불가리아 주요 경제뉴스 ( 5 -12 MARCH 2010 )

BULGARIAN ECONOMIC TOP NEWS DIGEST

WEEKLY REPORT ( 5 -12 MARCH 2010 )

 

 

Sections/headline briefs:

 

MACROECONOMY:

·        New rules for renewable energy sources use

·        Expert: “Tacit moratorium hurts Bulgaria's renewable energy”

·        Farmers, investors lock horns over renewables suspension

·        Bulgaria, Serbia, Greece sign pipeline deals

·        Moody’s places ratings on Piraeus Bank Bulgaria on credit watch negative

·        Public tenders without close fellows

·        EUR 200 M earmarked for Bulgarian SMEs under JEREMIE

·        Bulgaria innovations forum attracts government support

·        Slump in Bulgaria's new cars market slows down

·        Bulgaria's export registers largest growth in 18 months

 

INVESTMENTS:

·        Sofia water supplier to invest EUR 25.9 M this year

·        Austrian footwear retailer Leder&Schuh enters Bulgaria

 

COMPANIES:

·        Besttechnica to supply equipment for Belene nuclear project

·        Italcementi’s local EBITDA falls 54.7% last year

• Bulgaria mulls creating National Water Company

·        Pharmaceutical firm Actavis sells major Bulgarian distributor

·        Bulgarian "Sirma Mobile" a Partner of Motorola

 

THE CRISIS:

·        Bulgaria's economy shrinks by 5% in 2009

·        Bulgarian business, trade unions draw up plan to combat crisis

 

INTERVIEW:

·        Interview with Velizar Kiryakov, Chair of the Bulgarian Association of Producers of Ecological Energy (APPE)

 

MACROECONOMY:

New rules for renewable energy sources use

New regulations on licencing the activities in energy production in Bulgaria will introduce new and stricter requirements for the construction of wind farms and solar energy parks. The Bulgarian State Committee on Energy and Water Regulation will open the draft to a public discussion tomorrow. According to the suggested amendments, the investor will have to provide evidence the construction of the future wind or solar energy farm will not violate the environmental laws,  nor it will risk the biological diversity.  If a construction of a water power plant is attempted, the investor will have to present a permit for water usage and a document on the resource capacity for that moment and a forecast for its future. Further, proven sources of financing will have to be presented - like a contract with a bank or a decision of the company’s Managing Board for the use of the company’s capital.

Expert: “Tacit moratorium hurts Bulgaria's renewable energy”

Bulgaria’s renewable energy sector suffers from a ‘tacit moratorium’ imposed by the Environment Ministry.The Chair of the Association of Producers of Ecological Energy, Velizar Kiryakov, shared this view in an interview for Novinite.com (Sofia News Agency). Kiryakov has pointed out that while the Environment Ministry has given up on the idea it floated in December-January to impose a moratorium on new renewable energy projects in order to clear out the mess in the protected areas, it has opted for what he describes as a “tacit moratorium” - not giving any replies to investors’ inquiries about possible new projects.Kiryakov believes that this situation sends a bad signals to those wishing to invest in renewable energy in Bulgaria. He thinks that Bulgaria needs a long-term energy strategy and better law enforcement in order to take full advantage of its renewable energy potential.

Farmers, investors lock horns over renewables suspension

 

Bulgaria’s feed-in tariff, the preferential fee paid by Bulgaria to companies that produce electricity from renewable energy sources, has spawned dozens of projects eager to take advantage of the state subsidy, to the extent that early in its term, the Bulgarian Government of Prime Minister Boiko Borissov even considered imposing a moratorium on new projects.New amendments drafted by the Agriculture Ministry and now being considered by the Cabinet, would impose severe restrictions on where wind and solar parks could be built.The proposal envisions a ban on renewable energy production on agricultural land rated in the top four categories, based on their fertility, which roughly covers all of Bulgaria’s cultivated land. Lands ranked as fifth- and sixth-category are mostly uncultivated meadows and pastures.The amendments to the Agricultural Land Conservation Act are meant to put an end to the widespread practice of changing the designation of the land. Construction is banned on arable land, but the designation change removes any obstacle in the way of building electricity-generating facilities from renewable sources.The bill further envisions an increase on the sanctions on civil servants that do not strictly follow all legal requirements concerning the prerequisites to change the land designation.According to the Agriculture Ministry data, quoted by Bulgarian media, as of 2009, about 1150ha of arable land had its designation changed and was slated for future construction of solar or wind parks. By the end of 2009, the ministry had received a further 500 requests for a change in land designation, covering 750ha, that were yet to be examined."The goal is for the state to conserve the highly productive cultivated land," Dnevnik daily quoted Lili Stoyanova, the head of the ministry’s land consolidation department as saying. Just as importantly, it would serve to prevent the further spread of suspect projects – ostensibly applying for a land designation change for the construction of electricity-generating facilities from renewable sources, but ultimately pursuing other commercial interests for the land.In recent years, Bulgaria has seen the announcement of projects that, if all are completed, would harvest 8000MW from wind farms and 4000MW from solar power, an amount that is several times larger than the country needs to meet the European Union’s green energy target, which stipulates that 16 per cent of Bulgaria’s electricity must be produced from renewable energy sources by 2020.State-owned power grid operator NEK has been among the main critics of the avalanche of projects, saying it had the ability to connect no more than 15 per cent of the proposed capacity to the power grid.Another amendment envisioned by the Agriculture Ministry is a change in how the land is taxed. Agricultural land is not subject to tax, as a rule, the only exception being if there is a building on it, when the local tax for buildings is due.Under the amendments, the change in land designation would mean that the land would then become urbanised, so tax would be due even if there is no construction raised on the land yet. However, the bill does not stipulate how the tax would be calculated and a separate amendment to the Local Taxes Act would be needed.Separately, the State Energy and Water Regulatory Commission plans to tighten controls over the issuing of licences to prospective green energy investors, demanding guarantees that the projects have secured sufficient funding.

