Bulgaria is close to sacrificing billions of EU funds for the modernization of its economy because it cannot (or does not want to) make necessary reforms. This is the simple takeaway from the postponed legislative changes that would have unlocked 5.7 billion euro under the Resilience and Recovery Plan. These funds might not only be temporarily overdue, but may never arrive because, sources in Brussels say, the whole Bulgarian plan is heading towards failure.
The reason is that, for the first time, EU funds require reforms that are not just on paper, but require real action, including regulatory and practical changes in the energy sector, justice, and economic competitiveness, etc. However, Bulgarian politicians refuse to adopt these and, it seems, are not bothered to pay the high price. According to the set timetable in the first half of 2024, the country was already supposed to work for the 4th payment (out of nine) under the plan. So far, however, only the first one - for 1.3 billion euro - has been made. Four key legislative acts, which were to be adopted as early as last year, remain stuck in the National Assembly, effectively blocking the second payment. What is worse, with the June elections looming large, there is almost no time for their adoption.
No reforms, no cash
Add to that the decision (passed with the votes of GERB, MRF, BSP and Vazrazhdane) to postpone the abolition of regulated prices in the wholesale electricity market for a year, which in turn means an extension of state aid for the coal power plants. The liberalization of the electricity market is a key reform of the plan, and by blocking it at the last minute - probably for electoral purposes - the MPs put at risk the entire remaining financial mechanism for over 4 billion euros. Funding for the transformation of the three coal regions, which is separate from the Recovery Plan, could also be affected. The two instruments are complementary, but extending the life of the power plants through subsidies could affect the commitments under the Fair Transition plans.
There is more. The pandemic and the EU's green transition efforts have resulted in record support budgets for member states. By 2021, Bulgaria could invest more than 66.8 billion levs in its economy (including the new cohesion programs, the completion of the old programing period, agricultural payments and the Recovery plan). Money requires more effort and concrete reforms, and Bulgaria prefers to do nothing. This has put Sofia at the bottom in terms of absorption of EU funds and from a net beneficiary of the EU budget it has sharply turned into a net payer, i.e. for the first time the country is contributing more money than it receives.
The problem with the second payment
The signals that something is wrong with the second payment have been there for months. At the end of 2023. Bulgaria submitted assessment documents for 57 stages and 5 targets under it, clearly aware that it has not yet done its job on at least four reforms. Former PM Nikolay Denkov said last week that the government has done its job and effectively blamed GERB for the blocked payments, saying that the changes were not driven in the parliamentary committees, chaired by GERB MPs.
Among the four laws not yet adopted are the one on bankruptcy of individuals (which passed the first reading of the National Assembly on 15 June 2023) and the law on the protection of whistleblowers, which was adopted in February last year but was criticized by the European Commission because, at GERB's insistence, the protection of whistleblowers was limited to two years. Necessary corrections have been tabled in Parliament by WCC-DB, but they never made it to the voting agenda. The procedural rules for the election of the members of the Anti-Corruption Commission (ACC) are also pending, as WCC-DB and GERB proposed contesting bills. Due to this, the chance of forcing any of the two proposals through is minimal. The adoption of the so-called Roadmap for Climate Neutrality, another key document, also missed the last train.
The energy market liberalization debacle
And while there is still a minimal chance for these regulations (the last regular working day of the deputies was Friday, April 26, but parliament can still meet extraordinarily), the decision to postpone the abolition of regulated electricity prices created an entirely new problem. In effect, Bulgaria is refusing to honor a commitment, already made on paper and key to the second payment, to liberalize the wholesale electricity market. The National Electricity Company will thus retain its status as a public electricity supplier to households for another 12 months.
"This was a key reform in the energy sector. And whether it will put into question the entire second payment according to the assessment methodology, or affect in principle all other payments under the Recovery and Sustainability Plan, will be a decision of the Commission", a government source told Capital weekly. According to CSD energy expert Martin Vladimirov, in addition to jeopardizing the Recovery Plan, the decision could put Bulgaria under serious sanctions for non-compliance with European legislation on zero state aid to high-emission coal plants after mid-2025.
Scenarios for the future
The recovery plan is actually a political Frankenstein: it was drafted by GERB's cabinet, then submitted and approved under WCC, while implementation began under Radev's caretaker government. In the end, it sets out reforms worth billions of euros, on which there is zero political agreement. At the same time, there is no administrative capacity to renegotiate the plan. In addition, there is the ongoing political crisis and the endless cycle of new elections, which leads to populist last-minute changes. The logical result is that Bulgaria is at real risk of losing everything. Officially, the European Commission told Capital weekly that they are aware of the proposal to postpone the liberalization of the electricity market and are closely monitoring whether the changes will be finally adopted.
Regarding the second payment, the two-month deadline for assessing the reforms and targets has passed, but Bulgaria has not provided the necessary evidence of progress on the set criteria. The process is thus frozen, but such a procedure is not unusual and has been used in other Member States. It allows for an extension of the assessment period to give the Bulgarian authorities enough time to do their work.
Experts in Brussels informally share two possible scenarios for the future. There is either the option to pay only some part of the 623 million euros due under the second payment, depending on the work done under the Commission assessment methodology. "But then you have six months to implement the rest," government sources say - something that seems unrealistic at this stage. The second and more likely option is for Bulgaria to quietly abandon the second payment and the plan as a whole. This does not seem all that unlikely, as MPs appear busier blaming each other than passing bills.
Bulgaria is close to sacrificing billions of EU funds for the modernization of its economy because it cannot (or does not want to) make necessary reforms. This is the simple takeaway from the postponed legislative changes that would have unlocked 5.7 billion euro under the Resilience and Recovery Plan. These funds might not only be temporarily overdue, but may never arrive because, sources in Brussels say, the whole Bulgarian plan is heading towards failure.
The reason is that, for the first time, EU funds require reforms that are not just on paper, but require real action, including regulatory and practical changes in the energy sector, justice, and economic competitiveness, etc. However, Bulgarian politicians refuse to adopt these and, it seems, are not bothered to pay the high price. According to the set timetable in the first half of 2024, the country was already supposed to work for the 4th payment (out of nine) under the plan. So far, however, only the first one - for 1.3 billion euro - has been made. Four key legislative acts, which were to be adopted as early as last year, remain stuck in the National Assembly, effectively blocking the second payment. What is worse, with the June elections looming large, there is almost no time for their adoption.
