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Liberate Regulation from Politics
HMA Jonathan Allen, British Ambassador to Bulgaria
AUTHOR: Atanas Georgiev

The interview will also be published in the UTILITIES magazine and in the Shared Values magazine

Your Excellency, how do you evaluate the current investment situation in Bulgaria and which are the sectors that UK companies consider for future investment?

Bulgaria is an attractive place for UK companies to do business – part of the EU single market, with excellent macroeconomic conditions, signs of sustained economic recovery, EU funds driving large infrastructure projects, and very accessible from the UK compared with other emerging economies in Latin America and the Far East. Our message to UK companies is “Come to Bulgaria for great opportunities without the risk associated with other emerging markets!” The UK is highly regarded as a partner in Bulgaria. Bilateral trade between the two countries has trebled over the past ten years – and grown 14% in the first half of 2013. The largest export sectors for UK companies are beverages, pharmaceuticals, machinery and road vehicles, and major UK companies operating here include GlaxoSmithKline, Shell, Mott McDonald and Debenhams.

My commercial section in the Embassy, UK Trade & Investment, has been instrumental in supporting British companies to develop business in Bulgaria over the years - promoting Bulgaria to UK companies as a place to do business (through UK and regional trade events), helping UK companies to identify Bulgarian partners and distributors, and trouble-shooting problems with government. With our support, household names like JCB have become established on the Bulgarian market.

We are also excited about the opportunities around large scale infrastructure projects, particularly in Water & Environment, Mass Transport, and Energy (nuclear and gas infrastructure), where UK companies have great expertise in financing, design, project management and supervision, as well as specialised services and technologies. For example, with the support of UKTI, the UK National Nuclear Laboratory has won a project to carry out geological survey work on the new nuclear waste disposal site near Kozloduy. We expect to attract many more such UK companies into the supply chain on major Bulgarian infrastructure projects.

The Bulgarian water sector has benefited from UK’s experience and management before. Are there possibilities for new partnership in this field?

The UK is home to a water & waste water industry that generates an annual turnover of some £ 8 billion and employs over 100 000 people. The length of water mains and sewers combined is enough to stretch to the moon and back!

The UK water & wastewater industry is truly world class drawing on many years of experience developing integrated water resource management solutions and techniques. UK engineering consultancies provide a full range of services and have profound expertise and capability in developing solutions, delivering projects, providing financial stability to water projects, ensuring value for customers and identifying best-value solutions to water issues.

Where I see immediate opportunities is building partnerships between UK and Bulgarian companies, especially in early stages of developing integrated water projects. UK consultancies can provide general and detailed design and technical assistance for the extension, upgrade and modernisation of water and wastewater treatment plants (WWTP); supervision of works for the extension, upgrading and modernising of systems; technical assistance in the fields of network and asset management for water and sewerage; full range of equipment for water treatment and waste water treatment; geographic information systems (GIS), network modelling and network management systems (software); smart-metering expertise to detect leaks and ensure efficiency;

Another important field where UK is recognised to be a world leader is managing concessions and public-private-partnerships (PPPs). Successful PPPs enable the public sector to access the discipline, skills and expertise of the private sector. A great example is the Sofia Water concession that was managed by United Utilities for a decade until November 2010. Other good examples include WYG Group, through its local office, WYG Bulgaria that was engaged by the International Finance Corporation (IFC) to be its technical advisor in structuring the Private Public Partnership of Pleven Regional Water Company project. Another assignment completed successfully by WYG Bulgaria was the work with the World Bank to provide consultancy services for the preparation of the national water sector strategy including identification of future investment needs of the sector and developing various scenarios for financing these investments.

The transportation infrastructure and services in our country needs substantial investments in the coming years. Is there an opportunity to partner in this sector?

UK has extensive expertise in the road and rail sectors and UK companies are keen to partner with Bulgarian firms on infrastructure modernisation projects where they could bring in sophisticated design, project management and supervision skills. Scott Wilson and High Point Rendell have been significantly involved in the design/ supervision stage of building Danube Bridge II between Vidin and Kalafat and Pitchmastic Ltd delivered the hydro-insulations to the Spanish prime contractor FCC. Mott Mac Donald have been operating an office in Sofia since the early 90s and have been involved in a number of road-repair projects. WYG (White, Young and Green) were particularly active in advising Bulgarian municipalities on upgrading their urban transport systems. UK is a leader in the implementation of PPP (public private partnership) schemes and the specific experience in the field of road construction/ operation may be transferred into your country. Professional consultancy could also be provided to the Bulgarian railway authorities in terms of financial improvement and reorganising BDZ’s (Bulgarian State Railways) activities and further liberalisation in the passenger/freight segments.

