This is the second instalment of the collaboration between Kapital Insights and Friedrich Naumann Foundation for the Freedom (FNF), which we dubbed "Black Wednesdays". We publish the next story from the Black Book on Government Waste - a flagship project by FNF and independent journalists aimed at exposing problematic, wasteful and potentially corrupt practices perpetrated by national and local authorities across Bulgaria. In its six editions since 2015, the authors of the Black Book have tracked dozens of examples of how public money is mismanaged.
Here comes a piece by Dnevnik.bg reporter Spas Spassov from Varna, who tells the story of "The Pit" - a 3-hectare open-air parking lot in the heart of the sea capital of Bulgaria, which was bought by the municipal authorities for a whopping 21 million euro. The lucky vendor is Georgi Gergov, a BSP-affiliated mogul, who has demonstrated very good relations with his alleged political opponents from GERB at both national and local levels.
The history of the so-called Varna's "Pit" began nearly 30 years ago. In 1986, what was then the Municipal People's Council decided to build a department store on the site of landmark buildings in the historic city center. When the excavations began, however, the site turned out to be brimming with objects of archeological significance. The project was stopped. Later, the land was donated to the specially established joint-stock company "Targovski Dom". After the political changes of 1989, however, the interests of the heirs of the owners of the destroyed buildings, as well as of more than 80 private individuals who bought shares in the company, took "the Pit" in a strange direction.
For more than a decade, the kiosks placed on the periphery of "the Pit'' were rented out for 70 euro per sq.m. The municipal budget of Varna collected around 3.50 euro from this money for the use of the sidewalks, and the rest of the money sank into the pockets of political lobbies supporting one or another group on the local Municipal Council.
In 1999, Petya Slavova's Festa Holding became the majority owner of "Targovski Dom," and after the administration of former Varna Mayor Kiril Yordanov "slept through" her firm raising its capital, the municipality virtually lost its stake in "the Pit." In 2006, businessman and, at the time, high-level functionary of the Bulgarian Socialist Party (BSP), Georgi Gergov, became the owner of the land for what he claimed was a 5-million euro deal with Ms Slavova. For the next 13 years, absolutely nothing happened to the site, and "the Pit" continued to be one of the most serious urban problems in the center of Varna.
Why cheap when it can be expensive?
During one of his visits to the city in 2012, former Finance Minister Simeon Djankov announced that the price demanded by Mr Gergov for his property exceeded 10 million euro. "This is an impossible demand, " Mr Djankov said at the time. However, only six years later, by using Varna Mayor Ivan Portnich as an intermediary, (now former) Prime Minister Boyko Borissov's government still struck a deal with Gergov, but at more than twice the price. How and why did this become possible?
At the end of July 2016, by a decision of the Council of Ministers, the state divided its shares in the company "International Fair Plovdiv,'' controlled by Georgi Gergov, between Plovdiv and Varna. The strange aspect of the division was that 29 percent of the state shares were ceded to Varna, while Plovdiv received only 20 percent. After a meeting lasting only 10 minutes, the GERB-dominated Municipal Council of Varna accepted the donation willingly.
When asked why the state share was transferred to Varna and Plovdiv free of charge, instead of being sold, the Ministry of Economy replied that no investor interest had been shown in the shares. However, this explanation was a bit strange, as until then the state-controlled share, valued at 35 million euro at the time, had not been offered for privatization even once.
It was clear that Varna accepted the "donation" of 29 percent of the state shares in the Plovdiv Fair in order to exchange them with Mr Gergov for "the Pit." However, for almost a year, Mayor Ivan Portnich denied the existence of such a plot. The deal seemed to have failed due to the resignation of Boyko Borissov's government at the end of 2016 and the ensuing early parliamentary elections, and the two municipalities returned their shares to the state.
Wait, what's the price?!
In 2018, Mr Gergov relaunched his attempts to sell "the Pit". Varna Municipality hired the independent consultants Neliyana Ivanova and Lyudmil Velinov who evaluated the price of the plot at a colossal 21 million euro. The sum was calculated based on the unlikely scenario that "the Pit" ought to be transformed into a four-storey building with three more levels of underground garages, shops and offices. Realizing the obvious absence of any business logic to this hypothesis, the evaluators stipulate that this value can be achieved only "while waiting for the most favorable moment for market realization".
The calculations are made with the presumption that construction costs would amount to 369 euro per sq. m., while offices and homes would be then sold for 1470 euro per sq.m and shops - for up to 2290 euro per sq.m. According to other real estate experts, these estimated prices are quite optimistic, while the necessary investment for construction is underestimated.
Moreover, according to information from Capital Weekly, only a year earlier, another assessment was made of the same company, which concluded that 100 percent of the capital of Mr Gergov's company was 5 million euro, or 4.5 times less than the price that Borissov's government paid to the businessman through the local administration in Varna. The lack of any market logic for the budget financing of the deal has led to speculation that the motives behind it are more related to political corruption than to any business or urban project.
A patriotic twist
Absurdly, as of the end of 2018, it turned out that the municipality of Varna, in fact, does not even plan to construct a 4-storey building at the site and try to regain its investment. Instead of a residential-office-shopping building, "the Pit" would turn into a a square above an underground car park on four levels, with a monument of sanctified brothers Cyrill and Methodius, the inventors of the glagolitic alphabet, on top.
According to the chief architect of Varna, Viktor Buzev, this is not supposed to be a small monument at all. "I discussed the idea with Mayor Ivan Portnich years ago and we both think it should be an impressive sculptural composition to hide the ugly buildings around," he said.
The truth is that there will likely be no office building, shopping mall, or monument at the site of "the Pit." There will probably be nothing there at all and the municipality is just wondering how to justify the cost by inventing exotic ideas.
This is the second instalment of the collaboration between Kapital Insights and Friedrich Naumann Foundation for the Freedom (FNF), which we dubbed "Black Wednesdays". We publish the next story from the Black Book on Government Waste - a flagship project by FNF and independent journalists aimed at exposing problematic, wasteful and potentially corrupt practices perpetrated by national and local authorities across Bulgaria. In its six editions since 2015, the authors of the Black Book have tracked dozens of examples of how public money is mismanaged.
Here comes a piece by Dnevnik.bg reporter Spas Spassov from Varna, who tells the story of "The Pit" - a 3-hectare open-air parking lot in the heart of the sea capital of Bulgaria, which was bought by the municipal authorities for a whopping 21 million euro. The lucky vendor is Georgi Gergov, a BSP-affiliated mogul, who has demonstrated very good relations with his alleged political opponents from GERB at both national and local levels.