Industry opposition

 

Unsurprisingly, the proposed amendments, announced in the first week of March, are being opposed by the respective industry groups, which branded them as discriminatory.
"We do not oppose the desire of the Agriculture Ministry to put an end to the practice of changing the designation of agricultural land for speculative purposes, but that could be done using economic means, not administrative ones," the head of a solar park industry group, Nikola Gazdov, was quoted as saying by Dnevnik."Any serious investor is willing to pay a higher fee to change the status of the land or deposit a guarantee with the local or central authorities," he said.According to Gazdov, should the amendments be passed into law, investors would be restricted to building renewable energy installations on areas that were mostly part of the European Union’s Natura 2000 conservation areas.About one fifth of Bulgaria’s five million ha of agricultural land was not used, mostly lands that the ministry designated as fourth category, Gazdov said.Velizar Kiryakov, the head of a green energy industry group, said that a counter-proposal was being drafted to limit the ban only to areas rated in the top two fertile land categories."We have met environmental organisations, which agreed that investment in green energy would be badly inconvenienced if the only option is restricting their location to mountainous areas," Kiryakov said. He blamed "energy lobbies" for the proposed measures, which meant to hinder the spread of electricity production from renewable energy sources.Agriculture Minister Miroslav Naidenov said that the private sector would have its chance to be heard. The bill has already gone through the mandatory interdepartmental approval procedure and was backed by the Economy and Energy Ministry."We will seek the position of private businesses to draft amendments that are workable. To this end, we are preparing a public discussion of the changes, scheduled for March 11 in Sofia," Naidenov was quoted as saying.Deputy Economy and Energy Minister Maya Hristova, however, left the door open for efforts aimed at limiting the restriction. "The key aspect is that once land leaves the agricultural fund, it cannot return, which is why we agreed with the proposal. I am not familiar with the specific proposal, but if it indeed limits investment in renewable energy sources installations, I believe that the contentious provisions can be cleared," she said.

Bulgaria, Serbia, Greece sign pipeline deals

Bulgaria, which shares part of the EUR 200 M allocated for the Nabucco gas pipeline project, is in the process of signing agreements with neigbors Serbia and Greece for inter-connecting pipelines.The European Commission (EC) has approved the allocation of funding for the pipeline and for gas connections between Bulgaria, Romania and Greece.The money is part of the second group of projects in the European plan for economic recovery. Totaling EUR 2,3 B, it includes 43 energy projects.In addition to the EUR 200 M earmarked for Nabucco, EUR 45 M has been allocated to the gas connection between Stara Zagora and Komotini, and a further EUR 9 M goes to the connection linking Ruse and Bucharest.Gunther Oettinger, the EC Energy Commissioner, said in Brussels that funds for Nabucco would be allocated to all the countries through which it will pass - Germany, Austria, Hungary, Romania and Bulgaria.The funding is not designed for specific activities, according to the Commissioner, but is a signal that this is an urgent EU project and that it is time for it to move beyond the level of ideas only.Outlining his strategic timetable for Nabucco, Oettinger repeated that a new international conference on Nabucco is in preparation.Nabucco transit states, countries in the Caspian region, and business representatives will be invited to participate.The funding of the EUR 8,9 B project must be finally clarified by the end of 2010. Meantime, the start of tendering procedures and award of contracts for gas supplies is scheduled to begin in the second half of the year."If this happens, construction can begin next year and first deliveries will be in 2014-2015," the Energy Commissioner stated.The Nabucco consortium is made up of Austria's OMV (OMVV.VI), Hungarian MOL MOL.BU, Turkey's Botas, Germany's RWE (RWEG.DE), Bulgaria's Bulgargaz and Romania's Transgaz TGNM.BX.Another gas project is to be launched in Brussels on Friday. Bulgaria and Serbia have signed an agreement for a connecting pipeline between the westen Bulgarian town of Dupniitsa and the city of Nis, Serbia.The project will cost an estimated EUR 60 M, which will come form the EC Regional Development Operational Program.The documents will be signed by representatives of Bulgartransgas and Serbiagas, and the project deadline is set for 2012.In parallel with this approval funding by the European Commission, agreements have been concluded in Thessaloniki, Greece, for construction of the Stara Zagora - Komotini gas connection.A company has been established to implement the project, in an agreement made between Bulgarian Energy Holding (BEH) and Greek-Italian consortium IGI Poseidon.The total value of the 170-km pipeline is EUR 150 M, and the deadline for completion is in 2013.The Turkish Parliament passed a law late on Thursday night that allows for the Nabucco pipeline to transit its national territory. Turkey was the last of the five transit countries to approve the necessary legislation.

