This was supposed to be a whole different article about Bulgarian entrepreneurship, but as Harold Macmillan famously said, "events, dear boy". So Nexo it is.
You've either heard of the cryptobank, or you haven't. But if you're unfamiliar with it, here is a summary: it was created by two Bulgarian entrepreneurs some years ago, then blasted off in the cryptoboom (assets said to be in the billions), but then crashed down to earth amid arguments with the regulators worldwide, most famously in the US, prompting its withdrawal from that market. All that and a lot more in our all-time popular story by Yoan Zapryanov.
And then it was swooped on by the police and the prosecution in Sofia.
The brand-new office of Nexo was raided on the morning of January 11 and items were confiscated. The prosecution service clarified later that the operation concerns "an organized crime group over crimes including money laundering, tax evasion, unlicensed banking activity and computer fraud". It also alluded to "terror sponsors" using the platform and circumventing the Russia sanctions.
Now, several quick thoughts on the matter, as we wait for the dust to settle.
First, Nexo definitely has legal troubles abroad and what happened must surely have been motivated by a foreign service tip-off. We can't know for sure what triggered the whole thing. But we can safely assume that there must have been something that was used as a pretext for the bust.
But second, and definitely worth keeping in mind - the Bulgarian prosecution service is not to be highly trusted in those matters - it was used before in raids that were designed not to end in court, but in the media. They are neither capable enough to uncover a highly complicated international financial web, nor motivated enough to do so, unless there is something to be gained. They like to use big words, but their main goal is mostly to end up shining in the newspapers, the accused's reputation be damned.
So hold your horses until we've seen what is going on and we know for sure that the accusations are solid.
One thing that we figured from the press conference: this whole thing must have been motivated from abroad, as, for example, the prosecution service spoke of 94 billion dollars in transactions in the past 5 years. Given what I know of our prosecutors (based on various financial cases), it looks highly unlikely to me that they know this from their own investigations.
So there is your first clue.
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Martin Dimitrov & Monika Varbanova
1. Politics this week:The final mandate gamble begins
On Monday, WCC returned the second mandate - expectedly, unfulfilled - to President Rumen Radev. A wave of declarations from politicians and speculations from observers ensued: who should Mr Radev give the third and last mandate to?
BSP, his traditional choice? The only possible coalition in this case is a "paper ballot" one, alongside GERB, MRF and Bulgarian Rise, and this is almost impossible to imagine. Democratic Bulgaria? Those "war lovers," as Mr Radev called them to their face just a few weeks ago? Nah, despite an attempt by some of its leading figures - Hristo Ivanov and Radan Kanev, MEP to open the door to potential negotiations between their party, GERB and WCC. MRF, the party with the Magnitsky sanction oligarch nobody wants to associate with? Not the best choice, either. Stefan Yanev's Bulgarian Rise, then? At least he has some experience as a PM. But he now needs 110 MPs for a government, as he only has 11 currently That's just not credible.
Despite all the speculation, it's cloud cuckoo land to think that the current Parliament could produce any working cabinet. What is more, it does not seem particularly successful in pursuing its duties, for example, adopting legislation needed so the next tranche of EU money can start flowing. So maybe it is high time for it to wave goodbye.
Geshev remains untouchable
Talking about the impotence of MPs to do anything valuable in the divided National Assembly that is in a clear pre-election mood, here is one vivid example: the chances of this Parliament passing important laws on the status of the Prosecutor General and increasing the effectiveness of criminal prosecutions have diminished significantly.
After a six-hour debate on Wednesday the parliamentary legal committee, at the suggestion of its chairman Radomir Cholakov from GERB, decided to postpone the debate on a total of six bills related to criminal prosecution and the institutional reform of the Supreme Judicial Council (SJC) and leave the vote on the first reading to the next session. This means that, with the upcoming failure to form a government, there might simply be no procedural time for the amendments to be approved before the National Assembly is dissolved.
More from this week:Growth in housing prices in Plovdiv, Varna and Burgas
2. Economy:Energy companies' revenue will be capped
The (still-working) Cabinet finally managed to pass the revenue caps for energy companies. They have been mandatory in the EU since last year, but due to the lack of governing capacity, let's call it, Bulgaria has not implemented it. The caps are necessary to pay for subsidies going to all the other companies. This also targets for the first time RES producers - they have to pay back everything above 350 leva per MWh. This will only apply to those that came online after 2013, however.
Is the overall capacity of all the new renewable energy projects, filed with the Energy regulator.
Is the projected GDP growth for 2023 for Bulgaria, forecasted by the World Bank. This is much higher than the 0% for the eurozone.
