The Anti-Corruption Fund Foundation (ACF) has submitted reports about Varna TPP, calling for thorough investigations into decisions to award multi-million lev cold reserve contracts to the power plant, which is owned by Dr. Ahmed Dogan, the honorary chairman of the Movement for Rights and Freedoms (MRF).
Dr. Dogan was previously longtime acting chairman of the party, which is represented in the Bulgarian parliament, as well as the European Parliament as part of the Alliance of Liberals and Democrats for Europe (ALDE).
ACF has filed reports with the State Agency for National Security, the Ministry of Energy, and the Energy and Water Regulatory Commission (EWRC) and calls on them to investigate how and why the cold reserve contracts were awarded to a facility with questionable operational capacity, a fact which could threaten Bulgaria’s energy security and, subsequently, the country’s national security.
A report was also filed to the National Revenue Agency, citing suspicions of tax evasion, related to the deals through which Dr. Dogan acquired a 70 per cent stake in Varna TPP, until recently the second biggest facility of its kind in Bulgaria.
“The in-depth analysis of the history of Varna TPP – from its privatization in 2006, to 2017 when it was bought by a Varna-based company with no experience in the energy sector, to August 2018 when Dr. Dogan acquired a majority stake in the company – raises a number of pressing questions about the ability of Bulgarian institutions to defend the public interest in cases where significant material interest of influential figures are involved,” said Boyko Stankushev, director of ACF.
“We summarized some of these suspicious facts and questions into the four reports we filed with the relevant institutions. We call for a detailed investigation into the case.”
In addition, in a bid to inform the public, ACF has published online a video, outlining the most interesting aspects of the case. The video can be viewed here:
Cold reserve contracts are allocated by the Electricity System Operator (ESO). These contracts guarantee the availability of capacity only activated at times of peak electricity demand.
In February 2018, the high-level management of ESO was replaced without clear explanation. The new management announced a tender for 570 MW of cold reserve capacity – a record amount – for the summer of 2018. In comparison, winter-time cold reserve capacity is usually 700 MW. Following a sudden decision by the state-owned Maritza Iztok – 2 TPP to give up a cold reserve contract it had already won, ESO chose Varna TPP as the replacement. As a result of this and subsequent tenders, in 2018, the power plant was paid BGN 2.8 mln. for the period May – June and another BGN 24.9 mln. for the period August – October, just to guarantee the cold reserve capacity. Additional unknown sums were paid for the periods when the cold reserve capacity had been activated.
The following facts raise suspicions whether Varna TPP can operate without glitches and in line with its contracts with ESO:
1. On 5 September 2017, the Energy and Water Regulatory Commission allowed the decommissioning of blocks 1, 2, and 3 of Varna TPP. At present, the power plant is only licensed to generate electricity via the remaining three blocks.
2. Only for block 6 public information exists that it has passed all necessary testing and can function safely as cold reserve capacity.When asked by media whether it had carried out any on-the-spot tests to check the power plant’s operational suitability before awarding the cold reserve contract, ESO replied that it had not performed such tests as it was not legally obliged to do so.
3. In early 2019, Varna TPP initiated a public procurement procedure for repair services for block 6. As mentioned in the tender documents, the repair works were extremely urgent because of significant damage to parts of the boiler system, which had already forced the system to stop on three occasions. The power plant’s management admitted in the tender documents that the above-mentioned facts pointed to poor operational suitability and possible risk of repeated failure of the boiler system in future. According to the management, Varna TPP was unable to meet its contractual obligations for the provision of cold reserve capacity. Subsequently, the power plant’s management postponed the repair works for 2020 on economic grounds.
It is still unclear how Varna TPP plans to meet the requirements of its cold reserve contract for the period ending 31 July 2019, considering that the only block which could have made this happen is – as the management themselves qualify it – “impossible to operate”. It is also unclear how the plant will meet the licensing requirement for safety and environmental standards.
At the end of June 2019, a new tender to allocate cold reserve capacity for the following one year is pending. Considering that ESO does not carry out any pretesting and that the urgent repair works of block 6 of Varna TPP have been postponed for 2020, the risk for Bulgaria’s energy security, if the power plant wins a new contract, is even more significant.
ACF carried a risk assessment of the purchase of Varna TPP by Sigda Ltd, controlled by Danail Papazov, a former minister of transport, who had been suggested for the post by MRF, and his son and daughter. Risk assessment was also carried out with regards to Dr. Dogan’s acquisition of a majority stake in Sigda on 8 August 2018, as well as the decision by Varna TPP a month later to acquire Delta Epsilon, the owner of a luxurious Sofia property where Dr. Dogan is known to be residing.
We suspect that the above-mentioned deals represent related party transactions. The public has the right to know the real transaction values of the deals, considering the serious suspicions regarding fictitious deals, which serve to legitimize assets already belonging to Dr. Dogan.
- ACF calls on all relevant institutions in the energy sector to fulfill their obligations under the Energy Act and to investigate all questions regarding the operational suitability of Varna TPP and its ability to meet licensing requirements. In case any violations are found, the relevant administrative measures should be taken.
- We call on the State Agency for National Security to investigate all aspects of the case and to guarantee that there is no risk for the environment and for energy security, which is a significant element of Bulgaria’s national security.
We urge the National Revenue Agency to check whether Dr. Dogan relied on any related party transactions to acquire Varna TPP. The real transaction values and the origin of the funds should be thoroughly investigated, in addition to an audit ensuring that all parties have paid the lawful amounts of taxes.