Commenting on a controversial deal for the sale of the Bulgarian business of the Czech energy group CEZ to an obscure Bulgarian company, Bulgarian Prime Minister Boyko Borissov Tuesday voiced a suspicion that an attempt was being made to use the deal to bring down his Government. "Somebody is trying to repeat the February events: with the same players but on a different scenario. CEZ are involved again, as is electricity and populist statements - and all of a sudden it appears that the Government and myself are involved in some kind of a shady backstage deal," Borissov said at a news briefing in Parliament.
He was referring to mass protests over high electricity bills in February 2013 which forced his first government to resign.
He said that there will be no resignations this time. "I promise to unravel the entire case," he added.
CEZ is selling all its assets in Bulgaria, including CEZ Bulgaria, CEZ Electro Bulgaria, CEZ Distribution Bulgaria, CEZ Trade Bulgaria, CEZ ICT Bulgaria, the Oreshets solar power plant and Bara Group. CEZ Distribution Bulgaria (the country's largest power distributor) supplies electricity to nearly 3 million customers in Western Bulgaria, including the capital. According to parliamentary Energy Committee Chairman Delyan Dobrev, the company services close to half of customers in Bulgaria and owns a third of the electricity distribution network.
The sale is expected to be finalized in the coming days. The buyer is the Pazardjik-based company Inercom Bulgaria, which is only known to own three solar power plants.
Earlier on Tuesday, the Government Information Service said that Borissov had phoned Czech Prime Minister Andrej Babis to ask him to provide Bulgaria with the information that the Czech Government has about the sale of the Bulgarian business of the Czech energy group CEZ. The report of the phone call came amid growing concerns about the transparency of the deal and the future of a strategic asset.
Speaking to Babis on the phone, Borissov reportedly voiced concern over the intention of CEZ, in which the Czech State owns a 63 per cent stake, to sell its Bulgarian assets to a company which is not "market-tested", as the Prime Minister put it. He added that CEZ Bulgaria is part of Bulgaria's national security system and a deal without the requisite level of transparency is a cause for "reasonable concern".
Babis reportedly told Borissov that the CEZ Supervisory Board had informed him that the deal was fully compliant with the law and did not pose a risk to any of the sides. He also said that buyer had been checked regarding its capacity to manage a power distribution company and the source of the money on which the assets would be purchased, and no impediments to finalizing the sale had been established.
Borissov told Babis that he had asked the State Agency for National Security (SANS) and the National Revenue Agency to check the transaction, and had asked assistance from the Financial Supervision Commission and the Energy and Water Regulatory Commission.
Speaking to the press later in the day, Borissov said that the Government had "somewhat overlooked the situation" because the CEZ deal was being negotiated in the Czech Republic between two private companies.
He also said that he had already taken the documents sent by Babis to Parliament's Classified Records Office.
Borissov pointed out that while media reports make it appear as if the deal had been finalized, what the Czech Prime Minister had sent to him showed that the prospective buyer had only obtained a letter of intent from banks which are not legally binding and "which mean nothing", to use his words.
He said that the Government has no mechanism to stop the CEZ deal. The Energy Act will therefore be urgently amended to enable the State to reacquire a 34 per cent stake in the three electricity distribution companies. A 67 per cent participating interest in them was privatized in 2004, and the residual State-owned shareholdings were sold through the stock exchange under the first GERB government.
Borissov reiterated that this action had to be taken because the 33 per cent residual shareholding did not confer any rights on the State. "This stake did entitle us to dividends. Shares that did not give the State any rights and only saddled it with obligations," he specified.
Volen Siderov, leader of the Ataka Party and Co-Chairman of the power-sharing United Patriots coalition, has already suggested an etatization of a 34 per cent interest in the electricity distributors, noting that this is an established practice in other European countries.
The Financial Details
In a story headlined "Banking Shadows over CEZ Business. Two PMs Pushed into Action by Sale in Bulgaria," Czech daily "Lidove Noviny" reported that Inercom's offer for the CEZ business in Bulgaria specified three ways of financing: own funds, bank guarantees, and loan agreements with offshore companies. The story says that Inercom owner Ginka Vurbakova has refused to name the banks involved but "Lidove Noviny" has been able to find out what information about Inercom's funding was available to the CEZ management.
Up to 260 million euro of the price (reportedly 320 million euro) was expected to be provided by two private banks in Bulgaria: UniCredit Bulbank (180 million euro) and First Investment Bank (Fibank) (80 million euro). According to the materials available to CEZ, the State-owned Bulgarian Development Bank (BRB) was supposed to take care of the refinancing of outstanding loans extended to CEZ by the European Bank for Reconstruction and Development. Another substantial portion of up to 187 million euro was expected to come from a company "with a shady origin of assets": Score Trade and Global Victory Trust. Yet another company that is responsible for one of the bank loans concerned is Euro Star OOD, "Lidove Noviny reported".
The CEZ Supervisory Board reportedly had information that Russian Georgian billionaire Paato Gamgoneisvili was behind Score Trade and Euro Star and that he was mentioned in the Offshore Leaks report and in the Paradise Papers on offshore investments.
