Interview with Deputy Prime Minister Grozdan Karadzhov for “Capital,” conducted by Ivaylo Stanchev.
– You are the chairman of the Coordination Council for Concessions in the government. What are your plans in this regard?
– At a time when the state does not have large funds for infrastructure projects, alternative ways of financing should be sought so that the cherished Bulgarian projects can be built. There is a lot of infrastructure that needs to be built, but the one that is critical and for which there are actually no funds is the links between Northern and Southern Bulgaria. At least three places need to be connected with tunnels both for railway and road transport. The Black Sea Highway has been waiting for decades because there is no money for it. The same is true for the highway from the border with North Macedonia through Dupnitsa (connection with Struma Highway), Samokov and from there towards Trakia Highway. We didn't have a tunnel in the central Balkan Mountains, nor to the west in the Sofia Region. That is why in such moments people turn to public-private partnership (PPP), which is regulated in the Concessions Act. And here I want to clarify that a party membership to the Concessions Act should not be confused with concessions for mineral water, for useful minerals, for beaches, etc., which are regulated through special laws. The terms coincide, but in essence, the instrument under the PPP has nothing to do with these procedures. This is a widely used instrument in European countries, through which private funds are used in the development and management of state and municipal infrastructure. And I want to dispel any myths about how harmful these public-private partnerships have been. Sofia Airport, Varna and Burgas, the ports, some of the Danube ports – all of them are given for concession, operate and work wonderfully. They do not cost the state a penny, we do not invest in them, on the contrary – every year they bring income to the budget, as we receive concession fees. And that’s not all – with these contracts, the Bulgarian public infrastructure is renewed, which otherwise remains the property of the citizens and becomes the property of the state. Let me give a few examples: Sofia Airport – for 20 years the state management has paid 660 million BGN for maintenance, i.e., almost 4.5 million euros per year, and the concessionaire, as an upfront payment, contributed almost 660 million BGN, which is 9.4 million euros annually for a period of 35 years. Port of Burgas, for the period 2002-2012, i.e., for a loss of over 20 million BGN, they have not contributed a penny to the state budget. The upfront payment by the concessionaire was 400 thousand euros, and for 12 years the state has paid 30.6 million euros to the budget, or 2.5 million euros annually. Varna and Burgas Airports: for the last 10 years before the concession, 12 million euros were paid to the budget, which is 1.2 million euros annually. The upfront payment by the concessionaire is 3 million euros, and for 19 years, PPPs have already received 204 million euros, or nearly 11 million euros annually. This is almost 10 times more revenue for the budget! Let's also look at the investment activity in the state for the last years before the concessions: at Sofia Airport, for 20 years, 244.5 million euros were invested, or 12.5 million euros per year, and the concessionaire, for a period of 35 years, will invest 624 million euros, excluding VAT, which is 17.7 million euros per year. And that’s not all. The concessionaire pays the state and a minimum of 24.5 million euros annually, or 35% of its revenues, if this amount is higher. And more: soon, a third terminal will begin construction at Sofia Airport, which will cost nearly 250 million euros. The state will not give a single penny for it, as it will become state property.
Port of Burgas: for 10 years the state invested 28.6 million euros, or 2.8 million euros annually, and for 12 years the concessionaire invested 314.2 million euros, or 26.2 million euros per year. Over 10 times more investment! These figures clearly show the benefit for Bulgarian citizens from PPPs both in terms of cash payments, and in terms of increased investment activity, and from it the opening of new, well-paid jobs and generally higher wages.
In other words, the benefit of the concession is that it leads to a much better and much more profitable management of state property. It completely fulfills the state’s goals with its own funds. Instead of the state having to look for officials who often have an indirect desire for personal gain by increasing capital expenditures, which are profitable, and instead of striving for small profits, if any.
– Then why did “concession” become a dirty word and why does it always evoke suspicion, something that is not in line with party interests? Here, even with Sofia Airport there were such suspicions.
–Because it is confused with the concession for minerals, water, etc., where extracted minerals and etc. are sold. In PPP, good infrastructure improvements remain for Bulgarian citizens. Clearly, as a result of PPP, the staff is optimized to a certain extent, which often negatively affects public opinion due to the necessary reductions. And last but not least, every opposition tries to explain how a concession is bad, for example, on Sofia Airports or the airports in Varna and Burgas, which is not true. Airports are renovated, modern, and well-functioning. To put it plainly, when we get acquainted with the facts, the numbers must be confronted, which are eloquent in themselves. The Bulgarian public has benefited from the airport and port concessions.
Our clear understanding is that without a PPP, the state will hardly build a large infrastructure anytime soon. The same is true of the Ruse-Veliko Tarnovo tunnel, a part of the Petrohan pass in the Republic. You see how many years we have been talking about the Veliko Tarnovo-Ruse tunnel, projects are now being prepared and the first construction activities will begin. We are not even talking about its extensions to the Trakia and Maritsa highways yet. It is clear to everyone that things happen slowly and at the same time are beyond the state's budgetary means. Concessions can also be granted for separate sections of highways or railway lines, or for their maintenance in certain regions. Because the natural state of the state is to be a bad manager, and a good regulator. And these examples prove it. This is the way: the state should focus its budgetary resources on activities that are not of interest to private investors – education, healthcare, security. And where there is an opportunity for the private sector to invest, it should be allowed, because it is much more efficient and flexible. We cannot expect the state to be a good manager of commercial enterprises.
– Politicians must be ready to give up public procurement for repairs?
