- The memorandum signed between the state and the Gemcorp and IP3 funds caused a political tremor.
- The reason was the questionable ties of Gemcorp with Russian oligarchs and their murky plans for investments in the energy sector.
- For now, what is known is that the focus will fall on LNG imports and the modernization of Sofia district heating.
Russian oligarchs, banks and money, retired US generals, former Washington ambassadors and heads of the Three Seas Initiative, energy projects worth hundreds of millions, LNG imports and nuclear reactors All of these eclectic elements appeared in a recently signed memorandum between two investment funds and the Bulgarian cabinet, in an explosive combination that shook Bulgarian political and economic life a month ago.
On March 23, without prior notice, Energy Minister Alexander Nikolov signed a Memorandum of Cooperation with two little-known funds - the British Gemcorp Capital Management Ltd. and the American IP3 Corporation. The news was supposed to be a positive PR for the government - Western funds promised investments worth 1 billion USD in the country's energy sector. But what followed was exactly the opposite, as it turned out that the currently sanctioned Russian oligarch Albert Avdolyan is one of the early investors who launched Gemcorp. Moreover, the memorandum itself was interpreted by the general public as a state guarantee of access to the billions of euro earmarked for Bulgaria under the EU's Resilience and Recovery Plan.
The leader of GERB Boyko Borissov used the occasion to attack the government, while the two funds sent press releases in which they denied that they currently have any connection with Russian capital, or appetites for European grants and funds for that matter.
But the topic continued to fuel political passions, and on 30 March GERB demanded the creation of an ad hoc parliamentary committee to establish all the facts surrounding the memorandum in question. The proposal was rejected by the majority of MPs, but on the same day The Financial Times published its own article on Gemcorp, describing the fund's Russian ties, without, however, explicitly referring to the memorandum signed a week earlier in Sofia.
With these big political issues taking center stage in consultations about the memorandum, the discussion of the actual projects that the two funds expressed interest in, remained secondary. These, however, cannot be ignored - it appears that among their main goals are the import of large quantities of American LNG, which will break the current monopoly of state-owned Bulgargas, as well as the modernization of the Sofia district heating company and investments in the Maritsa East basin.
Suspicions and connections
Gemcorp was founded in 2014 by Bulgarian Atanas Bostandzhiev. He is still in charge of managing the fund and is a member of its investment committee. However, another co-founder of the fund was Albert Avdolyan, who is related to Rostec CEO Sergey Chemezov, considered one of Russian President Vladimir Putin's most trusted people. Gemcorp officially claims that Mr Avdolyan left the fund in 2020 and there are currently no Russian investors in it. The fund itself abandoned all Russia-related business operations in 2021.
However, Mr Bostandzhiev himself still has contacts with Russia. He used to be the director of the London branch of Russia's VTB Capital bank, which had a number of deals in Bulgaria, including as the representative of the interests of oligarch Delyan Peevski and former Corpbank CEO Tsvetan Vassilev in the Bulgartabac deal. The branch also partook in the Vivacom deal. This raises a number of other questions, including about Mr Bostandzhiev's contacts with Delyan Peevski and Tsvetan Vassilev, which he denied having in an interview with Capital weekly.
Aside from him, Gemcorp's team includes another Bulgarian - Parvoleta Shchereva, who is responsible for the company's investment portfolio, as well as for the implementation and management of investments. She has experience at Black River Asset Management and Goldman Sachs.
The Memorandum of Discord
"This memorandum is just a non-binding declaration of interest that we, as new investors, want to enter the Bulgarian market. Without any specific projects, deals with, or commitments from the government," says Atanas Bostandzhiev, who runs Gemcorp. He says this is standard practice around the world before entering a market and is also important for fund investors.
On a side note, another American company - NuScale - signed a similar memorandum with the Bulgarian Energy Holding not long ago. NuScale, like IP3, is developing small modular nuclear reactors.
There was no further explanation from the government or the ruling majority in parliament as to why or how the public signing of the March 23 memorandum came about, or any comment about Gemcorp's Russian ties.
Mr Bostandzhiev also says his fund's plans have nothing to do with the money from the Resilience and Recovery Plan, or EU funds at all. "We don't even wish to participate in such schemes. We are working with our own capital and attracting financing from private banks because we are working on projects that make business sense," he says.
Intentions or real projects
The Energy Ministry's statement issued after the signing of the memorandum claimed that it will cooperate with the two companies in planning projects in the clean energy, alternative and strategic gas supply, energy security and nuclear power sectors. Additionally, the two sides of the memorandum also expressed interest in enhancing regional security and protecting critical infrastructure, and supporting the green transition by building a hybrid industrial complex on the site of the Maritsa East energy complex.
