Bulgarian Energy Projects Dependent on Financing, Safety

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Two major Bulgarian energy projects have been delayed and reassessed due to cost and safety concerns. In talks with Russia, Bulgaria’s construction partner for the projects, the two parties discussed whether to speed up an oil pipeline project and whether to delay construction of a nuclear power plant.

The first project is an oil pipeline that would run from Bulgaria’s Black Sea port of Brugas to Alexandroupolis, Greece, in order to bypass the crowded shipping passage of Turkey’s Bosporus strait. Russian Energy Minister Sergei Shmatko stated he hoped to get the project underway soon, despite delays due to safety concerns and financing. Although the Bulgarian government worried that an oil spill in the country’s resort region would harm both the environment and its tourism industry, Shmatko asserted that all international safety standards would be met. However, Russia also has concerns about the project, mainly because Bulgaria has not yet paid its share of the investment capital for the project. Bulgaria claims it will meet its financial obligations, but Russia is hesitant to continue with Bulgaria as a shareholder in the project without concrete financial assurances.

The second energy project, the Belene nuclear plant, would be located in northern Bulgaria near the Danube river. Bulgaria has until June 1 to determine whether to progress on the current building contract with Atomstroyexport, a Russian state nuclear company. If Bulgaria backs out of the project, it could owe 600 million Euro in damages to the Russian company. Bulgaria has several reasons to scrutinize the deal. First, Bulgaria is already heavily dependent on Russia for its energy needs, and this project would deepen that dependency. Second, the price of the building project has fluctuated and Bulgaria is concerned that it may not be able to afford the Russian company’s current price estimate. Originally, the parties contracted for the building at 4 billion Euro. Currently, Atomstroyexport is pricing the project at 6.3 billion Euro due to rising inflation in Russia. Bulgaria, however, refuses to pay more than 5 billion Euro for the plant. If Bulgaria does not agree to the higher price, the Russian firm plans to resort to arbitration to force Bulgaria to uphold its contractual promises. Third, Bulgaria has asked for a three-month postponement to more carefully analyze safety concerns. Both parties have pledged that the facility would meet all international safety standards. However, safety of nuclear facilities was highlighted recently after the Japanese earthquake and tsunami damaged several nuclear facilities. Specifically, the Fukushima Dai-Ichi nuclear complex in Japan suffered an explosion and a subsequent radiation leak, leading many around the world to question whether more nuclear facilities should be built if they are vulnerable to natural disaster.