Energy, and especially electricity and gas sectors, are currently in transition in Bulgaria. What are the possibilities for investments in this field?

We see many opportunities for the UK energy supply chain in Bulgaria and the British Embassy plays an active role in promoting these opportunities in the UK. The nuclear sector in Bulgaria and across Central Eastern Europe has enormous potential. The UK pioneered civil nuclear power and has unrivalled expertise in all aspects of the nuclear supply chain: from fuel manufacture, life-extension, decommissioning, to waste management. UK nuclear companies have worked at Kozloduy since the 1990s to the present day – UK-based Nuvia is working with SERAW on planning current decommissioning work. The UK is also a global leader in cutting-edge nuclear research and training. Our National Nuclear Laboratory (NNL) is currently providing their expertise to the new waste storage facility at Kozloduy. We look forward to them being part of Bulgaria’s nuclear future.

Our long experience in oil and gas exploration also holds possibilities here. UK firm Melrose Resources is the only current off-shore gas producer, while geological survey companies like AtmosI are helping to find new resources. Bulgaria’s ambitious – and much-needed - plans for new regional interconnectors and gas pipeline upgrades will be of great interest to our pipeline and gas services industry. Rolls Royce are the single biggest name in gas compression stations, while surveying companies like Penspen have recently planned pipeline routes for Nabucco and the Greece-Bulgaria interconnector. It’s a safe bet that many of the big energy & infrastructure projects in Bulgaria will be financed through the City of London, and will draw upon our legal and insurance expertise. Our world-leading universities and research centres are also looking to train the next generation of Bulgaria’s engineers and scientists.

There are many challenges in the power sector, related to liberalization, the growth of renewable energy, and the price of energy resources. What are the best lessons from the United Kingdom that could be applied in the Bulgarian energy policy?

From the UK experience, Bulgaria will need three things to make energy market reform and liberalisation a success: a robust regulator independent of both politicians and industry; strong, visionary political leadership; and a clear focus on the practical goals reform will achieve. The UK energy regulator (Ofgem) sets three goals for the UK energy market: energy security; affordability; and sustainability. These goals can be in conflict, and the key role of the independent regulator is to strike the right balance between them. The regulator has a responsibility to promote a diverse, sustainable and affordable mix of energy sources that can compete on fair terms with one another. Since the most secure, most affordable, most sustainable energy is the energy you do not need, our regulator also has a major role in promoting energy efficiency by both consumers and energy companies. Bulgaria’s path away from the current crisis in the energy system must begin with a reformed, properly-financed regulator. One that is: accountable; transparent; focused on agreed goals; and, fully engaged with the needs of both customers and industry. The UK experience is that liberalisation works. UK consumers can choose from over 20 energy suppliers at prices below the EU average. It also helps attract much-needed investment even in these difficult times. Over the next decade around £110 BN of upgrades and new infrastructure in our energy infrastructure will come from private investment, not the UK tax payer. Private companies are planning to build 8 new nuclear power stations, with no public subsidy.

Taking the path of liberalisation requires making some hard choices. Inefficient and un-needed energy producers may have to be cut back. There may be job losses. Prices may need to rise (in the short term) as companies raise the necessary funds for investment and to pay-back shareholders. The rewards will inevitably come later and the sooner you start the sooner you get the benefits. Liberalisation will result in energy prices that more closely reflect the real cost of production and transmission (including their real environmental impact), rather than simply what technology and energy sources politicians prefer at a price that will help to get them re-elected. Liberalised markets tend to be very energy efficient. Bulgaria currently uses 4.5x as much energy to produce 1 Euro of production as the EU average and over 6x more than the UK uses. This is a tremendous waste of resources and economic potential that Bulgaria cannot afford. To be politically acceptable, liberalisation must include real protection for the most vulnerable customers. In the UK pensioners, the disabled and those in severe financial hardship are given additional financial support (and protection from disconnection), but also grants to insulate their homes (to reduce bills) and practical advice on energy efficiency. Other liberalised markets in the EU offer similar protection. This is much more cost-effective for tax payers than setting energy prices to suit those on lowest incomes while the state-regulated market makes huge losses.

