Last year was a good year for the Bulgarian economy, which registered 3.6% GDP growth. The Bulgarian Government plans to further boost the economy in 2018, and initial projections vary from 3% to 4% growth. The main trigger for this will be the continuation of spending public funds on strategic infrastructure projects.
Landmark projects still in progress include the Bulgarian highway e-toll system and the ongoing modernization of the national railway. In early 2016, Bulgaria’s Road Infrastructure Agency opened a tender for the e-toll system for the republican (national) road infrastructure. Due to numerous appeals of the tender, the procedure ended in late 2017, with a EUR 92 million contract awarded to a consortium led by the Austria’s Kapsch Group. The deal was signed in January 2018, but construction has not started yet, since there are still pending appeals. Kapsch will have 19 months to design and implement the e-toll system.
Another major infrastructure project is the modernization of a 50 km long railway section in western Bulgaria that was launched last summer. The section is part of European Corridor IV, which connects the ports of Bremen, Hamburg, and Rostock with Istanbul. The European Commission recently approved the financing of the project, which is expected to exceed EUR 511 million, making it the largest railway project in Bulgaria so far. On February 12, 2018, the procedure was suspended due to an appeal.
The Government’s commitment to infrastructure projects is even stronger now. At the annual Strategic Infrastructure and Investments 2018 conference held in Sofia on February 27, 2018, the Chairman of the Management Board of the Road Infrastructure Agency announced that BGN 3.5 billion in contracts would be awarded this year for highways in southwestern and northern Bulgaria and several republican roads in northern Bulgaria.
Other major infrastructure projects which are continuing from 2017 or are expected to be launched in 2018 are the Greek-Bulgarian natural gas inter-connector, the Bulgarian gas hub, the concession of the Sofia Airport – the nation’s largest – and the modernization of the Bulgarian national passenger train operator.
To allow the launch of some of the strategic infrastructure projects (such as the Sofia Airport), a new Concessions Act was adopted in Bulgaria, which entered into force on January 1, 2018. This Act – which implements the provisions of the EU Concessions Directive and is considered to be modern and more investor-friendly than the previous law – takes into consideration the importance of maintaining the long-term balance between the interests of the concessionaire and the ones of the concession grantor. It explicitly defines this balance as “economic balance” and rules that the economic balance of the concession shall be preserved for the whole duration of the contract. In order to guarantee transparency and fair competition among investors, the Concessions Act also contains detailed rules on the competitive procedures for awarding concessions, signing and performing of concession contracts, and their early termination.
The modernization of the Bulgarian public procurement regulation was done back in 2016 and was also based on the two EU Directives on Public Procurement, again implementing them in the country’s national legislation.
Regardless of the improvements to the legislation that regulates PPPs and the strong political support for such projects, there are still certain difficulties that investors and their legal advisors experience, in particular during the tender phase of the projects. A major legal concern appears to be the significant number of appeals of procedures. Many of these appeals are groundless and their exercise is often perceived to abuse the right to appeal. The problem is not new, as many procedures in the past have been delayed or terminated due to such appeals. Historically, various legislative changes have been adopted to preclude groundless bad faith challenges of tenders, including increases in statutory fees. The Government and the Parliament are still searching for an appropriate mechanism that guarantees the right of appeal while discouraging its abuse. The solution will not be easy, as this is less a matter of regulation and more a matter of demanding good faith on the part of bidders. Nevertheless, the advantages outweigh the difficulties, and the sector remains quite attractive.
By Kostadin Sirleshtov, Partner and Angel Bangachev, Senior Associate, CMS
This Article was originally published in Issue 5.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.