Russia rumoured to be pulling out of Bulgaria’s Belene nuclear power plant

Nuclear plant Belene, Bulgaria

Publish date: February 8, 2011

Written by: Charles Digges

Rosatom, Russia’s state nuclear corporation, is said to be dropping Bulgaria’s environmentally controversial Belene nuclear power plant project, one of the company’s many foreign projects, due to an internal letter sent by the company’s marketing and development director.

But neither Russia nor Bulgaria will, at the moment, go on record about whether the nuclear power plant will move forward, press reports indicate.

Rosatom and Bulgarian power utility NEK last month signed a memorandum of understanding to set up a project company to build the Balkan country’s second nuclear plant in Belene. Two reactors, each with capacity of 1,050 megawatts, were planned.

Interfax said the head of Rosatom’s marketing and business development department, Alexei Kalinin, wrote in an internal letter that Rosatom subsidiary Atomstroyexport may sue NEK after a failure to sign documents needed to begin construction work in September 2011.

“NEK’s management is reluctant to sign an appendix to the contract, despite an earlier reached agreement to sign it in December 2010,” Interfax quoted Kalinin’s letter as saying.

According to Interfax, Kalinin alleged in his letter that the Bulgarian government deliberately created an atmosphere of uncertainty around Belene, undermining investors’ confidence, and added that he did not expect any changes in such policy. At odds with that assertion, however, has been Russia’s reluctance to actually name a price for the plant.

How much is Belene supposed to cost?

Yet as recently as November, it was difficult to see what Russia was offering NEK to sign. At a protracted press conference with Bulgarian Prime Minister Boyko Borissov, Russian Prime Minister Vladimir Putin refused to name the end price for the project, and evaded several direct questions to do so.

In 2009, Rosatom head Sergei Kiriyenko had said the price of the plant would be €3,339 billion, and that the price was “not subject to change.”

However many observers noted at the time this price was unrealistically low – almost exactly a third of the €10 billion price tag that is most likely attached to the plant. But as Putin’s behaviour at the November press conference made clear, Russia was not about to pull the curtain back to reveal this figure, and thus scare off its economically struggling potential customer.

It is not an uncommon practice for Russia to offer nations extended credit on plants that it cannot possibly pay for in order to keep a tight political leash on neighboring states, as evidenced by the Armenia Nuclear Power Plant. In this case, the Russian built plant in the Caucasus state of Armenia had trouble coming up with funding for fuel. Russia provided a batch of fuel on loan, and then another one. Then came the time to make good on the debt – and Armenia was unable to settle.

Now, the Armenian Nuclear Power Plant is in reality controlled by Russian, and Armenian in name only.

A similar situation is unfolding in the former Soviet republic of Belarus, where Russia late last month announced it would build a nuclear power plant in the city of Ostrovets, 45 kilometres from Vilnius. 

Kiriyenko said a $6-7-billion credit agreement from Russia is likely to be inked in June.

But a financial outlay of this magnitude is simply implausible for Russia at the moment, noted Vladimir Slivyak, co-chair of the powerful Russian environmental group, Ecodefence.

Yet the scenario in play in Belarus is likely the same one witnessed in Armenia. Belarus will receive lavish credits, only to find it  pockets a bit to shallow to pay them off, thus forfeiting real ownership of the plant to Russia.

Cancelling Belene brings more immediate cash than would long term profit

Interfax quoted Kalinin as writing that Bulgaria would pay Rosatom more as a penalty for cancellation of the project than the company would get in potential profit, and he recommended that the firm pull out.

A Rosatom spokesman who was not named told the Bulgarian daily Dnevnik that he would not comment on the letter as it was an internal document and the company has yet to decide whether to dump the project.

The proposed withdrawal would be considered a possibility only if Rosatom failed to sign its twelfth consecutive agreement with Bulgaria, Rosatom said.


Atomstroyexport saying Belene still on

Earlier yesterday, February 7, Atomstroyexport said in a media statement that it would proceed with the construction works on the project.

“After signing the necessary contracts, Atomstroyexport will be ready to start building the Belene power plant in 2011,” the company’s vice president, Gennady Tepkyan, said.

Bulgaria’s Economy and Energy Ministry declined to comment on what it called unofficial information, Interfax reported.

According to Interfax, Kalinin’s letter said Rosatom would then have to inform equipment suppliers to the project – Germany’s Siemens and France’s Areva – about cancellation of orders.

Zany economics could be to blame

Russia frequently has no economic notion of the cost of construction of a nuclear power plant. Because the Russian nuclear industry runs on state subsidies – both overt and implied ones – and because the promotion of Rosatom’s Russia-based and foreign nuclear projects is done for political purposes, the final pricing is an administrative, rather than commercial, matter, decided upon depending on the particular political situation at hand.

This often causes bewilderment in Russia’s foreign partners, who think that what they’re discussing with the Russian government has to do with economy and not politics. Rosatom’s project in the Bulgarian town of Belene is one such case. The NPP’s costs have already grown by two and a half times – and it’s not certain that they won’t keep growing.

Construction on the nuclear power plant near Belene was started in 1985 – when Bulgaria was still a Warsaw Pact country. The project was a controversial one from the get-go, with issues of both economic advisability and safety, including seismic risks, impeding its progress: In 1977, a severe earthquake some 14 kilometres off the planned site had killed over 120 local residents. In 1991, the year that the Soviet Union disintegrated and the entire Soviet empire crumbled, construction works were halted at Belene, and a final freeze was ordered on the project the following year. As it issued its decree to cease all works at the site, the Bulgarian Cabinet of Ministers called the nuclear power plant project “technologically unsafe and uneconomical.”

But come 2004, the Bulgarian government is rethinking its policy, deciding to resume the construction. In 2005, the government announces an international tender for the construction of two nuclear power units at Belene, and in 2006 Russia’s Atomstroiexport, whose proposal meets no real competition, wins the contract.

A construction agreement between Bulgaria and Russia was signed in January 2008. At the time, the contract, for two power-producing units of a capacity of 1,000 megawatts each, was valued at almost EUR 4 billion.  

The investment funds were to come from Bulgaria and Germany’s electric power and natural gas utility giant RWE, which held 49 percent shares in the project. However, in autumn 2009 RWE left the project, and Bulgaria – whose path after the breakup of the USSR has been largely similar to those of other former Communist bloc countries that had to undergo a painstaking recovery from the various after-effects of the Soviet economic legacy – was not prepared to bear all the costs the project will incur on its state budget. Russia has offered Bulgaria a EUR 2 billion loan to keep the construction going, but Sofia rejected the offer.

Project environmentally unsound

The economic issues are not the only problem the Belene site has been facing.  

The thought of having a nuclear power plant built to an as yet untested Russian project, and in an earthquake-prone area to boot, has caused vigorous public protests both in Bulgaria and in neighbouring states.

In 2004, environmentalists from some twenty countries – including activists from the Russian ecological group Ecodefense – launched a campaign against the construction and have since brought enough pressure on the project’s participants to compel a dozen of European private investment banks – including such heavyweights as Deutsche Bank, Commerzbank, UniCredit, Société Générale, Citibank, and Credit Suisse – to abandon the idea of financing the project.

In late 2010, a memorandum of understanding to form the Bulgarian based company that is supposed to build Belene was signed. It stipulated that the Bulgarian company would have a 51 percent stake in the new entity, while Rosatom would control 25 percent, and the remainder divided between French technology consultancy Altran Technologies and Serbia, with a once percent contribution, Dnevnik reported.