Банкеръ Weekly

Briefs

GET A CONCESSION AND RUN AWAY

The Finance Ministry is planning to invite a competition in September for granting the State Lottery on concession. The Ministry of Regional Development and Public Works also projects such steps in order to concession the motorways to enterprising concessionaires, who would at last repair them (of course, against a pretty good fee, to be charged from those driving along them). The Minister of Culture Bozhidar Abrashev also promised to give cultural monuments on concession.However, all hope for better management of facilities that can be only state-owned according to the Constitution, is premature. The Audit Office has established quite of a mess, self-made criteria and sheer incompetence in cases of concessioned facilities. The losses to the State from illegal construction and other encroachment on the beaches, let on concession, exceed BGN1.2MN, the experts from the Audit Office found. Territory has been seized in 19 of all the 59 beaches, managed by private persons. The money which the Ministry of Regional Development and Public Works received from concessions in 2002 was BGN4MN-plus. The ministry has so far closed 75 contracts for granting beaches on concession, and 48 contracts for concessioning non-metalliferous mineral deposits. Meanwhile, 16 of the seaside concessions have been cancelled. In 12 of the cases non-payment of the agreed royalties was the cause. Lawsuits for collecting the overdue money are going on under 10 of thе contracts. Default payment of royalties to the Ministry of Regional Development and Public Works amounted to almost BGN1.5MN by the end of 2002. Moreover, just a small part of them have been covered by bank guarantees. It seems strange that the State has demanded guarantees covering only 10% of the agreed royalties. The ways for fixing the royalties, especially for the beaches, are quite curious. In 1999 the Ministry of Regional Development and Public Works decided not to collect a one-time royalty any more. Thus, the State's budget counts only on the annual royaly, which depends on ... the minimum working salary. (It is considered that one place on the beach ensures during the season proceeds, equal to one minimum salary. On that basis deductions are made depending on the respective resort's attractiveness). The experts of the Audit Office were particularly impressed by the contract for the Golden Sands beach. The 10-year concession was granted in 1998 (prior the privatisation of the eponymous company) against a single royalty of BGL20MN and an annual royalty, formed according to the above-described complicated scheme. But in June 2001 former premier Ivan Kostov's government reduced the rate of deductions from 10% to 4 per cent. Thus, the annual royalty paid by Golden Sands AD to the State dropped from BGN1.18MN to BGN422,000.Another sin of the Ministry of Regional Development and Public Works is its passiveness. It has received 123 applications for concessions on non-metalliferous mineral deposits and 43 for beaches. But most of the permissions were given without a tender or competition. They were granted by force of the Privatisation Act or para 3b of the Concessions Act, which entitles companies with more than 25% state participation to settle their activities through a concession. Most of the other ministries have also been busy to legalize the status-quo cases for using concessions.The above-described mess is not a surprise, taking into consideration the fact that such activities are not very public. The decisions for granting concessions (by law they are made by the Government and the contracts are signed by the respective ministries) are published in the Official Gazette. But nobody specifies the amount of the agreed royalties and the methodology for fixing them. The register of granted concession, which is kept by the Council of Ministers, is for internal use only. 209 permissions were entered in it by end-2002, and 12 are lost (as the Cabinet has approved 221 concessions). The Ministry of Regional Development and Public Works is the leader according to the number of issed permissions (123) for use of facilities that are exclusive State property. The Ministry of Economy has closed 55 concession contracts for mineral resources, 49 of them with privatized enterprises. The obligations under 19 of the contracts are not being fulfilled, and 24 of the concessionaires have delayed the payment of their royalties. Kremikovtsi and Oustrem of Topolovgrad have not paid even the initial royalty for the deposits they are using. Yet, the Ministry of Economy rates first according to ensured proceeds from concessions in 2002 - about BGN7MN. In addition to beaches, the other big scuffle is for mineral water. The concessions for the use of mineral water are granted by the Ministry of Environment and Waters. It signed 33 contracts by end-2002, 22 of which were for mineral water and one for the Pirin Mountain National Park. The ministry's proceeds from these activities amounted to BGN1.09MN.Most of the mineral springs (26 in number) have been concessioned for bottling of mineral water (4 of the concessions are for complex usage, including healing purposes). According to the report of the Audit Office, the amount of the mineral water that is bottled by the concessionaires has long ago exceeded demand on the domestic market. But nobody thought of including the investors' possibility to export their output in the criteria for rating the offers for concessions.This is not strange, having in mind that 13 of the contracts were signed after direct negotiating and not through a tender. It is these contracts that are the most problematic ones as they lack investment programmes and bank guarantees. From all the 33 contracts only 20 are without problems. The others have either been violated or cancelled. In some of the cases the contract has been revoked on the demand of the concessionaire who has failed to develop the deposit. The Ministry of Environment and Waters is the leader according to ungrounded expenses. It has assigned 72 concession analyses and some of the places have been studied several times. The Ministry of Energy cannot boast of anything either. It closes concession contracts for extraction of coal and liquid fuels. It has granted eight concessions for coal, one for prospecting the natural gas deposit near Galata, and one more for combined extraction of coal, ballast and gold from the deposit Katrishte near Kyustendil. Only two of them are operating. In the other cases either the grace period has elapsed or they have not been entered into effect. Thus, although payments of BGN463,000 were negotiated, only BGN289,000 entered the budget in 2002. At the same time, expenses for the preparation of these contracts amounetd to some BGN125,000.One of the big problems in the energy sector is connected with the controversial provisions in the Privatisation Act, which allows granting a concession after a certain company has already been sold out. Thus, it turns out that while the officials are dragging their heels, the new owner of a privatized mine may use it without paying to anaybody. Experts of the Ministry of Energy have tried to sign antedate contracts, but the contract for the Bela Voda mine for example entered into effect three months after its sale. The settlement of details regarding the use of coal deposits has also been delayed. It is known that the Energy Ministry is preparing six more concessions for extraction of coal, five for oil, and one for gas. The fist concession is to be granted by the Minsitry of Agriculture and Forestry (for thr construction of a dam near Sozopil). By law the Agriculture Ministry also has the right to grant concessions on forests that are state public property and on irrigation facilities.No concession has been granted so far by the Ministry of Transport and Telecommunications for the use of ports, airports and railway infrastruture facilities.

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