Energy and Good Governance in Bulgaria Trends and Policy Options
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ENERGY AND GOOD GOVERNANCE IN BULGARIA TRENDS AND POLICY OPTIONS CENTER FOR THE STUDY OF DEMOCRACY The report explores the major deficiencies in the strategic, institutional, and legal framework of the Bulgarian energy sector. The analysis of the management of state-owned energy companies and large energy infrastructure projects reveals the disre- gard for even the most fundamental principles of accountability and control in their planning and implementation. This has affected negatively the Bulgarian taxpayers and consumers, has jeopardized the financial stability of the state-owned energy companies, and, ultimately, has reduced the energy security of the country. The report recommends that the implementa- tion of the large energy infrastructure projects be reconsidered and be based on a sound cost-benefit analysis with regard to Bulgaria’s energy security. Authors: Ruslan Stefanov, Director, Economic Program, Center for the Study of Democracy Valentina Nikolova, Policy Analyst, Center for the Study of Democracy Dr. Dobromir Hristov, Research Fellow, Center for the Study of Democracy Assen Dyulgerov, Senior Fellow, Center for the Study of Democracy Kiril Gegov, Chief Executive Officer, Bulgargaz EAD, 1998 – 2006 Dr. Georgi Kaschiev, Senior Researcher, Institute of Risk Research, University of Natural Resources and Life Sciences, Vienna The Center for the Study of Democracy would like to thank the following individuals for their contribution to this report: Tihomir Bezlov, Senior Analyst, Center for the Study of Democracy Dimitar Buchkov, Expert, Committee on Economic Policy, Energy and Tourism, National Assembly of the Republic of Bulgaria Kiril Ikonomov, Ministry of Regional Development and Public Works Dimitar Ivanov, Deputy Chairman of the Committee on Energy and Energy Resources of the 38th National Assembly of the Republic of Bulgaria Valentin Kanev, Chairman, Balkan and Black Sea Petroleum Association Iliana Lazarova, Economic Analysis and Forecasting Directorate, Ministry of Finance Denitza Mantcheva, Policy Analyst, Center for the Study of Democracy Emil Milkov, Chief Expert, State Energy and Water Regulatory Commission, 2002 – 2010 Martin Raychev, Ministry of Economy, Energy and Tourism Dimitar Stoyanov, Executive Director, Bulgarian Green Building Council Nikolai Tagarov, Senior Analyst, Center for the Study of Democracy Anelia Velikova, Energy Efficiency Agency Editorial Board Dr. Ognian Shentov Alexander Stoyanov Dr. Maria Yordanova The publication is funded by the Norwegian Government through the Norwegian Cooperation Program for Economic Growth and Sustainable Development in Bulgaria and by the Konrad Adenauer Foundation ISBN 978-954-477-167-6 © 2011, Center for the Study of Democracy All Rights Reserved 5 Alexander Zhendov Str., 1113 Sofia tel.: (+359 2) 971 3000, fax: (+359 2) 971 2233 www.csd.bg, [email protected] CONTENTS SUMMARY ..................................................................................................................................................... 5 INTRODUCT I ON ..........................................................................................................................................13 1. THE IN S T I TUT I ONAL STRUCTURE OF ENERGY SECTOR GOVERNANCE ........................................15 1.1. EN E RGY ST R AT E GY ..........................................................................................................15 1.2. EN E RGY LEGIslATION .................................................................................................................18 1.3. MANAG eme NT OF TH E EN E RGY SE CTOR ................................................................................22 1.4. MANAG eme NT OF STAT E -OWN E D ENT E RPRI ses ......................................................................25 1.5. Res TRUCTURING OF TH E BU L GARIAN EN E RGY HO L DING ....................................................28 2. THE LARGE ENERGY INFRA S TRUCTURE PROJECT S : EXAM P LE S OF MANAGEMENT DEF I C I ENC I E S ....................................................................................33 2.1. TH E Bele N E NPP PROJ E CT .....................................................................................................36 2.2. NA B UCCO , SOUTH STR E A M , AND BURGA S -Ale XANDROUPO L I S ..........................................48 3. ENERGY POL I CY IN S TRUMENT S : PUBL I C PROCUREMENT ..............................................................61 3.1. LE GA L RE GU L ATION AND GE N E RA L PRINCIPles OF PU bl IC PROCUR eme NT ............................. 62 3.2. PU bl IC PROCUR eme NT DYNA M IC S IN TH E EN E RGY SE CTOR ....................................................... 