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investment projects in power generation
In June
we witnessed the most significant investment event since
the start of the reforms. The state-owned National Electricity
Company (NEK) negotiated with AES the construction of new
generation capacity at Maritsa East 1 (ME1) worth about
$ 900 m and with Entergy the rehabilitation of Maritsa East
3 (ME3) power plant worth about $ 470 m, both based on lignite.
The NEK will purchase the power generated by ME3 for about
18 years and by ME1 for about 15 years, respectively.
The
press buried the news at the bottom pages and mixed it up
with charges of corruption, clear disappointment that "our
guys" missed the commission, and by quoting mainly opponents
of the deals, failed to perceive the importance of the event.
Due to the politicization of the 'pros and cons' during
the election campaign IME would like to indicate the major
criteria for evaluation of projects of such type:
1. At
present, ME1 and ME3 are the only negotiated intention for
investment in Bulgarian power generation.
2. Any
judgment upon "high" or "low" price has meaning only in
comparison. The more arguable project of AES won a competitive
tender with lowest bid price, i.e. all other potential investors
offered higher prices.
3. There
is no transparency on costs of generation in existing plants.
For example, politicians and experts mention prices as low
as 1.6 cents per kilowatt in hydroelectric plants and 2.6
cents per kilowatt in thermal plants. There are strong reasons
to believe that such rates reflect only current variable
costs.
4. The
forthcoming liberalization of the energy market might put
doubts on the economic rationale of long-term fixed-price
contracts by the state company. However, if the next governments
strictly apply existing legislation, cancel the indirect
subsidies from the budget and state monopolies, and through
"soft" implementation of environmental regulations, both
projects may appear highly competitive.
5. The
actual start of the investment will be probably in 4 or
6 months. The direct effects will be visible next year and
during the next 4 year period. The current account deficit
will not be financed though due to expected import of equipment.
Another investment in Maritsa East 2 however will cover
the deficit this year. This is the rehabilitation of the
filtering equipment (worth BGN 110 m), which will reduce
sulfur oxide emissions by 90%.
The
important outcome must be sought somewhere else: an alternative
to Nuclear Power Plant in Kozlodyi will be financed, electricity
export to Turkey and other countries is secured, this investment
will add about 1/20 of total environmental protection costs
agreed upon in international contracts and EU. Last but
not least, both projects are in fact transfer of technology,
knowledge and skills.
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