THE BIGGEST SOLAR PARK IN SOUTH-EASTERN EUROPE UNFULFILLED
PAZARDZHIK DOES NOT DEMAND 1 MILLION EURO PENALTY FOR BREACH OF CONTRACT
SPECIALIZED PROSECUTOR’S OFFICE NOTIFIED
The Pazardzhik local authorities are not demanding 1 million Euro penalty for the violation of their contract with Ginka Varbakova’s “Rial Steyts” LLC
The Prosecutor’s Office has been notified by the “Anti-Corruption Fund” /ACF/ that the local authorities do not take sufficient care of the management of the municipal property in Pazardzhik. The fund’s analysis of the “Rial Steyts” LLC case reveals that the company has failed to carry out its obligation pursuant to its contract with Pazardzhik Мunicipality, namely to build a 50 MW solar park in the vicinity of Apriltsi, Elshitsa, and Sbor villages. According to the contract, the company should have put the capacities into operation within 32 months after the issuance of the construction permit. In practice, this should have happened by the beginning of 2013.
The Business Register indicates that the company has not also made the greater part of the agreed investment amounting to 400,000,000 BGN. However, so far Pazardzhik Мunicipality has failed to demand its due penalty amounting to 1 million Euro.
Based on an analysis of media publications and replies to inquiries made pursuant to the Law on the Access to Public Information, the ACF team recovered the following chronology.
In exchange of 500,000 BGN and a competition, Pazardzhik Мunicipality sold “Rial Steyts” LLC approximately 2,000 decares with timber, whose estimated value is close to the one of the deal for it, with clearly specified conditions and penalty in case of a breach of contract.
The contract was signed on 4 July 2008 and, as per its clauses, when the land’s status is changed, the investor has to build “a solar park“ within the property, including photoelectric modules, monitoring systems, and inverters produced by leading world manufacturers. It has been agreed that the photovoltaic power station will have 50 MW nominal power installation. It has to be constructed within 32 months from the date of the issuance of a construction permit. The ACF team claims that any other interpretation of the contract would be a form of evading the law, and a confirmation of a familiar vicious model of interpreting the engagement “implementation deadline with respect to yet another construction permit”.
The agreed investment, which has to be made by “Rial Steyts” LLC, excluding the expenses with regard to the change of the purpose of the land and the designing, has to be at least 400 million BGN. Furthermore, the company undertook to open and maintain (for at least 2 years) at least 52 job positions for workers with a permanent address in Pazardzhik Мunicipality. The selling party has the right to break the deal and keep the money already paid to it, in case the buyer does not commence the construction of the power station at all. It has been explicitly stipulated that, if the buyer has not fully implemented the agreed photovoltaic capacities in time, or he has failed to fulfill any other clause of the contract, he owes a penalty amounting to 1 (one) million Euro.
Deadlines, stages, just 2.45 MW implemented. Licence revoked.
According to the deadline schedule (presented before the Energy and Water State Regulatory Commission, Bulgarian abbreviation: DKEVR, or just KEVR) for the construction of the project, the “Apriltsi” photovoltaic power station has to be implemented in 2 stages. The first stage envisaged the construction of a linking substation and 40 MW photovoltaic panels, which had to be put into operation by the end of December 2012. The second stage envisaged the construction of more 20 MW photovoltaic panels, which had to be put into operation by the end of December 2014. However, this did not take place. Just the other way round.
The construction permit was issued on 16 April 2010. The first stage of the construction and the launching of the photovoltaic power station with a total capacity of 1.15 MW was completed in February 2011. On 22 June 2012 a power station with a capacity of 1.3 MW was put into operation. The “Prospects and Development” item of the Report on the Activity of “Rial Steyts” LLC (part of the Annual Financial Report for 2016) clarified that the installation of the next capacity of 20 MW was being envisaged. According to the report, “construction activities can be started after funding is provided for the project”. On 28 December 2015, however, “Rial Steyts” LLC filed a petition before KEVR for a termination of the licence. It was motivated with the 2015 legislative change, based on which the production of “green energy” becomes a far less profitable business. KEVR revoked the company’s licence via its 11 May 2016 resolution.
Parameters of the breach of contract. Sales regardless of the obligation of “Rial Steyts” to keep the property from expropriation.
So far 2 photovoltaic power stations with a total installed capacity of 2.45 MW, instead of the promised 50 MW, have been built in the “Apriltsi” solar park. Currently there are no construction activities related to the building of other capacities. The 2012 annual report for the company’s activity reveals that the personnel for 2011 consisted of 3 people, and for 2012 – of 2 people. This leads us to the ascertainment of the company’s failure to fulfill its engagement to open 52 job positions during the first 2 years of the functioning of the power station.
Furthermore, on 16 January 2018 “Rial Steyts” LLC sold 2 of the real estates (which had been transferred to it by Pazardzhik Мunicipality) with a total surface of 459.751 decares, despite its obligation to keep the property from expropriation until the park is launched. The deal amounts to 977,915 BGN.
The local authorities do not see any problem, or breach of contract. Possible losses incurred upon the municipal budget.
In relation to the above stated facts and the suspected failure to fulfill its obligations on the contract on behalf of “Rial Steyts” LLC, we addressed an inquiry to the Mayor of Pazardzhik Мunicipality, pursuant to the Law on the Access to Public Information. Thus the mayor Todor Popov informed us that there had not been any arguments between Pazardzhik Мunicipality and “Rial Steyts” LLC with regard to the implementation of the contract, there had been no agreements signed between Pazardzhik Мunicipality and “Rial Steyts” LLC, no actions have been taken towards demanding a penalty on the same contract, and the contract had not been terminated. In Popov’s words, there is no breach of contract on behalf of “Rial Steyts” LLC. The mayor announced that “due to the fact that the obligation for building “a solar park” had been fulfilled in time, inspections were neither carried out, nor commissioned”. It is unclear why Pazardzhik Мunicipality has not inspected a site, which must be the largest-scale investment in the district, with the ambition of turning into the biggest solar park in South-Eastern Europe. As we have already pointed out, the installed nominal capacity is 2.45 MW, or over 20 times smaller than the contract obligation. It remains vague why Pazardzhik Мunicipality considers the obligation for building “a solar park” with 50 MW capacity has been implemented within the stipulated term. It is obvious that “Rial Steyts” LLC has not made the agreed investments amounting to 400 million BGN and 52 job positions have not been opened for at least 2 years. The annual financial reports and the annual reports on the activity of “Rial Steyts” LLC (accessible on the website of the Business Register) reveal that none of the obligations with regard to the contract with Pazardzhik Мunicipality has been fulfilled. Considering the lack of inspection, Popov’s grounds for claiming there is no breach of contract on behalf of “Rial Steyts” LLC remain unclear.
The ACF team claims that the competent municipal officials have not taken sufficient care of the management of the municipal property in Pazardzhik. The penalty, which “Rial Steyts” LLC would owe if it was proved that the contract had been violated (which, in our assessment, is a fact), would amount to 1 million Euro. Due to the lack of action on behalf of competent municipal officials, the smallest losses that may be incurred upon the municipal budget are equal to the penalty that has not been demanded.