Economic Policy Review ISSN 1313 - 0544

The Mutation of Belene: A Beggar on Horseback

Author: Krassen Stanchev* / 09.05.2012
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March is not a good month for NPP "Belene" 


Background and results

In late February and early March 1990 the population of Svishtov started protesting against the nearly completed plant. The government of Lukanov realized that there were not enough money to finish building it and a team of the Bulgarian Academy of Science (BAS) undertook a project assessment, the conclusion of which was negative.

On March 12th, 1991 the Committee on Environmental Protection of the Grand National Assembly adopted a statement that the project is hazardous from an environmental and economic standpoint. Later in August the Government of PM Popov froze "Belene". In March 2007 the Economics Institute of BAS issued a statement that "the completion of "Belene" is not necessary." On March 28th, 2011 a working group of the Institute for Market Economics published its analysis showing that "Belene" is an unnecessary, expensive and risky plant[1]. Today, one year after publication of our report, the Government of Borisov decided to stop the project, again for economic and fiscal reasons.

As a participant in all of this and head of the IME working group, I cannot hide that I feel a certain intellectual satisfaction. I owe gratitude to my co-authors: Kostadinova, Bosev, Kaschiev, Lakov, Raikov, Tsvetanov and Chobanov, as well as to the colleagues from the IME. The responsibility for the statements in the report is, of course, entirely mine.

Our statement was practically confirmed by the Institute for Energy Management, by the former Deputy Minister of Atomic Energy of the Russian Federation and current director of the Institute for the Study of natural monopolies[2], by the developments in the economy and the energy sector of Bulgaria in the past year and, finally, by yesterday's decision of the Council of Ministers.

I expect the report by HSBC to highlight a project cost and a cost of electricity production at what seems to be the already scrapped "Belene" project that is either equal to ours or is even more unacceptable. Technically speaking, our assumptions were conservative, in favour of the image of "Belene": we assumed an investment payout period that was twice as long and didn’t include the increased costs due to the economic conditions in the aftermath of "Fukushima", delay and corruption.

Ultimately, however, the positive aspect of today's decision is limited to the fact that direct losses from "Belene" for Bulgarian citizens have been limited to 2 billion leva instead of the likely 4-5-6 billion.

 

The Mutation

At first glance, the ugly caterpillar "Belene" has transformed into two beautiful butterflies – a steam-gas plant at the site and a new unit at NPP "Kozloduy". But these two butterflies are only painted on the ceiling of the imagination of the government.

First, none of these ventures is necessary in terms of the energy balance of the country.

By 2020, the energy production surplus will be 15.3% and by 2025 - 16%. On the one hand, this is a reasonable reserve, and on the other it is an export opportunity that will be exploited by several Bulgarian companies. These firms are mainly politically connected with the BSP. But they want more and this explains the support of politicians of that party (and before that, those of National Movement for Stability and Prosperity) for extensive development of the Bulgarian energy sector and the initiation of "Belene". When the ruling party, Citizens for European Development of Bulgaria continues the same policy, and while the rightist Union of Democratic Forces admires the decision taken yesterday, it actually protects the interest of these same companies and several service providers for the new projects.

The new capacity of a 7th unit at the Kozloduy N-plant will be baseload capacity and is not necessary.  At present the baseload power capacity of the Bulgarian electricity system is about 70%, and this is a problem for its management and efficiency. The steam-gas power plant will be on top of all that and is, therefore, not needed: such are "Tsankov Stone" and "Gorna Arda" (which this government criticizes as expensive).

Second, the negatives of "Belene", although less than the ones likely to have been faced in case of the completion of the project will still be paid by the Bulgarian citizens and consumers of electricity. This will inevitably happen due to the simple fact that NEC will have to pay the remainder of the deliveries by Atomstroyexport and will have to pay back the loans. This cannot happen in any other way except by raising the money through electricity prices.

When considering the direct losses of "Belene" to date, we should also add the not-that-obvious opportunity cost of not having upgraded the thermal power plants that use local resources as input. It is a question of the deliberate omission and improper actions of the past and the present governments in regard to "Brickel", "Bobov Dol" and "Varna". Their total capacity is equal to the estimated power of "Belene" and their eventual upgrade to meet EU standards for emissions would be equal to 10-20% of resources wasted so far on "Belene". (If "Brickel" may well be closed, the other two have power capacity of 1900 MW.)

Third, following yesterday's decision the Bulgarian and Russian companies that have a direct interest in the realization of the "Belene" project win two new toys instead of one. These are two major projects. A nest for the new reactor will have to be built in "Kozludui", which will cost almost as much as "the bog" in Belene. And the new plant there would require pretty much the same infrastructure as NPP "Belene". This will be paid by NEC, i.e. the users of electricity.

Much like the two previous governments, the current one seems to believe it has found something like an eternal engine: you start big projects, mobilize contracts, companies and funds, then shut them down because they are costly to the economy, and then start new similar projects all over again. What the majority of Bulgarian citizens and businesses receive is a pair of plants.

Fourth, if these two projects are implemented, the Russian companies and their friends will remain in business, the Bulgarian energy sector will find itself in greater dependence and Bulgarian consumers will not get lower gas prices neither by the exclusive supplier Gazprom, nor by Botas (the Turkish analogue of Gazprom). The reasons are so obvious that do not have to be explained.

 

What is to be done

Article 45, paragraph 2 of the law on the safe use of nuclear energy requires the decision on a new nuclear power be taken after evaluation of the "nuclear safety and radiation protection, environmental impact and physical protection", the "socio-economic importance of building a nuclear power plant for the country or for separate regions " and the "radioactive waste and spent nuclear fuel, which result from NPPs operations and their management." These requirements were not met in regard to NPP "Belene", especially the second of them. The same general requirements for the analysis of public benefits and expenditures apply for each steam-gas power plant. Any breach of these procedures will create doubts among potential investors.

Yesterday's decision is realistic when compared to the harmful "Belene" half-solutions of previous governments, but is equally unrealistic and unreasonable in regard to the governments’ own ventures, as were the approaches of PMs Simeon Saxe-Coburg Gotha and Stanishev. For independent observers, this is evidence of a full and purposeful chaos in the management of the Bulgarian energy sector.

However, the situation is still correctable. Here’s what should be done:

  • Taking inventory of the capacity;
  • A new realistic energy balance;
  • Upgrading the existing coal-fired thermal power plants, investment in plants with local resources, including a new 500-700 MW power unit at the “Maritsa East” and modernization of the hydropower energy plants;
  • Lifting the moratorium on exploration for shale gas, reconsidering the current priority given to the steam-gas power plants with supplies from Gazprom;
  • Diversification of gas supply lines (after Georgia was able to do so it is not clear why Bulgaria is not);
  • Desintegration of the Bulgarian Energy Holding (created because of "Belene");
  • Liberalization of the electricity grid and market.

These are the measures that should be implemented quickly instead of trying to speed up the toys of the ones who benefited from the system in the past.

 

*The author is manager of KS 2 Ltd. and Chairman of the Board of the Institute for Market Economics. This article was first published (shortened) in “Trud” newspaper on March 30th 2012.

 


[1] IME research: What Is to Be Done With NPP “Belene” (March 28th 2011)

http://ime.bg/bg/articles/izsledvane-na-ipi-kakvo-da-se-pravi-s-proekta-aec-belene-28-mart-2011

[2] See: Б.И. Ниматулин. Атомная энергетика России. Реальность, вызовы и иллюзии

http://www.proatom.ru/modules.php?name=News&file=article&sid=3572