SLOVENIAN ENERGY: VULNERABLE BUT DIVERSIFIED

UNCLAS SECTION 01 OF 04 LJUBLJANA 000171

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TAGS: ECON EINV ETRD ENRG SI
SUBJECT: SLOVENIAN ENERGY: VULNERABLE BUT DIVERSIFIED

REF: A) BUDAPEST 0309

B) LJUBLJANA 0132

SENSITIVE


1. (SBU) Summary: A small, mountainous country with limited
natural resources, Slovenia not surprisingly relies on
external sources for many of its fossil fuel energy needs.
Slightly more than 55 percent of Slovenia's total energy
supply comes from liquid and solid fossil fuels. An
additional 15 percent of total energy is provided by natural
gas, 20 percent from nuclear power, and the balance from
renewable sources. In spite of this reliance on external
sources, Slovenia's overall energy picture is less bleak
than some of its Central and Eastern European neighbors. Of
note, approximately 90 percent of Slovenia's electrical
needs are supplied from domestic sources. Nearly 40 percent
of electrical consumption in Slovenia comes from domestic
coal, roughly one-third from hydroelectric plants on
Slovenian rivers, and, under joint ownership with Croatia,
about 20 percent of domestic electricity consumption comes
from nuclear power. The remaining ten percent of Slovenian
electricity needs come from imports.


2. (SBU) While Slovenia felt the sting of the Russia-Ukraine
dispute earlier this year, natural gas currently takes up a
relatively small, albeit growing, portion of Slovenia's
total energy picture. Slovenia has limited options to
reduce its current usage of crude oil products other than
through efficiency improvements or use of "greener"
technologies. With this in mind, Slovenia has made a strong
commitment to renewable sources of energy, largely through
hydroelectric power. Post also understands that Slovenia is
considering expanding its use of nuclear energy in coming
years. End summary.

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National Energy Program: Renewable and Nuclear
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3. (U) In May 2004, Slovenia adopted a national energy
program. The program, which looks out to 2015, addresses
Slovenia's needs by individual energy sources and lays out
overarching principles to ensure energy security. The
program envisions increasing the efficiency of energy use,
encouraging the use of renewable sources of energy,
increasing co-generation production of electricity, and
support for increased use of biofuels in transport. In
addition, the program calls for studying the possibility of
extending the life of the Krsko nuclear power plant,
increasing the number of hydroelectricity plants, and
retaining significant state ownership in energy companies.

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Natural Gas: Low But Growing Consumption
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4. (U) Slovenia imports 100 percent of its natural gas needs
and has only limited domestic storage, keeping a supply
buffer in rented storage facilities in Austria. As with
much of Europe, Slovenia relies to a large extent on Russia
for its natural gas needs. Approximately 60 percent of
annual natural gas usage of slightly more than one billion
cubic meters comes to Slovenia from Russia via Austria. The
balance of Slovenia's natural gas comes from Algeria via the
Italian pipeline. The pipeline from Austria connects to the
pipeline in Italy via an approximately 270 km main line that
transits Slovenia from the northeast to the west. Slovenia
is currently in the process of expanding its distribution
pipeline network, currently just over 500 km, to provide
broader coverage to all parts of the country. A monopoly
until 2003, GOS-owned natural gas concern Geoplin controls
the vast majority of the market in Slovenia.


5. (U) In relation to some of its Central and Eastern
European neighbors, the usage of natural gas as an energy
source in Slovenia is still relatively low, providing
slightly less than 15 percent of primary energy needs. One
of the main reasons for a lower level of gas consumption in
Slovenia is that only about 25 percent of municipalities are
connected to the natural gas pipeline network. Homes in

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Slovenia are more likely to be heated by wood, heating oil,
or even coal than by natural gas. In addition, unlike some
of its neighbors, Slovenia does not use natural gas to
supply its electricity needs. Despite this, Slovenia has
seen significant increases in natural gas consumption in
recent years and the GOS expects that this will continue.
As the natural gas network in Slovenia continues to grow,
some experts predict a 70 percent increase in natural gas
usage in Slovenia over the 2000-2015 timeframe.


6. (SBU) The Russian-Ukrainian gas dispute of earlier this
year, while catching Slovenia by surprise, did not impact
the domestic supply of natural gas. Supply from Russia did
drop by one third during the dispute, but this decrease only
lasted for 24 hours. Buffer stock in Austria and average
temperatures no lower than six degrees Celsius helped see
Slovenia through the brief crisis, according to Miro Vidmar,
the head of the Division for Energy at the Ministry of the
Economy.


