The week: What a pyrolysis installation in Plovdiv teaches us about trust and business

I got to meet the distressed investor this week, while he was looking for publicity to explain his project. People don't understand, he said, that this has nothing to do with burning tyres. Pyrolysis, or thermal degradation, is a technology based on thermal destruction of raw materials in a non-oxygen environment which in the case of tyres produces liquid pyrolysis oil, carbon black and metal.

He showed pictures, videos, and documents. He said he's investing 2.5 million euro in this venture, claimed he's already built such an installation in Rotterdam, and pointed out the one in Plovdiv is based in an industrial part of the city. "I want to do something good for the city, getting rid of this waste - 7 thousand tons of rubber annually", the man said.

The next day he went on to speak to the Municipal council, pleading for them not to vote for "such an absurd declaration". To no avail.

It's not his fault. He may well have had all the documents and, as far as I can tell, he does seem like someone willing to abide by the rules.

But he's suffering the fallout from years and years of business corruption. Because, as Mr. Buffett rightly said, trust is vital to the functioning of any business, or society. In order for this guy to be able to build his installation, for example, he needs locals to believe that the environment agency did its job well and checked for problems. But if you've seen the inspectors getting corrupted over and over again, by various developers or companies, and if you've witnessed the municipality closing its eyes to violations of the codes, you are hardly going to believe any piece of paper.

This is what poisons the business environment on a local level. And some of the business itself is culpable of that.

It's a version of the Tragedy of the Commons: if everyone abides by the rules, we all get to benefit. If half of us are breaking the rules, then at some point, we all are going to be worse off. I know a guy with 2.5 million euros in his pocket, who can testify to that.

This newsletter is helped by

Martin Dimitrov, Monika Varbanova, Evgeni Akhmadzai, Mary Ivanova

1. Politics this week:

So do you remember last year, when we warned you that huge military investments and plans in infrastructure are coming? It's about to begin. It's not visible yet, but make no mistake - it is going to happen.

"Infrastructure means roads and railways with capacity to ensure fast delivery of soldiers. It means pipelines, warehouses, and housing," said Defense Minister Tagarev this week on national TV.

Where is the money?

There were conversations for a long time, but now we have clear plans which were agreed in Vilnius, Tagarev clarified. What exactly was clarified remains to be seen, but the overall amount of money needed for this is 6 billion euros, he pointed out. What is not clear is where the money is going to come from.

Take the "Black Sea" highway

The Burgas-Varna connection is decades in the making (as is most Bulgarian infrastructure). There were many attempts to jump-start it, but Bulgaria hasn't allocated the resources needed for this. Yet the supreme commander of the Bulgarian forces - Admiral Eftimov, said a day later that this north-south corridor is vital for NATO planning. And, believe it or not, another day later, in Parliament, the regional minister acknowledged that "we hope we can begin drafting a project in the next 2 months".

The biggest hope: speed

Yet money is not the real issue here. Bulgaria has access to debt markets, has a reasonably low debt, has options to draw on EU funding and has its own reserves. If we really wanted to finish the infrastructural ring, we would. The real issue is speed. If we are brutally honest, we don't have the manpower, the scale and the experience, to complete such projects on time and with sufficient quality. A decade of construction corruption left us unable to produce such results.

So if the latest military push produces a change in that mentality, this would be great.

No tunnel under the mountain

Speaking of infrastructure btw, we should probably mention the tunnel under Stara Planina. You know, the one procured back in 2022, which should have been well underway by now. Only it isn't. Turns out, there were "grave mistakes" made in the cadastral plans and they require more time to fix. Also, the project is yet to receive a green-light by the Environment ministry. So, any date for the beginning of works then? No.

Something to read if you want to lose your sleep:

And as for why is that really needed in a frontline state with direct access to Russia - read this chilling analysis.

And, speaking of building things, here is another ApartGate

Do you remember the apartment-buying scandal that involved some of the senior politicians from GERB in 2019, and led to the elimination of key figures like ex-President nominee Tsetska Tsacheva and the second-in-command, Tsvetan Tsvetanov?

Well, the WCC leadership is now having its own Apartgate moment, after the BIRD investigative platform published a piece claiming that a company formerly belonging to the co-chairman of WCC and current Finance Minister Assen Vassilev had its accounts blocked due to a claim by an American citizen for 5 million levs. Three months earlier, the company sold its properties for over 3 million levs, which would leave the American aggrieved if his claim is satisfied. The man, however, seems to have worked for the same company, which makes it even more confusing.

A toll tax queen

Yet what's most important is the buyer of the company's property. It is Stanislava Arnaudova, whose company, Intelligent Traffic Systems, has been mediating between the state and end users in buying vignettes since 2019, earning a 7% commission. She acquired the properties through her company, Si Trading 2016. At the same time, Arnaudova, in her personal capacity, also acquired the apartment of WCC MP Daniel Lorer, located at the same address, from which Lorer reaped a huge profit.

Just days after BIRD's publication, the coalition tabled an old draft law, proposing to reduce the commission on vignette sales for the private company from 7% to 3%. The same proposal was voted down in early 2023, when some WCC deputies abstained from supporting it.

