Interview | Bulgaria can occupy a strategic place in the new industrial map of the EU

Tsvetelina Penkova is a Member of the European Parliament from the Progressive Alliance of Socialists and Democrats (S&D), elected on a mandate from the Bulgarian Socialist Party. She was born in Sofia and educated at some of Europe's most prestigious universities, holding a master's degree in financial economics from Oxford and a bachelor's degree in international economics and finance from Bocconi University and Central European University.

Before entering politics, Tsvetelina Penkova gained experience in the banking and financial sector, working in London for institutions such as the Royal Bank of Scotland and the investment company Hayfin Capital Management. She has been a Member of the European Parliament since 2019 and Vice-Chair of the Committee on Industry, Research and Energy (ITRE) in the European Parliament since 2024. Her work focuses on policies in the field of energy transition, innovation, and Europe's strategic autonomy.

Ms. Penkova, one year after Draghi's report, the European Union has written and discussed thousands, tens, hundreds, let's say, pages of measures and ambitions on how to make the bloc more competitive. In your opinion, will these measures remain on paper or are they actually being worked on, and what does this new Clean Industrial Deal actually tell us?

It should be noted that the Clean Industrial Deal is actually a continuation, or a second stage, of everything we have been doing in connection with the now negatively connoted Green Deal.

The Green Deal focused on renewable energy and energy efficiency, i.e., not only what we produce and how we transport it, but also how we consume the energy we produce and how we store it.

In other words, these were the foundations or infrastructure that now allow us to talk about building a competitive European economy. We are talking about new production, about high technology across the European Union.

At this stage, to answer briefly, the infrastructure has been created and the legal framework is now being established.

During the previous term, we also adopted two key pieces of legislation. One was on critical raw materials, i.e., to determine which raw materials are truly critical for the European Union, which are at the heart of manufacturing based on our expertise or traditions.

The second key regulation we adopted was on the so-called net-zero emissions industry, or the Reindustrialization Act, in which we defined 18 strategic technologies for the Union. Strategic means that they can be financially supported, i.e., they can apply for European funding and should benefit from relatively tangible administrative simplifications, i.e., any type of permits and documents that are issued must be subject to a faster procedure.

In other words, these two laws, together with the entire energy-related infrastructure—renewable sources, investments in energy efficiency technologies, and storage technologies – have laid the foundations that now allow us to really start investing strategically and building production in Europe.

Draghi's report said it very clearly: we have outsourced a large part of our production and a large part of our expertise for economic reasons, whether it be cheaper labor, cheaper electricity, or cheaper raw materials, to countries outside the EU.

But Covid, the war, and the energy crisis have shown that we cannot be completely dependent on external suppliers for everything.

But it seems that things are still on paper? Businesses say that things have been laid out, but we are not yet seeing the results of what has been laid out.

Exactly. Industry and industry organizations were actively involved in drafting the legislation, as the provisions are largely technical and require professional knowledge in order for us to set a legal framework that works in their favor.

We are aware of the feedback that not everything is being implemented yet, but this really depends to a large extent on the regional authorities and the national authorities. In other words, it has taken some time, but I believe that once the wheel starts turning, things will move quite quickly.

The European market is still fragmented, governed at both European and national level, and Member States often create problems for themselves. How is the European Union dealing with this?

Creating competition between countries is a key issue. It is no coincidence that all the documents, reports, and opinions cited over the past year and a half now talk about European competitiveness, European industry, and European technologies.

However, in my opinion, the first problem we need to solve before we can really build a path in this direction is energy.

It is very difficult to talk about the competitiveness of European companies when electricity in Bulgaria and in Central and Eastern Europe as a whole is 10 times more expensive than in Northern Europe.

That is why, in my opinion, the first and most important piece of legislation in the Clean Industrial Deal, which we expect the European Commission to present in the fall of this year, is the so-called electricity transmission network regulation.

In other words, we need to build an interconnected electricity transmission network to ensure that the electricity produced from sources in Southern and Eastern Europe is shared with Northern and Western Europe, thereby equalizing electricity prices.

Because if we have a common price, we will have a real basis for talking about building common competitiveness, rather than allowing production in Romania to compete with production in Denmark, given that the price of the main raw material, which is electricity, differs many times over. We cannot expect products to be competitive.

At the moment, there is serious opposition from some Member States that do not want this interconnection to happen because it would increase the price of electricity. The main opponents at the moment are Sweden and some regions of northern Germany.

But if we are talking about pan-European security in energy and industry, some compromises and concessions must be made by these countries, as Bulgaria has done many times when it comes to common European policies. These countries will also have to realize that when we talk about a stable electricity transmission network and energy infrastructure, basic energy capacities are fundamental.

Our region, which currently pays higher prices, is the pillar that guarantees that the European Union's electricity supply will have sufficient energy produced from basic energy sources – here we are clearly talking mainly about nuclear energy.

I hope that what happened in Spain and Portugal, where the power supply was cut off for 19–20 hours, has sobered thinking in this direction.

It is precisely the cost of electricity that is the biggest headache for energy-intensive industries, and in June changes were adopted to partially subsidize their electricity. However, are these amendments sufficient to make life easier for businesses?

