MINISTER GAGAUZOV BLESSES TRAKIYA DEAL SURPRISINGLY
A MINISTER'S REPORT CLAIMS THERE IS NO ALTERNATIVE TO THE DEALIn their election campaign the socialists declared they supported both the review and the breaking of the agreement signed with the Portuguese-Bulgarian joint-venture Trakiya Highway AD on March 29. The Minister of Internal Affairs, Roumen Petkov, described the deal as an emblematic example of corruption. However, it turned out that all things said were much ado for nothing. In a special report (which the BANKER weekly has in possession), entitled Development of the Project for Construction of the Trakiya Highway through Granting It on Concession, the current Minister of Regional Development and Public Works Assen Gagauzov claims explicitly that there is no reasonable alternative to the deal (!).The torpedoing of the process means dramatic delay of Bulgaria's adjustment to the European Union and vice versa, which will reflect negatively on the European transit transport corridors and the transeuropean network as a whole, the report reads. The position of the minister looks quite surprising, as he spent a mandate in the former parliament as an MP furiously opposing the highway concession without bidding or competition and the classifying of the agreement. Nevertheless, as a minister Mr. Gagauzov refused to declassify the annexes to the March 29 agreement and only announced in public the main text hiding the appendices which described the most important financial parametres, conditions and commitments of the sides. According to sources familiar with the situation, the change resulted from a silent agreement reached by the Bulgarian Socialist Party (BSP) and the National Movement Simeon II (NMSII) not to wash the former government's dirty linen in public.That's why Gagauzov's only reproof about the project is... its bad public presentation for which there is a number of reasons. Even stranger sounds the minister's desire to act as a speaker of the European Investment Bank (EIB). The positive opinion of the bankers was among the requirements written in the cabinet's resolution from December 30, 2004 that had to be fulfilled in order for the concession to become valid. However, there was no positive opinion. Officially, the bank's operating rules do not allow it to finance even partially private initiatives. Mr. Gagauzov found a solution to this problem as well - EIB should withdraw from the project because of formal reasons. But that would not reflect on the construction of the sections financed by the bank (Lot 1 Orizovo-Stara Zagora, 37.94 km, and Lot 5 Karnobat-Bourgas, 33.2 km), since there's a substituting mechanism on the part of the main banks that finance the concession (the banks that will take up the financing). In order to avoid useless distant discussions with the rulers, we'll only remind the statements of a few key European figures.In early April, EIB Vice President Wolfgang Roth announced in public that there hadn't been fair competition for a concessionary and that the European bank might only invest in the project if a tender procedure was held. Only two months later the European commissioner Olli Rehn said: The European Commission is sorry that the Bulgarian government, headed by Simeon Saxe-Coburg-Gotha, turned off the standard EU procedures and signed the Trakiya highway concession agreement without holding an open procedure for selection of contractor. We do not advise that any of the other countries applying for EU membership follow the procedure chosen by the Bulgarian government.Obviously, the BSP group quickly forgot their arguments in opposition to the deal. In practice, the EIB case does not represent an obstacle for the validity and implementation of the agreement, they say now. That's why Mr. Gagauzov's report reads that the cabinet's resolution should be changed and the requirement for a positive opinion of the bank cancelled.It seems that the only barrier for implementation of the concession remains the trial initiated in the Supreme Administrative Court. The proceedings started after the Deputy Prosecutor in Chief Mityo Markov protested in early June. According to the prosecutor, the December 30, 2004 government resolution granting the highway on 35-year concession to the Trakiya Highway joint-venture violates the regulations and contradicts the Concessions Act. We should remind that in the first days of his mandate Minister Assen Gagauzov said he would wait for the final legal decision before he decides on the concession - whether to terminate, resettle or leave it under the terms already established.However, the settlement of the case will take time. On October 10, three judges of the Supreme Administrative Court presided by Boyan Magdalinchev postponed the review of the case on the highway concession invalidity. Initially judge Magdalinchev announced that the Minister of Regional Development and Public Works expressed his willingness to be constituted as an interested party in the case. According to the lawyer, this is common practice as the concession agreement has been signed by the titular of the ministry. So far they were the Deputy Prosecutor in Chief Mityo Markov as a complainant, the Council of Ministers as a defendant, and the concessionary as an interested party. Trakiya Highway AD lawyer Yoana Znepolska appealed against the prosecutors' protest claiming it is unreasonable and presented documents about the actual condition of her customer. The legal consultants of the ministry confirmed her opinion.However, the Supreme Administrative Court obliged the Council of Ministers to present the request of the Bulgarian-Portuguese consortium to the Ministry of Regional Development and Public Works for granting concession without bidding or competition. Moreover, the court requested the decision of the Sofia City Court for commercial registration of the company that signed the agreement (Trakiya Highway AD) for the 35-year administration of the highway in return to completing the construction of some of its sections. In addition, the court requested evidence that one of the companies with a state-owned stake, Motor Highways EAD, was not in liquidation procedure at the time of the decision (December 30, 2004). The magistrates said they also wanted to see the contract signed by Motor Highways EAD for construction and maintenance of the highway connecting Sofia and Bourgas.The state will have to present in court the complete analysis of the Ministry of Regional Development and Public Works which is used as a base for the granting of the concession (including the technical, legal, financial, economic, and ecological conclusions of the experts in the ministry), as well as the protocol from the meeting of the Council of Ministers on which the decision for the concession and the agreement with Trakiya Highway AD was taken.Who will assume responsibility for the delay of the highway construction if the Supreme Administrative Court decides in favour of Trakiya Highway AD is another question. The completion of the Sofia-Bourgas highway, as well as the construction of the unfinished sections, rehabilitation of the existing ones and reconstruction of the road centres should be over by October 31, 2009. For the section between Kalotina and Sofia the deadline expires on May 31, 2010. The forfeits settled range from EUR10,000 to EUR80,000 a day, depending on the number of the months of the delay. It is certain even now that the delay will definitely go beyond six months.Find the differencesDirect economic benefits for the state resulting from the implementation of the project amount to more than EUR3BN from a concession award, over EUR700MN from taxes, more than EUR3BN from paid value-added tax, and 1,000 new permanent jobs. We also should not forget the fact that the total profit of the two state companies taking part in the shareholder consortium will exceed EUR950MN. There are also possibilities for development of the tourism and improvement of the economic environment, as well as for a sudden drop in the number of accidents on the highway.From Minister Assen Gagauzov's report The reward that the concessionary is going to pay to the state amounts to EUR3.86BN for the 35-year concession term. Besides, the state will be paid taxes amounting to EUR706MN and EUR3.654BN will pass through the treasury as value-added tax. The profit of the Bulgarian companies in the consortium for this period will be EUR451MN for Technoexportstroy and EUR501MN for Motor Highways respectively. That's why the price that may be asked in case of privatisation of each of the state companies will go beyond EUR300MN.Former minister of regional development Valentin Tserovski after the contract was signed.