Bulgaria's Commission for the Protection of Competition (CPC) is often mockingly called the Commission for the Prevention of Competition. For good reason, at that.
The authority tasked with safeguarding fair play has, in fact, become a byname for the impunity with which monopolies and cartel arrangements thrive unhindered for years, while foreign investors get expelled forthwith. The role of the anti-trust institution in the country's economic life has lately grown in importance and its rulings have been raising eyebrows, for instance, the decisions aimed at preventing new investors from acquiring Nova TV and the Bulgarian business of energy company CEZ.
The most flagrant recent example was the awarding of public contracts for modernization of Bulgaria's railway's network by the National Railway Infrastructure Company (NRIC). The contracts announced by NRIC in 2017 were literally redistributed by CPC by turning the appeals against the bidding procedures into a tool for redirecting European funds toward well-connected candidates.
A ruling by the Supreme Administrative Court (SAC) against CPC is rather indicative in this respect. The court has stated that the anti-trust body is attempting to assault the minutes of the contracting agency by adding motives to those of the evaluation commission. The magistrates deemed this intervention unacceptable.
The theory that CPC is re-arranging the selection of bidders for railway contracts in an increasingly complex way is confirmed by a rising number of affected parties - representatives of NRIC and the local construction sector, as well as consultants of international companies that have placed bids. The latter even lodged a complaint in Brussels in May this year, which briefly details how the CPC has systematically overruled the NRIC's choice of candidates in the last few months, in order to keep favouring the same group of companies that were previously discarded for technical omissions in their documents.
These companies are well on their way to dominating the area of railway contracts, "much like the takeover of highway and waterworks construction, where foreign companies do not stand a chance of winning a bid," reads the text, a copy of which is in Capital's possession.
All this not only hinders the completion of a faster railway system but also poses the risk that Bulgaria will lose hundreds of millions of euro from EU funds because of missed deadlines. More than anything though, it erodes Bulgaria's prestige as a business destination.
Ours is the best
The appeals submitted to CPC seem to have delivered an enviable measure of success for certain local players: VDH (formerly Vodstroy 98 linked to a member of parliament Delyan Peevski and subsequently purchased by Hydrostroy); GP Group, which has suffered a major image blow and was supposedly blacklisted from public procurement contracts; energy industrialist Hristo Kovachki, who has recently been rather active in appealing awards of railway contracts through companies linked to him.
Of course, the ambition of Bulgarian companies to work on these projects is not necessarily undesirable but representatives of the construction sector and, unofficially, of NRIC have expressed concerns regarding the capacity of those companies to adequately manage the complexity of the task. For example, only one of the tunnels is a two-tube installation 6,700 meters in length. The longest tunnel built in Bulgaria in the last 30 years does not exceed 1.5 km.
The letter sent to Brussels points to 7 tender procedures worth 1.6 billion levs in total that were subject to peculiar CPC rulings on appeals filed by the Bulgarian players. The appeals against contracts awarded to Bulgarian companies by NRIC are perpetually unsuccessful. Appeals against decisions in favour of foreign companies are always upheld. The letter also lists the companies that might have benefited from CPC's decisions. Sources familiar with the procedures expect that the companies CPC has allowed back into the bidding process are likely to have lowered their price offers, which would put foreign companies at a disadvantage in the re-ranking round.
The highest stakes are in the tender for the railway section between Kostenets and Elin Pelin, which has an estimated value of 1.2 billion levs. It's supposed to be fully operational by 2023, yet work has not even begun, although the construction of its most challenging sector will require a minimum of 72 months. The section is divided into three lots and NRIC awarded them to Turkish, Spanish-Bulgarian and Chinese candidates, respectively. After appeals were submitted to CPC, the commission decided that the offer of the candidate linked to Kovachki for Lot 1 must be reviewed (this was later overruled in court). VDH returned to the bidding process for Lot 2 and GP Group for Lot 3.
After an appeal ruling by CPC a Kovachki-linked candidate returned to the bidding for another at-risk project - the 200-million-lev modernization of the railway line between Voluyak and Sofia Central Railway Station. The project is financed by the Connecting Europe Facility (CEF) and should be completed by the end of 2020 but no contract has been signed yet. The important caveat here is that the money from this EU program, unlike funding from operational programs, must be returned and cannot be used subsequently.
This was perfectly illustrated when the government announced in August that it will allot 116.4 million levs of additional financing to the project for overhaul of the Kostenets-Septemvri line, for which the CEF had secured 85% of the funds. The project, worth 380 million levs, was awarded to the unknown Bulgarian company Trans Logistika, in partnership with a Romanian and a Spanish company. The contract was signed on August 12 and construction will begin in September.
GP Group has already won the 185 million lev tender for renovation of the Plovdiv-Burgas line, while a company connected to Kovachki will electrify the Sofia-Voluyak line under a contract worth 48 million levs. In both cases, CPC backed the decisions of NRIC to award the contracts to GP Group and the Kovachki-linked company, rejecting the appeals of the other bidders.