They are completely insufficient. Energy-intensive industries include the chemical industry, metallurgy, and cement – these are the backbone of the European economy and, to a large extent, have not been singled out as requiring subsidies or support.

After we emphasized that they cannot implement the necessary changes in their production so quickly in order to meet certain requirements regarding carbon separation, etc., which are quite excessive, exceptions are now being made for them.

The first such proposal was adopted in June in plenary, and I am convinced that this will be the focus from now on in the work on all other regulations under consideration. Energy-intensive industries will be separated as a segment that needs more time, longer deadlines, more serious support, and more serious administrative relief, because we cannot afford to destroy these industries.

The carbon adjustment mechanism, which had a two-year transition period, will also come into force on January 1. What is the business community saying after this transition period, and is it ready for its introduction?

This is going to be looked at pretty closely by experts over the next six months because it's a hot topic, but we haven't gotten all the feedback from the industry yet. Since the beginning of the September session, the so-called CBAM mechanism – the carbon tax – has been under consideration.

Its aim was really to protect European production against products imported from third countries at lower prices that do not meet our environmental standards. In other words, the aim was really to protect the European economy and European manufacturing, as it turned out that a large proportion of the raw materials used by our manufacturers are imported from third countries, which can have a negative effect and increase the prices of end products manufactured in the European Union. So a much more in-depth analysis needs to be carried out to see how and in what way this mechanism will be implemented, especially for our strategic partners and the countries from which we import key raw materials.

These are the countries of the Western Balkans, including candidate countries, which is also a factor that should not be overlooked, as well as Turkey and China.

How will the mechanism affect Bulgarian importers? You mentioned price increases for cement, iron, steel, aluminum, and fertilizers. Is this what we should expect after January 1?

Again, let's do the analysis to see how and with what exceptions the mechanism itself will be introduced, since many of the components you listed are part of energy-intensive industries, which we have currently prioritized to protect, not further hinder.

Should we expect any changes to the mechanism?

We certainly should not expect that everything will be implemented as planned. Many of these mechanisms, objectives, and deadlines were set in a situation where we had not faced such serious crises as Covid, because the disruption of the supply chain was still noticeable even two years after it subsided. The energy crisis resulting from the war between the Russian Federation and Ukraine, as well as geopolitical dynamics and instability, are also contributing to higher prices for all kinds of goods, services, and products imported from third countries.

For this reason, I would say that some of the regulations, deadlines, and mechanisms may be reviewed in light of the new realities we are living in.

It is no coincidence that the so-called Omnibus package

or the simplification of some European legislation, has also become a priority for all European institutions, so that they work for the benefit of people and industry, rather than being restrictive, given the truly new dynamics that could not have been foreseen when this legislation was drafted.

I can give an example of an important directive that also concerns energy efficiency—the energy performance of buildings. As soon as we received the first opinion from the European Commission, we started working with fellow MEPs from other parliamentary groups and spent two years amending the texts, because that was when Covid started.

The war also started, and it became clear that the deadlines for major renovations of buildings and the funds that needed to be allocated would not be available because of more pressing issues that had to be addressed.

And the text that we actually adopted after two years of negotiations and amendments is quite different from what was originally proposed.

Speaking of deadlines, at the end of July, the European Parliament proposed extending the deadline for projects under the Recovery Plan by a year and a half...

On June 18, the European Parliament actually adopted this proposal and we are now awaiting the opinion of the European Commission and the Council with a view to extending it until February 2027, i.e. by another 18 months from the current deadline, which is now mid-2026.

The aim is to enable countries to take advantage of the funds available, because as of May this year, only 52% of them had been invested, which is grossly insufficient given the serious needs and difficulties faced by every country in the Union. This was again a proposal by the Socialists in the European Parliament.

The idea behind this extension is to give smaller countries and smaller economies, which due to technical difficulties or very serious administrative requirements have not been able to implement the relevant reforms so quickly, the opportunity to access the funds.

In other words, to give the countries most in need a real opportunity to receive these funds.

What is the mood? Is a final decision possible, and when can we expect it?

Unfortunately, I cannot answer that question. However, as this is a relatively urgent matter, I hope that there will be progress in this direction in the early autumn.

So far, no country has raised any serious objections to this extension.

The concern that unites most countries is that if the deadlines for absorbing these funds are not extended, they may be redirected to other European policies, which in principle means that they will not be lost.

It was in the regulation on net-zero industry that I personally included a provision stating that all funds under the plans that have not been absorbed must go to these 18 strategic technologies, which again are nuclear energy, energy efficiency, i.e. technologies that are important for industry.

But now there is growing concern that, despite the legal framework we have put in place and despite the protection of funds, there may be an attempt to redirect them to the defense industry, given that there are still sufficient funds increased compared to the previous long-term budget of the European Union for defense.

Of course, it also has production parameters, but there is a separate item and there is no need to overemphasize and direct everything in one direction. There are also quite a few countries in the European Union that do not prioritize them to such an extent, and it is not right to serve only the interests of larger countries.

