Bulgaria’s energy sector is growing but the country is still some way from its goal of becoming a regional hub linking the European Union with the Black Sea rim, the Financial Times reports.

The government is committed to joining three international pipeline projects, Nabucco and South Stream for gas and the trans-Balkan oil pipeline from Bulgaria to Greece. But all three are at an early stage of development.

“Bulgaria is strategically located for energy transit routes to western Europe, but there are other opportunities in the sector,” says Anthony Hassiotis, chief executive of PostBank, a Sofia-based lender controlled by Greece’s EFG group.

The country’s immediate priority is to recover its former role as the leading exporter of electricity to power-hungry Balkan neighbors, following the shutdown of Chernobyl-era units at the Kozloduy nuclear plant as a condition for EU accession in Jan 2007.

NEK, the state-controlled electricity company, is due to select a strategic partner by the end of this month for a €5bn ($7bn) nuclear project at Belene on the Danube river. Germany’s RWE and Electrabel of Belgium are bidding.

The utility will have a 51 per cent stake in a joint venture to operate two 1,000MW latest-generation units to be built by Russian, French and German contractors. These are due to be completed by 2015.

But to compete effectively with central European energy companies, NEK must seek a listing on a western stock exchange or acquire a long-term strategic partner, or both, says Ilian Vassilev, chairman of Deloitte Bulgaria.

“We’re still in transition mode. Our energy companies are undercapitalised compared with central Europe so we don’t yet have trans-national players, and the biggest energy company is foreign-owned,” Mr Vassilev says.

CEZ, the Czech energy group, and Germany’s Eon have acquired regional electricity distributors, spun off from NEK under the government’s privatization program. Both are seen as potential investors in new generating capacity.

Lukoil, the private Russian oil group in which ConocoPhillips of the US has a 20 per cent stake, is investing €1bn to upgrade the Neftochim refinery – the largest in south-east Europe – which it acquired in an early privatization deal.

The Russian group this year overtook Petrol Holding, a private Russian-Bulgarian group, as the country’s biggest operator of petrol stations. Lukoil paid €230m for 75 profitable outlets, increasing its market share to around 20 per cent, ahead of Austria’s OMV with around 15 per cent.

Neftochim will also supply Akpet, a Turkish network with almost 700 filling stations which Lukoil acquired in July for around $500m

In gas, foreign investors are showing interest in onshore and offshore exploration off the Black Sea coastline and in building storage capacity for natural gas.

But the regulatory environment is still undeveloped, while Bulgaria’s dependence on Russia for oil and gas supplies has raised questions about access to local markets for groups based elsewhere in the EU.

Concerns over transparency, along with Bulgaria’s slow progress on convergence with EU legal and judicial standards, contribute to a wait-and-see attitude among investors.

“For major energy deals the adequate jurisdiction of the legal system is a key element. On the other hand, the more projects there are, the greater the pressure on the government to enforce reforms,” Mr Vassilev says.

After reaching a record €5bn last year, foreign direct investment fell by around 30 per cent in the first half following a slowdown in the property market.

Yet the economy is still growing strongly at a projected rate of around 5.5 per cent this year, while unemployment has fallen below 6 per cent. Salaries for managers have risen to central European levels, encouraging Bulgarians to return from jobs abroad.

“There is productive investment coming in, not only funds for buying property and for banks to meet domestic demand for credit,” Mr Hassiotis says.