The week: Poles apart

But that's all been said before. What I'm getting at is something different. I've been in Romania the week before, to witness their new determination to build infrastructure - they are producing close to 100 km of highways per year. We will be writing more about this, so stay tuned, but it definitely feels like something is happening and someone is planning for the future. In Poland, they've just spent a staggering 145 billion euros on US defense products - more than Saudi Arabia last year. They too, are preparing for the future and hedging their bets. Greece, led by Kyriakos Mitsotakis, is betting on modernizing ports, building high-speed trains and energy infrastructure.

From the Aegean to the Baltic Sea, things are happening. Plans are being made, and delivered on. Governments are coordinating, talking to each other, exchanging expertise. It is here where you can feel the immense and troublesome gap in Bulgarian political decision-making.

I've been asked again and again in Bucharest and Warsaw "who takes decisions in Sofia" right now. Put simply, who should one call, if one wants to know what Bulgaria is planning to do in the next few years?

I'm afraid the scary answer to this question is "no one".

We've been left on autopilot for a year now and even before that only few substantial projects were discussed anyway. There is no prospect of that changing any time soon. The first speed train to connect Romania and Bulgaria - Ruse-Giurgiu-Bucharest, is going to be ready in 6-10 years and that's because Romanians are working on it. The speed link between Thessaloniki and Sofia is not even in the planning!

Yes, in this newsletter we've argued several times that having no stable government is better for the business environment than having an authoritarian one controlling everything. But there is a difference between having no overlord to racket you, and having no mid-term planning in place. Having been in Warsaw and talked to people I can definitely state we and the Poles are indeed poles apart in terms of classes in the EU. And Bulgaria is, I'm afraid, drifting even further away from the rest.

1. Politics this week:

This week's top international news story, which sounded as if it had been taken straight out of a Black Mirror-style horror story - the Hezbollah pagers, turned into explosive devices - of course had to have a Bulgarian angle. According to the Hungarian independent outlet Telex.hu, the company that sold the 5,000-odd pagers that exploded in the span of a few minutes on Tuesday, killing and maiming dozens and injuring more than 2,000 people in Lebanon, was registered in Bulgaria.

The website, which was trying to debunk the theory that the Taiwanese pagers were assembled by the Hungary-based BAS Consulting firm, claimed they were actually purchased by the Norta Global firm, owned by Norwegian citizen Rinson Jose and registered in Sofia. The information spurred the National Security Agency (DANS) to say the company did not carry out any activity in the country, apart from receiving 1,6 million levs in "consulting fees" at some point this year.

As the New York Times later wrote, it is likely that both the Bulgarian and the Hungarian companies are part of a larger network of shell firms across Europe created by the Israeli counterintelligence Mossad to carry out the operation, yet this was enough to scare off Bulgarian politicians. Ex-PM Boyko Borissov, who headed the country during the only terror attack in its modern history - the bombing of Israeli tourists at Burgas airport in 2012 - said that the authorities have to do their best to quash rumors of Bulgarian involvement in order to forestall any possible retribution by Hezbollah.

The flag of discord sparks a new Sofia-Skopje crisis

Governments and presidents in Sofia and Skopje come and go, but the crisis in Bulgarian-N. Macedonian relations seem to be permanent. It got reignited these last few days after the new head of state of the ex-Yugo republic Gordana Silyanovska-Davkova paid a visit to Sofia, where she attended a performance of her country's National Opera and had an informal visit to the Presidency.

Despite the rather amicable tone of the two-hour meeting between her and Rumen Radev, the government in Skopje saw a provocation in the absence of a Macedonian flag in the room during the meeting. While Bulgarian officials tried to explain that an informal meeting does not require such a flag, the VMRO-DPMNE cabinet in Skopje launched quite a brazen attack, with PM Hristian Mitkoski calling the situation "humiliating" and his deputy Alexander Nikoloski calling Bulgaria's actions "measly."

In short, don't expect anything nice coming out on the bilateral front anytime soon.

