. The company, which had a 49 percent stake, withdrew due to the global economic crisis and delays in the project.

"The one and only investor in the project ran away. That goes to show there's no interest in Belene," said Martin Dimitrov, chairman of the parliamentary committee on the economy and energy and a member of the right-wing Blue Coalition, which warns that any further financial engagement in the project could cost the state its economic stability.

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