2. Economy:

In light of the growing protest of farmers across Europe, Bulgarian agricultural owners are also ramping up protests, demanding increased subsidies and fewer green regulations. While there are some local specificities, they share with their Western counterparts opposition to the new climate requirements for the sector, financial difficulties and with their fellow Eastern European farmers - disdain for cheap Ukrainian grain. Last Sunday, the Association of Grain Growers in Bulgaria announced readiness for protest and demanded five measures from the cabinet, claiming that the (most subsidized agricultural) sector was in "collapse".

Figures:

Is the inflation rate, which continued to slow in December as expected - the lowest since September 2021.

80 billion levs

Is the value of all exported goods from Bulgaria for the first eleven months of last year, but that is still 7.1% less than in the same period of 2022.

3. Business:

The Plovdiv-based plant, which manufactures profiles for solar panels, facades and window frames, as well as bicycles, has doubled its revenues in recent years, expects 300% growth in 2023.

Automotive

The German manufacturer of electric car heaters plans to double production in Ruse in 2024. The company has also denied media reports that it is closing its auto parts plant and selling it to Austria's GG Group.

RES

A few months after it was announced that the Czech company would buy the "St. George" 229-megawatt solar plant near Silistra, the energy regulator has already given the green light . The investment, which can be defined as one of the largest in the country by an external investor in recent years, is expected to approach a quarter of a billion levs, while the plant will be exploited as early as the summer of 2025.

4. Energy

The price of natural gas in Europe continues to fall, leading to a 6-month low on the continent's largest benchmark TTF in the middle of winter. Gas is currently trading at levels around and below 30 euros/MWh - something that hasn't happened since August. And if the price is "smoothed out" with inflation, it will equate to levels before the war in Ukraine.

On the other hand, the natural gas trade in Bulgaria looks different. The regulated prices of the state supplier Bulgargaz are higher than the European spot market by almost 30%. And although they are also going down, it is happening at a slower pace because of differences in pricing, as well as several very controversial decisions in Bulgaria's gas policy such as the "Botas" deal and the LNG contracts.

5. Brussels

#WaterSchengen - Media reports say that Bulgarian and Romanian cargo and passenger ships need to pass border control checks at the Bosphorus, which totally diminishes all advantages from "Schengen by sea". We have inquired with the European Commission, but they are still clarifying the issue. Also, for now they are not completely clear if small ferries can travel freely between Romania and Bulgaria on the Danube without border checks.

#FinanceForDefence - The European Commission and the European Investment Fund (EIF) launched a new risk capital instrument - the Defense Equity Facility. Over the next four years, the €175 million initiative will significantly expand the EIF's investment capacity to support regional private and venture capital funds with strategies covering defense-relevant technologies. A total of EUR 500 million in private investment is expected to be triggered in support of the European companies (Bulgarian ones also express interest already).

6. Watch out for:

The parliamentary spearhead of GERB, who has only a few years of real-life legal experience as a consulting lawyer of the Ruse hospital, will likely be one of the next Constitutional judges. The nomination, which sparked a spontaneous backlash in the legal sector and beyond, is revealing about the direction that the judicial reform had taken under the (non)coalition.

Nikolay Drenchev

The Vazrazhdane MP was voted the new chairman of the parliamentary committee for control over the security services, which also monitors the use of special intelligence means. Ex-fighter pilot Drenchev is mostly famous for his Covid-denial, belief in the chemtrails conspiracy (?!) and optimistic views about how quickly he expected Russia to capture Kyiv at the start of the 2022 conflict.

Tony Blair

The Institute for Global Change of the former British PM will become advocates of Bulgarian priorities abroad and advise the country on how to fight corruption. This was announced on Wednesday by the government press service after a meeting in Davos between PM Denkov and Blair, who is known for, among other things launching a dubious war in Iraq.

Company:

Bulgarian e-education company sold itself to the British Juniper Education. The deal is a huge success for the startup, yet it produced a storm on social networks. The reason: mothers claimed the British company will "control" the data of Bulgarian school pupils in 1,700 schools, who use the Shkolo class management platform. Just another week in the life of a technocratic society where Facebook controls the narrative.

Location:

Street food park chain will be filing for bankruptcy after closing down two of its three parks in Sofia. The owners of the business claim they were pressured by their ex-partner Kaufland, who did not allow them to terminate their contract and has since blocked their bank accounts. What's most interesting is that Quartal's statements were posted on its social media accounts, which are now the grounds of a larger conflict with all of its tenants, who claim they were not informed it would be shutting down.

Date:

By that date, the current government must resign in order for the rotation to take place and the parliament to elect a new executive, PM Nikolay Denkov told Nova TV on 17 January. All sides claim this would be just a technical issue - but bearing in mind the political culture of some of those involved, it might be more interesting than expected.

24 January

Is the date when the EC will announce the new projects to be funded under Connecting Europe Facility. One big question - whether a new Romanian-Bulgarian bridge near Ruse would be approved. The Romanian transport minister Sorin Grindeanu announced this week that the European Commission has approved funding for the feasibility study. The new bridge is meant to ensure cross-border connectivity but also, yes, more possibilities for north-south corridors in case, in the worst scenario, NATO needs to move troops around the region.