The BRB and Fibank denied having committed any financing for the CEZ deal. UniCredit Bulbank declined comment.
Borissov approached the central bank's Banking Supervision Department for clarifications about the Bulgarian banks that were allegedly involved in financing the sale and admitted that the strategic energy company "will come under the dubious control of Russian and Georgian businessmen."
President Radev: Sale of CEZ Assets "Cover-up for Actual Buyer"
Bulgarian President Rumen Radev assumes that the controversial sale of CEZ Group's Bulgarian assets is a cover-up for the actual buyer. Radev told reporters that CEZ is part of the national and European critical infrastructure directly linked to national security, and that any claim that this is a trivial sale of a company is a misrepresentation.
Radev said: "The question is who is hiding their intentions and why. How did a company without history, experience, capacity or resources receive a huge bank guarantee, and why are the names of the banks - the most transparent public institutions - kept secret?" He also asked if the company had "political guarantees". "The Government owes answers to all customers who pay electricity bills, i.e. all Bulgarian citizens. We are all waiting for answers," he said.
Asked what he himself can do to cast light on those questions, Radev said he had been meeting with the responsible institutions. He will be meeting with the chair of the Financial Supervision Commission on Tuesday and has already talked with the SANS.
Asked if he is going to call a meeting of the Consultative Council on National Security considering that the deal is directly linked to its ambit, the President said he was still gathering information.
Asked if the State has a mechanism to halt a deal which has given rise to so many questions, Radev said the State had regrettably given up this role in 2012 when it decided to sell its stake in the electricity distribution companies.
Regarding the authority which can intervene, Radev said the matter rests with the Government because all those agencies and services report to it. He said he expected those institutions to protect the public interest and national security by adequate actions. "The mechanism of the deal's financing is unclear yet, whether it is only banks that are involved," he commented.
In recent interviews with Bulgarian media, Ginka Varbakova has declined to disclose the name of the bank which will finance the deal, citing a confidentiality clause.
"The SANS is looking into the matter but it will take time," said Radev. "The big problem is that such checks are not conducted in advance, although the potential future owners have been known for months," he commented. A check after the fact cannot have a great impact on the deal, which has practically been closed. He said the Energy Ministry and the SANS are the institutions responsible for national security by law.
Radev also asked if the checks had not been conducted for lack of competence or of professionalism, or for some other reason.
Energy Regulator Can Do Nothing
Energy and Water Regulatory Commission Chairman Ivan Ivanov told a news conference on Tuesday that the regulator cannot check the sale of the assets to Inercom Bulgaria and that it can pronounce only on the company's licence.
"The deal has not been finalized yet. There is only a preliminary agreement, and if the sale is finalized, the regulator has very clear powers for ex-ante, running and ex-post control of the energy company irrespective of its new owner," said Ivanov.
The regulator can conduct a check in two cases: first, if a self-contained part of a licensed company is sold (which is not the case now) because companies are sold in their entirety; and second, if the buyer pledges, fully or partly, tangible assets used to carry out the company's licensed activity.
Meanwhile, the Interior Ministry said it had not run checks on Vurbakova or her husband.
Energy Minister Might Keep Job, After All
The ruling coalition will decide whether or not to accept the resignation of Energy Minister Temenouzhka Petkova after holding a joint meeting of the parliamentary committees on energy and on special services oversight on March 1, which will look into the CEZ deal. This transpired from remarks by GERB Floor Leader Tsvetan Tsvetanov to the press in Parliament after the government coalition partners GERB and United Patriots met on Tuesday. He said that during the March 1 meeting the members of the two committees will hear representatives of "all institutions vested with powers in respect of the CEZ deal", as well as a representative of the President's Administration.
After this hearing, the ruling coalition will decide, probably as early as next week, whether to appoint a new Energy Minister or keep Petkova.
Tsvetanov said that at its meeting on Tuesday, the Coalition Council did not consider possible successors of Petkova.
Petkova tendered to resign last week after it transpired that she had been a friend of Inercom owner Ginka Vurbakova for 20 years. Petkova said she wanted to dispel any doubt about political interference with the CEZ sale.
President Radev said that "the Energy Minister's prompt resignation did not close the case". "Quite the contrary: it raised more questions," he said.
A Stable Coalition
Taking a reporter's question, Tsvetanov and Deputy Prime Minister Krassimir Karakachanov (United Patriots) said that the ruling coalition was stable.
United Patriots Floor Leader Volen Siderov said he had not stepped back from his call for the resignation of parliamentary Energy Committee Chair Delyan Dobrev, but will first wait for the March 1 meeting of the two parliamentary committees "because it is important to hear out the competent institutions and shed light on all circumstances about the CEZ deal".
Meanwhile, the opposition Socialist Party urged for a reversal of the CEZ deal by all lawful mechanisms. At a news conference in Parliament on Tuesday, Socialist leader Kornelia Ninova said that her parliamentary group had moved for a hearing of Prime Minister Borissov to report his Government's position on this deal and insisted that this hearing should be the first item on the legislature's agenda for Wednesday.
The Socialists also want to set up a parliamentary committee of inquiry into the CEZ deal.
They have urged the Government to buy back the Bulgarian business of CEZ.