Things did not become any clearer once the funds themselves ran their statements. "An innovative commercial plan will be developed for Bulgaria to guarantee the energy sovereignty needed to service the country's basic and industrial needs. The relationship will involve collaboration to guide the transition to power generation options in the region. Gemcorp and IP3 will provide project development, financial structuring and financing solutions, with a phased approach," the eIP3 Corporation announced.
Former US ambassador to Poland and IP3 board member Georgette Mosbacher said that Bulgaria is ready to use new technologies such as hydrogen, renewables and hybrid nuclear systems and the Bulgarian smart energy transition could become a role model for all countries. "We want industrialized countries to take advantage of new and existing technologies to meet 2050 climate goals," says Michael Hewitt, co-founder and CEO of IP3.
Imports of LNG
Mr Bostandzhiev told Capital Weekly that his fund's main goal is to import LNG to Bulgaria as an alternative to Russian gas. "We are negotiating with several major players on the gas market so as to secure alternative supplies to Bulgaria - mainly from the US. This is where IP3's contacts will be used," he says, adding he cannot say whether these gas deliveries will compete with Bulgargas' or not. "In any case, we will strive to become an alternative gas supplier for the Bulgarian market. We will not be an intermediary, simply buying LNG and reselling it to Bulgargas. We will sell on the exchange. And that is why we want to secure a price that is competitive on the market," Mr Bostandzhiev added.
Plans are to secure 1 bcm of gas per year. By comparison, that is the entire volume of the Azeri gas contract, or a third of the country's total annual gas consumption. Thus, if the plans come to fruition, the share of Russian gas supply to Bulgaria could drop to 30 percent. However, it is unclear when Gemcorp and IP3 could start importing LNG. According to Mr Bostandzhiev, the realistic scenario is for this to happen in 2023, at the earliest. According to Capital Weekly sources, a possible partner of the consortium is the US company Linden Energy Ltd, which acquired a 50 percent stake in Sasho Donchev's Overgaz Inc. last year. A curious detail is that Gemcorp owns a Romanian gas company, Stratum, and could quickly become a regional player.
Another of the fund's more specific goals is related to the supply of gas to Sofia district heating company, which is the country's largest gas consumer. This is part of a larger plan to invest in the modernization of the capital's heating.
The Sofia district heating project
At the end of last year, an US consultant - Black & Veatch - analyzed the Sofia heating company and proposed solutions for its recovery. In recent years, the company has accumulated losses of more than 800 million BGN and more than 1 billion BGN in liabilities. The plan requires an investment of at least 860 million euro to build new production facilities and modernize the district heating network. The idea is for the company to start generating more electricity to supplement its thermal energy so as to increase its efficiency. Now, with 3.5 million MWh of thermal energy, Sofia district heating produces only 800,000 MWh of electricity. For all other district heating companies in the country the ratio is 1:1.
"All private district heating companies are profitable. This is why I am certain that, through a renovation with private capital, the company can also start making a profit," Mr Bostandzhiev says, but refuses to give more details about the plans for investments in the company: "we do not know yet the details of the investment project of the district heating, talks are underway," he explained.
The big question is who will own the new facilities. The consultant suggested creating a new special purpose vehicle company (SPV) to receive the financing and implement the project. It would operate the new power generation facilities and use these revenues as a guarantee to repay the debts. It is specified that this SPV will not be owned by Sofia district heating. And that is why the concern is that the profits will remain in this newly established company and the losses will remain in the municipal company. Furthermore, it is not at all clear how exactly Sofia would choose Gemcorp and IP3 as investors. It would be logical to hold a public tender and choose the one that offers the best conditions.
Ambitions for Maritsa East
The two funds' plans for the Maritsa East complex are plagued by similar concerns. These include solar panels on the old mine fields, small modular nuclear reactors, CO2 capture from the power plants and a chemical plant to produce ammonia. In theory this sounds like a great opportunity, but there are also a bunch of unanswered questions. The main one is how these investors are better than others and should the state give them exclusivity for such projects.
According to Mr Bostandzhiev, the memorandum in no way gives them an advantage in a competitive procedure for selecting projects to be implemented in the coal basin. The problem is that the state does not yet have a clear concept of how to approach energy transformation.
"Bulgaria has the chance to build green hydrogen and ammonia capacities. The country has surplus electricity, which is now being exported. And this surplus will become bigger and bigger - the industry is building solar systems for its own needs, and there are a number of new large-scale renewable energy projects. All this will radically change the market in just a few years and the extra energy can be used for just such production," Mr Bostandzhiev says. In his words, this is a purely private business project that does not need any state support. And the export of green hydrogen or ammonia will have much more added value than electricity alone.
In summary, it can be said that Gemcorp and IP3 have only intentions to invest for now, and the exact projects will be specified in the future. Whether they will come to fruition is an entirely separate question.