June 19, 2008

Croatian Premier’s Energy Strategy Includes Nuclear Power Plant, Pipelines

Text of report by Croatian privately-owned independent weekly Nacional, on 10 June

["Exclusive" report by Marko Biocina, Plamenko Cvitic and Berislav Jelinic: "Sanader's Nuclear Programme"]

The great increase in energy prices has begun to seriously endanger the profitable business activity of the Croatian economy and the living standard of citizens, and the government, faced with the problem, has decided to embark on the realization of major infrastructural projects that are supposed to solve Croatia's problem of energy supply in the next several decades. So they decided to speed up the realization of existing projects such as the Pan-European Oil Pipeline [PEOP] and the LNG [liquefied natural gas] terminal in Omisalj and make the Druzba Adrija project that they initially opposed topical again, and in the shadow of the European Football Championship Croatian Prime Minister Ivo Sanader announced indirectly several days ago: Croatia is going to build a nuclear power plant. That is one of the biggest strategic decisions, and the Croatian Government's intentions are serious, as evidenced by the fact that Sanader talked about nuclear energy, "a topic that must not be taboo," in front of several Austrian journalists in the middle of Vienna, and his statements were soon carried by many European news agencies.

The current situation in the regional energy market is such that Croatia is offered five major energy projects. Along with the PEOP, the LNG terminal in Omisalj, and the Druzba Adrija oil pipeline, Croatia has the option of tapping into two more major natural gas pipelines: The Russian Southern Stream in Hungary and the Adriatic- Ionian Gas Pipeline that transports natural gas from Azerbaijan to Albania. If the government and its foreign partners embark on realizing those projects, Croatia might solve its problem of energy supply in the next several decades. However, Croatia can only achieve true energy independence in the field of electrical power, primarily by building a nuclear power plant and several more classical power plants, most of which would be powered by natural gas. Although a serious discussion about building a nuclear power plant has not yet begun in Croatia, Nacional's sources close to the government have pointed out that it is a rather expected conclusion that has been discussed silently for months within the inner circle of the prime minister's associates. There happen to be three main reasons why Prime Minister Sanader has come to support the construction of a nuclear power plant in Croatia, all of which are intertwined and mutually dependent: The first is the rising price of energy generating products at the global level, with fossil fuel prices dictating the rise in energy prices in Croatia, as the Croatian energy system is greatly dependent on importing energy generating products as well as energy. The second reason is that Slovenia intends to build an additional block next to the existing nuclear power plant in Krsko in the near future, but according to information so far, the not too friendly Slovene Government has already made it clear to Croatian politicians that Croatia is not going to participate in that process, thus quashing the hopes of some energy experts who endorsed a continued cooperation of Croatia and Slovenia in Krsko. One plan was to have Croatia participate in the upgrade of Krsko as a partner and an investor, in exchange receiving more electrical power from Krsko than it now does. The future upgrade of Krsko basically means that the public discussion about nuclear energy, with vehement protests expected, cannot be avoided in either Croatia or Slovenia, as Krsko is mere 40 kilometres away from the Croatian capital. That is why Prime Minister Sanader concluded that he was in a stalemate of sorts when it came to nuclear energy and the difficult struggle for the acceptance of a nuclear power plant: If Slovenia began to upgrade Krsko, the Croatian public would ask Sanader to oppose that project, and then he would have to secretly negotiate with Slovenes about buying electrical power that would be owned by Slovenes only in the new project.

On the other hand, if Croatia decided to build a nuclear power plant, public pressure would also be great and strong, but the final result would be us having our own nuclear power plant in Croatian territory, which would empower the Croatian energy system. The third reason why Sanader and his associates came to support the building of a nuclear power plant in Croatia were the projections of the Croatian Electricity Board [HEP] showing such a project to be inevitable in Croatia's long-term energy independence. As it happens, although the team for the creation of a new energy strategy of the RH [Republic of Croatia] only recently began to work in earnest and the final version is only expected in mid-October, the HEP's experts wrote the strategic guidelines of that state-owned company several months ago.

In that document, of which only a part is available to the public, in the short-term strategy by 2014 several major projects are planned, such as building a 100-megawatt thermal power plant [TE] in Zitnjak in Zagreb, a 230-megawatt one in Sisak, two 400- megawatt thermal power plants in Slavonia and Damatia, the activation of the Lesce hydroelectric power plant [HE], and the construction of a substitute coal-powered 500-megawatt block in Plomin, as the first block was activated in 1971 and will soon be out of date.