More politely and with some finesse
The competition authority has put on display some truly enviable arguments in its efforts to bring certain companies back into the game. For example, it is deliberating on issues like whether it is important for the candidate to have repaired more than four train tracks and what sequence should be followed when dismantling tracks, overhead electric lines, consoles and posts.
NRIC's official comment on CPC's decisions was as follows: "Our position can be expressed solely within the established legal framework. The decision to award the public contract "Modernization of the railway track between Elin Pelin and Kostenets in separate lots" was appealed by 10 participants in the procedure. After we filed appeals at the Supreme Administrative Court, four of the decisions went in our favor and we await ruling on the outstanding cases. The contract "Design and construction works for modernization of the railway track between Sofia Central Station and Voluyak Station" was appealed by three participants in the procedure. After we filed our appeals at SAC, one of CPC's decisions was overruled and two upheld."
Unofficially, NRIC representatives told Capital that their role as railway construction specialists is thus practically rendered futile and the competition commissioners are ignoring the conditions set in the tender documentation. It would be hasty to infer from this statement, however, that NRIC is undergoing a catharsis. According to experts from the construction sector, the present trend whereby CPC reinstates Bulgarian companies into the bidding, as opposed to the NRIC selecting them directly, would benefit the infrastructure company. In this way, NRIC would on one hand keep a relatively unblemished reputation in Brussels, where it will have to continue negotiating for funds and phase projects. On the other, this blurs the line in terms of responsibilities and proving any degree of premeditation will become even harder.
"I cannot comment on collective decisions. Every ruling has an opinion draftsman and if you must speak to anyone, this would be the person," stated CPC chairman Yulia Nenkova. "Decisions are taken collectively by seven commissioners. How can I comment on my colleague's decision and what he reported? He has checked everything beforehand," she added.
Nenkova, who is a former deputy mayor of Sofia and was nominated to the CPC position by the governing GERB party, nevertheless denied that the commission rearranges the awarding of public contracts. "The CPC has no right to rearrange anything. It only decides if a decision by the contracting authority is lawful, meaning whether it is made in accordance with the law or not. Someone is always complaining," Nenkova said.
To miss your train
Right now, the projectsrisk not happening at all. Galina Vasileva, who heads the managing authority at Operational Programme Transport, told Capital that it is now clear the projects will not be completed in their entirety, adding that such prolonged appealing of the results of the bidding process is unprecedented.
"Due to the delays, there will probably be a need to decrease the scope of execution in this program period and transfer a portion of the activities to the period 2021-2027. At the moment, it cannot be established which projects and what portion of them will be phased. We must wait for SAC to rule on the appeals," NRIC's representatives commented for Capital.
The payments under the operational program will cease at the end of 2023. Even though NRIC has declined to assess the total possible losses, experts commented that it is likely that entire lots will be scrapped, such as Lot 1 of the Elin Pelin-Kostenets track. Phasing, or postponing activities, will probably happen at Lot 3.
By delaying a portion of the work to the next program period beginning in 2021 Bulgaria will not have to return funds to Brussels. But it will miss out on an opportunity to utilize hundreds of millions of euro from EU funds which will have to be made up for by financing from the budget and the suspension of new programs, which will deprive other projects of funding. In a word, the improvement of the railway network has been derailed again.
Markus Tatzer, CEO of Porsche BG: Top news is VW's "concrete negotiations" for new factory in Southeast Europe
What was the main event in your business sector in Bulgaria in the last quarter?The main event was the reports that Volkswagen AG has begun "concrete negotiations" for building a new factory in Southeast Europe, including in Bulgaria.
For our company, it was the decision by the National Social Security Institute to choose the popular Golf and the prestigious VW Passat for its car fleet. The pharmaceutical company Zentiva and Euro Games Technologies choose VW Golf, Passat and Tiguan to enlarge their fleets. The other good news is the further growth of Spark's car-sharing electrical fleet which we are a big part of with 150 VW e-up! Electric mobility is a big positive development for Bulgaria and especially for the traffic in Sofia. Next was the 15th anniversary of Porsche BG which entered the Bulgarian market in 2004, importing Volkswagen, and in 2005 it took over the import rights of the luxury brand Audi.
What do you see as the next major development in your company's business in the forthcoming quarter or further?The Sofia Motor Show 2019 is the major event in the automotive sector for 2019. VW presents its current and very popular SUV model portfolio and the new VW Passat, and on top of that we are presenting the new brand design for the first time in Bulgaria: Volkswagen wants to appear livelier and more human, taking the customer's perspective more seriously.
Audi will be presenting a part of our large renewed and attractive portfolio - SQ8, SQ7, RS5, RS3. This is our sport spirit and the solution for dynamic mobility with clear consciousness, meeting the new environmental standards. We will also present the all-electric Audi e-tron. We are setting the pace for electric mobility suitable for everyday use.
*Markus Tatzer became CEO of Porsche BG and Porsche Inter Auto BG in 2016. He started his career at Porsche Holding in Salzburg in 2013 and has experience working in the automotive industry in Bosnia, Chile, Colombia and Austria. From 2013 to 2016 he was head of projects at the International Wholesale Department at Porsche Holding Austria.