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In Search of Stability: Bulgaria’s Missing and Missed Legislation

In Search of Stability: Bulgaria’s Missing and Missed Legislation

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In Bulgaria, one ordinary and two extraordinary parliamentary elections were held in the span of eight months in 2021, and the country is now preparing for yet another extraordinary election on October 2, 2022. Which outstanding legislative packages are critical – considering the absence of regular parliamentary activities – and what are their implications for the country?

Unusual Circumstances

“The absence of regular government and the short-lasting parliaments have unreasonably delayed some essential legislative initiatives,” Penkov, Markov & Partners Partner Roman Stoyanov points out. The short mandate of the previous National Assemblies “was extremely inadequate for any substantial legislative activity,” adds Tokushev and Partners Law Office Managing Partner Viktor Tokushev. The substantial national and global crises, as well as the war in Ukraine, created hurdles for the most recent parliament too, PPG Lawyers Managing Partner Irena Georgieva says, noting that “the last parliament was focused on very disparate and sometimes inconsistent actions and measures, where real legislative activity was reduced to a minimum.”

One Priority Above All Others

Considering the unique circumstances of the country, all the interviewed lawyers agree that the most pressing legislative updates are the ones related to European funding under the Recovery and Resilience Plan (RRP). “In order to receive the EUR 724 million second tranche, the adoption of 22 legislative measures is necessary,” Tokushev says, noting that the deadline is December 31, 2022. “The legislative changes stemming from the country’s obligation to fulfill some of the milestones outlined” in the RRP are “an absolute condition for receiving the second payment,” Kambourov & Partners Partner Veronika Hadjieva adds. “The plan offers not only an opportunity to implement several large energy, infrastructure, and social projects but also to advance much-needed and long-awaited reform,” Kinstellar Managing Partner Diana Dimova explains, noting that “the national budget has been set up in expectation of receiving EU funds. In view of the pessimistic prognoses about economic conditions in the upcoming months, ensuring that Bulgaria continues receiving funds under the RRP is essential.”

The laws to be amended for receiving funding, according to Hadjieva, include “anti-corruption legislation, public procurement legislation, energy legislation, biological diversity legislation, as well as changes in the Bulgarian commerce act aimed at improving the efficiency of insolvency proceedings, and changes in e-governance legislation to reduce administrative burdens for people and legal entities.”

Among the legislative updates required as a precondition to receiving the second tranche of the RRP, several reforms stand out, having a significant impact on the country as well. For Stoyanov, Dimova, and Schoenherr Attorney-at-Law Elena Todorova the legislation ensuring energy independence is the most critical. “Of course,” Todorova says, we need the “legislative amendments that will enable the establishment of Bulgarian energy independence, such as a bill enabling small photovoltaic plants for family use.” Further, “any changes that stimulate the uptake of renewable energy and energy storage should be prioritized,” Dimova notes. And Stoyanov also highlights the importance of “the implementation of the European Green Deal,” noting that the Bulgarian economy, “is one of the most carbon-intensive economies in the union.” Georgieva, Stoyanov, Dimova, Todorova, and Hadjieva all note that the amendments to public procurement are also much needed. “A number of public works projects, including in infrastructure, are pending,” Dimova notes, with Stoyanov adding that the absence of proper regulations “resulted in multiple cases of abuse of competition” as well as “uncontrollable subcontracting to third parties without using competitive procedures.”

Another major issue, according to Dimova and Todorova, are the changes needed by the commercial act. The commercial act introduces “the variable-capital-company and accelerated liquidation of legal entities,” Todorova notes, with Dimova adding that “the change aims to attract more investments into the innovation and technology sectors. In addition, the commercial act transposes the EU Directive on preventive restructuring frameworks and introduces measures to enable preventive restructuring to avoid insolvency proceedings.”

Finally, among the legislative updates required as a precondition to receiving the second tranche of the RRP, Hristov & Partners Senior Associate Dragomir Stefanov says that “the draft law on the bankruptcy of natural persons stands out. Bulgaria lags behind all other EU member states in that field. Its importance goes well beyond the receipt of funds under the RRP.” According to him, “adequate legislation in this area will likely address some of the negative economic and social effects that the economic crisis and upcoming recession will have on the most vulnerable members of society.”

In Other News

Still, there are also a number of pending legislative proposals that are not related to the RRP. According to Stefanov, among these is the law implementing the EU Whistleblowing Directive. “This is a particularly sensitive field for multinational companies in Bulgaria,” he says. “The progress on that topic within the EU varies significantly between member states, and this complicates the companies’ efforts to introduce the necessary centralized and/or local internal procedures and rules.”

“Bulgaria has also set a goal to adopt the euro in 2024,” Tokushev adds. “Among the essential amendments for the adoption of the euro are changes to the Bulgarian National Bank Act and the preparation of the so-called ‘euro law.’” According to him, “with a functioning Parliament in the fall – at the earliest – the government’s timelines are extremely tight to meet the set schedule. It is necessary to make changes in over 100 acts.” Georgieva highlights the need to urgently introduce changes to the national budget. “Due to the dynamic inflationary processes in the country, the law on the budget in Bulgaria was voted in such a way that it was expected to be updated in the autumn, which at the moment seems rather unrealistic,” she notes. Tokushev also underlines “the raging inflation” in the country, noting that “it is necessary to prepare a legislative program, as well as instructions from the government, to prepare the economy.”

“In addition, there are several legal instruments to which Bulgaria has to adhere in order to advance its accession process to the OECD,” Dimova adds. “These instruments include legislative and non-legislative measures on anti-bribery, corporate governance, cyber security, tax transparency, etc.”

Making Up For Lost Time

All things considered, “adopting the legislative reforms in time might be a challenging task in the context of a political crisis and the absence of a functioning parliament, especially considering that some of the changes concern sensitive matters such as judicial reform and the energy market,” Dimova says. “What needs to be expedited is the election of a new parliament and a new regular government,” Todorova concludes, “but this is a process that cannot be legally expedited – it is stipulated and with fixed time frames. However, if the elections on October 2, 2022, lead to a truly functioning parliament and a new government, Bulgaria still has the opportunity to meet the conditions for receiving the funds and maintain its current industry growth.”

This Article was originally published in Issue 9.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.