Still, as HEP experts explained to Prime Minister Sanader, all those short-term projects could not solve the energy problems that Croatia would face in the future, and building a nuclear power plant came up as the only way of ensuring a long-term supply of electrical power.

As it happens, the current annual consumption of electrical power in Croatia amounts to about 4,000 megawatts. The trend of increasing consumption of electrical power amounts to about 3 per cent a year, which means that Croatia would need 1,672 megawatts by 2015, with the figure exceeding 2,000 megawatts by 2020, meaning that Croatia's total consumption would amount to a total of more than 6,000 megawatts. Although Croatian politicians often talk about "energy independence," the HEP's figures and strategies show Croatia to be very much dependent: A high 20 per cent of electrical power is directly imported from other countries by the HEP. However, according to the HEP's strategic plan, Croatia would reverse the situation by building a nuclear power plant: Instead of importing additional amounts of electrical power from the neighbouring countries in addition to the existing capacities as is the case now, a nuclear power plant would cover all of Croatia's needs for electrical power and there would even be surplus energy we could sell at market prices to neighbouring countries such as Bosnia- Hercegovina, Serbia, and Macedonia.

After the prime minister and his associates studied the HEP's long-term strategy, they soon concluded that the project should be embarked on as soon as possible, which incidentally was also the main reason for the prime minister's sudden statement on nuclear power plants. As it happens, there are three main problems with the issue of constructing a nuclear power plant: The first is the high cost of constructing a nuclear power plant. According to the HEP's calculations, Croatia's nuclear power plant be capable of producing 1,000 megawatts, and the cost of its construction is estimated at about 2.5 billion euros. As the Croatian state budget does not have the funds, a search for interested foreign investors by informal channels will quite certainly begin soon. Such a joint venture would not be a first in the Croatian energy field anyway, as the power plant in Plomin was built employing a similar principle: 50 per cent of it is owned by the RWE, German electric power and natural gas public utility company. The second problem pertains to the limited construction resources: Only a handful of companies worldwide build nuclear power plants, which results in so-called waiting lists, as it takes an average of eight years to build a nuclear power plant, while preparatory work takes about three years. As the construction of nuclear power plants has been revived in EU countries in the past several years, with Italy alone commencing the construction of 11 new nuclear power plants soon, Croatia should make a firm decision as soon as possible and stand in line for construction.

The third problem has to do with the public, who will need to be prepared for the decision to build a nuclear power plant, and the government will have to put in a special effort when the location for construction is determined, as the local population will quite certainly oppose having a nuclear power plant in their neighbourhood. It takes several years to change the public attitude towards constructing a nuclear power plant, and that has also influenced Sanader's decision to publicly declare as soon as possible his government's serious intention to quickly begin building a nuclear power plant in Croatia.

When it comes to other important energy sources, Croatia imports more than 75 per cent of petroleum and about 30 per cent of natural gas and is dependent on imports because it does not have its own sources. As a result, it is also extremely sensitive to changes in prices on the global market. In order to reduce that dependence and ensure a constant and reliable supply of energy, the option of obtaining energy from as many different suppliers as possible must be ensured. By tapping into two oil pipelines and two natural gas pipelines and building a LNG terminal, Croatia would be able to import petroleum from Russian and US petroleum companies while importing natural gas from as many as three different suppliers. Furthermore, with the realization of those projects, a significant amount of energy generating products for the West European markets would be passing through Croatia, giving Croatia a good position in negotiations on the prices of energy generating products.

That is the context in which we should look at Prime Minister Sanader's recent statement that the government would consider all energy projects, including Druzba Adrija, which it had previously opposed. With that project, Omisalj on Krk should have become the export port for the Russian petroleum that would be transported to that location by a pipeline. Although even a contract was signed at one point, the project was never realized. Environmental organizations were the first to protest Druzba Adrija, pointing out the problem of ballast water brought into the Adriatic by empty tankers in order to maintain balance while sailing, the emptying of which into the Adriatic would allegedly endanger ecological balance in the Kvarner [Gulf]. [Croatian Catholic] Cardinal [Josip] Bozanic also spoke up publicly against Druzba Adrija. The HDZ [Croatian Democratic Union] took advantage of the public's negative attitude towards the project in Jadranka Kosor's presidential campaign as well as a way of criticizing President Stjepan Mesic, one of the advocates of the project. Croatia officially abandoned the negotiations after that. However, four years later, swayed by the huge increase in fuel prices, Prime Minister Sanader has decided to make the project topical again. Nacional has found out that the new version of Druzba Adrija would differ significantly from the original project. If it is decided to go ahead with the project, the government will offer to Russia to build an oil pipeline that would go through Croatia and Slovenia, tapping near Trieste into the Transalpine Pipeline and transporting petroleum further into West Europe. Croatia would thus ensure an uninterrupted supply of Russian petroleum without the environmental risk of having a transshipment terminal in Omisalj. In addition, the construction of that oil pipeline would reduce the number of tankers bringing Russian oil to the Trieste port, thus cutting the risk of an oil spill in the Adriatic.

