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There are so many problems embedded in Bulgaria’s oldest infrastructure veteran that it comes as a surprise that a new resuscitation attempt is undertaken. The government stubbornly insists it is obliged to continue, since a lot of money has been already spent – over BGN 3 billion. While true, the issue is still, if previous failed attempts have been a flop and decisions made so far found erroneous, why persist without a reasonable chance for a different outcome?

 

Why does Belene NPP remain a commercially unviable project?

 

First, nothing in the project’s economy has changed over the last ten years. Its costs have only increased. An estimate of the final tally cannot be made unless binding contracts are signed – construction, procurement, etc. The current project cost update will not account only for the usual inflation indexation but also incorporate increased costs associated with higher security standards, covering equipment and performance, higher labor costs, etc. With so many open variables in the cost structure, any strategic investor will have to dramatically increase the contingency provisions. For example, the cost of a nuclear power plant in the UK’s Hinckley Point Nuclear Power Plant is € 6,875 per kilowatt installed capacity. The fixed price power purchase contracts had to be executed at roughly double the original estimate. At Belene NPP, the cost per kilowatt of installed capacity is € 5,500, but at 2011 prices. In the meantime, all other options for base load electricity generation have become cheaper and projects are usually bankable without the need for government assistance. Nuclear energy is in a different league of its own.

 

Second, the only positive development concerning nuclear power plants is that the pressure on climate goalss and the relevant policies, in the context of the Bulgarian energy sector, mounts leading an earlier than expected closure of coal generation, skipping the cheap gas craze elsewhere in the world, leaving nuclear power the only possible base energy. However, nuclear power is unable to balance off intermittent RES energy.

 

Before embarking on a new nuclear project, two preconditions must be met concurrently – first, a generation capacity gap should open that roughly corresponds to the 2200 MW of the NPP Belene (approximately Maritza East TPPs) and second, that niche should be reserved for nuclear power sparing competition from cheap natural gas. Nuclear projects in the United States have almost completely sunk with the cheap shale gas. Therefore, in the Belene NPP case, no significant projects for new gas generating facilities have to happen. Although it is hard to see how this could occur under market rules, the government could always play a crucial hand if and when needed.

 

Third, financing nuclear power projects remains impossible through the financial markets, then and now. The only funding option is should the Russian, Chinese and Bulgarian government decide to intervene and share the credit risk of approximately € 11 billion. The debt could be shared by Rosatom or CNNC, at least in principle, but the ultimate underwriter, either directly or indirectly, would be the Bulgarian state, adding to Bulgaria’s external public debt.

 

Given the sharply curtailed ability of the Russian state company to secure financing  for its huge backlog of nuclear projects abroad, given commitments made to Rosatom’s overseas construction program and the drastic reduction in budget support, now all hope lies with China’s CNNC. To put it bluntly – without Chinese funding, Belene NPP cannot be done.


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Many will probably be quick to refer analogies involving Chinese funding in nuclear projects in the UK and elsewhere in Europe. The similarities are misleading  though – at Hinckley Point the developer  and co-funding sponsor is European – EDF, which insists it can manage geopolitical as well as business and financial risks. Despite indications of an increased interest in cooperating with Chinese funding agencies and infrastructure companies, the European Union has clearly and unequivocally drawn a red line, placing  China in the ‘competitor’ category by accusing Beijing of unfair competition practices and unfair state aid. The judgment whether the NPP Belene fits into this category will be definitely made in Brussels, not in Sofia, regardless of assurances to the opposite.

 

In this sense, the project remains a significant and in many ways an unmanageable project risk for Bulgaria, which Russia and China could agree to share only in the event of overriding state interests. If the business case is not rock solid and the benefits guaranteed, then both Moscow and Beijing will need to be compensated elsewhere – – either within the scope of the specific project, or in other related and unrelated projects in Bulgaria.

 

Fourth, the purely geopolitical risk of the Belene NPP project, i.e. its footprint to EU/NATO relations with China and Russia, is simply beyond the grasp of the Bulgarian government. Put in simplest terms, any strategic investor, either on its own or in partnership, should be able to help Bulgaria’s government pitch the case with the EU and NATO alliances.

