Mediapool Weekly: April 27 – May 3, 2019

#ApartmentGate on steroids: Officials used EU funds for B&Bs to build own villas, Pope Francis to visit Bulgaria May 5

Commentary:

#ApartmentGate on steroids: Officials used EU funds for B&Bs to build own villas

The ApartmentGate scandal uncovered high ranking GERB officials, including a justice minister and the second most powerful man in the party, having struck extraordinary real estate deals. Luxurious apartments for less than a fourth of their market prices were swiftly transferred to some key GERB figures. Those transactions curiously coincided with legislative initiatives to the benefit of the seller: the infamous real estate developer Artex, and an institutional and political backup in settling some regulatory uncertainties when it came to Artex’s most ambitious project, a 30+ story building in one of the most expensive districts of Sofia.

The scandal revealed nothing particularly new: corruption, shady deals and illegitimate lobbying is part of Bulgaria’s everyday life. But this time the transactions were reviled in very concrete terms. There was nothing ambiguous about the numbers associated with them, nor the political favors that followed. The everyday life and overall culture and ways this government operates was laid out without much need for speculation as to the motives, which drive it forward.

The scandal has not yet subsided, and with good reason. But while it is still open for further development, another very massive, by the looks of it, practice came to light.

A big chunk of the EU structural funds is granted for the purposes of small business development in the tourism sector. These small businesses often produce Bed&Breakfast places.

It turns out many officials and high-ranking politicians have been channeling these funds to pay for building their private villas. They appear as B&Bs on paper, and certainly for the purposes of the project reports for the spending but in reality, no one uses them except the owners.

The first major discoveries came a few weeks ago when the investigative site Bivol.bg reported that a B&B, built on land, owned by Deputy Economy Minister Alexander Manolev, received a 380’000 leva subsidy from the EU structural funds. This particular fund was operated by the Agriculture State Fund when the grant was issued; Manolev was deputy minister of tourism at the time.

Bivol.bg and the local Blagoevgrad News followed up on the story and discovered that the house in question has never operated as a B&B at all. Instead it is a rather luxurious villa, complete with a mineral water swimming pool, which the owner uses as a private home. The financial and other relevant reports to ASF are approved with almost no follow-up questions or remarks. The total cost of the house is about 500’000 leva.

The Prosecutor’s Office and the ASF is now looking into almost 750 B&Bs, which have received EU subsidies through the ASF. Although the former head of ASF and current minister of agriculture, Roumen Porazhanov, claims that the ASF not only controlled the relevant B&Bs but also made follow up checks after the reporting periods. He claimed in an interview that the ASF is working together with the Prosecutor’s Office. The latter, however, quickly issued a refusal, making is clear that the ASF itself is also a subject of an inquiry as the institution, in charge with controlling the spending.

Different names are only beginning to surface in this scheme. It is an important milestone in the corruption mapping of Bulgarian governments, and especially this one. While ApartmentGate showcased how one of the most basic tools in the captured state of Bulgaria operates: influence peddling. This is a key practice in Bulgarian governance and ApartmentGate did a fantastic job in mapping it out.

The second key aspect of misuse of power in Bulgaria is EU funds drains. EU funds fraud is beginning to make more and more headlines in recent months. A chief example is the so-called GPGate scandal, which Bivol.bg also revealed: an elaborate and complicated corruption scheme, designed to channel EU funds to particular firms. But the case with the B&Bs is far from complicated. On the contrary, it is very much straight forward. And it demonstrates very clearly how the people close to power view these funds. And more to the point: how they distribute them. This is an important point, which parks two sides of a coin, which have distinctive consequences. One is obvious: those who operate the funds have found a way to channel them in a way to benefit themselves personally. But more to the point, by doing so, they deprive those for whom the funds are actually intended, to receive them.

This is another example of just how inept the European Commission is in controlling these funds, once they land in Bulgaria. Surely the commission’s intentions are good, but they might have not factored in the fact that any large amount of funding coming into this country via state institutions will likely end up being misused.

The third important aspect of Bulgarian corruption is public procurement. There has been some good reporting on this recently (GPGate for example) but we have yet to see a story showcasing how several companies, close to the government have captured the public procurement system in its entirety, in crisp and unambiguous terms like the two scandals, dominating the news cycles of late.

In other news:

The Bulgarian Energy Holding negotiating 100-million-euro debt to Gazprom for failed South Stream

The Bulgarian Energy Holding is negotiating the final termination of the contracts with Gazprom regarding the failed South Stream project. BEH has received a 100-million-euro loan for Gazprom for the project, which it now must return, if the two parties don’t agree on something else. BEH told 24 Hours Daily that the two parties are at the final stages of negotiations.

The 100 million were loaned for the capital expansion of the joint company South Stream Bulgaria. Then-provisional Energy Minister Vassil Shtondov ordered for any new funding to stop immediately, as Brussels had just demanded the project be stopped, but BEH went on and took the loan anyway. As the energy minister is de facto BEH’s head direct boss, and the latter disobeyed clear directions from the minister, the case was referred to the Prosecutor’s Office, which has not produced any opinion or conclusion regarding the matter to date.

According to the most recent public report of the Russian-Bulgarian joint company, the losses of South Stream Bulgaria amounted to over 45 million leva by the end of 2017.

New raid at Minyo Staykov offices just before his release from jail

The Prosecutor’s Office raided the offices of alcohol and tobacco mogul Minyo Staykov, who has been in jail for eight months on charges of illegal cigarette production and tax fraud. The prosecutors have not issued an official statement as to the reason for the raid but according to reporting by the Bulgarian National Radio, the raids have to do with EU funds fraud.

The raid lasted almost a full day this Wednesday in Staykov’s offices in Karnobat, Sofia, Plovdiv, Sliven and Bourgas. The particular company, whose offices were raided deals with agricultural land.

The raid took place only two days before Staykov’s scheduled release from jail, as 8 months is the maximum amount of time one could be kept in jail with one charge. The prosecutors might charge him with a second crime before he is let out, however, thus expanding his stay in jail.

Many streets in Sofia closed for Pope Francis’s visit to Bulgaria

Most of Sofia’s center near the Alexander Nevski cathedral, Vassil Levski Stadium and the National Theater will be closed for cars over the weekend because of Pope Francis’s visit to Bulgaria.

Pope Francis will arrive in Sofia on May 5. He will also pay a visit to the town of Rakovski, the largest Catholic town in Bulgaria on May 6.

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