Temenuzhka Petkova: Bulgarian Minsiter of Energy – Establishing Energy Diversification & Offshore Exploration

A country’s energy supply and the diversification of it is without question one of the single most critical components to any well-functioning nation. Indeed, a representation of the ability to govern oneself with minimal external influence while simultaneously providing security for all its inhabitants. These implications are significant not only in the obvious but also serve to determine the fortitude of a transitional nation’s governmental will to move into a more advanced state of existence. It’s for these reasons we seized the opportunity to sit with Bulgaria’s Minister of Energy, Ms. Temenuzhka Petkova, who, as you’ll soon see fully recognizes the implications of her massive list of responsibilities. Like many countries, much of her initial work relates to the task of rectifying past governmental inadequacies. But don’t let that fool you into believing her mission at hand is any less significant and worthy of adulation should these goals become largely realized. Beyond this, we are happy to have within the confines of this interview some exciting investment opportunities. So, dig in and take a look at what a brighter and more stable Bulgaria means and how this will benefit you, the American investor.     

 

 

Minister Petkova, please offer a brief introduction of your professional background and how it relates to your current position as Bulgaria’s Minister of Energy.

I took over as the Minister of Energy under Premier Borisov just over six months ago. My background in government relates to my time at the Ministry of Finance where I focused on accountancy and inspection, this is my primary expertise. From 2010 through 2013 I was the director of the Public Financial Inspection Agency (PFIA) where I then moved on as the Deputy Minister of Finance in 2014 during the interim government.

Now, my experience relating to the energy sector goes back to my time as the director of the PFIA; as such, all my experience relates to the financial aspects of this important sector.

Energy is a very important aspect for Bulgaria’s future, indeed, for the new government, especially in terms of successful financial management, which makes your appointment as minister quite reasonable. What are some of the challenges that you are currently facing?

The challenges are many. The main issue, as you alluded to, is financial stabilization. Unfortunately, for many years the prices for electricity were established following a specific social policy set forth by previous governments. Adding greatly to this problem are some investments that were made for political reasons and were not economically viable. These investment projects were extremely expensive and yielded no recoupment putting the sector’s finances in distress, in fact, they form the largest part of NEK’s (National Electric Company) overall deficit. To put this into numbers, the total debt of NEK is 3.7billion leva [pegged to euro at 1.956] with about 62% of that coming from these poor investments; the remaining portion comes from feed-in tariffs and other unsound pricing controls. This is the situation that the new government faces.

Like many governments, you have inherited some bad apple policies. How do you intend to address these issues?

Yes. The situation is a product of years of accumulation. However, at this point, the country has absolutely no other choice but to solve these issues and remedy shortfalls of the past. In order to begin the process of stabilization we are enacting amendments in our current legislation, specifically, the Energy Act. The changes set forth are aimed at shrinking the deficit and changes to the Energy and Water Regulatory Commission (EWRC), the main regulatory body for the sector, that determines tariff prices on the market, their efficiency is of tremendous importance.

Additionally, we will be conducting annual inspections of all power plants included within the energy mix. This type of measure has never been done before and will be conducted by an independent body via the Ministry of Finance. What we will focus on is the costs and expenses of these plants as well as their rate of return and pricing.

Minister of Energy – Bulgaria – Ms. Temenuzhka Petkova

How do you aim to establish the required level of efficiency within the EWRC?

We have changed how the board members are elected. Now they are elected by parliament, which is the status of the current members of the board. Through this we can better guarantee their objectivity. Importantly, this should remove the pricing of energy based on social trends and replace it with market established prices. Another amendment within the Energy Act is removing the obligatory purchase of energy at preferential rates from non-efficient suppliers. These decisions are based on research of data from NEK, where in 2014 the company generated 231million leva in losses due to obligatory purchasing, namely from thermal power plants (TPP) but also from renewable energy source providers (RES).

Indeed, we saw in the news the changes regarding RES providers, which up till now has been a successful field for investors to places their capital.

Through the same data research from NEK we recognized that we have already reached our EC mandated renewable energy requirement of 16%. For this reason we made the decision to remove the obligation to purchase RES.

In the end, what we are doing is leveling the energy market. Previously, NEK was obligated to purchase energy at inflated rates of 300 leva per megawatt hour and sell at 120 leva megawatt hour. We’ve ended that. By all means, investors still have opportunity to invest in Bulgaria’s RES industry by selling on the open market. It’d like to highlight that in the beginning of 2016 we will begin working towards liberalization of our energy market. This will enable a very transparent and market oriented model for investors to operate efficiently in.

