Atanas Pekanov: There is no political will for a just transition, but the European Commission should be more flexible too
Atanas Pekanov is a Bulgarian economist. He was the Deputy Prime Minister for EU Funds Management in the first (12 May – 16 September 2021) and second (16 September – 13 December 2021) caretaker governments of Stefan Yanev and in the caretaker government of Galab Donev (from 2 August 2022 to 6 June 2023).
He was born in 1991 in Athens, Greece. He holds a PhD in economics from Vienna University of Economics and Business and holds a master’s degree in economic policy at University College London. He joined the European Central Bank in Frankfurt, Germany, in 2016 and has been working at the Austrian Institute for Economic Research (WIFO) since 2017. Fulbright Scholar at Harvard University’s Department of Economics in 2019, Bulgarian National Bank Fellow in 2015 and 2019.
Atanas Pekanov shares his experience in negotiating and implementing the Recovery and Resilience Plan of Bulgaria, relations with the European Commission on the Just Transition Plan. He also underlines the absence of political will for reforms in Bulgaria and shares what political actions, in his view, will help the implementation of the fair and green transition and the protection of the interests of the Bulgarian consumer in the liberalization of the electricity market for households.
Mr Pekanov, my first question relates to the Recovery and Resilience Plan, which is also relevant to the just transition issue. You were involved in drawing up this plan. What exactly was it trying to do then? What was Bulgaria expected to achieve through the clauses that were in that plan?
The recovery and resilience plan is part of Europe’s overall response to the pandemic and to the major economic shock that occurred in 2020. It was adopted as a mechanism relatively quickly because, during the pandemic, action had to be taken quickly. Action had to be taken at European level because all countries were affected by the halt in economic activity. This was perhaps the biggest shock we have had in recent decades in Europe.
Then, quite quickly, Member States agreed that there had to be a common fiscal response at European level. That response means something that macroeconomists have been saying for years – to take on common debt at the European level and give the funds from that debt to the member states to calm the economy. This meant, especially in the first months, that the financial markets did not attack individual member states by asking them for high debt premiums and so on. Through the common European debt, this was avoided.
In this way, countries that start from a worse situation, for example, those with high debt, or those that for other reasons are judged by the markets to be risky, do not come under attack from the financial markets. This protection has been achieved. The data clearly show that the plan has succeeded in this respect.
Secondly, the aim was to find the means for a fiscal stimulus. The Member States had to be given money to stimulate the economy during the pandemic, to prevent a recession or stagnation developing again, as we have seen since the global financial crisis. Having united on this topic, the old member states started thinking, “OK, but let’s have some common priorities for which this money should be given”. The idea was not to leave it completely in the hands of the member states to decide what to use the Recovery and Resilience Plan money for. This meant setting some common parameters, and the two common parameters that the then new European Commission set were green transformation and digital transformation.
The green transition and the green deal in general were agreed at political level, as a priority for the next five years by the Member States, even before the pandemic started. But, as we see in Bulgaria, the green deal brings a lot of fears about the possible consequences that it might have for some regions, for some specific industries. There is fear of the increased regulations that come along and of Europe’s desire to become climate neutral as quickly as possible. And along these lines, the decision was taken that a large part of the money under the Recovery and Resilience Plan should go to the green transition and part to the just transition. The idea was not only to invest in new capacities, renewable energy sources and so on, but also to bring new jobs in order to replace those jobs that might be affected.
We are at the end of 2024. There are still two years left in which funds can be drawn down under this Recovery and Resilience Plan. So far, only one tranche has been drawn down, while some countries are on the fourth. Why the funds are not being used and the reforms are not being made? Apart from the fact that there is a political crisis, why is Bulgaria and Bulgarian society not making the will and efforts in this direction?
Exactly. The situation is quite unhappy.
I have no doubt that much of the money, unfortunately, will be lost. And of course, I think it’s a very negative development. Unfortunately, it is not only seen in Bulgaria, but yes, Bulgaria is extremely backward.
The initial delay was perhaps caused by the fact that first there was a cabinet which had already written a plan – this was the last GERB cabinet, but it decided in its last days not to submit it for approval. I am not going to go into a discussion of why that government decided to do that. Then, the caretaker cabinet of Stefan Yanev came to power. I believe that we made some important improvements. We submitted this plan. There were some things that were not included in it, but they were required by the European Commission, i.e. Brussels would not have accepted the plan without them. Some of these things were politically difficult. A caretaker cabinet made some commitments and then came the government of Kiril Petkov. He has now completed the remaining commitments on the European Commission.