64 3.3. MAJOR PRO blems IN PU bl IC PROCUR eme NT IN TH E EN E RGY SE CTOR ................................... 67 3.4. JUSTIFYING PU bl IC BE N E FIT ................................................................................................................. 74 3.5. CONTRO L EFFICI E NCY ........................................................................................................................... 76 3.6. CONTROV E R S IA L FINANCIA L SE RVIC es ................................................................................................ 78 3.7. INDICATOR S OF HE IGHT E N E D RI S K IN PU bl IC PROCUR eme NT .................................................... 81 CONCLU si ON : TOWARD S BETTER GOVERNANCE OF THE BULGAR I AN ENERGY SECTOR ..............83 ANNEX 1. FAM I LY TREE OF THE BULGAR I AN REGULATORY FRAMEWORK ..........................................89 ANNEX 2. THRE S HOLD S FOR PUBL I C PROCUREMENT FOR SECTOR CONTRACTOR S .....................91 ANNEX 3. PUBL I C PROCUREMENT CONTRACT S IN THE ENERGY SECTOR IN 2008 – 2009 ......93 ANNEX 4. EXTRACT I VE INDU S TRY TRAN sp ARENCY INITIATIVE .............................................................97 SUMMARY The governance of Bulgaria’s energy sector is faced with a number of prob- lems of a technical, legal, and institutional nature. Recent audits of the imple- mentation of large energy infrastructure projects have exposed some serious governance issues: • A lack of sound energy strategy with clear priorities; • Apparent conflicts of interest at the highest political level, leading to suspi- cions of corruption; • Poor management of state enterprises; • An absence of adequate independent oversight and numerous monopolistic abuses at the consumers’ expense; • Politically motivated privatization of assets and uncontrolled access of ques- tionable capital to the energy sector. The dynamic international environment places additional pressures on the national energy policy and requires careful planning and public consensus in deciding future priorities for the sector. Several factors have a large effect on Bulgaria’s energy policy: • Climate change and the related international agreements and binding targets of the European Union (EU) for the reduction of greenhouse gas emissions; • The use of new technologies to reduce energy intensity and increase the share of renewable energy sources (RES); • The global economic crisis associated with a more rapid decline in energy consumption than in GDP in all developed countries in contrast to emerg- ing markets; • Political pressure related to external geopolitical and economic interests. The main elements of energy sector governance, which the current report reviews, comprise: (1) the strategic framework; (2) the legal framework; (3) the institutional structure; (4) the development and management of projects; and (5) public procurement as a tool for energy policy implementation. A clear medium to long-term energy strategy outlining valid and realistic pri- orities should be at the basis of the decision-making process in Bulgaria’s energy 6 Summary sector. The June 2010 Concept of the Bulgarian Energy Strategy until 2020, currently under discussion, reflects the views and opinions of stakeholders to a greater extent than its predecessors. Yet, the analysis of existing energy strategies reveals some recurring and persistent shortcomings of strategic planning with respect to the Bulgarian energy sector: • A mismatch between the government’s actions and the strategic frame- work, given that the majority of the Bulgarian government’s decisions over the last decade have been taken without proper strategic justification; • Signs that public policies have been captured by private interests – for example, the predominance of projects that steer substantial funds to a lim- ited number of private undertakings, e.g. constructing large generating capaci- ties, instead of more promising solutions, e.g. stimulating energy efficiency; • The absence of financial justification of pledged goals, leading to numerous and overly optimistic priorities and objectives. The latter allows for broad discretion in government policy making and, effectively, renders strategic plan- ning meaningless; • The lack of a good governance framework for the implementation of the energy strategy, with exact deadlines, clear responsibilities of institutions, and indicators for the assessment of results. Compared to its predecessors, the June 2010 Concept of the Bulgarian Energy Strategy until 2020 outlines more clearly the national priorities, is more respon- sible in budget terms, and attempts the introduction of scenario planning in the development of the national energy sector. The proposed strategy provides a good basis for public discussion as it incorporates the main guidelines of the Energy