ACF Alerts EPPO About Misleading Official Report on Chiren Underground Gas Storage Expansion

The Anti-Corruption Fund Foundation (ACF) has filed a report with the European Public Prosecutor’s Office (EPPO) in connection with an official report concerning the contract between state-owned enterprise Bulgartransgaz and the private company Glavbolgarstroy for the expansion of the Chiren Underground Gas Storage. Issued by the Public Financial Inspection Agency (PFIA) on 1 September this year, the report contains false and misleading information on key issues related to suspicions of abuse amounting to hundreds of millions of levs.

On 25 March this year, Bulgartransgaz’ executive director Vladimir Malinov was summoned by the EPPO so he could be served a warrant as a defendant in the case. Malinov, however, failed to appear in front of prosecutors. The PFIA report shows that the EPPO seems to be going backwards in the investigation by assigning a report to the auditing agency.

The EPPO launched its investigation after a tip-off from Velko Peev, the internal auditor of Bulgartransgaz, about suspected abuses amounting to some BGN 400 mln. Among the most serious suspected violations is the decision, approved by the public company’s management, to change the drilling technology — from initially envisaged horizontal directional wells to the cheaper vertical wells.

In the report, PFIA claims that the contracting authority had not specified the drilling technology in the contract, leaving this decision to the contractor. “This is not true. Point 8.1.2 of the technical specifications clearly states that what has been assigned is the construction of high-flow-rate horizontal wells. This is evident both from the tender budget and numerous other texts in the tender documentation,” says Denitsa Rukanova, legal advisor at ACF.

Rukanova stressed that the chosen drilling technology is the result of decades of prior research and analysis at Bulgartransgaz. The decision to replace the high-flow-rate horizontal wells with vertical ones is one of the main grounds for suspecting abuse, since this decision cuts the contractor’s costs by about 30 to 40 per cent but does not yield corrections to the agreed contract value.

The tender documentation clearly states that the contractor can only specify the location and angle of the wells, not choose their type. However, in its report, PFIA refers to point 8.5.3 of the technical assignment, which concerns determining the precise location and route of the wells, but does not introduce the possibility of drilling vertical wells. ACF maintains that such an interpretation is misleading and distorts the subject of the contract.

The report fully accepts the argument put forward by Vladimir Malinov that the type of wells had not been specified in the contract and could be changed. The ACF maintains that the technical specifications constitute an integral part of the contract and contain clear instructions to construct ten vertically inclined production wells and three vertical observation wells.

PFIA also accepts the argument of Bulgartransgaz’s management that no damage to the public budget has been caused since the contractor returned the BGN 79 mln. advance payment they had received. What the inspection agency has failed to mention, however, is that, for two and a half years, the contractor used the funds interest-free. Also not mentioned is the fact that citizens and businesses were deprived of access to more affordable gas, something which would have been possible had the expansion been completed on time.

Another issue that PFIA has ignored is the penalty for non-completion of the project, worth at least BGN 26 mln, as well as compensation for the actual damages, which substantially exceed this amount. According to PFIA, terminating the contract by mutual agreement, on the grounds that EPPO had launched an investigation, was in line with the law because the advances had been returned. However, as shown by ACF’s investigation of the case, the awarded contractor, Glavbolgarstroy, had been facing significant delays and would have been unable to meet the contractual deadline even before the start of the EPPO’s investigation. Three months before the deadline, less than one per cent of all contracted work had been completed.

“There is ample evidence to suggest that the EPPO’s investigation was used as a pretext to conceal the delays that had already accumulated in this project. Velko Peev had reported the delays to Vladimir Malinov back in September 2023. This raises the question of why the management of Bulgartransgaz agreed to terminate the contract by mutual consent, thereby depriving the state of the opportunity to seek damages and compensation amounting to billions,” said Rukanova.

The ACF disputes PFIA’s conclusion that the state did not incur losses in the attempt to expand the capacity of the Chiren Underground Gas Storage. Almost a year after the planned completion of construction, not a single well has been drilled. The subsequent public tender to award the works has also failed after all candidates were disqualified.

“The project has stalled, European funding of EUR 78 mln is at risk, while the state, businesses, and citizens cannot benefit from more affordable and secure gas deliveries. These are damages that can be measured in the billions,” said Rukanova.

ACF is deeply concerned by the misrepresentation of the facts in PFIA’s report, especially since this is the second time that the agency is turning a blind eye to violations related to the Chiren expansion project. It should be noted, however, that PFIA’s conclusions are not binding for European prosecutors.

“We expect the EPPO to assess whether there has been any wrongdoing on the part of the management of Bulgartransgaz, including executive directors Vladimir Malinov and Kiril Ravnachki. We filed our report in a bid to ensure that the public interest is protected,” said Boyko Stankushev, director of the ACF.

ACF will inform the public about the institutional reaction to its report and will continue to monitor the actions of the concerned Bulgarian and European institutions.

For more information, see ACF’s investigations:

Chiren: Tenders with Convenient Incline and

Chiren: It Runs in the Family