 

 

 

 

Moody’s places ratings on Piraeus Bank Bulgaria on credit watch negative

 

The international credit rating agency Moody’s has placed on review for possible downgrade the Baa2/Prime-3 long-term and short-term local currency and Baa3/Prime-3 long-term and short-term foreign currency deposit ratings of the country’s seventh largest Piraeus Bank Bulgaria. The action follows a similar decision concerning all the ratings of the parent, Greece’s Piraeus Bank SA. only the financial strength rating of the local lender has remained unaffected. The long-term local currency deposit rating of Piraeus Bank Bulgaria incorporates three-notch uplift from its baseline credit assessment to reflect Moody's assessment of the probability of support from its parent. The review will focus on reassessing the ability and willingness of the Greek bank to support its local subsidiary and determining the appropriate level of uplift to be incorporated into the ratings of Piraeus Bank Bulgaria. The long-term foreign currency rating is constrained by the sovereign’s rating currently and could remain in line with the local currency one if the latter is downgraded. The foreign currency rating may also face downward correction in case of any future further reduction in the local currency rating. In January, Moody’s upgraded the outlook on the Baa3 long-term foreign currency deposit rating of Piraeus Bank Bulgaria from stable to positive on similar action of the sovereign rating.

Public tenders without close fellows

A new act will severely hit the hitherto practice of supporting close fellows and relatives when participating in public tenders. The new act will explicitly forbid the participation of close fellows and relatives of those in power in public tenders. So far, the loopholes in the Commercial Act allowed "the fixing" of closes people with attractive public procurements. "This malpractice led to tightening the tender procedures. The act for Conflict of Interests will be applied at the organization and participation in tenders," GERB MP Emil Radev explained. The hitherto practice chased away foreign investors. A more facilitated procedure for participation will be worked out for the foreign participants in public tenders. The companies will be able to apply with papers written in their own language without the need for translating them in Bulgarian. No additional licence for Bulgaria will be demanded. All public tenders for over 500,000 euro will be strictly observed by Brussels, GERB officials revealed.

 

EUR 200 M earmarked for Bulgarian SMEs under JEREMIE

 

Bulgaria will receive nearly EUR 200 million for risk funding of small businesses (medium, small and micro enterprises, known as SMEs) at national, regional and local level under the JEREMIE programme. This is what Deputy Minister of Economy Evgeni Angelov announced. once inked, the financing agreement with the European Investment Fund (EIF), needs the approval of the EIF board, the Council of Ministers and the Parliament. All companies, eligible under JEREMIE, will be able to benefit from both investment funds and bank credit lines. Another bulky amount of EUR 460 million has been slated to SMEs in the country under OP “Competitiveness”. The money will be channeled to innovative startups and existing firms, willing to renovate their technical capacities.

 

 

 

Bulgaria innovations forum attracts government support

Bulgaria's government promised full support for research and development during Bulgaria's Sixth Annual Innovations Forum, which took place in Sofia Monday last week. The Innovations Forum was organized by the Applied Research and Communications Fund, a Bulgarian R&D institute, in cooperation with the Economy Ministry and the World Bank mission in Bulgaria. The Forum is entitled: "Science, Technological Development, and Innovations: Policies for Growth and Development during the Next Decade." The Mechanics Institute of the Bulgarian Academy of Sciences, the CAD/CAM/CAE in Industry Laboratory of the Technical University in Sofia, received the awards of the forum in the research organizations category.The companies which got awards for their technological development projects are the AMK Drives and Controls, Bianor Services, Tehkeramika, and Dissy.Software company OPAK Engineering received the award in the category for a firm with under 50 employees in the National Competition for Innovative Enterprises of the Economy Ministry. Smartcom Bulgaria, working in nanotechnology and communications, received the award in the category of medium-size and large company of the same competition.

Slump in Bulgaria's new cars market slows down

Bulgaria’s new cars market declined by 44% in February 2010 year-on-year.According to the Association of Car Producers and Authorized Dealers, only 1 248 new cars were sold in Bulgaria in February.However, the decline is slowing down compared to a drop of 47,6% in January, and of 52% in all of 2009.A total of 7,6% more new cars were sold in Bulgaria in February compared to January when Bulgarians purchased 1 160 new cars.With 2 408 new cars sold in the first two months of 2010, the decline compared to the same period of 2010 is 46%.The French brand Peugeot turned out to be the most popular in Bulgaria in January-February with 265 new cars, or 10,69% of all sales.