– The current government, unlike the previous ones, is not ready to give up these functions so lightly. I am very positively surprised by the attitude with which the government and the Prime Minister personally met my report on concessions, which was unexpectedly at an operational meeting about a month ago. It plans for the government to make public-private partnership its highest policy priority in all possible areas where this could happen. Here, I give examples with railways and roads, but the same can be done with social services, with some sites that are of cultural value and can be developed as tourist attractions, or the services around them can be operated by private companies.
We have asked each minister to propose sites or activities from their portfolio to be included in the government’s PPP program.
In my area, I expect to see the Mezdra-Stolnik and Troyan-Hadzhi Dimovo railway tunnels, the rehabilitation of the railway line from Sofia to Greece and the second route from Plovdiv to Svilengrad. I would be happy to see them implemented by large funds and private operators who would build them quickly and then operate them while keeping the infrastructure fees for their use.
There should also be co-payment from the state where necessary. When the concessionaire makes huge investments, as an example, several billion, they cannot be recovered from the infrastructure fee alone. Therefore, the state has to add some, but it will add it over 35 years, instead of providing billions now and all at once. It will also not take care of maintenance.
By the way, the idea for the tunnel under Petrohan dates back to 1974. We haven’t found the funds to realize it for 50 years. And there are private funds, funds that are not only interested in big and quick profits. On the contrary, a part of their financial sums is always set aside for the foundation, they are looking for exactly such infrastructure projects where the profit is low, but there is 100% security. Security comes from the fact that there will always be a flow of people and of goods, so there will always be a payment around this infrastructure.
– That way we should have much faster and better quality construction.
– If I'm going to manage something for the next 35-50 years, I'm going to do it the best way I can, because otherwise I'll have to repair it later. My payments will depend on how I maintain it.
Furthermore, if you look at the economic activity in the country, 75% of it is structured around the Trakia highway. If we build the Hemus highway, the road to Vidin, if we open Veliko Tarnovo-Ruse, we will economically revitalize huge areas around these highways. Tax revenues will increase because there will be more cargo and more passengers. That is, the state will liven up significantly, I emphasize, without having given a single stotinka. We can construct seven sites at the same time.
Without affecting the deficit! Without affecting inflation! Nothing from the budget of Bulgaria will be spent.
– Is there a realistic possibility before 2030, something to happen in this direction? Or will the state try to coordinate this process?
– First, as I said, the coordination council for concessions, of which I am the chairman. Second, these sites, which are prepared for concession. Following the two separate procedures from the ministries, which will offer three sites each, we will involve serious international financial companies and consultants who would be engaged in the construction and their subsequent operation and putting into operation for 35-50 years, as the law allows. This will also be the official start of the government’s policy on public-private partnership. Hence, it is clear that the interest is exclusively financial. There are huge state infrastructure funds, which are currently sleeping and looking for similar projects. There may be bridges, tunnels, highways, railway lines, intermodal terminals, energy sites. Their goal is to secure an exit from Rhodope to Haskovo to the state border – Greece. But this new route must be built by someone. It is not enough to call for someone to build it, it must be connected with PHES, and this buffer must be for ESO and bring benefits to the operator, for the investment to be returned. There are many, many sites that have turned into either national dreams, or, in the regional sense, some people have been waiting for decades for dilapidated roads to be repaired, others – for railways, third – for highways. If we continue to wait, while those who coordinate these things are only thinking and not daring to do it, because they are only waiting for EU funds to be available. The Recovery and Resilience Plan is a very serious tool, but we cannot rely solely on it.
– What is the biggest risk that could happen?
– The biggest risk is to mislead public opinion regarding the countermeasure as a tool, but here I see absolute will and conviction on the part of each of the cabinet members, who are ready to come in to explain, especially to add objects to the concession plan.
The concession procedure itself is extremely transparent, as it is written in the law and in the European directive. There is nothing to hide here. Every concession is awarded through a competitive procedure, at each stage of which there is full transparency, publicity and clarity regarding the criteria required for users, which the service or construction, as the subject of the concession, should meet and with regard to all actions in the procedure for implementing the concession. The principles of proportionality, equality and non-discrimination are observed in the selection of a concessionaire. The state clearly states its goals. If it wants to have a highway, it clearly describes the criteria. If it sets a goal of better service at a given airport, it clearly writes down what it wants from the concessionaire. For large concessions, economic, legal, social and environmental analysis will be required. The World Bank, EBRD, EIB are consultants – they will participate and assist in the process of selecting a concessionaire.
– As far as I know, you are currently working with IFC on Port Varna.
– Yes, at the moment we have assigned IFC to conduct legal analyses of the developments at Port Varna. And the analysis is ready, we are discussing with trade unions, with employees, with operators of market-based activities, with transport firms and Varna-East and Varna-West, which will be offered for concession and a clear expression of the exact policy of the government towards public-private partnership. This is something where the state has no chance of losing. Naturally, it is often and honestly stated upfront what they want, and what conditions for the concession and the concessionaire must be accepted. From then on, the state has no chance of losing. So, with the airports of Sofia, Burgas and Varna, with Port Burgas. Port Burgas specifically is our biggest success at the moment at sea.
– But there are also criticisms that it was given to the Domuschievi brothers and the state does not receive enough.
– The important thing is what is the benefit for Bulgarian citizens and not to whom it is given! It is interesting how the state chooses the best option. As we ourselves do not have the capacity to develop it and honestly, I do not believe that state management knows what skilled personnel are needed, let alone real professionals. And instead of the state board, which is to be supported by external consultants, spending equal amounts on capital expenditures, receiving minimal dividends, etc., the site can be developed and the state can receive guaranteed concession fees.