The plan was adopted first in 2022. At that time there was a delay of one year. Then, in the summer of 2022, the government was again taken over by a caretaker cabinet – that of Galab Donev. In my opinion, in this caretaker cabinet we managed to catch up with some of the delay. In December 2022 Bulgaria received the first payment. It was also at risk because there was a delay in one of the large public procurement contracts. I think I have explained this many times, but again, the money only comes when we have made a certain list of investments and reforms.
The first payment happened in December 2022. A lot more work was done after that, but not all the work to be able to get the second payment. There was one group of laws left to be passed in Parliament. The political crisis has largely caused this delay.
But today, the political crisis is not the only cause of the delay. Unfortunately, I can already see the overall non-acceptance. I think there is a broad consensus among the parties against the reforms. It is not about finding a stable government. While the Denkov-Gabriel cabinet was in power (June 2023-April 2024), a majority existed. But the government did not pass the necessary laws. They did not vote on the climate neutrality roadmap, which we will come back to in a moment, because it is the key to a just transition.
That is to say, even when there was a majority to govern, a majority did not come together to accept and do the necessary work. At the moment, I think the vast majority of the parties are not willing to have that happen either. In other words, we no longer have the political will to carry out the reforms. We are voluntarily abandoning them.
We are not the worst in the EU in this respect. There are other countries that are on the first payment. And they are not just countries with a political crisis. Some countries, for other reasons, are not carrying out the reforms. You know that Hungary has had major misunderstandings with the European Commission and is therefore not receiving money.
But even the so-called strong countries, such as Austria, Germany and the Netherlands, are also on the first tranche of their national Recovery and Resilience Plans. I think the reasons are quite different for them. They do not, in fact, have much desire to take this money. To them, the money that they receive is not very important and, accordingly, they do not make many reforms.
The green transition and related activities are carried out with the ambition to modernise society. The aim is not only to replace coal with solar, for example, but to democratise access to energy resources, through the practice of so-called prosumers, to contribute to an economy and businesses with more advanced technologies and perhaps even new players entering the market. To what extent are these processes taking place in Bulgaria? And if they are not, why are they not taking place?
I completely agree. And I continue to believe that the Green Transition was not a mistake, although I see the difficulties of its implementation,. It was Europe’s attempt to continue to develop and to establish itself in an industry that is leading the way.
It is often said these days that the EU is lagging behind. Yes, that is right, we are not leading in car production, others have managed to overtake us in car production. We do not have the leading technologies. Yes, that is true. But the EU is a leader in green technology. That is where the EU continues to be part of these technology sectors, to have the companies that are strongest in them. And they are enabling exactly what you mentioned, the possibility for people to be more involved in everything that is happening in the energy system, decentralisation, the creation of energy cooperatives, more renewables for ordinary consumers, for businesses, for households. This is something that we are seeing all over Europe, and it was happening there before the actual green transition started. But the green transition and all the money that has been devoted to it has the aim of accelerating this process of modernisation and democratisation, thereby making us less dependent on other energy sources.
Perhaps we have not explained this well enough. When I was in the Cabinet, 80% of my time was taken up with this subject. There is certainly scepticism in people’s minds, there are concerns. On the one hand, these concerns are technological, because green energy alone will not be able to provide energy security for member states. That is an argument that is understandable, and nobody has said that we will be able to secure our energy 100% of the time through renewables. But it is not an argument to say that we should not do more and more.
The technology argument has become more tangible since the war after Russia’s attack in Ukraine, because of the huge shock in energy prices now in natural gas. However, we managed to get back to almost pre-crisis levels quite quickly. The shocks are there, and yes, they reinforce people’s concern that we should be trying to keep coal plants going as long as possible. But that was true for a short period of time, within a year. In 2024, we see that they are either operating at a loss again or need subsidies.
This shows us that, in addition to the technological argument, we now have the purely financial-money argument – let us say that new technologies, renewable energy, are replacing old sectors and old technologies. And if we want to provide stable, sustainable jobs and livelihoods for people in these regions, it is important to provide these new opportunities and to do more for them, not to indefinitely extend the life of industries and sectors that simply no longer seem competitive. Without state aid, without subsidies, it seems difficult to imagine them in 10-15 years’ time.