Bulgaria's export registers largest growth in 18 months

Bulgaria’s export increased by 13,1% in January 2010 year-on-year, according to preliminary data of the National Statistical Institute.Thanks in part to the recovery in Bulgaria’s main trading partners from the EU, the country’s export has grown for the third month in a row, reaching the highest growth since August 2008 when it increased by 15% year-on-year.For the first the time since the early 1990s most of Bulgaria’s export – 53% - goes to countries outside the EU – which usually takes in about 60%-65% of Bulgaria’s exports.“These are the first signs – albeit timid ones – that the Bulgarian economy has started to recover,” Bulgaria’s Finance Minister Simeon Djankov has commented.Thus, Bulgaria’s total export in January 2010 amounted to BGN 1,8 B growing for a third consecutive month after it increased by 4,76% in December 2009, and by 3,85% in November 2009.However, the figure for January is not due to certain impressive results of Bulgarian companies; it has a lot to do with the fact that the Bulgarian export collapsed in 2009.Despite its growth in January 2010, Bulgaria’s export is at very low level historically, according to the experts of the National Statistical Institute.The export of fuel and machine oil registers the largest growth in January 2010 – of about 58% - year-on-year; the export of raw materials grew by 56%; of machines and equipment – 32%; finished goods – 17%; alcohol and tobacco products – 10%.Bulgaria’s export of vegetable oil dropped by 55%, of living animals – by 22%, and of chemical products – by 1%.Bulgaria still has a negative trading balance despite the fact that thanks to the crisis its import declined tremendously and the gap has started to shrink.

 

 

INVESTMENTS:

 

 

 

Sofia water supplier to invest EUR 25.9 M this year

 

The water supplying company in the capital city Sofia, Sofiyska Voda, plans to invest BGN 50.7mn (EUR 25.9mn) this year. Some 57% of the financing comes from own resources and the remaining amount is an EBRD loan. The bulk of the funds are to improve the water-supply and the sewerage networks in Sofia. The company holds about BGN 50mn claims, mainly from households. The investment programme of Sofiyska Voda was standing at BGN 52mn last year.

 

Austrian footwear retailer Leder&Schuh enters Bulgaria

 

Austrian footwear retailer Leder&Schuh will enter the Bulgarian market next week, the company said on Wednesday. The company's first store, which will offer its brand Humanic, will open in Sofia on Monday, Leder&Schuh said in a statement. It plans to add another store in Sofia next month and one in Varna, on the Black Sea coast, by the end of the year. The Leder&Schuh Group, one of the largest shoe companies in Europe, employs over 3,500 people in more than 330 locations. The company runs networks in Slovenia, Hungary, Slovakia, Poland, Germany, the Czech Republic, Romania, Switzerland and Croatia.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COMPANIES:

 

 

Besttechnica to supply equipment for Belene nuclear project

 

Local heavy engineering company Besttechnica, located in the western town of Radomir, has signed a contract with Russia’s AtomStroyExport to supply equipment for the 2,000 MW nuclear plant in Belene, the Russian company informs. The value of the contract has not been unveiled. This is the first contract with a Bulgarian firm for the nuclear project. According to the contract, local companies are to run 30% of the construction works of the plant. In February 2008, Russia’s AtomStroyExport signed EUR 4bn contract to build the plant, but later estimated that the construction and the launch of the two units will cost up to EUR 6bn. Its parent, Russian state nuclear energy company Rosatom, offered to provide EUR 350-450mn this year and EUR 1-1.5bn next year to speed the project. Local authorities should answer by the end of this month.

 

Italcementi’s local EBITDA falls 54.7% last year

 

Italy's Italcementi Group, a producer of cement, ready-mix concrete and construction aggregates, said its Bulgarian operations' 2009 EBITDA (earnings before interest, taxes, depreciation and amortisation) dropped 54.7% to 26 million euro ($35.4 million). In Bulgaria, Italcementi operates the Devnya and Vulcan cement plants. The global crisis had a significant impact on local economic conditions from the start of 2009, with particularly severe consequences for the construction industry," Italcementi said in a statement posted on its website on Friday. Major infrastructure construction projects were delayed and funding from the European Union was frozen, it added. The group's revenues in Bulgaria fell 41% to 100.1 million euro last year. "Instability was heightened by imports from Turkey (currently accounting for about 16% of the market), where sales prices are significantly lower," Italecementi said. "Cement consumption continued to fall during the fourth quarter (-46.6% compared with the year-earlier fourth quarter, -37% for the full year). Group domestic sales mirrored the trend." Although sales prices decreased in the second half, the full-year prices were slightly higher than the 2008 levels. This positive factor, combined with improvements in productivity (fuel and maintenance) and a commercial focus on exports to Romania, where the group has developed a distribution network, was not sufficient to counterbalance the sharp reduction in operating results," the statement also said. The group's total headcount in Bulgaria was cut to 444 in 2009 from 491 a year earlier. Devnya Cement (www.devnyacement.bg), based near the Black Sea port city of Varna, has an annual capacity of some 2.0 million tonnes of cement. Vulcan Cement, based in Dimitrovgrad, in southeastern Bulgaria, has an annual capacity of 500,000 tonnes of cement. Italcementi Group (www.italcementigroup.com), the world's fifth largest cement producer, operates in 22 countries.