7. (SBU) Vidmar acknowledged, however, that had the weather
been colder or had supply cuts been longer or more severe,
Slovenia could have faced a "huge problem." Noting that
Slovenia feels "trapped" by its situation, Vidmar said that
all options for improving gas supply security were on the
table. He said the GOS is considering plans to build buffer
storage facilities within Slovenia where it might maintain
supply to deal with issues like this in the future. Vidmar
also said Slovenia was considering the option of working
with Croatia on the development of an LNG terminal in the
Adriatic Sea (ref A). He noted, though, that Slovenia had
limited short-term options to diversify its current natural
gas supply situation and that it would be at least three
years before significant changes could be implemented.
Vidmar said that while the Russia-Ukraine situation was
currently stable, the dispute was "fair warning" that prompt
action needed to be taken by the government.

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Oil and Gasoline: Total Reliance on Imports
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8. (U) Slovenia relies completely on other countries for the
refining and supply of its liquid fossil fuel products.
Gasoline, diesel, heating oil, and other crude-based
products are produced in Italy, France, Bulgaria, Austria,
Hungary, and Croatia, and are delivered to storage
facilities or fueling stations in Slovenia by tanker truck.
Miha Kirn, Manager for oil products supply at market share
leader (and government-owned) Petrol, told Econoff that it
is not cost-effective for Slovenia to refine crude oil
products domestically. A Petrol-owned refinery in the
northeastern Slovenian city of Lendava is no longer
operational and is used for the 90-day EU-mandated storage
of refined oil products.

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Nuclear: Extend Existing Plant, Possible New Facility
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9. (U) In commercial operation since 1983, the 675 MW Krsko
nuclear power plant accounts for nearly 40 percent of all of
the electricity produced in Slovenia. Krsko is jointly
owned by the governments of Slovenia and Croatia through
electrical utilities Eles Gen (Slovenia) and HEP (Croatia).
The power that is produced by Krsko, approximately 5.2 Twh
per year, is distributed equally to Eles Gen and HEP.
Nuclear power from Krsko currently supplies approximately 20
percent of Slovenia's electrical needs.


10. (SBU) The agreement that launched Krsko in the late
1970s stipulated that all aspects of the Krsko venture
should be shared equally by Slovenia and Croatia:
investment, power production, and waste. Since the breakup
of Yugoslavia, however, problems with this sharing
arrangement have cropped up on a regular basis. A dispute
over allegedly insufficient payments for power by Croatia
led to Slovenia cutting off the power supply from Krsko to
Croatia in 1998 and once again in 2002-2003. Following an
agreement signed by Slovenia and Croatia in 2003, however,
the power was turned back on. President of Krsko Stane

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Rozman told COM during a visit to the power plant on 15
March that the 2003 agreement had helped resolve
differences.


11. (SBU) Croatia and Slovenia also have yet to come to
terms on disposal of radioactive waste from the power plant.
The 2003 agreement envisioned a sharing of waste and an
ongoing development of a "waste fund" (paid for in a tax on
electricity prices). According to Post contacts, Slovenia
has set aside sufficient money in a fund to address waste,
but Croatia has yet to do so. Rozman, and his Croatian
managing partner Hrvoje Perharic, told COM that Croatia is
currently assessing a tax on electricity to seed a fund, but
that a formal fund had yet to be established. Moreover,
according to the Slovene Nuclear Safety Agency, Croatia has
yet to accept any portion of the waste from Krsko and has
said that it never will. Both Rozman and Perharic made
clear, however, that Croatia understood its obligation to
pay its share for waste disposal. All waste, including
highly radioactive spent fuel rods, are currently stored on
the grounds of the Krsko facility.


12. (SBU) The future of Krsko and nuclear power in Slovenia
will depend on resolution of the waste issue, according to
Rozman. Rozman acknowledged that a long back-burnered plan
to build a second nuclear facility was gaining some
momentum, but that a plan for the storage of waste from
Krsko would have to be finalized first. Contacts familiar
with nuclear energy insiders in Slovenia tell Econoff that
there is "tacit" agreement among politicians to move forward
with the discussion of a second plant. We also understand
that the public sentiment may not be overly negative.
Despite this, a new plant is a very long-term prospect
according to Rozman, requiring ten years from a political
agreement until a plant could be operational. In any case,
Slovenia will likely move forward with an extension of the
life of Krsko. Currently scheduled to be decommissioned in
2023, Rozman told COM that his team was investing and
upgrading the facility in line with a plan to extend the
life of Krsko beyond this date, possibly by as much as
twenty more years. Rozman seemed confident in the future of
nuclear power in Slovenia, particularly given the
limitations of other options.

