Bulgaria’s lack of progress in securing financing for its planned nuclear power station at Belene has led Bulgaria to turn to Russia, but Moscow’s offer to hand Sofia a 3.8 billion euro loan comes with strings attached.

Should the Russian government agree to an export loan through one of its state-owned banks, it would ask Bulgaria’s Finance Ministry to guarantee repayment. That would instantly nearly double Bulgaria’s public debt, which was four billion euro at end-February.

As it stands right now, Bulgaria’s general government debt of 12.5 per cent of gross domestic product (GDP) limited near-term risk, Fitch Ratings said on April 30, but warned that long-term external solvency was a worry as private debt rose to 90 per cent of GDP at the end of 2008.

The agency said it downgraded the outlook on Bulgaria’s BBB- credit rating to negative, which means that Fitch sees a possible downgrade for Bulgaria’s below investment grade, which would automatically make any new loans Bulgaria takes more expensive.

There was no alternative to state guarantees, Economy and Energy Minister Petar Dimitrov said on April 28, because the project company that would use the funds, a joint venture between Bulgarian state-owned power grid operator NEK and German utlitity firm RWE that would build and operate the power plant, had not been set up yet.

Before the project company can be set up, the European Commission has to give its formal approval, after which the European Union’s nuclear watchdog Euratom has to approve the technical plans, according to NEK board member Ivan Atanassov, quoted by Dnevnik daily earlier in April.

Bulgaria made a mistake by picking the technology and subcontractors before securing financing and setting up the project company, which added an additional layer of uncertainty to the project’s progress, Atanassov said.

Credit crunch
Even before the global credit crunch took a turn for the worse in September 2008, French banking group BNP Paribas, picked by NEK to arrange loans for the Belene power station, ran into difficulties persuading banks to finance the project. The fact that BNP Paribas was unwilling to put up any of its own money beyond the 250 million bridge loan facility extended in 2007, did not help persuade other lenders that the project was worth financing.

Any hopes that RWE would cover some of the initial construction costs have also been dashed in recent months. The German utility’s top executives remain committed to Belene, according to media reports in the wake of the company’s shareholders meeting in late April, but they are facing continued pressure from environmental groups and even some shareholders to drop the project.

Bulgaria needed to secure the money soon or Belene would not make the deadline to start operations in 2014, engineering consultants WorleyParsons said.

"The government should close a financial deal as soon as possible," WorleyParsons senior vice-president Djurica Tankosic told reporters in Sofia on April 29. "We can stay on track until the end of the year. After that, without funding, there will be a delay," he said, as quoted by website mediapool.bg.

Some work was already behind schedule, but none of it was critical for the timely completion of the power station, Tankosic said. The longer the delay, the higher the chance that costs on the project would rise, he said.

NEK signed the contract with Russia’s state-owned nuclear technology export firm Atomstroyexport in January 2008, fixing the construction price for two 1000MW reactors at four billion euro, although that did not include processed nuclear fuel storage facilities.

It was at that time that Russia’s then-president Vladimir Putin said that Russia had put aside 3.8 billion euro in its budget to cover a possible loan for the Belene station. No such provision has been made for 2009, however, it emerged during the talks that saw Dimitrov travel to Moscow three times.

Bulgarian rightist opposition parties have already asked for the Government to freeze the project, saying that taking a large loan would take a heavy toll on the Bulgarian economy, already headed for a recession. The opposition went as far as to accuse the Socialist-led Cabinet of siding with Russian energy lobbies and hurrying the project in the last months of its term.

Bulgaria’s Socialist President Georgi Purvanov, one of the staunchest supporters of the project, has rejected the pleas, saying that it would "leave Bulgaria at the back of the line of countries aiming to be serious players in the energy sector".

Bulgaria lost its status as one of the main electricity exporters in South-Eastern Europe after it was forced to shut down four nuclear reactors of 440MW each as a condition to join the EU in 2007. Bulgaria maintains that the units were safe and has periodically attempted to raise the issue of restarting the units, but its efforts have been constantly rebuffed by the EU.