July 31 (Bloomberg) -- Bulgaria may cancel construction of a 4 billion-euro ($5.5 billion) nuclear power station and sell shares in its state-run energy utilities to plug a widening deficit, according to Deputy Prime Minister Simeon Djankov.

Djankov, 39, a former chief economist at the World Bank, is also finance minister in the government of Prime Minister Boiko Borissov, who took office July 27. Borissov ousted a Socialist- led coalition in July 5 elections, pledging to fight corruption and pull the European Union’s poorest nation out of recession.

The new government’s plan to balance the budget by the end of this year may halt the planned reactor at Belene on the Danube River, in which Germany’s RWE AG is a partner. Djankov is seeking to raise cash from assets to bridge a 2.5 billion-lev ($1.8 billion) budget gap, Bulgaria’s first in eight years, and says spending cuts also will be needed.

“There is an 80 percent chance that the Belene project will be stopped,” Djankov said in an interview in Sofia yesterday. “The state has no funds to spare for its construction, and it has been difficult to raise private funds because of the global crisis.”

There is no economic assessment of the project’s profitability, and legal analysis showed there would be no penalties if it was canceled, he said.

Bulgaria selected RWE, Germany’s second-largest utility, last year to develop and manage the 2,000-megawatt plant. The government also hired BNP Paribas SA, France’s largest bank by market value, to arrange a 250 million-euro loan to help fund construction.

Rival Plants

Russia’s ZAO Atomstroyexport was chosen in 2005 to build the plant, with Areva SA and Siemens AG as subcontractors. Preliminary construction work started last October.

Government studies indicate that by 2015, when the Belene nuclear power plant was expected to be fully operational, the Balkan region would be a much smaller electricity market as neighboring countries including Greece, Romania and Macedonia are also currently building power plants, Djankov said.

Bulgaria is assessing all large energy projects “to find out what are the possibilities for postponement or cancellation, in some cases, and what are the penalties implied,” he said.

One project is South Stream, a 900-kilometer (560-mile) pipeline under the Black Sea that would link Russia directly with Bulgaria and ship natural gas onward to other EU nations. The other is a 1 billion-euro oil pipeline running from the Bulgarian Black Sea port of Bourgas to the Greek port of Alexandroupolis on the Aegean Sea, bypassing Turkey’s congested Bosphorus.

Spending Plans

“We have to see whether they are meaningful economically, how much are they going to cost, when are they going to happen,” Djankov said. “There are quite large commitments in the energy projects, of at least half a billion lev, and we’re now going project by project.”

The government is aiming to cut administrative costs by 15 percent and plans to keep spending on education, health care and social welfare unchanged, he said, adding most cuts must come from capital investment.

“All the government needs to do is to refuse state guarantees on any of the loans needed for the energy projects and leave their funding entirely to private businesses,” Latchezar Bogdanov, managing partner in Industry Watch LLC in Sofia, said by phone today. “Energy demand will rise as ageing power plants go out of operation. It is unwise to cancel the projects outright if private funding can be found.”

Djankov also said Bulgaria is planning to float as much as 15 percent of Bulgarian Energy Holding, which groups the country’s main state-run energy utilities.

‘Energy Security’

“The big energy projects are a strategic investment in the country’s energy security for two decades starting from 2015,” Bulgaria’s President Georgi Parvanov told reporters in the central city of Veliko Tarnovo today. “If we want to have energy security, the state needs to be engaged in it.”

“We would like to list minority packages of the remaining state-owned energy companies,” Djankov said. “They’re interesting investments and will help boost the domestic stock market.”

Bulgarian Energy Holding, set up a year ago with assets totaling 4 billion euros, groups the National Electricity Company EAD, the Kozloduy Nuclear Power Plant, dominant natural gas trader Bulgargaz AD and the Maritza East-2 power plant with adjacent mines.

The bourse listing will force the company “to comply with the rules of the stock exchange for more transparency and disclosure of financial information, which would help us, the government, to clarify some of the inefficiencies that now exist in the energy sector,” Djankov said.

The company’s annual revenue amounted to 5 billion lev, while its pretax income was 105 million lev, well below the 20 percent average profit margin for similar energy companies in Europe, Djankov said.

The government is considering two options, Djankov said. One would list between 10 percent and 15 percent of Bulgarian Energy Holding itself, while the other would disband the company and list the same proportion of the most lucrative utilities, including National Electricity, Bulgargaz and Kozloduy.

To contact the reporter on this story: Elizabeth Konstantinova in Sofia at ekonstantino@bloomberg.net

Last Updated: July 31, 2009 11:47 EDT