Bulgarian prosecutors' investigations likely to maintain risks of operational disruption and contract alteration; prosecution transparency modestly enhanced

Ahead of Bulgaria's early parliamentary election on 26 March, Tsatsarov met with Sasho Donchev, director of private gas company Overgas and the head of the Bulgarian Industrial Association, and with Georgi Gergov, a businessman and member of the Executive Bureau of the Bulgarian Socialist Party (BSP). The meeting, which was revealed by Donchev and confirmed by Tsatsarov, took place in Gergov's office in the capital, Sofia.

Mutual allegations

According to Donchev, who was filmed during a business lunch in Sofia, Tsatsarov pressured him and allegedly warned him that his "conduct had become unacceptable". According to Donchev's interpretation and subsequent reconfirmation of his allegation in an interview with television channel BIT, Tsatsarov was referring to the businessman's ownership of the daily newspaper Sega and alleged links to the newly established anti-corruption party of former justice minister Hristo Ivanov. On 20 April, in an official press release by the prosecution, Tsatsarov dismissed Donchev's allegations, arguing that Donchev had tried to influence prosecutors' review of the activities of the state energy regulator, Energy and Water Regulatory Commission (KEVR). Donchev denies this claim.

Investigations concerning the natural gas market

On 24 April, the prosecutor's office announced that the Sofia city anti-corruption prosecution unit had launched an investigation into suspected mismanagement by officials at KEVR. This follows initial investigation of a tip-off received by Tsatsarov in January. The investigation seeks to ascertain if KEVR's members have performed their duties properly in relation to their responsibility to supervise natural gas distributors. Prosecutors will look into KEVR's delayed response to a complaint filed by Overgas to KEVR in 2011, alleging that state-owned gas supply company Bulgartrasgas had denied Overgas access to the natural gas transmission network. In July 2013, the European Commission initiated an infringement procedure against state-owned Bulgarian Energy Holding and its subsidiaries Bulgargaz and gas infrastructure provider Bulgartransgaz over alleged abuse of their dominant position. According to prosecutors, the infringement procedure, which is still pending, could lead to financial damages being levied against the Bulgarian state. As part of the investigation, Bulgarian prosecutors are also assessing whether any abuses were committed by KEVR in the latest revision of natural gas, heating, and water prices in Sofia, which generated price increases for consumers of around 30%. Overgas, which is 50% owned by Russian energy giant Gazprom, provides around 10% of Bulgaria's gas.

Reactions

Protest in front of the Energy and Water Regulatory Commission in Sofia on 4 April 2017 against the proposed increase in the price of heating energy.

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Critics – including Mihail Ekimdjiev, a Bulgarian human rights lawyer, and Ivan Hinovski, head of the Bulgarian Energy and Mining Forum – have called for the resignation of the Prosecutor General, claiming that the investigation into KEVR activities has been directed against Overgas because of the European Commission infringement procedure. On 24 April, a few hundred people protested in Sofia, Plovdiv, and Varna, demanding Tsatsarov's resignation and arguing that the meeting with the businessmen was his "latest mistake". On the same day, a few dozen people protested in Sofia against KEVR and the energy price increase.

Critics and protestors have also called for increased transparency in the work of the prosecution service and particularly that of the prosecutor general. On 25 April, a temporary parliamentary commission decided that the Bulgarian chief prosecutor would be invited to present a quarterly report on the work of the prosecution and investigative services to the parliamentary judicial commission. Before the 2006–12 structural changes, many prosecutors were accused of being corrupt and the prosecution service of being dysfunctional. Currently, the prosecutor general is able to oversee the work of all other prosecutors and provide methodological guidance. Critics argue that the centralisation of the prosecution service concentrates excessive power with the prosecutor general, facilitating political influence over the entire prosecution service.

Following a request by BSP leader Korneliya Ninova, on 22 April Gergov resigned from the BSP leadership. At the same time, Boyko Borisov, former prime minister and leader of Citizens for European Development of Bulgaria (GERB) party, stated that Tsatsarov had fallen into a trap set up by "red oligarchs" (red is the BSP party's colour). Borisov also praised the prosecution service's work. In the previous week, the service opened a series of high-profile cases, including investigations into the Road Infrastructure Agency (API) and state-owned National Electricity Company (NEK). API is being investigated over possible mismanagement relating to the construction of the Maritza motorway in Southern Bulgaria, following an alert from the European Anti-Fraud Office (OLAF). NEK is being probed over contracts that are potentially damaging to the state.

Outlook and implications

Despite recent steps to improve standards, the accountability of the prosecutor's office is likely to improve only modestly. IHS Markit does not expect structural changes, such as enhancing the independence of individual prosecutors or creating an anti-corruption body not directly under the prosecutor general (see Bulgaria: 2 August 2016: Bulgaria's amendments to judicial act will reduce scope for politicisation in commercial cases, but not corruption investigations). An SJC probe into Tsatsarov's meeting with the businessmen is unlikely to lead to his resignation. The political quota of SJC members, who have been elected by parliament and are usually linked to political parties, has a majority in the judicial authority. The major political parties have shown unwillingness to back anti-corruption initiatives in the judiciary (see Bulgaria 14 December 2015: Diluted constitutional amendments to halt judicial reform and anti-corruption drive, threatening Bulgaria's Schengen entry and government stability).

The energy sector suffers risks of operational disruption and uncertainty, often involving measures by KEVR or the prosecution service regarding energy prices or against energy companies (see Bulgaria: 19 March 2013: Power utilities are at increased risk of licence revocations following the chief prosecutor's request that CEZ's licence be revoked and Bulgaria: 20 May 2014: Bulgaria's energy regulator continues pressuring power distributors, unlikely to withdraw operating licences). Actions by regulatory bodies or prosecutors that target companies or businesspersons, but without necessarily leading to court sentences, are likely to occur occasionally in the energy sector, as well as in the construction and mining sectors. Opaque conduct by state institutions and the alleged connections between part of the political class and business groups are likely to continue posing contract alteration and enforcement, and operational disruption risks. These risks are higher for foreign investors, as local businesspersons are better connected to political parties and the judiciary. Foreign investors and foreign-owned businesses are most at risk during the period shortly after their entry into the market. Risks of political interference with the courts and prosecution service, especially in relation to anti-corruption cases or high-profile business deals, are likely to remain high.