 

Bulgaria mulls creating National Water Company

Bulgaria is considering the establishment of a National Water company (NWC) similar to the existing electric one (NEK), according to Regional Minister, Rosen Plevneliev.Plevneliev spoke Tuesday during the meeting with the Confederation of Employers and Industrialists in Bulgaria (CEIBG)The aim is to consolidate the water sector whose network is now too fragmented, leading to water losses of 55% to 70%. The State plans to create new Water Supply Companies (ViK), most likely corresponding to the 4 Basin Directorates in Bulgaria. The Water companies are now 50 with State, municipal or mixed ownership.Plevneliev informed his Ministry is working on preparing a water strategy to be ready by the end of 2010. According to the Minister, EUR 8 – 10 B will be needed as investments in the next 10 years. Under the new strategy, water regulation will be the authority of just one Ministry, unlike the current division of the responsibilities between the Environment, the Agriculture, the Regional, the Economy and Energy, and the Health Ministries.“If I could give those Water Companies to the Environment Ministry, I would do it right away,” Plevneliev said.The strategy for management of the ViK sector was passed in 2004 by the cabinet of former Tsar, Prime Minister, and leader of the National Movement for Stability and Prosperity (NMSP), Simeon Saxe-Coburg, with the gold to improve ViK services. The strategy included measures to deal with the problems and the needed investments were estimated at over EUR 9 B.In the summer of 2009, under the request of the European Commission, the Three-Way coalition cabinet, led by Socialist PM, Sergey Stanishev, passed an amendment to merge ViK operators in territorial associations that could apply for EU financing, but the measure was not applied in the practice. As result, the EC threatened to cut EUR 1 B for Bulgaria from the operational program “Environment.”

Pharmaceutical firm Actavis sells major Bulgarian distributor

International pharmaceutical company Actavis Group has announced it will sell its major Bulgarian distributor Higia Jsc.Higia Jsc, one of the largest distributors of pharmaceuticals in Bulgaria, was acquired by the Actavis Group in 2005. Higia has been sold to a private investor for an undisclosed amount.“We chose the best offer not only for “Actavis” but for the employees of “Higia” and for the future development of the company within the local distributors' market,” commented Illiya Pashov, executive director of “Actavis” Ltd Bulgaria.“Actavis” Ltd Bulgaria explains its decision to sell “Higia” with a development strategy to focus on its main business-the development, production and sale of high-quality generic medications.Illiya Pashov assured that “Actavis” will continue to work with “Higia” and with other Bulgarian pharmaceutical distributors.Actavis Group, which is headquartered in Iceland, took over the biggest Bulgarian pharmaceutical company from communist times “Balkanpharma.”With two modernized manufacturing sites in the towns of Dupnitsa and Troyan, the company sells 40% of its production in Bulgaria. The rest traditionally goes to Russia and other former USSR countries such as Ukraine and Belarus.

Bulgarian "Sirma Mobile" a Partner of Motorola

Bulgarian company Sirma Mobile became a partner of Motorola, one of the leading world telecommunication developers. Under the signed agreement for collaboration Sirma Mobile receives the statute of the Global Independent Software Provider. The partnership which is unique for Bulgaria and region will be directed to development of the solutions, which allow the independent developers to create applications and services for Motorola platform iSIM.

 

 

 

THE CRISIS:

 

Bulgaria's economy shrinks by 5% in 2009

Bulgaria's economy shrank by a real 5.9 per cent year-on-year in the fourth quarter of 2009 and five per cent for the full year, the country's National Statistics Institute (NSI) said on March 11 2010.In absolute terms, the gross domestic product (GDP) in 2009 was 66.3 billion leva, including 17.9 billion leva in the fourth quarter.In 2008, the Bulgarian economy grew by six per cent, buoyed by the momentum accumulated during years of cheaply-available credit. The country officially entered a recession in the first quarter of 2009.The biggest decline was posted by the industry, which shrank by 8.1 per cent for the year, NSI said in a statement. Agriculture declined by 3.3 per cent and the services sector posted an annual drop of 1.7 per cent.Consumption, which was one of the main drivers of economic growth in recent years, was down an annual 6.2 per cent. Investment was down 26.9 per cent.Exports shrank by 9.8 per cent year-on-year, while imports were down by an annual 22.3 per cent. The trade gap was 7.7 per cent of GDP.

Bulgarian business, trade unions draw up plan to combat crisis

Companies, which have outstanding takings from the state and the municipalities, will not be subjected to penalties in cases of delay in paying taxes and social securities.This is one of fifteen urgent short-term measures, included in document, drawn up by six nationally represented employers' organizations and the two biggest trade unions in a bid to cushion the impact of the financial and economic crisis. The document will be presented to Prime Minister Boyko Borisov and Finance Minister Simeon Djankov in the coming days.The social partners suggest that the period, during which the state and the municipalities, delay payments to the business, is tax-free. The goal is to allow the companies to apply for European projects despite their debts.The business and the trade unions also suggest the establishment of public registers to record the outstanding debts in VAT, excise duties and under European projects.The document also includes six measures for improving the access to the financial resources, including the development of a capital market through the privatization of state shares on the Bulgarian stock exchange."The approval of the proposed measures by the government is a necessary condition for the launch of negotiations under the National Pact for Restoration of the Economy and Employment Rates,” the document says.According to the trade unions most of the proposals should be implemented by June 2010.

 

 

 

 

 

 

INTERVIEW:

Interview with Velizar Kiryakov, Chair of the Bulgarian Association of Producers of Ecological Energy (APPE)

 

Is it fair to say with respect to the investments in renewable energy in Bulgaria that there is a bubble which might burst?

