Since being resuscitated in 2005, Bulgaria's project for a second nuclear power plant at Belene on the Danube River has always been dogged by allegations of fixed tenders and other assorted impropriety; such charges were at times cited as one of the reasons for the spiralling costs of Belene's construction, costs that may yet cause state power utility NEK to default on a loan.
For all the whispers and occasional outright accusations, no charges were ever pressed. That could yet change after the findings of an investigation by the Public Financial Inspection Agency were forwarded to the prosecutor's office on April 17.
According to the agency's report, several breaches of Bulgarian laws occurred since Atomstroyexport, a subsidiary of Russia's state nuclear corporation Rosatom, was picked to build two 1000MW nuclear reactors at Belene for a total fixed cost of 3.97 billion euro.
These all appear rooted in the fact that NEK, which held the majority stake in Belene on behalf of the Bulgarian state, and Atomstroyexport never agreed and signed a final construction contract. The main stumbling block has been the issue of cost indexation, the topic of numerous back-and-forth negotiations over the past six years.
Despite the lack of a final contract, NEK entered into an agreement with Atomstroyexport to carry out part of its duties under the contract and paid for those services, even though it did not know what the final cost of the services would be, the financial inspection agency said in its report.
"This raises questions to what extent the financial interests of the contracting party [NEK] were protected given that the cost indexation formula, which would have been applied retroactively, had not been agreed," the report said.
NEK and Atomstroyexport signed a total 14 annexes to their original agreement, with NEK paying a total 383.8 million euro for the work carried out by the Russian contractor. Atomstroyexport, for its part, has billed NEK for a total 410.3 million euro (value-added tax excluded) for its services.
Contracting Atomstroyexport to carry out work prior to signing a final construction contract breached public procurement legislation, the financial inspection report said. The actions had been authorised by NEK chief executive Lyubomir Velkov and executive director Mardik Papazyan.
Separately, contracting Atomstroyexport to clear existing equipment off Belene construction site in 2008 and 2009 without a public procurement tender was also a breach of existing legislation. However, the financial inspection could not officially write up Velkov and Papazyan as being in administrative violation on this issue because the three-year statute of limitations had expired.
According to Economy Minister Delyan Dobrev, the two NEK executives were non-political figures and should be asked whether they had been pressured into signing the contracts with Atomstroyexport. "It is unlikely that they signed the agreements on their own heads," Dobrev told TV7 channel.
At the same time as the Government announced the results of the financial inspection into Belene's construction, it also made public the much-awaited evaluation report by consultancy firm HSBC, hired to ascertain whether the project was still financially viable, even though the question had been rendered academic by the Cabinet's decision in March to halt construction.
According to HSBC's analysis, the final costs of construction in the most likely scenario was 10.35 billion euro. This assumed that 40 per cent of the costs would be financed by NEK itself and the remaining 60 per cent through debt – loans that would be serviced mostly at current levels of interest.
The summary of the HSBC report, published by the Economy Ministry, presented only the final findings and did not detail the source data that the consultants used to reach a conclusion. HSBC said that construction cost assumptions had been provided by NEK and the project's engineering consultants WorleyParsons, which, as critics pointed out, raised questions about whether the data was reliable, coming from entities interested in the continuation of the project.
Under the best-case scenario, NEK would have to sell electricity at an average price of about 75 euro a MWh in order to operate Belene at a profit. By comparison, NEK currently sells electricity generated at the Kozloduy power plant for 15.3 leva (roughly 7.8 euro) a MWh.
As it stands, NEK is already facing difficulties repaying a 250 million euro syndicated loan arranged by BNP Paribas, due on May 23 2012. Attempts to refinance the loan have been met by opposition from two of the participant banks, Belgium's Dexia and Japan's Mizuho, which would rather see their loans repaid.
Presuming the other six banking institutions were willing to refinance the loan, NEK needed 55 million euro to repay Dexia and Mizuho in a month's time. According to Economy Minister Dobrev, several options were being considered, including a loan from NEK's parent company, the Bulgarian Energy Holding, or issuing corporate bonds.
"We've been working on this issue for the past six months, but it is not so simple, especially in the current financial situation," Dobrev said.