Bulgaria is not lagging behind in any way—we have a strong military-industrial complex that will be maintained, but we believe that the funds currently allocated in the EU's long-term budget would be sufficient at this stage.

Speaking of the Clean Industry Deal and critical raw materials, where does Bulgaria stand in this new picture?

We can position ourselves very well on this map because we have a fairly serious metallurgy industry, for example. The cement and chemical industries should not be overlooked either.

I started with metallurgy because, if you look at the data, we are the sixth largest exporter of non-ferrous metals to the European Union. This means that we have the critical raw materials, we have the expertise, we have the relevant production facilities that can supply the European Union, and why not invest in production that can use these raw materials and the expertise we have.

So, especially with regard to energy-intensive industries, which are key to the European economy, we are one of the leading countries that could benefit from any kind of financial support and gain a slightly more strategic position in terms of production taking place here in Bulgaria, rather than exporting raw materials and finishing high value-added products in other European countries.

This is also one of the goals of the Clean Industrial Deal – to really see where it makes sense to invest in strategic production again, based on what the country has in terms of raw materials and experts, and Bulgaria has a lot to offer in this regard.

Secondly, one of the key aspects is energy infrastructure, because without it, we cannot talk about a Clean Industrial Deal, which is why it has been included.

Due to its geographical location, Bulgaria has two key advantages. Firstly, when we talk about energy infrastructure, we are talking about the transmission of energy resources – we are geographically located at the gateway that allows energy resources to be imported from third countries, because it would be naive to think that Europe can achieve complete energy autonomy. No, on the contrary, it will be necessary to import some of them from outside. So that is our first advantage.

The second is that when we talk about connecting the electricity transmission network, we are also at the beginning of this interconnected electricity transmission network. First, we are the geographical starting point from which the construction of this network can begin along the south-north and east-west axes. Second, we have quite significant electricity production and a balanced energy mix.

That is precisely why the construction of new nuclear power plants must become a national, strategic, and key priority in the short term.

We see that networks are part of the new EU budget and that considerable funds have been allocated to them...

The package we are expecting specifically for the networks should indeed be published in October or November.

Incidentally, when we talk about building networks, we should not overlook the materials that are needed and available in our country.

The relaxation of European Union rules on state aid allows countries to subsidize their local industries. Could this boost to competitiveness undermine the single market by putting companies that do not receive such subsidies at a disadvantage?

We have always been very careful in European legislation when it comes to state aid, because the aim is not for rich countries to be able to afford to support their industries at the expense of smaller ones. That is why more European funds will be allocated to support industries, rather than relying so much on state aid. These are changes that we have made more than once in regulations when, under pressure from large countries, these lighter regimes and the possibility of state aid have been introduced.

But the common European position has always been that this should not be encouraged because it creates the conditions for a two-speed Europe, which is not in the interests of Bulgaria and many other countries.

Part of the debate on how to increase the competitiveness of the European Union also concerns how to encourage the creation of European champions. Can such champions emerge in Europe, and have the US and China overtaken us?

Certainly, if we did not believe they could, we would not be allocating such serious funding and efforts in legislation.

Almost always, serious scientific research has started in Europe, and major scientific discoveries are made within Europe, not even within the EU, but then, under the influence of market mechanisms and additional support, access to financial markets, they are realized, for example, in the United States.

In other words, in order to achieve these successes, serious attention must certainly be paid to the creation of functioning capital markets within the European Union and access to private financing.

We cannot build a strong and competitive economy if we rely solely on budgetary or European funds without the presence of private investors.

And in Europe, there is a significant amount of funds that simply need to be put to use. Unfortunately, after the departure of the UK, this poses a serious problem and a serious challenge for us, because a large part of the capital transactions and the capital market of the European Union was actually in London, and efforts must now be made to build it here.

You mentioned Draghi's report, and there was also a report by Letta (Enrico Letta, former Prime Minister of Italy, who presented a report on capital markets in the EU – ed. note). I had the opportunity a month ago to talk to him personally and discuss precisely this issue – capital markets and access to finance, which is fundamental to having competitive industries that can compete on the global stage.

There are sufficient funds available in European budgets to provide an initial boost. Access to European funds for the relevant industries should be seen as a guarantee that they are being supported at the European level, but we cannot rely on this alone.

However, other claims have been made that Europe is actually trying to say in a few pages that it does not have much money to fulfill its ambitions. Does Europe really have the funds for everything it is talking about?

In my opinion, the way we spend it is the main problem in Europe. It is not a matter of interpretation. When we look at the Recovery and Resilience Facility, which provides huge amounts of money at a time of huge crises, and these funds have been available for three years now, and we have used only half of them, it means that we are not able to invest the available financial resources effectively.

If they had been exhausted and a new mechanism was being sought to continue financing and supporting European economies, I might agree that there are not enough funds. But given that there are so many financial resources available that have not been used, this leads me to believe that, on the one hand, there are serious bureaucratic obstacles and, on the other, there are serious administrative obstacles that are slowing down investment, and efforts need to be made in this direction.

The problem is not a lack of funding at this stage.

Translated with DeepL.