This is not true, these are just speculations. It is true that currently there are investment inquiries made by firms for a total of 13 000 MW in terms of electricity production capacities.However, these are just inquiries submitted to the National Electric Company NEK and the regional power utilities in order to get information about the technical conditions for joining the electricity distribution network. That is because in Bulgaria this process is not transparent – people have no way of knowing which power line has free capacities.Before starting a new project, one needs to know how much the unoccupied capacity of the power lines is, and if it is possible to be connected to the distribution network. So you go to NEK or the power utilities and ask them, “Excuse me, I want to install this thing here, may it be connected to the network?”At present, the preliminary contracts signed between NEK and companies operating the production of electricity from renewable energy – which are actually legally binding unlike the inquiries – are for a total production capacity of 1 300 MW. And half of these contracts have expired – because they are valid for a two-year period.The total capacity for electricity production from renewable energy sources of facilities which have already been completed and connected to the power network is 186 MW.So, you see, there is no actual bubble – somebody is talking about a bubble and wants everybody else to believe there is one. It is true that there are a lot of companies which have initiated the procedure for changing the status of the land they own – but just how many of those are going to actually build electricity plants and parks? This is clear from the percentage of projects that have been finalized.

What about the much talked about “moratorium” on starting new renewable energy projects in order to improve the environment regulations? In December-January, the Ministry of Environment seriously considered imposing such a moratorium.

Well, as it turned out, there is no moratorium, they gave up on that idea but there is actually a tacit decision not to allow the start of new projects.What the Ministry of Agriculture and the Ministry of Environment are doing right now is that they retain all requests, and don’t give any answers.Thus, you, or any company applying for a permit to start a renewable energy project, have no reply but there is also no written document that saying there is moratorium. I call this a “tacit moratorium”. Because what the government says is that the legislation is to be amended, and the procedures would restart whenever the new legislation is adopted.

 

 

Is this “tacit moratorium” going to lead to a potential loss of foreign investment or jobs?

Well, this situation sends a very bad signal. I recently had a member of our Association come to me saying he had sent requests to the Ministry of Environment and had had no reply for a month. He was wondering what to do – should he continue with the other procedures for starting a renewable energy project?This is a very bad signal for the investors because it shows that somebody in Bulgaria can decide to do whatever they want in spite of the legislation.We have argued many times – including with foreign investors – who say, “You have bad legislation on renewable energy.” We say, “No, we have good legislation, the problem is that there is no control over its enforcement.” Even the bureaucrats don’t obey it – there are no punishments for them, they can do whatever they want.The problem is in the lack of control, follow-up, failure to implement the laws. There is no way to draft a better law. It just has to be enforced. Laws in Bulgaria are not enforced. As one famous Bulgarian politician used to say, “The police capture the criminals, and the courts let them go.”

What policies would you recommend to the government with respect to renewable energy?

Well, the sad truth is that we have no political decision about how the energy sector in Bulgaria should be developed. None of the last three governments made any such political decisions. They do things in bits and pieces but we have no energy strategy. There are only proposals for energy strategies that every new government disregards.The energy sector is not the textile industry where one day we make clothes, and the next day we don’t. If you build a power line, it will have to be used for at least 30 years. If you make no decision about what you are going to do, there is no way to establish a power grid to be used in the next 50 years.The current and the previous governments have been discussing a strategy for the development of Bulgaria’s energy sector by 2020. What good is that? We should already know what we will be doing by 2020, and should be talking about Bulgaria’s energy strategy until 2050!This is not happening, and this is not happening because there is no political decision for that. Whenever there is a political decision, there will also be an economic solution.

In your view, what should be the main focus of Bulgaria’s energy strategy?

The aim of our Association is to allow all household consumers to become household producers, to turn the energy sector to the ordinary people so that every single household could produce its own energy rather than be dependent on the monopolies regardless of whether these are state-owned or private ones.So the strategy of the Bulgarian government should be directed at how to increase the living standards of the Bulgarians rather than to come up with mega projects such as building two hydro power plants on the Danube together with Romania of 800 MW each, or building the Belene Nuclear Power Plant of 2 000 MW. It should focus on making the Bulgarians independent people.

 

 

What percentage of the projects for renewable energy in Bulgaria are in actual violation of the environmental regulations?

There are a lot of speculations on this issue as well. There is a park owned by Inos 1 which is on the territory of NATURA 2000. But this park was started before 2000 when there was no mention of NATURA 2000 in Bulgaria. So this park was under construction, and had all necessary permits when the protected areas network, NATURA 2000, was adopted in Bulgaria.There is another wind power park, also located close to the town of Kavarna, which is also in violation of NATURA 2000; it was also started before NATURA 2000 was in place but it did not have all necessary documents – so let’s accept it is OK to stop that project.However, the view of our association is that none of our members will ever execute any projects within the protected areas because there are plenty of other areas where this could be done. We have had a framework agreement with the Bulgarian Society for Protection of Birds for five years now.But the fact that some bureaucrat somewhere issued a permit for a project in a protected area is not a problem of the business sector. It is the problem of the state because it allowed somebody to be bribed.We do not have any members of our Association involved in such dealings because our position is clear – all sorts of renewable energy projects – wind, solar, biomass – can stay out of NATURA 2000.During our last meeting with the Environment Ministry, I think it was in January, the Ministry said it was going to draft a new, environmental map showing where renewable energy projects are allowed.This is unacceptable to us because 35% of Bulgaria’s territory already falls within the NATURA 2000 network, and now they want to introduce new restrictions. What is more, it is not clear what methodology they will use in order to determine which areas are allowed.What percentage of the renewable energy companies in Bulgaria are members of your Association?Not all are included but we have companies such as AES, ENEL, Global Wind Power, Vestas. Not everybody can become a member – we have a code, and everybody has to abide by it.