2. Economy:

The Finance Ministry has published its proposed changes to the VAT bill for next year. Unfortunately, it is likely to bring about more bureaucratic red tape for firms. According to the draft, VAT-registered companies will be obliged to submit quarterly information on their fixed assets and inventories to the tax authorities. This will be done through withholding tax returns or income paid to individuals. On the positive side, the proposals do not include changes to the main tax rates. There is also no new extension of the preferential VAT rate for restaurants, which is currently 9% but expires at the end of this year. However, there is no guarantee that once these proposals come to a vote in Parliament (probably the next one), they will not be modified and the return to the normal 20% rate for restaurants will be delayed again.

Figure:

The inflation rate for August according to the national statistics. It went down after briefly rising in June.

3. Business:

The Danish DSV corporation has agreed to buy Deutsche Bahn's logistics unit, DB Schenker, in a deal worth 14.3 billion euro. The German company has several subsidiaries that have successfully operated in Bulgaria in the past two decades.

Electronics

BlackPeak Capital announced plans to invest 8 million euro in the Vratsa-based manufacturer of electromechanical components for a 42% stake, the fund announced.

Startup

The Bulgarian fund made its first investment under the Alpha program, designed to support early-stage start-ups in South East Europe with 300,000 euro in funding in exchange for a 10% stake, by backing the Greek company for improving women's healthcare Vivian Lab.

4. Energy:

The Electricity System Operator (ESO) reported a net profit of 136 million levs in the second quarter of 2024, with the result (almost) similar to that of the same period of 2023. There is also almost no change in the operating profit - it is now 149 million levs compared to 148 million levs a year earlier. This is despite the company's revenue decreasing to 614 million levs compared to 717 million levs in the same period last year, with the decline mainly due to more modest sales revenues.

NEK to try to revive Chaira with a 220 million levs injection

The National Electric Company (NEK) announced a large-scale tender worth 220 million levs excluding VAT for the repair of two of the units of the Chaira Pumped Storage Hydro Power Plant in the Rila mountain. The procurement aims at reviving hydro unit 1 (XA1) and hydro unit 4 (XA4), which experts have found to be heavily depreciated and need to be replaced with completely new ones. Generators, turbines, main equipment, control systems, etc. will be replaced. The current procurement comes three months after the fiasco of the previous tender in which no bidders appeared. It was to repair only one of the units of the defunct power plant, so at the insistence of Energy Minister Vladimir Malinov the tender has now been extended.

5. Watch out for:

After earlier this week Ursula von der Leyen officially announced that her nominee for the position of the future Innovations, science and startup commissioner is GERB's MP and former justice and foreign minister, the question is - will she survive the MEPs' questions and the selection stage, which might start as soon as early October? The expertise of Zaharieva in the sector is, to put it mildly, questionable, and Politico already put her on its list of 5 commissioner nominees most likely to be cut off from the race. Zaharieva's nomination is a problem bigger than Bulgaria's inability to produce competent politicians - it shows that VDL has little interest or clue on how to tackle Europe's innovation troubles, recently highlighted in Mario Draghi's competitiveness report.

Institution:

Delyan Peevski's faction within the MRF, labeled "New Beginning" by its leader, has been winning everywhere - the Supreme Administrative Court (SAC) approved its registration instead of that of Ahmed Dogan's faction (which will have to go to the election using an alternative acronym that has nothing to do with MRF's famous brand), the electoral authority did so, too, and now the Interior Ministry backed it up against the pranksters who made a fake website with the name of the faction, saying that "it contains offensive and defamatory content and it spreads false allegations and false news." Interestingly, the police's cyber unit has never done the same with other propaganda and fake news websites

Place:

Belogradchik

Word of the week:

Luda po tebe (Crazy about you)

This week Sofia hosted a unique show match between Bulgaria's greatest tennis player, Grigor Dimitrov, and likely the largest star in the sport as a whole, Novak Jokovic. And if you think the quality of the game or the spectacle was the center of public attention, you would be wrong - instead, everyone got crazy about the decision of the DJ of the event, Marten, to not play the 1990s pop folk song "Luda po tebe" (which translates as "crazy about you"), which the Serbian superstar asked for. It is still unknown if this was due to copyright infringement issues or because of the DJ's overall disdain against "chalga" music, but the ensuing debate got quite ugly. On the positive side, Nole later enjoyed the live performance of the song by pop folk singer Kamelia in the club, so at least he was happy!