Fighting words: Bulgaria talks tough on Russian energy projects

Written by on September 13, 2012 in Bulgaria, Business, News, Perspectives - No comments

Vladimir Putin raised quite a few eyebrows when his last foreign visit as president of Russia in 2008 was to Bulgaria, when he sealed agreements for three major energy projects that would have further extended Moscow’s influence on Bulgaria’s energy sector. Four years later, back in the presidential office, one of his first visits abroad is once again to Sofia to salvage those very same projects.

Putin is scheduled to visit Sofia on November 9 and officials in Sofia are getting worked up for the meeting in the aftermath of Atomstroyexport increasing on September 13 its damages claims against Bulgaria – for equipment ordered for the shelved Belene nuclear power plant – to one billion euro.

Finance Minister Simeon Dyankov was the first to adopt a scathing stance on the issue, saying on September 12 that Atomstroyexport’s claims were “laughable”, the result of the company’s lawyers prodding.

“We know them, they’ve lost quite a few lawsuits in Europe and they will lose another one if they decide to engage in court litigation,” Dyankov told BGNES news agency.

“The case is clear and Atomstroyexport owes us a lot of money. We hoped to clear the issue with negotiations, but if they are indeed intent to take this road, we will demolish them in court,” he said.

Atomstroyexport lodged its claim, initially for 58 million euro, in an arbitration court in Paris last year. At the time, Sofia quickly countered with its own lawsuit in an arbitration court in Geneva, demanding 61 million euro for old equipment from Belene, dating back to the 1980s, when work on the plant was frozen half-way after the fall of communism. This equipment was sold to Atomstroyexport but has not been paid for, state electricity utility NEK, which owns the project, said.

“I don’t believe that this suit will make it to court, I think this is a typical Russian attempt to employ scare tactics. We’ve proven in the past that we are not easily scared – neither by specific companies, nor the energy giants. If need be, we’ll come to blows,” Dyankov said.

Unlike in the past, when occasional outbursts against a Russian company by a cabinet minister were to be tempered later by a more conciliatory tone from Prime Minister Boiko Borissov, this time Dyankov’s words were only reinforced by the prime minister.

On September 13, Borissov said: “I sincerely hope that president Putin did not know about this action, because if he did, then his welcome to Bulgaria on November 9, when we have to sign the South Stream agreement, will be far from pleasant.”

Borissov’s revelation that Bulgaria has all but agreed to push forward its participation in the South Stream gas pipeline has been interpreted by some local observers as an attempt to secure Moscow’s acquiescence to drop Belene in favour of forging ahead with the one joint project that Russia cares about the most.

South Stream is meant to pump up to 63 billion cubic metres of natural gas (at maximum capacity) via the Black Sea and South-Eastern Europe, bypassing Soviet-era pipelines on the territory of Ukraine. Moskow and Kyiv have often clashed about gas prices over the past decade, leading to suspended deliveries to Central and Western Europe in the winters of 2006 and 2009.

Securing alternative routes for Russian gas to Europe remains a key objective for Moscow even with the more friendly Ukrainian president Viktor Yanukovich in office – more so than making Belene a showcase for Russian nuclear engineering with a view of expanding its business in the European Union.

(The third project, a oil pipeline bypassing the Bosphorus between Bourgas and Alexandroupolis in Greece, has been abandoned by Bulgaria in December, the cancellation raising only minor shackles from Russian companies, already busy exploring other alternatives.)

“I think it was completely treacherous – and I am using their own war-time terminology – the way they surprised us with this suit,” Borissov said. “I think it was a mistake because now we will make every effort possible to void the contract,” he said, referring to the deal that allowed Atomstroyexport to purchase the existing equipment on the Belene site for just 200 million euro.

Unlike last time he visited Sofia as president, Putin will be lacking a key ally in the Bulgarian presidency – former socialist leader Georgi Purvanov had tirelessly advocated the joint projects with Russia, which he had described as “the energy grand slam”. His place is now taken by Rossen Plevneliev, who unlike Purvanov, is a close ally of Borissov.

Plevneliev too made his opinion on the issue known, although he did strike the most diplomatic tone. “To stay good friends, we define our interests clearly and seek to have contracts. Those that poured billions in without contracts – well, you can see the result,” he said, referring to the socialist-led tripartite coalition that preceded Borissov’s government.

During its term, the coalition spent more than one billion leva on clearing the Belene site of old equipment (often drawing accusations from the opposition that the lucrative contracts were handed to companies close to the parties in power), but failed to sign a final contract with Atomstroyexport for Belene.

The existing contract requires Atomstroyexport to build two 1000MW reactors at Belene for a fixed price of four billion euro, but contains no inflation escalation clauses – these have been the constant stumbling block in negotiations between Moscow and Sofia. In the meantime, with financing uncertain and no strategic investor willing to take a significant minority stake in the plant (Germany’s RWE withdrew as the start of construction kept being postponed), consultants HSBC, hired by the Bulgarian Government, estimated the cost of construction at more than 10 billion euro.

“Good friendship means a good deal for both sides; as it is often said – not brotherly, but fairly. That’s what we want, a fair deal. Bulgaria wants to be a good partner, Bulgaria defines its goals clearly and wants them to be put down in detailed and clear contracts,” Plevneliev said on September 13.

“Real friends do not blackmail each other. Real friends put their projects on the table, put their issues on the table and solve them. Real friends do not raise their damages claims by a factor of 20 using the media and [European institutions],” he told Bulgarian National Radio.

The statements of the past two days are by far the toughest stance taken by the current Government against the Russian energy projects – despite showing lukewarm support at best, the reviews promised during the 2009 election campaign yielded tangible results only in 2011 (when Bourgas-Alexandroupolis was officially shelved) and 2012 (when Belene met a similar fate).

But these are unlikely to mark a complete break-away from Moscow’s influence – Bulgaria still remains largely dependent on Russian energy supplies, most important among them natural gas. Bulgaria’s current gas deliveries deal with Gazprom expires at the end of the year and Sofia is yet to sign a long-term contract. Projects to decrease over-reliance on Russian gas are still in the works – like the gas grids link-up with Romania, scheduled to be completed next year, and a similar project with Greece, which is yet to start.

In the end, the current hardline stance may yet prove to be more bark than bite.

Update: Vladimir Putin’s spokesperson Dmitriy Peskov said on September 13 that there is no “fully confirmed” visit to Sofia on Putin’s foreign trips agenda, Russian news agency RIA Novosti reported. Peskov said that “contacts via diplomatic channels would continue”.

(Vladimir Putin, left, then prime minister of Russia, last visited Sofia in November 2010, meeting his Bulgarian counterpart Boiko Borissov, right, to discuss a host of issues, including the future of South Stream gas pipeline. Photo: government.bg)

Comments

comments

About the Author

Alex Bivol is the news editor of The Sofia Globe.