EU-Report Accession Bulgaria

Chapter 14: Energy

Bulgaria has stepped up its progress in reforming a sector where restructuring had been slow in previous years. Legislative alignment has advanced with the adoption of the legislative basis for market opening. Privatisation of the distribution companies is under preparation.

A new national energy strategy was adopted by the Parliament in July 2002. This lays down the basis for introducing market mechanisms and transforming the sector, including improving Bulgaria's energy efficiency.

Concerning security of supply and the constitution of mandatory oil stocks, Bulgaria adopted a new Classified Information Act in April 2002. As a result, the level of Bulgaria's oil stocks is no longer a state secret. Current levels of stocks are extremely low, which confirms the need for rapid measures to meet oil stock requirements.

In relation to competitiveness and the internal energy market, amendments to the Law on Energy and Energy Efficiency were adopted in November 2001, laying the basis for legislative alignment. Ordinances on the definition of eligible customers, for both electricity and gas, were adopted in April 2002, as was implementing legislation on network access. Ordinances on the methodology for the formation and application of prices and tariffs for power, natural gas and heating were adopted in December 2001. This provides a regulatory framework for the transition from administrative pricing of energy to standard price regulation, which is being carried out this year. The State Energy Regulatory Commission (SERC) has now formally taken over responsibility for developing and implementing a tariff and price-setting methodology for electricity, gas and heating, and for approval of tariff proposals submitted by companies in the energy sector.

In November 2001, the Bulgarian Government approved a privatisation programme for seven power distribution companies, twenty heating utilities and seven thermoelectric power plants.

In the district heating sector, the Government adopted a decision to introduce a twocomponent price for district heating, the two components being a fixed price for capacity and a price for energy consumed. Heating price subsidies for household consumers are being phased out and replaced by social support for specific groups of needy customers.

In the solid fuels sector, Bulgaria is implementing its Action Plan for the sector and is in the process of selling most of its coalmines and liquidating those that are not profitable. The coal mining sector currently includes 21 companies, of which 6 are in the process of liquidation and 2 were declared insolvent this year.

As regards energy efficiency and the use of renewable energy sources, some limited legislative progress can be recorded. Amendments to the Energy and Energy Efficiency Law provide for the possibility for local producers of renewable energy to sell power directly to customers.

As regards administrative capacity, a Ministry of Energy and Energy Resources was created in December 2001, replacing the former State Agency for Energy and Energy Resources (SAEER). The State Energy Efficiency Agency (SEEA) was subsequently attached to the Ministry and transformed into an Executive Agency, but it has not been reinforced (27 staff). The State Energy Regulatory Commission (SERC)'s main task since its creation in September 1999 has been to issue licences to operating power companies. The SERC, since the beginning of 2002, also has the leading role in fixing prices and tariffs for power, natural gas and heating. As far as the strengthening of its independence is concerned, there have been improvements in the collection of fees, which before were merged into the State budget and now are directly paid to the SERC through the Ministry of Finance. SERC currently has 77 employees, of the planned 92.

In the field of nuclear energy, Bulgaria operates the Kozloduy Nuclear Power Plant with four units of VVER 440/230 design type (Units 1 to 4), and two units of the VVER 1000/320 design type (Units 5 and 6). Kozloduy NPP provides around 45 % of the country's electricity. In addition to the Kozloduy reactors, Bulgaria has one research reactor close to Sofia, which is presently shut down pending decisions on its future. Spent fuel from the power reactors is stored at Kozloduy and spent research fuel at the research reactor. Existing waste treatment and disposal facilities are being upgraded and new ones are planned.

As regards nuclear safety, Bulgaria has continued to make progress on improving the legislative and regulatory framework with the adoption of the Law on the Safe Use of Nuclear Energy, which came into force in July 2002. The law specifies, inter alia, nuclear and radiation safety principles, the licensing regime and responsibilities of the licensees, the principles of safe management of radioactive waste and spent fuel, and the responsibilities of regulatory authority and regulatory control. Through this law, the Committee for the Use of Atomic Energy for Peaceful Purposes (CUAEPP) is transformed into a Nuclear Regulatory Agency, which has no promotional functions. A new action plan was prepared and approved by the CUAEPP in order to increase its independence and technical competence. The action plan has to be implemented by 2004. Its chairman is to be appointed for a 5-year mandate and for a maximum of two mandates. A state enterprise is to be established (planned for January 2004) for the safe management of radioactive waste and spent fuel and in particular for their safe disposal. It will cover mostly disposal management, but also pre-treatment, conditioning and operations conducted outside the facility where the waste is generated. The law confirms the funds established to secure the financing of radioactive waste management and safe decommissioning of installations. It also lifts the State monopoly on the use of nuclear energy and on the ownership of nuclear facilities and nuclear material. A decree of May 2002 provides for an increase of the CUAEPP's staff from 80 to 102 people. In order for the law to have full effect in the coming years, 22 related regulations still need to be developed and implemented.