 

Every nuclear project in the EU and NATO in which Rosatom has a leading role constitutes a strategic risk for these alliances. Not only because the Russian company does not only have a civilian leg but also a military one, both of which are inextricably intertwined. When one does business with the civilian division in the company, he can never be sure whether money paid for equipment or services do not end funding Russia’s strategic nuclear weapons’ program.

 

Each nuclear power plant opens a vulnerability “black hole” in the country’s defense system, as it becomes a potential target for a strategic strike.

 

In Bulgaria, the defense of nuclear power plants, although a top priority in the national security system, is seriously compromised. Even assuming Bulgaria spends over fresh billions to buy sophisticated missile defense and anti-aircraft type system of the ‘Patriot’ type – which is not covered for in the current NPP Belene’s costs – we won’t have a hundred percent protection. From the point of a military threat assessment regarding potential a strike against a nuclear power plant, things are straight forward – any successful strike against a nuclear power plant will put us on our knees. Bulgaria is incapable of overcoming the aftermath of a strike or technogenic disaster in any of its nuclear reactors – neither the size of its economy nor of the budget can afford to cover direct or indirect loss and claims. It’s not rocket science to add the numbers – the Fukushima accident has resulted in a rough estimate of more than $ 120 billion in total damages, with less than $ 5 billion of it covered by the operator Tepco via the standard corporate risk insurance mechanisms. The bulk of the difference came from Japan’s state budget, while corporate and household losses were never recovered.

 

Even accepting more lenient estimates of the magnitude of the risk in a potential nuclear accident in Bulgaria, it will become a national catastrophe for Bulgaria with its GDP at $ 57 billion and budget at $ 14 billion. Neither NATO nor the EU can help significantly, not to mention that Bulgaria will be liable to compensate cross-border public liability, material damage and business interruption claims.

 

The coverage of catastrophic risks and in particular of industrial and technological risks in Bulgaria is the lowest in the EU – the cap is at maximum $ 100 million. Any major insurance event will have to recourse to the budget and the taxpayers. In this sense, a new nuclear project is a total liability well above Bulgaria’s grade. That will be the case until and unless the country’s economy and wealth grow significantly in size, to be able to accommodate a higher loss level.

 

Fifth, Sino-Russian nuclear cooperation in strategic projects abroad is definitely gaining ground. It is beyond doubt that the Bulgarian government is willing to test the Belene NPP within this geostrategic paradigm.

 

At a recent meeting in June between Vladimir Putin and his Chinese counterpart, Xi Jinping, the two countries reached a global agreement on cooperation in almost every area, from infrastructure to e-commerce. Synergies are currently being tested between the two countries in Syria’s reconstruction, with the use of Russian and European logistics channels, under Russian military protection. There is little doubt that the Chinese CNNC company alone cannot see through with the Belene NPP project. Negotiations are underway to coordinate actions between Rosatom and CNNC and Bulgaria is by no means the only country where joint projects are considered. An agreement has already been reached to cooperate on Rosatom projects in Latin America and Africa. There is an understanding to consider on ad hoc base other opportunities including Europe.

 

No doubt, the Chinese company could benefit from the networks of Russian geopolitical influence that are far stronger in the EU than their own. Yet, success in structuring the NPP Belene project in a way that complements the interests of China and Russia is neither automatic, nor forgone. It is logical to assume that over time, the strong deck will pass into the hands of the Chinese nuclear companies.

 

As Belene NPP does not involve import of Chinese, but by Russian technology, which a priori limits the Chinese CNNC’s benefits in the specific project, we might see more Chinese construction companies involved. The successful completion of a nuclear project in the EU will undoubtedly enhance China’s track record and role in Europe’s nuclear energy.

 

A sine qua non for the participation of a Chinese nuclear company remains state guarantees, not least of all because funding arrangements are secured at a highest political level in China. Therefore any involvement of CNNC will have to be preceded by state guarantees or intergovernmental agreements.

 

Any form of a state guarantee, hidden or explicit state aid, including fixed price purchase contracts, will have to be approved by the European Commission. This is highly unlikely, despite the expected narrative to come on the pending threats to Bulgaria’s national energy security and lack of alternatives to meet climate goals.

 

As time passes, the only exit from the Belene NPP quagmire stands out more and more – the sale of the equipment or its investment in other project both inside and out of Bulgaria. The only way to verify the potential interest for such an option is a genuine open and competitive procedure. All the talk about lack of interest for such an option comes from people that do not have an interest.

 

By Ilian Vassilev

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