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Round table: Energy Policy and Energy Diversification
 
On 18 May 2010 the Center for the Study of Democracy organized a round table on energy policy and energy diversification. The main challenges and opportunities for energy diversification that Bulgaria faces were discussed during the event. The Center for the Study of Democracy presented an Issue Brief, which has been developed in cooperation with the Atlantic Council of the US.

Dr. Ognian Shentov, Chairman, Center for the Study of Democracy (CSD) opened the event by underlining that this is the second public discussion that CSD organizes in which the issue of diversification is highlighted. He remarked that Bulgaria needs to diversify both energy sources and the transportation routes, with the help of its EU and US partners. Dr Shentov mentioned that in the summer of 2009 the US Department of Energy established its regional office that covers 15 different countries in Sofia. He concluded by referring to Mr. Traikov’s visit to the US in April as successful in establishing both political and business contacts with US companies interested in taking part in the modernization of the Bulgarian energy sector. In Dr. Shentov’s opinion the current government is the first one to take steps in bringing transparency and dialogue to the sector.

Mr. James Warlick, Ambassador of the US in Bulgaria, highlighted that energy security is a top priority for Bulgaria, the region and the US. Achieving energy security is difficult and time-consuming endeavor that requires execution and tangible results. The steps taken in that area today will have ramifications for generations in the future. Mr. Warlick remarked that energy security requires on one hand diversification and on the other – transparency. The 2009 gas crisis clearly showed that there needs to be diversification of both supplies and routes. Mr. Warlick advised that there needs to be steps taken away from the single supplier situation. One of the most important steps is the construction of the gas interconnector with Greece, which can be ready within 3 years. What is more – such a project has potential access to EU funding. Mr. Warlick urged the government of Bulgaria to make diversification a top priority of its energy policy. Bulgaria needs to diversify with indigenous resources. Mr Warlick highlighted that the country has the opportunity to revolutionize its energy supply-chain and become a regional factor in the energy sector. In order to achieve that there needs to be a clear vision and a solid implementation plan for the diversification of the sector. Decisions in the energy sector should be made in an open and transparent manner with utmost integrity and dedication. For example, the gas negotiations should be conducted in an open manner, making use of top legal counsel. Such professional, unbiased advice should also be employed in the decision-making on nuclear power plant Belene. Mr. Warlick urged minister Traikov to capitalize on the contacts and partnerships made during his visit in the US in April 2010.

Mr. Traicho Traikov, Minister of Economy, Energy and Tourism, highlighted that the focus of the ministry’s work is on bringing more transparency and diversification to the energy sector. However both Bulgaria and its EU and US partners face a number of challenges and opportunities in reforming their energy sectors. Minister Traikov highlighted that it is important that Bulgaria leverages the technology and know-how of the US. During his visit to the US the minster was assured that the US supports Bulgaria’s diversification policy and there were specific projects discussed such as the management and storage of spent nuclear fuel as well as the certification of fresh nuclear fuel. The minister agreed that the energy sector of Bulgaria is in dire need of reforms: liberalization, optimization of pricing and the design of the new 2020 energy strategy. The biggest clash the minister saw between the need of large investments and the low purchasing power of the Bulgarian population. The three top priorities mentioned by minister Traikov were: diversification, energy efficiency and increase of the share of green energy at affordable prices.

Key issues remain the high dependency on foreign supplies and the high energy intensity of the economy. Minister Traikov assured that Bulgaria is working closely with its neighboring countries to address those issues. The minister shared that the energy sector in Bulgaria has a legacy of bad governance and bad decision-making – such as in the case of the “Belene” and “Tsankov Kamak” projects. The key governance deficiency is in the area of project management – both in terms of the whole sector and in the separate state-owned companies. Specific measures taken by the government to address this governance deficiency is the restructuring of BEH and the future participation of Bulgaria in the Extractive Industries Transparency Initiative (EITI). Since Bulgaria does not have large extracting industry the EITI methodology will be adopted for other energy segments – such as natural gas transportation. Bulgaria will be the first country to do that and will thus mark the beginning of a good practice.

Minister Traikov stressed that 2010 will be an important year – on one hand Bulgaria will have to continue its adoption of the 3rd liberalization package of the EU, and on the other hand it will have to re-negotiate the contracts for gas supply and transit. Minister Traikov shared that Bulgaria has made a contract with the World Bank for technical support in defining the national gas transmission policy. In addition, Bulgaria is restructuring its main investment projects in order to make them attractive for EU and US investors. Minister Traikov highlighted that a lot of challenging decisions need to be made in an environment of very limited financial resources. Minister Traikov also mentioned that Bulgaria needs to explore opportunities for shale gas on its territory, on which he had discussions during his visit in the US.

Mr. Ruslan Stefanov, Director of the Economic Program at the Center for the Study of Democracy, highlighted that the Issue Brief prepared jointly with the Atlantic Council of the US gives a bird’s eye view of the Bulgarian energy sector, commenting on some of the key imbalances in it. One of the main imbalances is in the foreign trade deficit where energy trade represents 30%. Another key issue remains the strong monopolization of the national energy sector, despite the directives of the 3rd Liberalization Package of the EU, which called for full liberalization of the gas and electricity markets. Mr Stefanov also emphasized that Bulgaria suffers from its strong dependence on a single supplier – Russia while at the same time the country has to comply with the EU’s ambitious 2020 energy targets for reducing green house gases, increasing efficiency and renewable energy sources. Bulgaria has options to deal with this difficult position, but all options come with their own difficulties and price.

Mr. Ilian Vassilev, Chairman of Deloitte, Bulgaria remarked that the true debate on energy policy is just starting. So far the regional and global contexts have not been considered. Bulgaria needs to benchmark itself against regional and global markets. Mr. Vassilev highlighted that there needs to be systemic efforts, leadership and focused decision-making. Bulgaria lags in a number of energy aspects. One of them is diversification based on local resources. For years such diversification has been seen as doomed. However, technology has progressed; there are new mechanisms and new players. Mr. Vassilev advised that Bulgaria should explore and utilize what lies in its territory, shelf and deep waters. Many countries in the EU and the region are already attracting investors with such new technologies. Mr. Vassilev remarked that local diversification, as well as energy efficiency, is the first condition before Bulgaria moves towards external diversification. Practical and speedy decisions are needed in order not to lose investor interest that is already present in the region. The moment has come for Bulgaria to move from the passenger seat to the driver’s seat of the energy express.

Agenda (Adobe PDF, 22 KB)
Presentation: Energy policy and energy diversification by Ruslan Stefanov, Director of the Economic Program at the Center for the Study of Democracy (Adobe PDF, 2.1 MB, in Bulgarian)
Brief: The Energy Sector of Bulgaria (in English)
CSD Brief No 22: Energy Sector in Bulgaria (in Bulgarian)
Media Coverage (in Bulgarian)
 
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