Bloomberg News

Ditching EU Atomic Project After Japan May Strand $2 Billion

October 26, 2011

(Updates with Rosatom CEO comments in 19th paragraph.)

Oct. 26 (Bloomberg) -- Bulgaria’s 30-year-old plan to build a nuclear power plant in an earthquake-prone area on the Danube may become the European Union’s first atomic project doomed by Japan’s disaster, leaving a $2 billion hole in the ground.

The EU’s poorest member faces a “mission impossible” to finish the Russian-designed plant because the Fukushima accident will require it to borrow an extra $2.1 billion for improved safety measures and insurance, according to a report by the research group Balkans and Black Sea Studies Center of Sofia.

“With additional billions of euros in debt, it will never take off,” Ilian Vassilev, former chairman of consulting firm Deloitte Bulgaria, wrote in the report. The center, founded by a group of economists and diplomats who fund their own research, predicted that no one will lend money to complete the project except for the main contractor, Russian state-run Rosatom Corp.

The findings may give Bulgaria arguments it needs to cancel the 2,000-megawatt plant in Belene without angering Russia, its chief supplier of oil and natural gas, analysts said. At stake are potential contracts or investments in Belene by Areva SA, Siemens AG, Fortum OYJ and Altran Technologies SA.

The March earthquake and atomic accident in Japan triggered safety probes across Europe, jeopardizing potential returns on capital and scaring strategic investors from Bulgaria’s twin- reactor project. European nations plan to publish conclusions of stress tests for their existing nuclear plants by year-end, which may reopen debate on safeguards against earthquake damage.

Fukushima Fallout

Some European nations opted out of nuclear power altogether after the Fukushima meltdowns. Germany canceled license extensions, shut down some of its oldest reactors and ordered the rest closed by 2022. Swiss lawmakers approved phasing out five plants by 2034. Italy permanently banned atomic power.

The Belene project is not without proponents.

“Bulgaria needs new nuclear capacity, and a project like Belene will guarantee the country’s energy security,” Sergei Stanishev, a former prime minister and leader of the opposition Bulgarian Socialist Party, told reporters last week in Sofia. “The longer the government puts off the decision, the higher will be the cost.”

Prime Minister Boiko Borissov’s 27 month-old government, which inherited the project from a Socialist-led administration, is testing whether it can successfully complete Belene and salvage the investment, or cancel it and gain more independence from Russia, Bulgaria’s traditional economic partner.

$2 Billion Hole

The state controls 51 percent of Belene and has spent about $2 billion so far, including preparing the site, doing safety studies and even having a reactor built that no longer suits the project. It has failed to find a Western investor because of delays in public funding, escalating disputes with Rosatom and the fact that electricity consumers pay below-market prices.

“We understand that the new government wants a fresh start, wants another analysis, another feasibility study,” Sergei Kiriyenko, CEO of Rosatom, the main contractor, said at a briefing on Oct. 24 in Prague. “But the longer we wait without making any decision the less profitable it gets.”

While Bulgaria set a March 2012 deadline to decide, no costs to complete the project have been published, nor have the terms of the contract been disclosed between Bulgarian utility NEK and Rosatom, which currently supplies nuclear fuel for Bulgaria’s only existing atomic plant at Kozloduy.

“Given the high degree of political risk, it would be a highly risky project to be involved in,” said Stephen Tarlton, an analyst at the trade group World Nuclear Association in London. Tarlton wouldn’t speculate on whether Belene gets built.

Staying Alive

Rosatom has tried to keep the project alive. The Russian nuclear services company offered to finance the entire project if the contract can be renegotiated by March 2012, Rosatom spokesman Sergei Novikov said in a telephone interview.

“The only chance for the Belene plant to happen is with Russian government-backed credit as a politically motivated investment,” Vassilev said.

Premier Borissov has said he’d welcome an opportunity to sell part of the government’s stake to a “strategic European investor.” The only potential EU partners Bulgaria has been able to attract are Fortum, Finland’s biggest utility, and French engineering company Altran. They agreed to hold 1 percent each in the venture if Bulgaria proceeds with Rosatom’s plan.

NEK and Rosatom have fought over financing after Rosatom inflated the initial price tag of 4 billion euros to 6.3 billion euros, blaming delays caused by the Bulgarian side. Bulgarians said they weren’t willing to pay more than 5 billion euros.

Arbitration Claim

Rosatom in July turned to the International Court of Arbitration in Paris, claiming 58 million euros for delayed construction payments. Bulgaria filed a 61 million-euro counter- claim for unpaid purchases of old equipment to the Court of Arbitration in Geneva.

“If the two companies find a solution -- good,” Rosatom CEO Kiriyenko said. “If not, the matter will go to court. Today we see Belene as a profitable project and we are ready to invest in it, but the longer we wait without making any decision the less profitable it gets. Our investment offer has its limits.”

Rosatom is “absolutely sure” that, if completed, the plant will be profitable, the executive said.

Opponents of the project have said Bulgaria’s previous government, controlled by the Socialists, chose the Russian supplier in 2005 without any regard for fair competition. The reactor design is obsolete, the costs are running out of control and the project is making Bulgaria even more dependent on Russia for energy supplies, said Ognyan Minchev, the director of the Institute for Regional and International Studies in Sofia.

1977 Earthquake

“This project was developed without any consideration for our national interest or the broader political and strategic interests of our European allies,” Minchev said in a telephone interview. “The nuclear reactors proposed were developed 20 years ago. Why are we buying them?”

The proposed pressurized-water reactors, licensed by Russia, would be installed 14 kilometers (9 miles) from a village where more than 100 people died in a 7.2-level earthquake in 1977 whose epicenter was in Romania. While the site was declared safe by the Bulgarian nuclear regulator and approved by the EU in 2008, Fukushima may change the game, the regulator’s chairman Sergey Tzotchev said in an interview.

“There are no operating reactors with this exact design,” Tzotchev said. “We need more time to see everything, to discuss everything.”

March Deadline

The NEK and the prime minister’s office referred calls to Energy Minister Traicho Traikov, who has said the government will make a final decision after running EU-compliant stress tests and having the project’s viability assessed by HSBC Plc. The government won´t move until the March 2012 deadline for negotiations with Rosatom, he said.

“I don’t really believe that this project will go forward under the conditions which the previous government agreed to with its Russian partners,” Mark Hibbs, an analyst at the Carnegie Endowment for International Peace in Berlin, said in an e-mail Oct. 22. “Some observers in the nuclear financing and project management field believe that the present Bulgarian government would prefer to walk away from this project.”

--Editors: Todd White, Will Kennedy

To contact the reporter on this story: Ladka Bauerova in Prague at lbauerova@bloomberg.net Elizabeth Konstantinova in Sofia at ekonstantino@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net James M. Gomez at jagomez@bloomberg.net


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