Is going to be the median wage growth in this year, forecasts Allian Trade. Yet this will still be under the 10% inflation rate, expected for 2023. The insurer suggests this will shrink consumption.
3. Business:Air Sofia Airport
It is still lagging behind 2019 in terms of passengers, announced Sof-Connect, the new concessionaire. In 2022, a little over 6 million passengers passed through the main Bulgarian airport, which is 1 million below 2019. Yet the airport believes it already has secured this missing million for this year, through advance negotiations with air carriers.
The group acquired a new entity - Advertise Bg. The ad agency will be a part of Digitas Sofia, and the price for the deal has not been publicly announced.
The Bulgarian manufacturer of electrolyzers, which operates through the brand Hydrogenera since this year, has attracted its first external investment of 2 million euro. The round included Karoll, Impetus Capital (with 250,000 euro), MFG Invest and a number of business angels.
This week has been a complete rollercoaster for the energy sector. Many things should get done in the parliament before it closes down for another set of elections in the spring and quite frankly a lot was actually done.
WCC made a proposal for a new compensatory mechanism for the regulated gas market since households using gas for heating are not subsidized like electricity users. The proposed amount of household compensation will be 50% of the difference between the approved price of Bulgargaz for the relevant month and the price predicted by the regulator for the first quarter of 2023- 122.58/mWh. This means that, if they are approved, the compensations for January will be BGN 28.37/mWh.
In the meantime, the gas market in Bulgaria is rather turbulent right now as domestic prices are higher than those on European gas exchanges. Even though this is often justified by the expensive natural gas in the gas storage, Kapital checked and found out that no quantities have been extracted from the Chiren storage since Christmas. This rather leads to the conclusion that the price is high due to LNG deals made by the government in December.
Lukoil returns to Bulgaria
Yes, it hasn't physically gone anywhere, but the oil-producer has used a complicated scheme under which it sold its refined product to Benelux. Now this is gone and we're back to the pre-2020 situation where the buyer from the refinery is Lukoil Bulgaria. This, claims the government, means that the company will pay 600 mln levs in the budget this year. We take this claim with a pinch of salt, as in the years past, Lukoil has constantly filed losses, which allowed it to escape taxation.
5. BrusselsThe strange case of Bulgaria's green transition
Bulgaria's National Assembly voted by a large majority on Thursday to give a mandate for the Council of Ministers to renegotiate the Recovery Plan and its "Energy" part, dropping the commitments for reducing carbon emissions from electricity production by 40% compared to the base year of 2019. All reforms and investments foreseen in the Plan and related to this goal will also be reconsidered. According to MPs the decision would allow coal-fired power plants to run without restrictions until 2038, but in the meantime would guarantee decarbonization commitments in line with European targets - something that would make Brussels laugh wholeheartedly. The problem with opening the Recovery Plan for renegotiations threatens not only the funding for the energy sector, but also at least one third of the total 11,8 billion leva funding for Recovery. Plus, if the coal-fired power plants run without restrictions until 2038, this would mean that no territorial plans for just transition are needed, jeopardizing 2.6 billion leva from the Just Transition for the country.
Rising prices in Croatia after the euro adoption
The current high prices in Croatia are a combination of the Europe-wide energy crisis, and problems with supply chains, but to some extent, initial speculation after the adoption of the euro. Unlike the Bulgarian lev, the kuna was not pegged to the euro, which normally led to slightly higher inflation immediately after the adoption of the single currency. However, Bulgaria is at a disadvantage compared to Croatia, due to the limited role of having only fiscal policy, and at the same time lagging behind with reforms for joining the eurozone in time for the deadline set at the beginning of 2024.
6. Watch out for:People:
The ex-deputy regional minister, who has twice resigned from his post and was mired in corruption allegations, has been assigned to the board of state-owned construction company Avtomagistrali. Quite a career move for someone who was rumored to have requested kickbacks from companies for certifying their work.
Is a judge whom you should not call in any way close to the Turkish Movements for Rights and Freedom (MRF). A journalist who did so, based on previous publications and insights, was recently sentenced to pay a fine to Mr Mihaylov. Obviously being close to MRF carries quite a stigma in the judicial sector.
Company:Bulgarian Heli Med Service
The company that was supposed to establish the fleet of medical and rescue helicopters will be closed down and integrated into the State Aviation Operator, which now is (supposed to be) in charge of the HEMS service. But first the Ministry of Health, which for some reason remains the principal of the procurement to purchase the helicopters, needs to carry out a successful bid to buy them - likely at a higher price than initially anticipated.
The last possible date when the President can pass the third and final mandate to form a cabinet to a political party of his own choosing.