AES Country Manager Peter Lithgow: Bulgaria Could Be the Anchor for AES in Southeast Europe
Interview with Peter Lithgow, Country Manager, AES Bulgaria, for the Bulgaria-US Survey of Novinite.com (Sofia News Agency)
At present AES appears to be in charge of almost 10% of Bulgaria' energy sector, and is one of the largest corporate investors in Bulgaria in terms of the volume of its investments. How would you characterize in general the scope and structure of AES's activities in Bulgaria?
AES is primarily here for the purposes of the investments in the Maritsa East thermal power plant complex with our project known as AES Galabovo. This is a large-scale investment of the order of EUR 1.3 B. This investment comprises a modern lignite fired Thermal Power Plant and a Waste Disposal Facility. The Waste Disposal Facility is unique in South Eastern Europe.
This investment was conceived many, many years ago in the late 1990s, as part of the program for modernization of the power sector here in Bulgaria. It was developed to coincide with ambitions of the government to complete the accession to the European community.
Since we've got under way with investments at AES Galabovo, we've also developed a number of projects in the renewables area. The principle project, the St. Nikola wind park was completed in March 2010, and that was a great example where you can see how we can do projects here in Bulgaria.
We also commenced in more recent times the development of our solar program, and we are actually under way with the construction of our first solar project in Kalipetrovo near Silistra.
What were the factors that originally drove AES to invest in Bulgaria – and on such a large scale? Building upon that – how do you view the investment climate in Bulgaria and Bulgaria's competitive advantages in attracting foreign investors?
AES Bulgaria is a concept for AES investments in Bulgaria and it isn't specifically targeting one particular technology. It was always the case that we would look at the developments in the energy sector, and when legislation emerged that was conducive to large-scale investments in the sector, we would look at those opportunities very carefully, and we would take those.
As to the wider question of why come to Bulgaria, as a global footprint corporation we have been working in emerging markets and in countries in transition, and we do have experience of working with governments that have an obligation to modernize and to replace old fleets of equipment, which may not necessarily be the most compliant in terms of environmental standards.
So Bulgaria represented a country where the opportunities were there for investments of this type to be made, and with reasonable returns. The business climate, insofar as the tax regime, is certainly very attractive for us, and for other investors for that matter.
We took the view that given our strategic intentions to develop our business portfolio in Southeastern Europe Bulgaria could be an anchor for that, and at this stage we are looking at how we might expand the business but we need to see our current investments perform financially and provide the kind of contributions to the business that we have been targeting overall.
So Bulgaria's role as an anchor for AES in Southeastern Europe is yet to materialize?
It is an ambition for the company but we have to see how wind business performs, how solar business performs, how our coal business performs, and the expectation is that if the investment climate remains positive and we have good economic performance from our assets, then we would continue to look at other business opportunities.
At this point in time we are considering how to broaden the base, and further balance the portfolio of businesses that we currently have.
Does AES plan any further expansion of the Maritza East 1 Thermal Power Plant? How has the investment there worked out so far? Do you plan to acquire other Bulgarian TPPs? For example, there have been reports that AES Corp considered buying Maritza East 3 from Enel?
The thermal power plant that we have at AES Galabovo has been specifically designed in the configuration it has with two units. The expansion potential on that particular property is very limited, and, frankly, we would not be planning to expand that facility.
As to the future, obviously, we would always be looking at other assets, and we would consider those assets which have synergy with the existing assets that we have.
That said, with regard to the Enel disposal of the Maritsa East 3 assets – we have not participated in that process, and we expect not to participate in that process because we understand that deal is coming to a close fairly soon but that is a matter you would have to talk to Enel about. But clearly we will not be doing anything with respect to that particular asset disposal at this stage.
Is AES going to shift its focus in Bulgaria from thermal plants to renewable energy sources as far as future projects are concerned? How do you view the state regulation of renewable energy sources in Bulgaria, what does Bulgaria need to do to attract healthy investments in that field? This seems to appear crucial with respect to the plans of AES Solar Energy to built the largest solar park in Europe near Silistra in Bulgaria?
We have a number of developments in progress in the renewable energy sector. For the time being, the focus of AES in Bulgaria has been on wind but renewables also include biomass and hydro power, as well as solar power.
We understand that the Bulgarian government is moving to make practical changes in the renewable energy legislation. We have, of course, as other foreign investors, communicated our position to the government in that respect.
We are of the view that the legislation on renewables needs to streamline the application process for inclusion of new renewable energy projects into the energy network.
Overall, the government would like to move to evaluating the projects based on sustainability. What it needs to do with respect to renewable energy is to create a regulatory frame that meets the requirements of both large investors and banks to which the investors go in order to finance their projects.
The government's objectives are – and AES generally supports that – aimed at creating a good screening process to sift through the larger investors. The legislation is in its final stages and from I understand it will be announced in early 2011.
So is it possible that Bulgaria might lose the investment of AES in the solar park near Silistra, and that this investment might be made in another country, for example, Romania?
We will have to look at the new Bulgarian legislation on renewable energy and see.
More generally, how would you characterize Bulgaria's perspectives in the energy sector? Do you think it has what it takes to really be an energy hub for the Balkan region much the way Bulgarian politicians have been advertising it for many years?
The intention of the government to turn Bulgaria into a regional energy hub requires clear decision-making on the energy sector. Clear decisions are need on transit corridors such as power transmission lines and oil and gas lines.
I understand that a discussion is under way with respect to Bulgaria's strategic reserves of lignite coal. Then, you have the ongoing debate about nuclear energy plus the potential in the field of renewable energy sources.
Bulgaria therefore has the potential to have a varied, balanced portfolio in the energy sector which will be in compliance with the EU directives, and AES supports that.
What is important now for all those investments made by AES and other investors is to make them work to provide the respective economic impact; simultaneously, the government needs to work on measures and regulations to make sure that the interests of all sides are satisfied. There can be success stories with all the ambition that is in place.
I think the important thing to be understood here is that AES's investment in Bulgaria is a success story for the nation. The investments of AES – and many other investors for that matter – stand for a transformation, a change in attitudes, in management, in approach, measured against the benchmarks of an international corporation.
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