Energy Union: view from Sofia

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Following the announcement of the shared Polish-French idea to develop an EU Energy Union, we’ve asked ECFR  staff from Berlin, Rome, Sofia, Warsaw, and Madrid, to contribute to our “View from the capitals” series. How do the different member states view the proposal? Are the governments going to support it? 

In principle, Bulgaria should be amongst the leading beneficiaries from the proposed Energy Union considering that it is currently paying top dollar on long-term contracts with Gazprom, its exclusive supplier (on average, $501 per 1,000 m3). Similar to Poland, it finds itself dependent on Russia but even more so given the limited interconnectivity with neighbours: Romania is the only one providing an extra cross-boundary line, but it is not, however, operational at this stage. Interconnectors with Greece and Turkey, yet to be completed, would allow Bulgaria to tap into Azeri gas as well as Liquid Natural Gas coming through the Mediterranean. Any initiative that will bring prices down and advance gas-to-gas competition is more than welcome. 

However, it is more than doubtful that the current government has the sufficient will to play hardball with Moscow. It has gone out of its way to push for the South Stream gas pipeline, picking a fight with the commission of late over legislative changes that clash with the Third Energy Package. Furthermore, little investment has been allocated to upgrade existing storage facilities and build new ones as a way to deal with a potential gas crisis. Finally, exploration in the Black Sea has so far failed to prove the presence of sufficient reserves, which is needed to kick start full-blown extraction activities.

To cut a long story short, the prevalent mood in Sofia favours the status quo and is averse to bold initiatives along the lines of the Energy Union. The chief opposition party, the centre-right Citizens for the European Development of Bulgaria (GERB), has not come out strongly in support of it, though it has signalled that it might embrace the plan in the future. The Reformist Bloc, a liberal/centre-right coalition, is the only political force that has placed Polish Prime Minister Donald Tusk's plan at the core of its campaign for the European elections, no doubt with a view of using it once more should early general polls ensue. There are a lot of vested interests that want to see the implementation of the South Stream project and the rent opportunities that would come with it. The state budget has already set aside €100 million for the joint company with Gazprom tasked with building the Bulgarian section at an estimated cost of €3.5 to 4 billion. 

Beyond gas (which accounts for only 10-12 percent of electricity generation), Bulgaria is dependent on Russian oil supplies (Lukoil being the owner of the country's main refinery and one of the largest companies around) as well as nuclear fuel. Though oil is tradable on the global spot market, dependence on nuclear technology and fuel is overwhelming given that the power plant at Kozloduy is very much at the heart of the energy system accounting for roughly one-third of the energy mix. Sofia is furthermore under pressure from Rosatom over the arbitration case that the Russian firm launched following the government's decision to walk out from a deal to build a second power station. Paying a hefty indemnity to Rosatom is a likely scenario. 

In other words, even with the Energy Union in place, Bulgaria will continue to depend on Russia. The National Electricity Company (NEC) is in dire straits, on the edge of bankruptcy, largely due to the €2 billion already invested in the second power plant project at Belene. NEC may go under should Rosatom win the case. The only way out is comprehensive reform, including a price increase. Checking Russia's extensive role in the Bulgarian energy sector is a necessary condition for progress but not a sufficient to improve matters dramatically in the European Union's poorest member state. 

This blog is part of a series of views from the capitals on a European Energy Union. You can find the whole collection here.

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