ACF Reports to EPPO and CINEA the Latest Questionable Public Procurement for Chiren Underground Gas Storage

The Anti-Corruption Fund Foundation (ACF) has alerted two European Institutions about a suspicious public procurement procedure announced by Bulgarian public company Bulgartransgaz at the end of January. The reports, about the Chiren Underground Gas Storage, were sent to the European Public Prosecutor’s Office (EPPO), which is tasked with investigating financial abuses with European funds, and to the European Climate, Infrastructure and Environment Executive Energy (CINEA) which has provided a significant portion of the project’s funding.

“The ACF has analysed the documentation of the public procurement procedure, detecting several indicators for abuse of public funds including funds provided by the European Union. This is why we are calling on the European institutions to conduct thorough investigations into this case,” said Lora Georgieva, a legal expert with the ACF.

Bulgartransgaz started the new tender procedure almost two months after the ACF first published reports about violations – which would have harmed the public budget with some BGN 400 mln. – in the first public procurement procedure, currently under investigation by the EPPO. The ACF has also revealed extensive political and corporate dependencies of key officials within the public energy company.

As per the new tender procedure, Bulgartransgaz will commission six vertical wells for the Chiren Underground Storage, instead of the needed 13 high flowrate exploitation wells that were originally supposed to be commissioned.

The ACF team alerted the EPPO and CINEA about the following indicators suggesting abuse of public funds:

1. The contract’s estimated value exceeds by 100% the most attractive offer received through market consultations.

The estimated value of BGN 109.5 mln. for six wells was determined following market consultations through which Bulgartransgaz received indicative offers from five companies. PM Lucas Kazakhstan LLP, a large international company with experience in well-drilling (also with the technically more complex horizontal directional drilling technique) submitted an offer of BGN 26.5 mln. for three wells. Some of the companies that participated in the market consultations have no experience in drilling gas wells. Therefore, the logical approach would have been for Bulgartransgaz to base its estimate of the contract value on the indicative offer issued by the company with a proven track record in the field.

Contrary to all logic, the contracting authority decided on an estimated contract value of BGN 54.5 mln. for three wells and BGN 109.5 mln. for six (three + three) wells. Bulgartransgaz has also failed to provide detailed arguments regarding how this inflated estimated contract value was determined.

“Market consultations are carried out to optimize public spending. Therefore, it is only logical that the lowest offer would be taken into account when determining the estimated contract value, possibly considering the inflation index,” said Georgieva. “Instead, in this case, the contracting authority set an estimated contract value that is 100 per cent higher than the most attractive indicative offer.”

2. The public procurement envisages drilling vertical wells, instead of the more effective high flowrate exploitation wells that had been specified in the project concept. This change creates risks for CINEA’s investment, for the successful expansion of the Chiren Underground Gas Storage, and for the facility’s safety.

As per the concept for expansion that Bulgartransgaz itself had adopted, vertical wells are not a suitable solution for the Chiren gas storage facility and their operation could lead to an explosion.

In addition, achieving the targeted capacity of the gas storage facility is impossible when relying on vertical wells. This means that large additional amounts of buffer gas would be needed as compensation, adding at least another BNG 100 mln. ( 50 mln EUR) to the price tag of the project.

The technological change creates risks for CINEA’s investment, the successful expansion of the Chiren Underground Gas Storage, and the facility’s safety.

3. The new public procurement unreasonably fragments the project even further

Instead of the 13 wells planned initially, the new public procurement will only commission the drilling of six wells. This fragmentation will further delay the project, increasing its price tag.

“As a result of the actions of the leadership of Bulgartransgaz, this project of strategic importance for Bulgaria and the EU could be delayed indefinitely, without any guarantees that its initial targets will ever be met and with serious doubts concerning its safety,” said Boyko Stankushev, director of the ACF.

“We call on the European institutions to conduct a thorough investigation and we will keep the public informed about the development of this case,” he said.