Bulgaria, Russia go to court over Belene nuclear project

By bne IntelliNews August 26, 2011

Branimir Kondov in Sofia -

A tug of war between Sofia and Moscow over Russia's controversial Belene nuclear power plant project in Bulgaria intensified in August with both sides bracing for a protracted legal battle.

Two months ahead of the October 23 presidential and local elections in Bulgaria, in which Belene is likely to become again a hot topic in the wider context of the country's energy dependence on Russia, there are no simple answers to the two bottom-line questions asked ever since the Soviet-era project was resurrected five years ago: does Bulgaria really need the plant and, if it does, what price can the poorest member of the EU afford to pay for it?

The project for the construction of a 2,000-megawatt (MW) nuclear power station in Belene, on the Danube River, hit yet another snag on August 16 when Russia's Atomstroyexport, which Bulgaria has hired to build the plant, failed to meet the deadline for dropping its €58m claim against the Balkan country's state-run National Electricitry Company (NEC) it filed earlier, thus opening the way for NEC to lodge its own claim of some €61m against Atomstroyexport.

In its claim filed with the International Court of Arbitration of the International Chamber of Commerce in Paris, the Russian company said the Bulgarian side owes it the money for the preparation works it has completed at the construction site since signing the Belene deal with NEC in 2006. State-run NEC in turn said it will go to an arbitration court in Geneva in September to seek compensation for Atomstroyexport's failure to buy back some of the old equipment stored in Belene since 1991 that cannot be incorporated in the project. The purchase of the unnecessary equipment is specified in the framework agreement the two companies concluded in 2007 as part of their deal. "We are ready to propose and discuss various options regarding this equipment only in the context of realisation of the main contract," Atomstroyexport's first vice-president, Vladimir Savushkin said in a press release posted on the company's website on August 10.

Prodding Bulgaria to move faster on the project, he added that Atomstroyexport had no reason to buy back old equipment from Belene any more because the framework agreement had expired, while no final engineering, procurement and construction (EPC) contract has been signed yet.

NEC disagreed by saying in a statement on its website on August 18 that the purchase of the old equipment is one of the reasons why Atomstroyexport, a unit of Russia's Rosatom, had been chosen to build the power plant, and vowed to safeguard Bulgaria's interests in court. NEC added that Atomstroyexport's claim could not only harm the relationship betwen the two sides but the Belene project as a whole as well and in this context the withdrawal of Atomstroyexport's claim would have proved that the Russian partner was interested in the implementation of the project.

On-off project

Launched in the 1980s, the project for the construction of Bulgaria's second nuclear power plant was frozen in the 1990s due to a lack of funding. Bulgaria and Russia agreed in 2006 to restart it, but price disputes, the lack of strategic investors, the global economic crisis of the last few years and uncertainty surrounding the future plant's seismic safety have delayed the start of construction works. With the initial project cost estimated at €3.9bn, Russia has recently put a price tag of €6.3bn, while Bulgaria, which has hired UK-based banking group

HSBC to advise it on the financial structure of the project and the setting up of a project company, has said it would not accept a price in excess of €5bn.

The project's supporters say the planned two reactors of 1,000 MW each in Belene will help Bulgaria restore its dominant position on the electricity

exports market in the Balkans, which it lost with the closure of four Soviet-made reactors of 440 MW each at its sole Kozloduy nuclear power plant prior to its accession to the EU in 2007. The closure, meant to dispel EU's nuclear safety fears, left Kozloduy with two operating Soviet-made reactors of 1,000 MW each. Their original lifespan will expire in 2017 and 2019, respectively.

Opponents of the Belene project say there is no firm evidence that demand for Bulgarian-generated electricity in Southeast Europe will rise in the foreseeable future and it is unclear what the price of the electricity from Belene will be. They also say that Belene will deepen Bulgaria's energy dependence on Russia even further and voice concerns about the safety of Russian-made nuclear reactors. Calls from Bulgarian lobby groups and environmentalists to scrap the project have increased since the March accident at Japan's Fukushime nuclear power plant, but Belene supporters say Bulgaria would have to pay around €1bn in compensation to Russia if it walks out of the project.

NEC's head Mihail Andonov struck a conciliatory note in the dispute with Atomstroyexport on August 19, telling Bulgarian National Radio (BNR): "The negotiation process can continue; even though the Russian side has filed a claim and the Bulgarian side also will file a claim, I think this cannot harm the project at the current stage. This, however, will lead to more cautious and more precise actions from both sides and uncertainty of the information they will exchange."

According to Andonov, Atomstroyexport still has an option to drop its claim against NEC by October 15 - the deadline by which Bulgaria should state its objections to the claim before the arbitration court in Paris. If the project is to progress to the actual construction phase, it should be transparent with regard to the cost of financing and the financial results it aims to achieve, added Andonov.

Former Bulgarian ambassador in Russia Ilian Vasilev sounded more pessimistic when he said it is only a matter of time before Bulgaria and Russia decide to cancel the Belene project which he sees as economically unviable, especially after the Fukushima nuclear accident. He told BNR on August 12 that additional nuclear safety requirements called for by the accident in Japan will inevitably make global standards for building and operating nuclear power plants tougher which in turn will increase the project cost.

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