Reactors 1 to 4 of the Kozloduy Nuclear Power Plant are subject to closure commitments entered into by the Bulgarian government. These commitments are contained in the Understanding signed with the European Commission in November 1999. During the reporting period, Bulgaria has continued to undertake various steps to implement this commitment under supervision of a special project management unit established in the Kozloduy Nuclear Power Plant to oversee the process of decommissioning of Units 1 and 2, which are to be closed down before 2003. These efforts continue to be supported by the Kozloduy International Decommissioning Support Fund, managed by the EBRD. In March 2002, the Bulgarian Parliament ratified the framework agreement between Bulgaria and the EBRD concerning the activities of the Fund. In November 2001 and June 2002, the Fund held meetings of the Assembly of Contributors, who formally approved the installation of a Project Management Unit on the site of the Kozloduy Nuclear Power Plant and the construction of a dry spent fuel storage facility on site. In addition, funding was granted for projects designed to support efficiency measures in the energy sector in Bulgaria. Through this the Fund contributes to the rehabilitation of the Sofia District Heating network, in which other international institutions also participate. This should bring improvements in the living conditions of around 900 000 people living in Sofia. The Fund also finances a project for the reduction of non-technical losses in the power distribution system. Close to EUR 78 million have been committed so far and several other projects related to decommissioning, nuclear safety and support to the energy sector have been initiated or are currently under examination. The Assembly is chaired by the Commission representing the European Community, which is the main contributor to the Fund. Several other donors, including some Member States, also contribute to the Fund.

In the reporting period, Kozloduy NPP continued its programme of investments on Units 3 and 4, notably with the installation of an accident localisation system. This was accompanied by a domestic debate on closure dates. The Bulgarian Government has recently announced its decision to close units 3-4 in 2006. The Government also requested an EU peer review of the safety of these units. Modernisation programmes for Units 5 and 6 are continuing with the support of the European Union. Two parts of the Euratom loan of EUR 212.5 million for the modernisation of these units, totalling EUR 55 million, have been disbursed.

Overall assessment

As regards oil stocks, Bulgaria needs urgently to adopt a framework law for alignment with the acquis, given the time needed to create the necessary oil stocks. Particular attention should be given to ensuring adequate administrative capacity to manage these stocks. The amendments to the Energy and Energy Efficiency Law were an important legislative development. Market opening, access to the network and price adaptations have been introduced. However, it is still not yet legally possible for eligible customers to switch supplier and the timetable for reaching cost coverage and eliminating price distortions has not yet been defined. Restructuring of the utilities should be completed. An improvement in the recovery of unpaid bills can be recorded and should continue.

Investments in the distribution network and to improve energy resources are under way, with the aim of full interconnection to the western European electricity networks (UCTE) in 2003. The transmission system operators NEK (for electricity) and Bulgargaz are working to improve the energy networks. Bulgaria is keen to maintain its role as a transit country both for electricity power and gas.

The administrative capacity and the independence of the State Energy Regulatory Commission (SERC) have improved, though still need further reinforcement. Low salaries and budgetary restrictions and the lack of flexibility in using this budget hamper its effective functioning. The SERC is participating in drafting laws and regulations for the sector in order to develop the future market model.

In the solid fuel sector, the implementation of the Action Plan for the restructuring of this sector is progressing. 6 companies have already been partially or fully privatised and production subsidies are being phased out. Productivity in the sector has improved by more than 10%. The alleviation of the social consequences of these plans needs attention.

Energy efficiency in Bulgaria remains extremely low. Price modifications should be an incentive for consumers to start investing in energy efficiency projects and initiatives, as well as for investors in the production of renewable energy, but this alone cannot address Bulgaria's problems. An active and co-ordinated policy, both on the production and enduser side, has still to be defined with a view to rapidly enhancing support for energy efficiency, energy savings and the use of renewable energy sources. The Energy Efficiency Agency has no clear mandate, its management has still not been appointed following the recent change in the institutional framework, and it needs to be strengthened as part of a wide-ranging policy to promote energy efficiency.

The European Union has repeatedly emphasised the importance of a high level of nuclear safety in candidate countries. In June 2001, the Council of the European Union took note of a Report on Nuclear Safety in the Context of Enlargement. This Report contains recommendations to all candidate countries to continue their national safety improvement programmes, including those on the safe management of spent fuel and radioactive waste, and on the safety of their research reactors.

