Czech Senator Wagenknecht and ACF: The prosecution ignores the suspicions of considerable abuses in the sale of Varna TPP

Czech Parliament Senator Lukáš Wagenknecht and the Anti-Corruption Fund (ACF) today filed a complaint against the refusal of the Sofia City Prosecutor’s Office (SCPO) to investigate the suspicious sale of TPP Varna Ltd to a company controlled by Honorary Chairman of the Movement for Rights and Freedoms Party Mr. Ahmed Dogan. In its decree, made public at the end of 2020, the Prosecutor’s Office stated that there was “no evidence of illegal actions/inactions by officials in the course of their duties. On the contrary, their duties were performed in good faith and strictly following the legal requirements.”

“Our report sets out specific facts that require verifying the possibility of a deliberate conclusion of an unfavorable transaction causing significant damage to the economy and the Bulgarian State’s fisk. It is necessary to verify whether serious tax liabilities have been avoided and whether money laundering has occurred. The prosecutor’s order reveals that the Prosecutor’s Office did not carry out any procedural and investigative actions or collected evidence to refute suspicions of possible wrongdoing. Its conclusions were solely based on the opinions of TPP Varna Ltd itself and the institutions that should have exercised control over it,” the ACF said in its complaint.

Already in November 2019, The ACF and Eng. Wagenknecht filed a report about questionable circumstances surrounding the state-owned Czech company CEZ’s sale of TPP Varna Ltd to Sigda Ltd at the end of 2017.

Sigda, a company without any previous experience in the energy sector, was owned by the children of Mr. Danail Papazov, minister in the Mr. Plamen Oresharski government. CEZ invested at least EUR 306 million in the powerplant and sold it at a loss for EUR 48 million, with EUR 20 million in cash and an adjacent port of strategic importance – “Port TPP Ezerovo.” The official reason for the suspiciously low sale price was the poor technical condition of the powerplant and its inability to operate and make a profit while complying with environmental standards.

Four days after the transaction on 20 December 2017, the new owner “Sigda” Ltd revalued the plant’s assets at BGN 275 million. As a result, as of 31 December 2017, the TPP already had a profit of BGN 60 million, 30 million of which were distributed as a dividend on account of the cash received from CEZ. Less than a year and a half after the sale, only the real estate owned by TPP Varna, including the land plots of the port, were valued by an independent appraiser at EUR 32 million as an in-kind contribution to a newly established subsidiary of TPP Varna EAD – Port TPP Ezerovo EAD.

Three months after the sale, TPP Varna, as if by magic, solved the environmental problems that were at the heart of its shutdown and sale. According to its management, it now had one of the best environmental performance among power plants in Bulgaria. Instantly after the change of ownership, port operations were also initiated. In August 2018, Port TPP Ezerovo was already a licensed and operational port.

Months after the sale, the company “Sigda” Ltd, linked to the former transport minister and long-time head of Port Varna Danail Papazov, was acquired by the honorary chairman of the Movement for Rights and Freedoms Party, Mr. Ahmed Dogan. On 7 August 2018, Mr. Ahmed Dogan acquired 70 % of the capital of “Sigda” Ltd. at an unknown price. Shortly after that, the thermal power plant began receiving millions of leva from the Bulgarian State to serve as a “cold reserve” of the Bulgarian energy sector. In 2018 alone, the TPP received at least BGN 28 million without even working. Amid the anti-corruption protests of the summer of 2020, Prime Minister Borissov with a personal order discontinued the payments to TPP Varna and Mr. Hristo Kovachki-linked TPPs Bobov Dol, Brickel, and Toplofikatsia Ruse for their serving as “cold reserve.”. Less than six months later, the cold reserve payments to the TPPs of Dogan and Kovatchky were resumed under a new name: “availability of reserves for primary frequency regulation, automatic secondary regulation and manual secondary regulation of frequency and exchange capacities.”

Despite receiving millions from the Bulgarian State since 2018 to ensure the country’s energy security, there is no evidence that the TPP is actually working – videos by ACF and Czech Public Television show a ghostly reality.

At the end of January 2021, The Supreme Prosecutor’s Office of the Czech Republic launched an investigation into the deal’s circumstances. It examined the evidence of possible losses amounting to EUR 323 million suffered by the state-owned CEZ.

Unlike its Czech counterpart, the Sofia City Prosecutor’s Office refused to open an investigation. Despite the facts set out in the ACF and Senator Wagenknecht’s report, according to it, there is not even a suspicion of wrongdoing.

The Prosecutor’s Office draws its conclusions solely based on the answers to its inquiries addressed to TPP Varna EAD, the Energy and Water Regulatory Commission (EWRC), the Ministry of Environment and Water (MEW), and the Electricity System Operator (ESO). Similarly, the Prosecutor’s Office concluded there was no evidence of money laundering only because the State Agency for National Security (SANS) had not found evidence of transfers between related parties in the acquisition of TPP Varna Ltd. However, several months later, Mr. Ahmed Dogan acquired 70 % of SIGDA Ltd with subsequent transactions. SANS did not carry out any checks on them even though the persons involved in these transactions were undoubtedly related.

Mr. Danail Papazov’s public statements from the end of June 2019, that 70 % of the shares of “SIGDA” Ltd. were sold to Mr. Ahmed Dogan for BGN 1.4 – 1.5 million, are not verified either. It is not clear why 70% of a company worth over BGN 275 million would be sold for BGN 1.5 million? It is also unclear whether Mr. Ahmed Dogan has declared the income that allowed him to acquire the majority share of “Sigda” Ltd, the origin of these funds, and whether all due taxes have been paid?

Apart from the collected opinions of institutions, the Prosecutor’s Office has not carried out any procedural and investigative actions and has not collected any evidence to refute the suspicions of possible violations.

“The practical neglect of the report’s evidence testifies to the unwillingness or inability of the Bulgarian Prosecutor’s Office to investigate cases of suspected serious wrongdoings related to possible tax evasion and money laundering. What is more, these cases involve prominent political figures such as Mr. Ahmed Dogan, Mr. Danail Papazov and their close relatives, as well as companies owned by them,” the complaint by the ACF and Senator Wagenknecht reads.

The prosecutor’s refusal to investigate the circumstances surrounding the sale of TPP Varna is yet another example of the absence of an institutional response to the case in Bulgaria. Already in June 2019, the ACF alerted the National Revenue Agency about suspicions of tax evasion in the transaction, as well as the Minister of Energy, the Energy and Water Regulatory Commission, and the State Agency for National Security due to evidence of significant malfunctions at TPP Varna and the existence of a threat to the country’s energy security. All institutions found that there were no problems in the sale and operation of TPP Varna. The Minister of Energy refused to answer the ACF’s reports and questions. (https://acf.bg/bg/cheshki-senator-signalizira-prokuratu/)

Before the Sofia City Appellate Prosecutor’s Office, we insist on conducting all relevant investigations and appropriate checks on the income and taxes of the individuals and legal entities involved in the transactions.

We also continue to demand answers to the following questions:

– Given the almost instantaneous start of TPP Varna and the reporting of profits by TPP Varna Ltd., was there a deliberate reduction in the value of the Varna Power Plant by CEZ Group’s top management in cooperation with Bulgarian politicians, or was there concealment of the price actually paid, harming the interests of the Czech Republic as the majority owner of CEZ Group?

– Were the interests of the Bulgarian State also harmed by the same actions if these actions were aimed at avoiding payment of various taxes (profit tax, for instance) or concealment of income and therefore avoiding payment of income tax?

– What is TPP Varna’s technical condition and operational capability at the date of sale and at present, and is the plant capable of ensuring the country’s energy security?