Bulgaria, Alpine Bau Stike Deal on Problematic Hydro-Power Plant

The 80-MW Tsankov Kamak hydro power plant will cost the Bulgarian state budget about half a billion euro. Photo by BGNES

Bulgaria's National Electric Company NEK and Austrian construction company Alpine Bau sealed a deal under which the latter agreed to knock EUR 10 M off the price of the project.

The agreement was signed on Friday after negotiations spanned throughout the week in an effort on part of the Bulgarian government to reduce the state spending on the project, whose overblown cost it blames on the two previous Cabinets.

Under the agreement signed Friday, Bulgaria will still pay Alpine Bau EUR 16 M for the so called escalation costs (the Austrian company could originally claim EUR 10 M).

Thus, the total price of that the Bulgarian government will pay Alpine Bau for the 80-MW hydro-power plant in the Rhodope Mountain reached EUR 379 M, up from EUR 220 M planned two years earlier.

When additional infrastructure projects are factored in, namely a notorious expensive road, the total price goes up to about EUR 500 M.

The Tsankov Kamak hydropower plant is expected to be set into operation by the end of 2010.

"Bulgarians are lucky that we are managing to save some money from contracts such as this one for Tsankov Kamak. The price is high but we were facing a challenge – we either had to freeze the project and pay all defaults, or we had to pay additional BGN 100 M to finish it. We chose the second option," Bulgarian Prime Minister Boyko Borisov explained while not sparing his criticism of the project.

"Tsankov Kama will return the investment in 1000 years. This dam will certainly be a huge tourist attract, because it had a great consultant," Borisov declared apparently referring to Ahmed Dogan, leader of the ethnic Turkish party DPS. Dogan was tried and acquitted for conflict of interest as he served as a consultant to Tsankov Kamak and three other similar projects while his party DPS was part of the ruling coalitions before 2009, for which he received a fee of BGN 1.5 M.

Borisov said the Gorna Arda hydro-power cascade, also in the Rhodope Mountains, will be a cheaper project. For its realization, NEK has set up a 70/30 joint venture with Austrian company EVN but a construction company still has not been selected.

The Tsankov Kamak dam was supposed to be ready by the end of 2009. It is a project realized under a bilateral agreement between Bulgaria and Austria for the realization of the provisions of the Kyoto Protocol. According to Alpine Bau, the work of Tsankov Kamak will save about 200 000 tonnes of carbon dioxide emissions per year. The 80 MW plant will be producing 188 GW/h of electricity per year.

The hydro plant in the Rhodope Mountain near the southern town of Devin became notorious after Bulgarian Prime Minister Boyko Borisov visited the site in March 2010 and expressed his outrage at the fact that a 22-km road to the plant cost the state budget the staggering BGN 220 M. Borisov blamed the former governments, and most notably, the Socialists and the ethnic Turks for using the project to drain money from the state.

The outrage of the Borisov government at the situation that it uncovered with respect to state spending on Tsankov Kamak eventually culminated in an investigation and a suit against the leader of the ethnic Turkish party DPS (Movement for Rights and Freedoms) Ahmed Dogan for conflict of interest since Dogan, despite being a MP, was a consultant for Tsankov Kamak and three other similar projects, and received a fee of over BGN 1.5 M.

Interestingly, just as the Borisov government haggled with the Austrian construction company, a Bulgarian Court acquitted Dogan of the conflict of interest charges.

NEK CEO Krasimir Parvanov has announced that the state-owned energy company is considering seeking a new loan to finance the payments it has to make to Alpine Bau for Tsankov Kamak because the Austrian company has threatened to file suits over some delays on its part. This is largely the reason the Bulgarian government started "political" negotiations with Alpine Bau over the price.

The notoriously expensive hydro power plant is still expected to be started by the end of the year although any revenue that will come from its operation will be insufficient to cover the costs for its construction at least in the years to come.

NEK has already gotten an EUR 160 M loan from Credit Suisse for Tsankov Kamak. Since it is said to have been overburdened with investment projects in the past few years, NEK is unable to finance its due payments to Alpine Bau, and has asked its principal, the Bulgarian Energy Holding, to start a tender for a new EUR 50 M loan.

Parvanov said NEK has already started preliminary talks for such a loan with Credit Suisse and Bank of Austria but the two banks are said to be "twisting the arms" of the Bulgarian state company by demanding huge interest rates.

The NEK CEO said that the company might avoid having to seek a loan to finance Tsankov Kamak if it manages to increase its allowed overdraft from the Bulgarian banks keeping its reserves, and receives up to EUR 250 M that it expects to get from exporting electricity to Turkey starting at the end of 2010.

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