Are there foreign investors in Bulgaria which flee from the strict regulations in Western countries?

No, the thing that brought many renewable energy investors to Bulgaria after 2007 when the Renewable Energy Act was adopted is that we have a fit-in tariff which provides a guarantee, and we have very competitive prices.They were not attracted by the lack of regulation. I will say this again – we have a very good law. The problems come from that fact that some bureaucrat somewhere did not do their job, they are not because we have fewer regulations.Actually, I claim that if in Bulgaria the regulations were really followed by the administration, they would be better than in many Western countries.One thing we don’t have in Bulgaria about wind power parks, for examples, is a problem they have in many Western European countries.In England the big problem is that if you want to build a wind park, you have to get the agreement of those living in the area. But unlike England or Germany, which are packed with farms and outer settlements, in Bulgaria we do not have this problem.If you go to Dobrudhza (Northeastern Bulgaria) and pick a rectangle formed by any four villages, you can very well build a wind park in the middle, and it won’t be even visible.If you are in Denmark or Austria, wherever you go, there are homes all over the place. Bulgaria is not densely populated and we have a lot of unoccupied areas, and it will be a pity if we fail to utilize this potential because we have the potential to develop all renewable energy sources.

How realistic is the commitment made by the Bulgarian government to the EU that by 2020, 16% of its energy will come from renewable sources?

The important thing here is that this commitment does not refer only to electricity. 16% of all energy consumed in Bulgaria will have to come from renewable sources by 2020. This includes heating, cooling, air conditioning, etc. Many people say that we can make those 16%.However, if we calculate the recent energy Bulgaria consumes in kilotons of oil equivalent – our electricity consumption amounts to 2338 kilotons, whereas the total amount of energy we use for heating and cooling is about 4500 kilotons.The big issue in Bulgaria is how to produce heating and cooling energy from renewable sources because we cannot use biomass or geothermal sources right now. We have geothermal sources but they are not that great and using them for energy production has high marginal costs.We have good condition to develop biomass energy production but in order to utilize them we need to have farmers owning at least 10 000-12 000 decares of land. If I have a biomass power plant, I can sign contracts with 20 farmers in order to buy out their straw but they can always change their mind. They can decide to plant sunflower instead of wheat the next year because sunflower is more expensive, for example. Then what do I do? Countries such as the Netherlands, Austria, Germany have biomass plants but there it is the farmers who own them because the farmers would have about 14 000 decares of land, they would have 100 cows, and can decide on their own whether to use the manure to burn it for energy production, etc. Farms in Bulgaria are small-scale. A couple of days ago I had this idea – back in the communist days there were first collectivized agricultural units (“TKZS”), and we had the so called agrarian-industrial complexes (“APK”) – tying certain industries to agricultural production in certain plots. So I am thinking – perhaps it is time to have new APKs in order boost the opportunities for biomass production – we could have the farmers and electric engineers come together and form units – because there doesn’t seem to be any other proper way to have biomass plants.The other option is to burn wood. However, this is no solution because unfortunately in Bulgaria most of the forest potential that we have is located up in the mountains, and is very hard to access. Even today we extract about 5.8 million cubic meters of wood per year from which 3,1 is category timber while we actually need to extract about 7 million cubic meters only from sanitary felling, to keep all the forests healthy. But to do that we need to have roads and lifts all over the country. These are investments that Bulgaria could make within ten or more years if there is a political decision for that but it is impossible to do in recent years. That is why in Bulgaria we have the so called clear felling – the poachers go to the lower hills and slopes and destroy the forests there because they cannot get to the higher parts of the mountains. This is also why timber is very cheap in Bulgaria – because it is extracted through clear felling. If they have to extract the timber the proper way – through sanitary felling, its price will go up at least twofold.

In which of the various types of renewable energy sources (solar, wind, biomass, hydro power) does Bulgaria have the greatest potential?