Although Russian diplomats, who had learned from the previous negative experiences of Croatian-Russian energy cooperation, showed little enthusiasm about the prime minister's new announcement of a renewed interest in Druzba Adrija, Nacional's source, who is familiar with the situation on the petroleum market, believes that such a project would be acceptable to Russians. "The situation is the same as it was in 2004, when Druzba Adrija was discussed for the first time. At that time, finding an export port was the priority for Russians and they were therefore interested in Omisalj. In the meantime they have equipped two ports, in the Baltic and in the Black Sea, for that purpose. Furthermore, the demand for petroleum increases in Russia at a faster pace than production does, and exports are no longer as high a priority as they were in 2004. It is therefore almost certain that Russians are not going to insist on Omisalj as an export port. On the other hand, they might be interested in creating another supply route for Europe. That would also be a good move for Croatia, and it would be even better if Ina's [Croatian petroleum sales and refining enterprise] refinery in Rijeka was modernized as soon as possible. Then some of that petroleum could be directly diverted to the refinery and petroleum products then sent to the markets of Slovenia and South and Southeast Croatia. That would additionally reduce the imports of petroleum products and, indirectly, the number of tankers in the Adriatic."

Another petroleum pipeline that is currently being prepared and that will pass through Croatian territory should end in Trieste. That is the PEOP, the project that should transport petroleum from the Caspian Basin to West Europe. The pipeline will begin in the Romanian port of Constanta and then cross Serbia, Croatia and Slovenia to tap into the said Transalpine Pipeline in Trieste. The pipeline should be about 1,300 kilometres long, with 420 kilometres in Croatia. The estimated cost of its construction is $2 to 3 billion. The value of the investment will depend on the capacity of the future petroleum pipeline, as it will also use the existing route of the Janaf [Adriatic Petroleum Pipeline]. All the countries involved gave their consent for the realization of the project except Slovenia. Slovenia is allegedly not enthusiastic about the petroleum pipeline, because it would pass through a karst ground water protection area, which in their opinion constitutes an unacceptable environmental risk. However, the PEOP will likely be realized even without Slovenia, because there is a possibility of the petroleum pipeline reaching Trieste from Croatia by the submarine route. There is also the possibility of France participating in the project, and the petroleum pipeline would extend from Trieste to Genoa or Marseille. As most of the route of the pipeline would pass through its territory, Croatia is offered the possibility of owning the biggest share of the pipeline.

The project is very important for Croatia, especially in combination with Druzba Adrija. The reason is that most licenses for the excavation of petroleum in the area around the Caspian Sea are held by Anglo-American companies. As a result, with its construction Croatia would ensure a reliable supply of their petroleum and reduce its dependence on Russian petroleum. On the other hand, the most important project that would ensure a reliable supply of natural gas to Croatia is definitely the LNG terminal. LNG terminals are actually storage facilities where liquefied natural gas is stored at a temperature of -162 degrees Celsius. It is not stored under pressure and is therefore not explosive. There are more than 40 terminals and 240 LNG storage facilities worldwide today. The world's reserves of LNG will suffice for the next 200 years. The LNG is very acceptable to the entire Europe as an alternative to Russian, Caspian, and Iranian natural gas and is delivered via gas pipelines. The main sources of liquefied natural gas are in Malaysia, Indonesia, Qatar, Algeria, Australia, Nigeria, Trinidad, Oman, and Egypt. Liquefied natural gas is transported from its source to the LNG terminal by LNG carriers, the world's most sophisticated vessels.

