Eastern Europe Plays Catch-Up

We've grown accustomed to hearing about the economic miracle Ireland has enjoyed over the past decade. We have seen our economy expand at unprecedented rates and we've also grown accustomed to debating the changes, good and bad, that this economic boom has brought to our society.

There are, however, far more dramatic stories than ours and few more extraordinary than the recent experiences of the two newest European Union member states, Bulgaria and Romania.

Consider this, at the start of 1989, both Bulgaria and Romania were Soviet-dominated, Eastern bloc states, with virtually all commerce nationalised within a 'planned' economy that only barely disguised obsolete, inefficient and corrupt industrial and commercial infrastructure.

Before the year ended, Nicolae Ceausescu, the dictator who controlled Romania for decades, was dramatically toppled and the following year Bulgaria held its first multiparty elections since the Second World War. Both countries had thus begun the long and difficult journey toward political democracy and market economies.

Their transition did not come easily, or without setbacks. Throughout the first half of the 1990s, Bulgaria was paralysed by political instability as the former communists retained much of their power and influence. It took a major economic downturn in 1996 to finally bring down the socialist regime and put in place a government genuinely committed to economic reform. In Romania that same year, the former communists who had continued to dominate the government after the fall of Ceausescu were also swept from power. The stage was now set for real change.

In the years that followed, market reforms took root in both countries, their currencies were stabilised, and inflation was brought under control. Bulgaria has averaged 4% GDP growth since 2000, and Romania, after suffering through a brutal threeyear recession, has also been able to maintain GDP growth over 4% over the same period.

In terms of their electricity industries, the two countries share many similarities and differences.

Bulgaria's nearly eight million people consume about 25.1 billion kWh, but they produce nearly twice that amount, making Bulgaria the most significant exporter of electricity in the region. The country is not particularly rich in coal, gas or oil reserves, but they do have the Kozloduy Nuclear Power Plant. It is Bulgaria's only nuclear plant, and has a capacity of capacity of 3,760 MW.

Kozloduy consists of six pressurised water reactors. Under a 1993 agreement with the European Commission, Units one and two were taken off-line at the end of 2003, and Units three and four were taken off-line at the end of 2006, immediately prior to Bulgaria's accession, because of their age and condition. Units five and six, constructed in 1988 and 1993 respectively, are newer reactors and continue in operation.

Prior to the shutdown of units three and four, the plant provided Bulgaria with 44% of its electricity and made it possible for Bulgaria to export about 20% of its electricity abroad.

A new plant under construction, the Belene Nuclear Power Plant, will have a capacity of 2,000 MW when it comes on line. The project, which began in 1981 before being abandoned during the fall of communism in 1990, was restarted in 2002 due to the pending closure of the four reactors at Kozloduy.

Approximately 40% of the construction work on reactor one was finished and 80% of the equipment was supplied. In October 2006 the facility was taken over by a French, German and Russian consortium, and is expected to be commissioned by 2013.

Fossil fuel plants are still a large part of the Bulgarian generation picture, with the Maritsa Iztok facility, the largest energy complex in south-eastern Europe, consisting of three plants with a total capacity of 2,820MW. An additional 1,270MW of generating capacity is also under construction.

On the renewables front, there are 87 hydroelectric plants with a combined capacity of 1,980MW, most located in the southern and south-western mountainous parts of Bulgaria, and a further three major hydro projects are under construction.

Romania's profile is somewhat different. With a population nearly three times that of its neighbour Bulgaria, Romania consumes about 37.5 billion kWh annually, while producing 57 billion kWh, making it too a net exporter of electricity.

While Romania does possess significant oil and gas reserves, as well as substantial coal and hydroelectric power, the country is still reliant on oil and gas imports, primarily from Russia. To alleviate this dependency, Romania also views nuclear power as a preferred alternative.

Romania has one nuclear reactor, located at Cernavoda, which accounts for about 10% of the country's electricity production. A second plant is expected to go online this year and two more are set to start construction. When the second reactor is commissioned, the plant is expected to provide 18% of the Romania's electrical needs. Units three and four, when completed, will increase that contribution to 40%.

Taken together, it is clear from the plans of both nations that nuclear power will continue to play a major role in the region for many years to come.

Both Bulgaria and Romania have been in the process of privatising their electricity generation, transmission and distribution industries for a number of years. In both countries, independent regulators are in place, and vertical unbundling (the separation of generation and transmission companies) has also been accomplished.

Horizontal unbundling has also made limited progress, and day-ahead markets, operated by OPCOM in Romania and NEK in Bulgaria, have been or are in the process of being established following EU models under the so-called Athens Memorandum, which envisions a South East Europe Regional Energy Market (SEEREM) that will ultimately become part of the EU internal energy market.

The biggest challenges which lie ahead face Romania, which still has some way to go to comply with the requirements of the Athens Memorandum and a successful SEEREM. Romania must move its electricity industry toward economic viability without government subsidisation, complete its restructuring and regulatory framework, and most vitally, attract the investment that will make the first two goals achievable. Big tasks, but not when compared to what has already been achieved. EM