How could we ensure better energy regulation in Bulgaria? What could be drawn from the UK experience in this field?

The regulators’ independence is crucial. Some of Bulgaria’s regulators are impressive and respected, for example, the Ombudsman. But in other cases, regulators seem to lack energy to tackle their areas.

The governance of the Energy Commission and the Competition Commission in Bulgaria seems to be extremely important. With the Energy Commission, we have now had a few different chairpersons of the commission in 12 months, which is a very high turnover for an independent role.

What I can say about the UK experience is that, for example, every commission is responsible for one sector only.

What is unquestionable is that these regulators need to have undisputable reputation and their decisions need to be liberated from politics. Their independence is vital and their appointments process needs to be enshrined in law to ensure high quality people are selected.

We recently joined a project for the promotion of “shared values” in Bulgaria, as defined by Harvard’s Michael Porter and other researchers. What could be the most compelling shared values in Bulgaria’s business and society, which could trigger new partnership and positive development?

There are many compelling shared values in Bulgaria’s business and society, which are reflected in the rapid development in corporate social responsibility programmes over the past fifteen years. The British Embassy works closely with the Bulgarian Business Leaders Forum, the leading business organisation in Bulgaria devoted to CSR, which was launched by HRH Prince of Wales in Sofia in 1998. We have been very impressed with member companies’ CSR activities – beyond charity to investments in human capital, investments in local communities, energy efficiency and environmental programmes. All of this reflects a desire of employees not just to contribute to company profit but to make a wider contribution to society – in fact companies are increasingly seen as out of step if they don’t provide these opportunities to their staff.

Porter’s principle of shared value involves creating economic value in a way that also creates value for society by addressing its needs and challenges. Businesses must reconnect company success with social progress. Shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success. In this context, in Bulgaria today, we would like to see business playing a wider role in democratic reform – particularly in taking measures against bribery and corruption, in pushing for better regulation, and in holding politicians accountable for open and transparent government.

Some of the main factors of the good business environment are actually in other sectors. Do you see opportunities for improving the education and other social spheres through partnership between UK and Bulgaria?

A highly educated society is one of the fundaments of competitive economies. Education and skills is a key component in every business sector and in the UK a wide range of training partnerships are working to forge links between education and industry. The UK prides itself on the excellence of its education system. My country is home to several of the top 10 universities globally and every year we welcome thousands of international students. We have some of the best boarding schools and the country is the first choice for learning English language. British professional qualifications in areas such as engineering, architecture and professional services, are valued internationally and are in huge demand by those seeking to improve their career prospects.

Successive governments have made education a priority. Earlier this summer, the Department for Business, Innovation & Skills together with the Department for Education set out a new strategy on how the government and the education sector will work together to tap further into opportunities around the globe. The strategy aims to build on our strengths in higher and further education, in our schools overseas, in our educational technology and products and services, and in delivering English language training.

In Bulgaria, the British Embassy works closely with the British Council to raise awareness of opportunities in the spheres of education, science and cultural exchange. We develop partnerships and networks between Bulgarian and British institutions. For instance, one of British Council’s successful projects, called ‘Connecting Classrooms’, builds lasting partnerships between British schools and schools in Bulgaria. There are also partnerships established between British and Bulgarian universities. Furthermore, a couple of months ago, we organised a programme of events – under the theme British Weeks – where we showcased some of the best British examples in the areas of education, culture and heritage. We are committed to deepening and extending the collaboration between the two countries and this remains an important priority for us in the coming years.

HMA Jonathan Allen took up the post of British Ambassador to Bulgaria in February 2012. Before that, he was Head of the East Africa and Great Lakes Department of the Foreign and Commonwealth Office (FCO). Between 2007 and 2009, Jonathan established and led RICU, a cross-government counter-terrorism communications Unit. From 2006 to 2007, he was Assistant Director in the Home Office’s International Directorate with responsibility for the Bulgarian and Romanian entry into the EU.

Jonathan began his diplomatic career on EU issues and was posted to Cyprus and Brussels, where he was Government Spokesman during the UK Presidency in 2005.

Ambassador Allen is a History graduated from Cambridge University. He is married to Elizabeth Patricia, and has one child.

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