Bulgaria: Slayer of Russian Energy Projects

January 21, 2015 2:00 PM

In the past three years, Bulgaria has been slaying large Russian energy projects at the pace of one a year. In 2012, it was the Belene nuclear power plant—started in the distant 1988 and dragging along until the Borisov government, in which I was minister of finance and deputy prime minister, killed it off. In 2013, it was the Burgas-Alexandroupolis oil pipeline. That project also dragged along for more than a decade, endangering tourism on the southern Black Sea. At the end of last year, it was the South Stream gas pipeline. During a visit to Turkey in December, President Putin singled out Bulgaria as the main reason for cancelling South Stream.

To many foreign analysts, these determined actions seem to suggest the emergence of anti-Russian attitudes in Bulgaria, long a strong ally of Russia. In fact, they are primarily driven by a different rationale: the fight against corruption. For as long as these projects have existed, they have allegedly been used for channeling bribes to certain political parties and the coterie of businessmen around them. In this manner, they have polluted Bulgaria's political climate and have retarded its democratic development. What is more, without exception these projects have dubious economic benefits for Bulgaria.

How does corruption in large energy projects work? In two principal ways: First, each project necessitates various feasibility studies, which can be contracted to local consulting companies connected to politicians. In the case of Bulgaria, such work has amounted to tens of millions of dollars. Second, the preparatory and subsequent work is given to construction and engineering companies related to the business interests of politicians. This is done by skirting public procurement. In the case of the latest cancelled project—South Stream, for example—the local company selected for the construction of the pipeline was announced just before New Year's Eve in 2013, after a one-day procedure. Not surprisingly, this became a highly contentious point in the heated debate around the benefits of South Stream for Bulgaria and ultimately resulted in the resignation of the Oresharski government.

As contracting with politically-connected firms is done on the sly, it takes some time even after a project is cancelled to understand the implications on the government's budget or the budget of the state-owned National Energy Company. In the meantime, wasteful work continues. As a result, the accumulated losses from the three projects have been estimated in the billions of dollars—a significant amount for an economy such as Bulgaria's. This money comes out of the taxpayers' pockets.

By now you may wonder why the Bulgarian parliament has allowed for such profligacy. The answer is that in the last few parliaments there have been powerful lobbies in favor of large energy projects. Note that these lobbies support not just Russian-backed projects. In the past few years they have also supported the efforts of an American company to sell nuclear technology to Bulgaria. In this case, too, the benefits for the Bulgarian economy are far from clear.

In summary, what has lately been regarded as a shift in allegiance in Bulgaria from a pro-Russian to a pro-Western stance with regard to energy dependence is mostly something else: The Bulgarian people are simply fed up with paying the bill for projects they don't need.

Simeon Djankov, visiting fellow at the Peterson Institute for International Economics, was minister of finance and deputy prime minister of Bulgaria from 2009 to 2013.

More From

Simeon Djankov Former Research Staff

More on This Topic

RealTime Economic Issues Watch
Simeon Djankov (PIIE) and Jan Zilinsky (PIIE)
February 4, 2016
RealTime Economic Issues Watch
October 6, 2015