Bulgaria has pretty much stopped developing its hydro power sector. We have a total hydro power capacity of 2563 MW from large water dams without pump storage hydropower stations. Perhaps we could reach 2900 MW by 2020 if some other projects are completed such as “Tsankov Kamak” or the “Gorna Arda” cascade.Bulgaria’s mini hydro power stations currently have a total capacity of about 205 MW; if we utilize all options here in full, perhaps another 200-300 MW could be added at most. So we are pretty much done with utilizing our hydro power potential – and this is on the condition that there is no global climate change and that we keep getting the same annual precipitation. If we don’t, the hydro power stations will have a lower productivity. There are investigations pointing reduction of the water resources with 10 %.You have to keep in mind that as far as the large water reservoirs are concerned, electricity production is only the fourth priority. In the first place, the water is used for water supply to the people, then for irrigation, etc, and electricity production only comes in fourth. So if you don’t have much water in the reservoirs, nobody is going to let you use it for electricity production. Some 10 years ago Sofia had this problem as the Iskar Reservoir was almost empty. So this is a delicate question. Bulgaria has a huge technical potential in terms of installed wind power. We have estimated it at about 76 000 MW. Just to compare – the total production mixed capacity we currently use is about 9 000 MW. We also have about the same estimated technical potential in terms of installed solar power – 71 000 MW. As to biomass, we will need a lot of investments in order to increase our potential there. We also have about 700 geothermal sources in Bulgaria distributed rather evenly on its territory but they cannot be used for electricity production, only for heating&cooling. This, however, is a matter that has to be decided on by the municipalities. For example, Varna is located on a sea of geothermal energy which, however, does not have a very high temperature. It is up to the municipality to start using this potential to heat public buildings, for example. This is a big investment. The drilling alone costs EUR 200 000 but one also needs infrastructure because if a single household cannot do the drilling and then heat only its own house, the entire neighborhood has to be included. For example, the Golden Sands resorts can do that – they can use the geothermal energy for cooling.

You mentioned biomass but did not mention energy crops. Bulgaria has seen an increase of the acreage with rapeseed – what is the situation there?

Well, the rapeseed production so far wasn’t doing very well but we have just recently changed the legislation so there is a lot of hope for it. Until recently, the legal requirement was to have between 0% and 5% biodiesel mixed with the petrol. And the gas providers and gas station operators used the 0% option. With the new law, the fuel sold at gas stations in Bulgaria has to have at least 2% of biodiesel. So now it seems that Bulgarian-produced rapeseed oil can find a market in Bulgaria; because so far it was only for export. According to the EU directive the share of RES in transport is supposed to be 10% by 2020. This target have to be fulfilled with biofuels (produced or imported) or with electricity from RES.

Are there any rapeseed oil refineries in Bulgaria?

There are a couple of refineries which have had no market for their biodiesel here so they have had to export it. Take the “Slanchevi Lachi” refinery in Provadia, near Varna, which has a production capacity of 30 000 tons of rapeseed oil. They go to Lukoil, for example, and Lukoil would say, “We don’t need it, the law says the biofuel content has to be from 0% to 5%. Now things should start to work out – especially if the required biodiesel content is increased to 3% and then to 5%. There is a lot of speculation with the fact that the Bulgarian farmers might start growing energy crops instead of wheat, etc, so there will be no food production. This will not be exactly the case because everybody has learned in primary school that farmers have to rotate the crops, they cannot grow rapeseed every single year. This production will be regulated by the market. Take Germany, for example. They introduced favorable prices in order to help the German farmers growing rapeseed but the companies built plants near the ports and started importing palm oil from the Philippines, and did not want to buy the rapeseed oil of the farmers because it was too expensive. So the market regulates everything.

How competitive is Bulgaria in terms of renewable energy compared to other countries in the region? Can it start exporting energy from renewable sources?

Yes, and this is actually in Directive 2009/28 of the EC which says that EU countries that cannot meet the requirements for having a share of their energy come from renewable sources are obliged to make “strategic transfers” from other EU states through the so called “guarantees of origin.”Bulgaria can make huge profits from that – I can tell you immediately five EU states which will not meet their renewable energy commitments – the UK, the Czech Republic; France is also unlikely to meet its requirement.That is why I say to the Bulgarian government that it is nice to cut expenditures but we should also try to focus on increasing revenue.There was a communist saying that “economizing is the mother of the economy” but the Bulgarians used to say that “economizing is the mother of poverty.”So the Bulgarian state must concentrate on how to increase revenue, the GDP, how to invest in education, new technologies rather than just tightening the belt. Because the belt can be tightened for some time, until the person who wears it dies.

What are the chances that the necessary electricity distribution infrastructure in Bulgaria will be developed to meet the requirements for the new production capacities?

The development of the power distribution network is a political decision. NEK is a state-owned company. It will develop the grid if the head of NEK, who is appointed by the ruling party, is given a plan and is told to build a certain number kilometers of new lines in order to connect to the network a certain number of new plants.Our state-owned companies don’t have investment plans – or if they have them – no one knows about them. The National Electric Company NEK is currently drafting a ten-year plan for the development of the grid because this is required by the European Commission. Our only hope is that the EU will require some things from our government.There is actually a fair chance that the infrastructure will be developed because it can be developed. But when we talk to the State Commission for Energy and Water Regulation (DKEVR) we ask them why they don’t allocate money to NEK for development projects – because NEK say they have no money. The DKEVR replies – “They never asked us for money! In order to give them some, they have to present at least one project, and say they need this much for this new line.”The prices could be increased by BGN 0,01 – and with the recent electricity consumption that is where we can get BGN 270 M for a new power lines. But NEK has not asked for funding. The DKEVR sets the prices accordingly.If they don’t get asked by NEK for money, they don’t raise the electricity prices. NEK say they got no money but they never ask for any. It’s like that old joke about that man who prayed to God to win the lottery without ever buying any tickets.