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Coal: Will Remain Major Source of Electricity
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13. (U) Coal-fired power plants in Slovenia provide nearly
40 percent of Slovenia's electrical needs. By far the
largest coal electrical facility is located in Sostanj,
directly across the road from the Velenje coal mine. Owned
by the GOS-controlled energy provider Holding Slovenske
Elektrarne (HSE),the 750 MW Sostanj plant currently
supplies 3.6 Twh of electricity annually, or nearly 30
percent of all of Slovenia's electricity. Contacts tell
Post that usage of coal as a primary source of energy will
continue for the foreseeable future, with the Velenje mine
estimated to be viable through 2040.


14. (SBU) Uros Rotnik, the head of the Sostanj facility,
says that Slovenia will continue to have coal as a mainstay
of its energy strategy for the foreseeable future. Rotnik
told Econoff that the GOS, through HSE, is investing 40
million Euros to add new turbines to the Sostanj facility.
He said this upgrade to the plant will increase operating
efficiency by 38 percent when the new turbines come online
in 2008. This performance improvement would enable Sostanj
to continue to use coal at the same rate as it does now,
approximately four million tons per year.


15. (SBU) Rotnik further noted that HSE is evaluating the
addition of another block to the current facility in 2011,
at a cost of approximately 500 million Euros. He said that
once this new block was operating, the Sostanj plant would
phase out usage of older parts of the facility. In
addition, Rotnik said both investments would help the power
plant decrease its production costs by nearly 25 percent and
that cleaner coal-burning technology would help Slovenia to
meet its Kyoto commitments.


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Hydroelectric power and other renewable sources
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16. (SBU) Slovenia currently receives approximately one
third of its electricity from hydroelectric power and has
five additional plants in planning or under construction.
These additional units would bring hydropower's share of
electricity supply in Slovenia to approximately 40 percent
by 2018. Given the seasonal fluctuations in river levels
and the potential negative impact of low rainfall years on
power production, however, it is unlikely that Slovenia
would increase hydro share beyond this level.


17. (U) As part of an EU directive, Slovenia is currently
working on its plans for introduction of biofuels. The GOS
has said, however, that Slovenia will be late in meeting the
EU targets of biofuel as a share of total energy
consumption. Due to a lack of domestic production capacity,
Slovenia may not meet the target of 5 percent by 2010. In a
move to address the capacity constraint, the GOS has
committed to converting a factory currently used to produce
sugar from sugar beets to a biofuel plant by the end of

2007.


18. (SBU) Western Slovenia has been touted as a potential
site to develop a different source of renewable energy.
Plans to build wind power facilities in an area of the
country known for its strong air currents have long been
suggested as an alternative source to imported fossil fuels
and nuclear power. In 2004, the GOS supported a plan to
invest approximately USD 250 million in the development of
three wind-powered electrical plants. Largely due to
concerns over native species in the proposed locations,
however, the Agency for the Environment blocked further
development of the project until the environmental concerns
could be addressed. As Post understands it, serious
discussion on wind power as an important energy source is
not/not happening at the current time.

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HSE and Privatization: On the Horizon? Sort of.
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19. (SBU) From production to distribution, the government
controls nearly all aspects of the energy sector in
Slovenia. The GOS has historically taken a very
conservative view of privatization (ref B),preferring to
move more cautiously than some of its regional neighbors.
The GOS has, however, said that it intends to create a more
competitive market by selling off at least part of HSE to a
private partner and by creating a second "energy pillar" to
compete with the national utility HSE. Despite the stated
plans, conservatism continues to rein. Minister of the
Economy Andrej Vizjak has said that privatizing HSE "should
happen" but that it is not urgent. Contrasting Slovenia
with some of its neighbors, Vizjak has said that Slovenia
doesn't need to "patch up holes in its budget" by selling
off HSE in an expedient manner. Claiming that it would be
"too risky to let market forces run the system", Joze
Zagozen, general manager of HSE, has also said he favors a
partial privatization of the utility, but that the state
should retain at least 51 percent.

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Comment
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20. (SBU) The Slovenian Government was jolted by the Russian
cutoff of gas to Ukraine and appears to be focused on the
question of energy security. For the time being, Slovenia
has sufficient diversity of energy sources so that officials
are not in a state of alarm. Nevertheless, our energy
contacts tell us that now is the time to take steps to
improve energy efficiency, increase use of renewable energy
sources and explore other measures to secure the country's
energy supply.
ROBERTSON