COMMENT: National interests undermine dreams of unified EU energy policy

COMMENT: National interests undermine dreams of unified EU energy policy
Bulgarian Prime Minister Boyko Borissov talks energy policy at a joint press conference with European Commission President Jean-Claude Juncker at the start of Bulgaria's 6-month EU Council presidency.
By Christopher Stakhovsky in Paris June 7, 2018

Bulgaria’s presidency of the Council of the European Union, which runs through the end of June, was supposed to mark the coming of age of one of the union’s newest members. Instead, the last few months have made Bulgaria a poster child for the limits of Europe’s capacity to integrate new members — especially when it comes to the European Commission’s energy priorities. With little pushback, Sofia is cutting against the grain of Brussels’ energy priorities despite making all the right noises about the need to unlock cleaner, greener sources of electricity.

Even more disconcertingly for the EC, Bulgaria’s leaders have responded to critical energy questions by looking to the two great powers Europe publicly worries about most. Both Bulgaria’s President Rumen Radev and Prime Minister Boyko Borissov made official visits to Russia last month to solicit Russian President Vladimir Putin’s involvement in the country’s critical energy infrastructure. At the same time, the Bulgarian government is courting Chinese interests to take over its languishing Belene nuclear power project.

Of the two, Bulgaria’s dealings with the Russians most directly clash with Sofia’s obligations to consolidate Europe-wide energy goals. In 2014, the European Commission objected to proposals for a gas pipeline directly from Russia to Bulgaria’s Black Sea coastline. But on his recent visit to Moscow, Radev openly resurrected plans for a “Bulgarian Stream” project in spite of his country’s dependence on Russia for the entirety of its natural gas supply.

The (initially) Russian-built Belene nuclear plant raises a separate set of questions. The partially-completed €10bn facility has been dogged by allegations of corrupt practices for years. It has also been on hold since 2012, when Borissov himself stopped the project and declared he would not oblige future generations to pay for it. Bulgaria did not just act for economic reasons: instead, the move came after heavy pressure from the EU and the US to reduce energy dependency on Moscow. In a sign of changing times, Borissov (now in his third term as prime minister) is restarting the controversial Belene project while apologising for the fate of the cancelled South Stream pipeline project.

Like a game of whack-a-mole, when Brussels and Washington force Russia out, China is happy to step in. Indeed, the state-run China National Nuclear Corporation (CNNC) has shown interest in taking over Belene for several years. It’s not readily clear whether CNNC’s ambitions will succeed. Bulgaria’s parliament has to sign off on restarting construction, and Radev spent some of his time in Russia discussing Moscow’s possible role in the project’s future. Chinese interest in Belene may become more concrete when Bulgaria hosts China’s 16+1 investment summit in July — seen by European diplomats as a vehicle for Beijing to infiltrate and undermine the unity of the bloc.

Bulgaria’s leaders rebut these criticisms by pointing to both national and regional energy needs, but they are flirting with Moscow and Beijing while ignoring reforms and opposing legislation that Bulgaria’s troubled energy sector needs just as much. Environmentalists have challenged what they call Bulgaria’s illegal subsidies to prop up outdated energy infrastructure. Last year, legal advocacy group Client Earth filed multiple complaints to the European Commission pointing to “unlawful aid given to recipients which include some of Bulgaria’s most polluting power plants.”

Nor is Sofia allaying Western concerns by putting the screws on longtime US partners AES and ContourGlobal – one of the few electricity producers in the country that relies exclusively on local resources. Just a few weeks ago, the head of the Bulgarian parliament’s energy committee advocated for ending power purchase agreements (PPAs) with both companies in order to further the “liberalisation of the electricity market in Bulgaria” – all while Sofia pursues energy deals with two of the world’s most illiberal economic forces.

Between them, AES’ Maritsa Iztok 1 thermal plant and ContourGlobal’s Maritsa Iztok 3 facility generate about a fifth of Bulgaria’s electricity supply. The two companies already agreed to a lower capacity rate in 2015. AES has since warned that market prices would be too low to pay for the company’s investments in the facility.

While all three issues merit closer attention in Brussels (not to mention Washington), none of them make Sofia unique. Germany may be the keenest on Russian gas, even over the objections of its own neighbours. Despite plans to diversify energy imports by building its first liquid natural gas (LNG) terminal, Angela Merkel’s government is ploughing ahead with the Nord Stream 2 pipeline which would concentrate 80% of the EU’s Russian gas imports in Germany. During his meetings with Putin, Bulgaria’s President Radev drew a direct comparison between Nord Stream 2 and the Bulgarian Stream initiative. The message was simple: how can the Commission criticise Bulgaria when it lets Germany do the same?

Not that the Commission is in a position to criticise after its handling of Russia’s Gazprom. The two sides recently ended lengthy antirust proceedings with an agreement that imposes new regulations on Gazprom’s operations in Central and Eastern Europe. Those rules will facilitate fairer transactions and cheaper prices, but much to Polish consternation, Gazprom will pay no fine.

Chinese investment is another, equally thorny issue extending far beyond Bulgaria. Europe has yet to implement investigative controls or screening on foreign investments in areas of core national interest, despite 15 of the 28 EU members apparently supporting the introduction of such legislation. In the last decade, China has invested at least €272bn in Europe, 45% more than in the US. CNNC may be interested in Belene, but it already shares a one-third stake in the UK’s Hinkley Point C.

It has now been over three years since Brussels unveiled its ambitious plan for an interconnected but independent energy market across the bloc. While there has been progress, backwards steps continue to undermine the underlying goals of the project. As the EU struggles to piece together a common approach, Bulgaria is merely showcasing how the messy interplay of competing national interests undermines Europe’s road to a unified, efficient, clean and independent energy infrastructure.

Christopher Stakhovsky is an independent European energy policy consultant specialising in project development and implementation. He is based between Paris and Kyiv.

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