The project of construction of such a terminal has been discussed in Croatia for several years, but the state has only recently seriously embarked on its realization, although it is very important for Croatia as well as for entire Central Europe. The Croatian companies that participate in it are Ina, the HEP, and Plinacro, while the foreign companies involved are Total, the EON, the RWE, Transgas, the OMV, and Geoplin. Once built, the terminal would reduce Croatia's dependence on Russia and its energy policy. It is projected that in the first 20 years after realization it will bring a high 40 billion euros in profits. Due to possible high [profits], many municipalities are interested in the construction of the LNG terminal. Istria County Prefect Ivan Jakovcic has lobbied intensively to have the terminal built in Plomin, but eventually the Ekonerg company, contracted by the government to research the best locations for the terminal, chose two locations: Omisalj on Krk and Rasa Bay in Istria. Plomin was rejected due to its excessively steep shore and shallow sea. As Jakovcic has already announced that Rasa Bay is an unacceptable location as far as his county is concerned, the terminal will likely be built in Omisalj. Croatia should own 25 per cent of the project, which would enable it to influence the making of all important decisions. As Croatia consumes between 2.5 and 3 million cubic meters annually, a significant portion of gas from the terminal would be exported to the neighbouring countries.

Another proof that the government has seriously embarked on the realization of the project of the LNG terminal is the fact that it was announced last week that a two-way gas pipeline to Hungary would be built. It will be possible to use that gas pipeline to export gas from the LNG terminal, while Russian gas from Hungary will be imported in the other direction. That way a branch of the great Russian Southern Stream gas pipeline that transports Russian gas from Black Sea shores to the EU, more precisely Italy, will pass through Croatia after all. Russia has offered that project to Croatia several times, even Russian President Vladimir Putin did so when he visited Croatia in June 2007, but Croatia has never shown an interest in it before.

Although tapping into the Southern Stream gas pipeline would solve Croatia's problems with the supply of natural gas and also bring significant profit from transit fees, Nacional's source explained that Croatia's previous disinterest had probably been due to pressure from the EU. "Southern Stream was contrary to the EU's energy policy, which favoured the rival pipeline, Nabucco, that would transport natural gas from Central Asia via Turkey to Europe. The EU wanted to reduce its energy dependence on Russia that way. However, circumstances have changed in the meantime and Russians have managed to negotiate that their gas pipeline passes through three EU countries - Romania, Bulgaria, and Hungary - so there is no more any reason why Croatia should not join the project. The realization of that gas pipeline will likely be one of the main items in the negotiations on exchanging the MOL and Ina stocks." It is surmised that the branch of the Southern Stream gas pipeline that will pass through Croatia by the submarine route will tap into one of the main gas pipelines in Northern Italy. The third major project offered to Croatia pertaining to the importation of natural gas is tapping into the gas pipeline carrying natural gas from Azerbaijan to Italy. Croatia would realize that project in cooperation with Albania, Montenegro, and Bosnia-Hercegovina as part of the Adriatic- Ionian Initiative. That gas pipeline ends in Albania, from where it taps into the Italian network the submarine way, and now a branch would be built along the Adriatic coast so the three countries can be supplied. With the LNG terminal and the Southern Stream branch, the construction of extensions of the Adriatic-Ionian Gas Pipeline would mean that Croatia has ensured supply routes for natural gas from three different suppliers. That would ensure a reliable supply and a favourable price of that energy generating product over the next several decades.

[Box, p 12] Possible Location: Nuclear Power Plant in Slavonia

Preparations for the beginning of construction of a nuclear power plant take at least three years, and it is still difficult to predict at which location it would be built. However, the government and the HEP tend to believe that the nuclear power plant should be built in Slavonia.

In March 2008 Nacional wrote about a possible energy collapse due to Slovenia's refusal to accept Croatia as a partner in the upgrade of the power plant in Krsko.

[Box, pp 12, 13] Six Key Energy Projects

- a nuclear power plant will ensure Croatia's complete independence in the field of electrical power;

- the end point of the PEOP should be Trieste, where it would tap into the Transalpine Pipeline supplying West Europe;

- Omisalj in Krk is the likely location of the LNG terminal, according to the future strategy the third supply route for natural gas for Croatia;

- liquefied natural gas will be transported by LNG tankers from African sources;

- the Adriatic-Ionian Gas Pipeline has two branches from Albania onward, one of which should go towards Croatia;

- Constanza, the Romanian port from which petroleum under the control of Anglo-American companies would be transported to the EU by the PEOP;

- Druzba Adrija, the oil pipeline project for the transport of Siberian petroleum to the Mediterranean; according to the new model it would end in Trieste;

- Croatia will build a branch of the gas pipeline towards Hungary in order to tap into the Southern Stream gas pipeline;

- Petroleum and natural gas under the control of Anglo-American companies will come to the RH by the PEOP and the Adriatic-Ionian Gas Pipeline;

- Two pipelines: The Russian Southern Stream and the Adriatic- Ionian Gas Pipeline, with tapping into in Albania and natural gas from the Caspian Sea;

- LNG terminal: The third supply route for natural gas that will mostly be used for transporting gas from Northern African sources.