We saw a potential plan for a regional Vertical Gas Corridor. Along with this, what are some other replacement projects meant to diversify Bulgaria’s energy supply following the cancellation of the South Stream route by Russian President Putin?

The first high level meeting regarding the Vertical Gas Corridor was held in Sofia on the 22nd of April. We have taken the decision to start the initiative by creating a ministerial level working group as well as an expert working group where we’ve worked out the Terms of Reference and have submitted them to the EC for review.

Naturally, diversification is a large part of our agenda and is of great national importance as we are dependent on only one source of supply for natural gas. Because of this we are focusing primarily on also establishing interconnectors with our neighbors from Turkey, Romania, Serbia and Greece. The focus is great because we are trying to make up for lost time as almost nothing was done in this regard in years past. Most importantly, we are working on an interconnector with our Greek colleagues linking us to the Southern Gas Corridor, which has importance not only for Bulgaria but all of Southeastern Europe. We will be able to not only diversify our source of supply but also the route of supply coming from Azerbaijan’s Caspian Sea reserves. We are moving quickly in this process with Greece and are very near to signing the final investment decision.

For this investment we have established a project company named ICGB in conjunction with our shareholders, Italian-Greek consortium, Poseidon. Although not allocated yet we have already established an amount of 80million euro from our 2015 budget for the project. The pace and action in which we are taking shows how critically important this is for our nation. Having in mind this project has positive implications for the whole European Union, who have expressed their support on several occasions; as such, we are hoping for an additional grant from the EC and we are eagerly awaiting their decision. The grant is critical as the total project amount is 220million euros.

Having said that, we are at the most advanced stage with our Romanian counterparts. All the land construction components of the interconnector have been completed and we are hoping that by the end of this year we will be fully operational. This, however, depends on the completion of the stretch going under the Danube River which is currently out for tender.

In Turkey we have already established in interdepartmental working group rooted in our respective Ministries of Energy. From our side the state-owned Bulgartransgaz is the major participant. This project also has an active tender out for a pre-feasibility study for a total of 380,000 euro where half was paid through an EU grant via the Connecting European Facility Program.

The last interconnector with Serbia is moving forward but they are currently facing a financing issue. They have assured us they are working on it and the issue will be fixed in the near future. Once that is taken care of we will follow through with completion as we have already announced a project management tender for the Bulgarian portion.

With so many moving parts and requisite intergovernmental cooperation with your neighbors there must be the consideration that a single aspect might fall through, for example the Serbian deal. Are there any contingency plans to mention?

We have strong contacts with all these neighbors, in particular, our Greek colleagues, who have confirmed this project is of great interest to them as well. We are confident in the project’s fulfillment. Additionally, we just had another meeting at the ministerial level with the Romanians who have again assured us they are looking to advance the project. Through this meeting we also discussed the potential for a compressor gas station located in Romania which will facilitate the reverse flow of natural gas. Let me assure you, the governments in the region realize the great importance of these interconnectors because they ultimately lead to overall national and regional security which is of paramount importance to any nation.

The Energy Act reforms and interconnector projects are all positive things that lend themselves to establishing confidence within a foreign investor. You’ve already mentioned several tenders related to these regional projects and we’ve also seen one released this past December for offshore exploration for gas and oil; what are some broader opportunities that exist for FDI in light of all these realizations?

The creation of a stable business environment is also major priority and in order to do that we need a framework in place to foster investment and laws to support the security of them. As such we have focused our efforts on creating and keeping laws in place that maintain stability and facilitate investments. It’s through this established environment that we confidently offer the opportunity for deep sea exploration for the Silistar and Teres blocks. The initial research for these fields offered very optimistic results which brought a lot of interest from investors looking to exploit the potential further. The tender for this was officially announced through the European Commission Journal on the 18th of April with a deadline of September 20th, 2015.

 

Was there not a tender for exploration a few years ago?

This is the Han Asparuh block though the Total (France)-Respol (Spain)-OMV (Austria) consortium. In 2016 we expect the first drillings in this field. Having said that, the most interest is through the new tender for Silistar and Teres; really, some huge investors have expressed interest.

I see that you have to go; if you would, let’s finish with a concise direct message to the US investor on why Bulgaria makes sense as an investment destination.

We are continually working on creating a very favorable environment within the energy sector for the foreign investor. The basis of which are the amendments to the Energy Act as well as other parts still being worked on. As for American investors, we have very strong contacts and cooperation with American companies, namely with AES and Contour Global, who are operating two of our power plants.

 

 

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