I am not saying that they will close tomorrow, but to imagine that nothing will happen in 10-15 years’ time is damaging to the country and to the people in these regions. That is why I said that I am very disappointed that the road map for climate neutrality that was prepared in this way by experts (there were trade unionists on the team that prepared it, there were business representatives, there were representatives of the NGO sector, there were representatives of the ministries) and which gives the direction in which the country should move in 10-15 years’ time has still not been adopted. This does not mean that given a shock, if the situation in the world changes in 5 years, we cannot change this. But in today’s situation we have to have some plan, we have to have some direction.
We do not even want to accept this thing because the political parties say, ‘We don’t want to scare people’. These things will happen with or without your recognition that they will happen. This road map predicts, as the weather forecast does when it predicts what the weather will be tomorrow, what the energy trends of the world will be in the next 10 years. If we do not take this into account, if we do not start to prepare the sufferer for this, we will see shocks that will be similar to the deindustrialisation of the 1990s, and it will already be too late to do anything about them, because we will have lost the money that was allocated for them.
Why is that in Romania, for example, where there are 150 000 prosumers as of September this year, and the same processes are not happening in Bulgaria? Why Bulgarian cannot have the same a combination of legislation, communication campaigns and relations between the electricity distributors concerned and even the state, so that more people are installing green power in their households and this decentralisation that you spoke about is happening?
I cannot analyse other countries, why and how they are successful or in what they are not successful, but I can give one example of why this is not happening enough in Bulgaria. It is true that there are some technological difficulties that we have to take account of. In the case of Bulgaria, the technological difficulty is the lack of modernisation of the electricity transmission system.
In 2022, in the last days of the then caretaker cabinet, Bulgaria had to submit a request for what the country could do with the additional funds that were allocated from the so-called Repower EU. These are additional financial resources that Europe decided to give to member states after the war in Ukraine started. One of the proposals of the then caretaker government was to give a large sum of money to modernise the electricity transmission system. This is, by the way, a problem that everyone is aware of. All the parties say that this must be fixed.
I do not know why Bulgaria continues, a year and something after that, not to ask for this money from the European Commission. Without this modernisation, we will have difficulty making the whole electricity grid work if a large part of electricity production is decentralised. If you want, in addition to using the electricity for your own needs, to really be a so-called prosumer, that is to say, when you produce more electricity to put it back into the system or to sell it back to the system, the electricity grid has to be modernised.
If you were Deputy Prime Minister at the moment, what would you do that is not happening at the moment in terms of a just transition?
Three things are key right now. Firstly, that money that has not yet been asked for should be asked for and go to the most necessary actions that can be implemented quickly. I am talking about the modernisation of the electricity grid. Where there is a high demand for funds, it should continue. There have been quite a few projects that have applied for assistance for renewables and batteries. We need to increase the resource for them so that these things happen.
Secondly, we need to look at getting more investment into the coal-fired power station region now and immediately to show that there really will be new jobs. That is part of the problem that I have spoken to the European Commission about, which I think was part of the wrong approach. It seems that in Bulgaria we are betting on putting in place the restrictions in the first place, i.e. the reduction in operation from coal-fired power stations. That is what the European Commission expected. And then we expect new jobs to come, new industries to employ the people who will eventually no longer be employed in coal-fired power stations.
Let us do the reverse. We need to create jobs today. People need to see that this is really happening. We see it happening in other countries in Europe, so it is not impossible. Only then can some steps be taken, possibly to reduce the subsidies that coal-fired power stations receive.
And the third one?
And the third thing is… I have to be honest here that the European Commission is not showing enough flexibility either. And it will have to…
I am pleased that the new European Commission is now in office. I am a supporter of the Just Transition Plan. But I criticise in some respects the fact that there is not enough flexibility. The European Commission imagines that everything that we agreed in 2021, in 2022, when the Just Transition Plan was finalised, must be implemented as we have specified it. Except that the world has changed since then. There is inflation, an energy crisis, a supply crisis. The overall geopolitical situation is different. We need to find a slightly more flexible option to implement everything that is written in the Just Transition Plan.
The third action is also to say clearly to the European Commission: If you want this instrument to work, and it does work, it means not that we get one payment out of seven, as we do at the moment, but that by the end of the period we have received at least half the money, which at the moment seems to me, often said, unrealistic.
But this is something we have to fight for. And other countries have to fight. It is not only us who are having difficulties. We have difficulties in the energy sector. In other countries, the problems are in completely different areas. In some it is pension reform. In others it is tax reform. In others it is the rule of law. Everyone has something they cannot agree on with the European Commission.
So it seems to me that there will come a time when the European Commission will also have to show a little more flexibility. But we, too, have to do our job as far as we can go with our powers.
