Банкеръ Weekly


Scandals Breaks Out Around Maritza East TPPs

Significant sums were apparently involved around the signing of the contracts for rehabilitation of the thermal power plants (TPP) Maritza East 3 and Maritza East 1. Earlier this week, the former Minister of Economy and Energy Delian Dobrev told a press conference that he has documents showing that the National Electricity Company (NEC) has agreed to pledge its future claims from electricity distribution companies in the country and in this way guaranteed the loans drawn from foreign investors. The consultant in both procedures was Frontier company of Krassimir Georgiev.

The modernization of the Maritsa-Iztok 3 sterted in April 2004 and during the Cabinet of Simeon Saxe-Cobourg-Gotha when Energy Minister was Milko Kovachev was presented as the first energy deal carried out without government guarantees. The project implementation was launched by Energy Company Maritsa East 3 AD, a joint venture between NEC the registered in the Netherlands Entergy Power Holding Maritsa. NEC held a 27-percent stake in the joint venture and against this share it contributed in kind the power plant itself. The foreign entity held the other 73 percent. Shareholders in Dutch company were Italian energy giant Enel Produzione with 60 percent and the U.S. company Entergy owning 40 percent. Subsequently, Entergy withdrew and left Enel to deal with the modernization of the Maritsa Iztok 3 alone. Then Italians went out of the deal too, selling the renewed power facility to the American Contour Global.

At the time, the rehabilitation of the plant was the largest investment in the Bulgarian energy sector, with a total value of 580 million euros. Ten European and Bulgarian banks financed the venture with 348 million euros. The European Bank for Reconstruction and Development (EBRD) lent 112.1 million euros and the French Credit Agricole, Societe Generale, and Italian Midiocredito Bank plus Bank Austria provided a total of 140.7 million euros. An additional 75 million euros was provided by Bulgarian Bulbank, UBB, Biochim and SG Expressbank and regional Black Sea Bank for Trade and Development gave additional 20 million. The remaining funds were provided Enel and Entergy.

Then the experts pointed out that loans were taken at extremely favourable terms: a fourteen-year maturity period and interest rate comparable to that of loans to reputable western EU companies. It turns out that there was a reason. Besides the 15-year contract for mandatory purchase of electricity produced, the companies involved in the project also received another guarantee - of future receivables from EDCs from their power sales.

On 6 February 2002 the contract of special pledge between the NEC and the operator company of Maritsa East 3 was signed. Then the management of NEC was not required to ask for permission for such a deal from its owner. Signs for willingness to give such guarantees were present in the agreements concluded during the government of Ivan Kostov in 2001. The then Economy Minister Petar Zhotev gave the two private investors letters of support, which sais that if NEC were to be declared insolvent or bankrupt, another state company would be established, which guarantees to cover the pledges. Similar letters were submitted by the then Energy Minister Milko Kovachev and his successor Miroslav Sevlievski, said Delian Dobrev.

The same exercise was repeated during the construction of the novel Maritza East 1. Initially, the project involved the American AES, which now still owns the plant, together with the registered offshore company in Mauritius 3C. Frontier of Krassimir Georgiev had share in it. The agreement, which apart from the long-term contract, provides additional guarantees to AES and its partners was signed on 30 November 2005, and the permission for it was given by the then Minister of Economy and Energy Rumen Ovcharov (from the socialist party).

Rumen Ovcharov's classmate, Krasimir Georgiev, participated in the deals with Maritza East 1 and 3. Without the signature of Minister Ovcharov, there would have been no special pledge, maybe there would have been no loan for the construction of this plant, and after the end of the three-year period since the date of issuance of the building permit, the right agreement would have been terminated.

The contracts for the pledges allegedly included clauses providing that if the NEC were to be unable to buy the energy from the two power plants, the its receivables from the EDCs would go directly into the accounts of U.S. investors.

Indeed, so far there has been no need to activate the safeguard clauses, but this is particularly relevant now with the deplorable financial condition of the national electricity company. And the mere fact that apart from long-term contracts for the purchase of power, giving collateral for investors to secure the funding for their activities, is quite shocking. Whether the political protection were awarded against bribes and what exactly the truth is, is a job to be established by the Prosecution. The documents are now available to the Chief Prosecutor Sotir Tsatsarov, who said the extended check on the long-term contracts in the energy and pledges thereby will be completed by March 22, when the deadline for review of the distribution companies expires, too.


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