During the first half of 2002, a special Peer Review on nuclear safety assessed the progress made by candidate countries in implementing all recommendations. This exercise under the auspices of the Council resulted in a Status Report, published in June 2002, which concludes that Bulgaria has accepted all recommendations contained in the Report on Nuclear Safety in the Context of Enlargement of June 2001. Most recommendations have been adequately addressed. Bulgaria should devote further attention to three recommendations: it should clarify the legal status of the safety analysis reports, implement as soon as possible the new Law on the Safe Use of Nuclear Energy which entered into force in July, and give special attention to the funding of the radioactive waste storage programme. The Status Report recommends further monitoring with regard to five recommendations, regarding the provision of adequate human and financial resources to the regulatory authority, as well as the timely completion of the plant specific safety improvement programmes, safety analysis reports and emergency operating procedures, and the implementation of the remedial programme regarding highenergy pipe brakes at Kozloduy Units 5 and 6.

Furthermore, the Status Report reaffirms the importance of Bulgaria's commitment on the definitive closure of Units 1 to 4 of the Kozloduy NPP at the earliest possible dates.

Units 1 to 4 of the Kozloduy Nuclear Power Plant are subject to early closure commitments. They have a number of deviations from safety requirements due to their original design, not least the absence of containment. In 1999, Bulgaria agreed and committed itself, in an Understanding signed with the Commission, to close down definitely Units 1 and 2 before the year 2003 and to decide, on the occasion of the updating of the energy strategy which will be completed in 2002, on the dates of the definitive closure of Units 3 and 4, which will be before the initially envisaged dates of 2008 and 2010 respectively. The European Union's understanding is that the closure of Units 3 and 4 will take place in 2006 at the latest. These closure commitments must be duly respected.

One important development in Bulgaria's progress on improving the nuclear energy and safety legislative and regulatory framework was the adoption of the new Law on the Safe Use of Nuclear Energy. This should improve the status and the independence of Bulgaria's nuclear safety regulatory authority, which has its own budget as part of the budget of the Council of Ministers. Attention will have to be given to the timely implementation of the new action plan to increase the authority's independence and technical competence. As well as the annual contribution from the State budget, it receives funding from the licensing of nuclear energy activities. The decree for increasing staff has to be confirmed in the Budget Law.

Longer-term solutions for spent fuel and nuclear waste will continue to need attention. The new law provides for the creation of a State enterprise to deal exclusively with management of radioactive waste.

Bulgaria will need to ensure compliance with Euratom requirements and procedures. In this respect, due attention will need to be given to preparing the implementation of Euratom Safeguards, in particular regarding the reporting of nuclear material flows and inventories directly by the persons or undertakings operating nuclear installations or storing nuclear materials. It should be noted that Bulgaria has concluded a Full Scope Safeguards Agreement with the IAEA.

Conclusion

In its 1997 Opinion, the Commission concluded that Bulgaria needed to step up considerably its efforts in the energy sector in order to prepare for integration, particularly in the following areas: the adjustment of monopolies; access to networks; energy pricing; emergency preparedness (including the building up of mandatory oil stocks); restructuring and state interventions in the solid fuel sector and the development of energy efficiency. Bulgaria had to implement certain international nuclear regimes and make some legislative adjustments in order to comply with the Euratom Treaty. It also noted that nuclear safety required continued particular attention, with rapid implementation of agreed realistic programmes, including closure where necessary. Long-term solutions for waste needed to be found.

Since the Opinion, Bulgaria has made only limited progress, due to the absence of restructuring and a streamlined policy in the sector until the year 2001. Since this date, Bulgaria has accelerated its progress towards compliance with the acquis, and reached a certain level of alignment, notably in the area of the internal energy market, through the adoption of the legislative basis for market opening, and the ongoing restructuring of the industry, including privatisation of the distribution companies. Restructuring of the solid fuel sectors is progressing. Nuclear safety has been improved as far as operational safety of the nuclear installations and the legal framework is concerned, and Bulgaria has committed itself to closure of some installations on agreed dates. The regulatory authority is being strengthened.

Negotiations on this chapter are continuing.

Bulgaria should now focus its further efforts on further implementing and refining its overall energy policy, as a first step to full and timely implementation of legislation, in particular with regard to the internal energy market. Bulgaria should set clear timetables for restructuring the energy sector, including the alleviation of related social consequences, and prepare for the closure and decommissioning of certain units of Kozloduy NPP. Concrete measures to improve energy efficiency, and strengthening of the administrative capacity of the newly-established bodies, in particular the energy regulator, the body responsible for managing oils stocks and the nuclear safety authority, are needed. Bulgaria also needs to make arrangements to ensure the progressive building up of oil stocks as required by the acquis.

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