If all the liberalisation packages in the energy sector that the EU has adopted are fully implemented, to what extent will that be positive and to what extent not?
That is a very good question. It brings a lot of confusion to Bulgaria. We hear very different interpretations.
Our liberalisation of the market has two aspects. One is with regard to energy producers. That is the wholesale market. Here, I rather defend the European Commission’s position that liberalisation is necessary. In this case, it is about who we buy electricity from. Electricity is a commodity that is the same regardless of who produces it. It does not matter whether you buy electricity from a nuclear power plant or from a renewable energy source. Electricity is the same from both. And when it’s the same, you’re supposed to want to buy the cheapest option.
At the moment, the electricity consumed by Bulgarian households is the so-called energy mix, which means that the Energy and Water Regulatory Commission (Bulgaria’s energy regulator – editor’s note) says how much electricity to buy from renewable energy sources, how much from coal plants and how much from nuclear. And this is the real subsidy that goes to the coal plants. The Energy and Water Regulatory Commission says we’re going to buy say 30% of electricity from coal plants, despite the carbon emissions that make electricity from there more expensive.
At the moment no one has set out to abolish the practice of carbon emissions in Europe. They are a mechanism that has been in place for decades. And it is not only functioning in Europe, but also in the UK, which left the European Union, and in other countries. So, because of emissions, but also because of cost, electricity from coal-fired power stations is expensive. But we continue to buy it. Someone is ultimately paying for this thing. And that’s having to constantly cover the deficits that are being created in the system.
I mean, that’s where liberalisation – being able to buy the cheapest electricity – is a good thing. Of course, this does not mean that we should completely abandon coal power, which can be used as a cold reserve. I believe that we need to find a way to make coal-fired power stations a cold reserve.
We see, for example, in winter, when it is surprisingly cold (it happened this year after 3 warm winters), coal-fired power stations have their place. But probably their proportion in the energy mix is smaller now. So much for wholesale generation.
When we get to the household electricity market then we have to be very careful. Unfortunately, a large proportion of Bulgarian consumers continue to live close to the poverty line, they are energy poor, they do not have the means to pay if electricity is expensive. In terms of the household market, I am in favour of liberalisation, but only up to a certain limit. What does that mean?
I am talking about a two-tier model. Initial energy consumption per month to be at a fixed, relatively low price. This initial consumption to be equal to the normal consumption of a household in Bulgaria. Above that consumption, the free market price would be paid.
What will happen if these two price levels are not introduced? Currently, electricity is subsidised for everything. Both a family on a normal income and the person who has a huge villa with a swimming pool pay electricity at subsidised rates. In the case of the guy with the pool, his electricity consumption is cheaper because it is not liberalized.
It is a good option not to introduce extreme liberalisation, which could lead to times when it would be impossible for many Bulgarians to pay their bills. Instead, there should be one price for basic consumption each month, above which there should be a free, market price for large consumers who use a lot of electricity. In my opinion, this could cover part of the deficit in the system. If there is a deficit in the system somewhere, the taxpayer is probably covering it with his own taxes. And in Bulgaria most of the taxes are to be paid by ordinary people who, like the rich, pay 10% tax.
You were in an influential position as deputy prime minister in the caretaker governments of two prime ministers in 2021. What are you doing now? Do you have plans to return to political activity?
I am an economist. I teach at a university. I work at the Austrian Institute for Economic Research. I work with Austrian ministries, the central bank, etc., but also with the European Parliament, with the European Commission on the topics we discussed in this interview. For example, what the future European budget would look like, how to use the funds in a better way, what investments Europe should make etc.
For the moment, I have no political aspirations in the medium term, but I am always on the line to help Bulgaria. I think the institutions in Bulgaria need to be strengthened. I saw it when I was a government member. The institutions in Bulgaria are partly unprepared for the EU suddenly deciding to give them so much money. In the current programming period, we will receive twice as much money as in the last one. However, in order to absorb the funds under the Recovery and Resilience Plan, we need to do much more reform.
I see that ministries, agencies and all other state institutions are simply not prepared for all this. They lack experts. In Bulgaria, we have for years adopted, unfortunately, the so-called small state approach. We have low state spending and so we deprive ourselves of having better-prepared experts, stronger institutions, greater administrative capacity. When a shock situation arises, as has happened consistently in recent years, our personnel are not particularly prepared to react.
This interview has been prepared with the support of Journalismfund, within the scope of a broader project concerning just transition in Bulgaria, Romania, Poland and Czechia in a comparative perspective.
Cover photo: Atanas Pekanov (source: Facebook).
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