Nikolay Pavlov, Caretaker Minister of Energy: We will lose 1 billion cubic meters (bcm) of natural gas if we don’t build the gas interconnector with Greece until 2020

MARIANA BOYKOVA

We are already transporting blue fuel through the interconnector with Romania

— Mr. Pavlov, when was the gas interconnector Bulgaria-Greece supposed to be ready?

— In 2013, but for one reason or another it did not happen. Whether because of certain interests or due to technical reasons, I have no reply. However, by the beginning of 2020 the interconnector should be constructed and put into operation. Bulgargaz has a long-term contract for 25 years with the Azerbaijan Gas Supply Company for delivery of 1 bcm per year. This is 1/3 of the domestic consumption. We need to be able to receive this gas. If the interconnector is not ready, we may lose the contract. The gas interconnector is a continuation of the Southern Gas Corridor and is part of the Vertical Gas Corridor of the European Union. This will also make sense for the interconnector with Serbia and the gas hub "Balkan".

— Why is Teodora Georgieva, the CEO of ICGB, the project company for the gas interconnector Bulgaria-Greece, dismissed?

— As a caretaker minister of energy I requested analyses of each company, not only about their status, but also with regard to any problems and issues that need to be solved there. The analysis of ICGB showed many deficiencies that are of BEH’s concern and my concern as Minister. There is a delay in the preparation of a cost-benefit analysis that will show what further grant funding we have to seek from the EU. ICGB has been aware of the necessity for such an analysis since March 2016. So far, this analysis hasn’t been ready yet and its assignment is delayed. The utilization of the 45 million euro grant provided by the European Commission in 2009 hasn’t started yet and the deadline for its utilization is 2018. There is a real risk for these funds to be lost. The technical design is another reason of concern. It was approved by the Ministry of Regional Development and Public Works on 15 January 2016 with one-year validity, which actually expired on 15 January 2017. The request for its extension was submitted on 20 January 2017. The deadline had been missed.

— Does it mean that currently there is no technical design?

— There is, but it hasn’t been approved. We need to launch a new procedure for its approval, which will take months. The land expropriation has started with delay and hasn’t been completed yet. This hinders the issuance of a construction permit on the Bulgarian territory. I was quite surprised to see all these things, because I have worked with Mrs. Georgieva before and I have had the impression that she is an operational manager. I also asked for the Project Roadmap - it was not provided to me. When going into the Project details, what I came across was almost like a field full of mines.

- If you are a principal and ask for information and it is not provided, how would you react?

- Going at full speed was needed so that this project could happen by the beginning of 2020.

- Some assumptions appeared that Mrs. Georgieva was dismissed because she didn’t want to launch a tender for construction works.

- This has nothing to do with the truth. In order to start a procedure for assignment of construction works, all administrative steps I mentioned here need to be passed, and this will happen in October, maybe even later. We are pressed by time. Perhaps Mrs. Georgieva would have managed that brilliantly if the interconnector was supposed to be operational by 2030. Moreover, the tenders for the gas pipeline construction cannot start before obtaining an approval from the European Commission for exemption under Article 36 of the Gas Directive. And such a request for exemption has neither been prepared, nor submitted.

- The project speeding up has been entrusted to Valentin Hambarliev. Some information appeared about him that he was a partner with the boss of BEH, Mr. Petyo Ivanov, and also with the wife of the former Member of the Parliament from the Bulgarian Socialist Party Borislav Gutsanov. Isn’t that a conflict of interests?

- What I have been informed is that they participated in a joint company but this ended in 2014. I don’t think that there is currently any conflict of interests.

My information about Mr. Hambarliev is that he is an exceptional professional and he is experienced in construction of pipelines, in particular the construction of the interconnector Romania-Bulgaria where he was a subcontractor. When the right person appeared, this project was completed for half a year.

- There is a version that it is clear which company would win the project. It is said that the CEO of BEH Petyo Ivanov and Mr. Hambarliev are related with the Austrian "Habau" that laid the pipe along the Danube bed.

- The mandate of the caretaker government will expire by 26-27 April. This issue is quite likely to be addressed to the next minister in the regular government.

- The amount of 220 million euro, which is the Project cost, is a nice figure.

- This money must be provided. Currently there is an available grant of EUR 45 million, a sovereign guarantee for EUR 110 million and we are looking for additional funding, which amount will be clear when the cost-benefit analysis is ready. As it can be seen, we may lose the already secured funds. I so much hope we will be able to make up for the lost time.

- What is happening with the Romanian interconnector?

- It was opened in October 2016. Since the beginning of 2017 there have been traders transporting natural gas through it. They are more than one. I believe that soon a compressor station will be built on the Romanian side to allow gas transportation also towards Bulgaria.

- For more than 6 years there has been European funding for the interconnector with Serbia, but no construction works have started yet. Why?

- There is design and technical readiness for starting the construction of the Bulgarian Section, however the preparations at the Serbian side have not made any considerable progress. On 19 January a Memorandum of Understanding was signed with the Serbian side for the interconnector construction until the end of 2020. However, this does not give any guarantees. Therefore, the Ministry of Energy has put forward a proposal to the Managing

Authority of OPIC to broaden the scope of Priority Axis 4 and to include also the IGB project with beneficiary "ICGB" in order to diversify the risk of available funds non-utilization. We are expecting the results of the cost-benefit analyses for the two projects, which will determine the maximum grant that may be provided for each of them. Both projects are of common European interest.

- I can’t miss asking you about the natural gas price. The forecast is for an increase of 32 %. How much would the district heating prices increase then?

- On 10 March Bulgargaz will submit to the Energy and Water Regulatory Commission (EWRC) a request for approval of the price for the second quarter. A period of natural gas injection into the storage facility in Chiren is forthcoming and that will cost BGN 110 million. Until the beginning of 2017 Bulgargaz was in an excellent financial situation. 2016 has been the best year of the company since 2007.

- The gas prices trend is going upwards, however EWRC has not increased the price in Bulgaria because of the winter, and now it will limit it due to the elections.

- When determining the price of natural gas, EWRC has to take into account all concerns that could affect the liquidity of Bulgargaz. The applying of the price for the first quarter of 2017 will result in losses for Bulgargaz of over BGN 40 million.The company pays all its liabilities in due time. Despite the expected increase, based on the information we have, the natural gas price in Bulgaria will be more competitive compared to the prices in the Region. This is what I can say. The rest is to be said by EWRC.