[Box, p 13] Turnabout in Necessity

Pressured by expensive energy and the worsening living standard of citizens, Sanader chose to support the projects he undermined several years ago.

[Box, p 14] Janaf's Contribution: Tanks Against Prices

An important project for the protection of the Croatian energy market from sudden crises on the world markets is certainly Janaf's project of construction of tanks for the storage of petroleum and petroleum products in Sisak and Rijeka, recently announced by Janaf director Ante Markov. As it happens, under the Law on the Market of Petroleum and Petroleum Products, by 2012 Croatia should have reserves amounting to the average 90-day consumption of petroleum products in the previous year. That way the state will be able to buffer the consequences of an unexpected increase in prices or a shortage of petroleum on the global market.

According to Janaf's estimates, Croatia's total reserves should amount to about 900,000 tons, out of which 570,000 tons of raw petroleum would be stored, the rest being prepared products. Storing that amount of petroleum requires about 1.3 million cubic meters of storage space. Croatia currently only has 900,000 cubic meters. Janaf intends to bridge the gap by building new tanks in two locations: Sisak and Rijeka. As Markov said, preparations for the construction of storage tanks are already under way.

[Box, p 15] Additional Energy Sources: First Wind Turbine Made in Croatia

Many Croatian companies have begun to participate in projects involving renewable energy sources or energy efficiency in recent years. The first Croatian wind turbine is about to be finished in the Koncar plant, and the HEP has founded the ESCO [Energy Service Company], a company that develops energy efficiency projects. The project of wind farm development began in 2002 at the Koncar Institute of Electrical Engineering. More than 3 million euros has been invested in development. One windmill, or wind turbine, consists of a tower that is 60 meters tall and weighs 80 tons, and a nacelle carrying a 1-megawatt generator that weighs 65 tons.

The market price of a device that can produce 1 megawatt of electrical power a year is about 1.5 million euros, and a wind turbine must work 2,000 hours a year to be profitable. As a comparison, a year has a total of 8,500 hours. The wind farm that Koncar is building on Pometeno brdo should be finished by late 2008 or early 2009, will consist of 16 wind turbines, and will be able to cover the annual needs of 20,000 households.

Several years ago the HEP formed a daughter company, the HEP ESCO, that does development, design, and financing of energy efficiency projects on the market basis. "In 2007 the HEP ESCO won the prestigious European award from the EU Energy Initiative, being declared the best European company for energy efficiency projects in 2007," we were told by Darko Dvornik, member of the HEP management in charge of finances and chairman of the HEP ESCO supervisory board.

Koncar will soon install its first 16 wind turbines in the Split hinterland.

[Box, p 16] HEP: Croatia Is in a Hurry

Goran Slipac, manager of the HEP Department for Corporate Development and Strategy, commented for Nacional on Monday, 9 June, on Croatia's energy situation: "As consumption increase by 3 per cent annually, our experts are seriously working on projects that would ensure a supply of electrical power to buyers in the future.

"Those are primarily future thermal power plants powered by natural gas, but the most serious work is done on analysing the possibility of building a nuclear power plant. If we had a nuclear power plant today, we would be much more independent and secure energy-wise.

"As it happens, it is cheaper to import energy generating products and produce our own electrical power than to buy it abroad, and if we had a, for example, 1,000-megawatt nuclear power plant we would even be able to export electrical power and make a profit. As the waiting list for the construction of a nuclear power plant is very long, Croatia should stand in line as soon as possible," Slipac said.

[Box, p 16]

New power plants

Thermal power plants fuel power (megawatts) gas pipeline planned activation date

TE-TO Zagreb natural gas 100 existing long-term contract on gas with Ina late 2008

TE Sisak natural gas 230 new pipeline late 2011

TE Slavonija natural gas 400 new pipeline late 2012

TE Dalmacija natural gas 400 new pipeline late 2013

TE Plomin coal 500 late 2014

HE Lesce 42 late 2009

[Box, p 20] Russian Offer

During the meeting in 2007, then Russian President Vladimir Putin offered to Croatia to cooperate on the Southern Stream gas pipeline; President Mesic was interested, just as he was in Druzba Adria, but lacked the government's support.

Originally published by Nacional, Zagreb, in Croatian 10 Jun 08 pp 12, 13, 14, 15, 16, 18, 20.

(c) 2008 BBC Monitoring European. Provided by ProQuest Information and Learning. All rights Reserved.