Bulgaria, Russia Extend Belene NPP Deal by 3 Months, Russian Funding Mulled

Belene NPP's fate will largely be determined by its financial appraisal by HSBC. File photos

Bulgaria's National Electric Company NEK and Russia's Atomstroyexport, a subsidiary of Rosatom, have signed an annex extending by 3 months their contract for the construction of the Belene NPP, which should become the second Bulgarian nuclear power plant.

The new "Annex No. 13" to the 2006 contract between the two state companies was inked late Friday night, the Bulgarian Ministry of Economy, Energy, and Tourism announced Saturday.

The newly-signed document effectively provides the two parties with a deadline until September 30, 2011, to hammer out answers to questions related with the technical project for the Belene NPP, the market analysis by the project consultant HSBC, and further progress on the contract for construction and supplies, which is to be made more flexible to meet requirements by potential international investors.

However, it does not contain a commitment to a certain deadline for reaching a final construction deal. The greatest issue over which Bulgaria and Russia have been haggling for the past two years under the Borisov Cabinet has been the price of the project, with Russia insisting it should be no less than EUR 6.3 B, while Bulgaria is demanding a price of no more than EUR 5 B.

An interesting provision in the new annex to the Bulgaria-Russia Belene deal provides for the setting-up of a financial working group of the involved parties to clarify the conditions for funding offered by Russia.

This might signal a shift in the Bulgarian position as in the past three years, Russia, including directly through its state leader Vladimir Putin, offered Bulgaria funding for the Belene NPP on numerous occasions but both current Prime Minister Boyko Borisov and his predecessor Sergey Stanishev have dismissed such an opportunity.

In the last months of the Stanishev government in early 2009, Russian Prime Minister Putin offered Bulgaria a Russian state loan of EUR 4 B for the Belene plant, which Bulgaria's then PM Stanishev refused.

In late 2009, after the Borisov government took over, Rosatom offered Bulgaria a loan of EUR 2 B so that the construction can continue, in exchange for a stake in the future plant that the Bulgarian government could then buy out by returning the money. The offer was refused by the Borisov Cabinet which also made it clear it would construct the Belene plant only if an European (apparently meaning EU or Western European) strategic investor can be found. Under the existing non-binding agreements, the Russian government, in addition to constructing the Belene plant, might end up with a stake of 25%-50%.

The 12th annex to the main contract between Bulgaria and Russia on the construction of two 1,000 megawatt nuclear reactors at Belene, expired on June 30, 2011.

As time ticked away, Bulgaria faced an ever greater risk of being taken to arbitration by Russia's Rosatom and forced to pay EUR 1 B in damages.

The 12th annex to the Belene NPP construction contract triggered a huge scandal at the beginning of April after the head of the national utility company NEK Krasimir Parvanov signed an agreement with Rosatom's subsidiary Atomstroyexport that potentially threatened Bulgaria's national interests by obliging the Bulgarian government to reach a final agreement with the Russians on Belene by July 1, 2001.

Traikov slammed Parvanov and announced he is going to be fired, but the dismissal was later overturned by Prime Minister Boyko Borisov. Borisov harshly criticized the Energy Minister's hasty and emotional reaction and threatened him with being kicked out of office.

It turned out that Parvanov has coordinated his actions with Deputy Prime Minister, Simeon Djankov, who oversees finance and economy. The signed document stirred heated debates in Bulgaria as it came before the two sides agreed on the price of the project and conduct safety checks. Borisov gave Traikov "a final warning", Krasimir Parvanov was let go as CEO of NEK.

After it was first started in the 1980s, the construction of Bulgaria's second nuclear power plant at Belene on the Danube was stopped in the early 1990s over lack of money and environmental protests.

After selecting the Russian company Atomstroyexport, a subsidiary of Rosatom, to build a two 1000-MW reactors at Belene and signing a deal for the construction, allegedly for the price of EUR 3.997 B, with the Russians during Putin's visit to Sofia in January 2008, in September 2008, former Prime Minister Stanishev gave a formal restart of the building of Belene. At the end of 2008, German energy giant RWE was selected as a strategic foreign investor for the plant.

The Belene NPP was de facto frozen in the fall of 2009 when the previously selected strategic investor, the German company RWE, which was supposed to provide EUR 2 B in exchange for a 49% stake, pulled out.

In November 2010, shortly after a visit to Sofia by Russian PM Putin, Bulgaria's National Electric Company NEK and Russian state company Rosatom signed a memorandum providing for a final fixed price for the two reactors of EUR 6.298 B.

According to the non-binding memorandum expiring on March 31, 2011, Bulgaria's NEK will have a share of 51% in the Belene NPP, Rosatom – a share of 47%, Finnish company Fortum - a share of 1%, and French company Altran Technologies - a share of 1% with an option to increase it. Serbia has expressed interest in acquiring a share of 5%-10% but the talks for that have not been finalized yet.

In mid-March 2011, apparently acting on concerns caused by the situation in Japan's Fukushima NPP after the recent devastating earthquake there, the European Commission confirmed that it wants to reexamine the Belene NPP project - once Bulgaria finds an investor for it - even though it already approved it back in 2007.

In April 2011, the Bulgarian government formally signed a consulting contract with UK-based company HSBC (which won the tender in November 2010) for the financial analysis for the project for the construction of the Belene nuclear power plant. Bulgaria will be paying HSBC EUR 2 M for its services plus 0.95% of the end price of the Belene NPP if it is realized. This means that if HSBC declares the Belene NPP project to be economically feasible, and it is constructed, it will get a fee of EUR 47.5 M if the plant costs EUR 5 B.

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