Two governments are trembling because of the unfolding scandals surrounding the deal to sell ČEZ Bulgaria, writes Krassen Nikolov.
Krassen Nikolov is a journalist specialised in judiciary affairs. He works for Mediapool and will be a regular contributor for BulgarianPresidency.eu for the six months of the Bulgarian Presidency of the Council of the EU.
The political crisis with the sale of the Bulgarian business to the Czech energy giant ČEZ continues, although the intensity of the scandal has significantly slowed compared to last week. The reasons for the decrease in intensity are two – the stopping the deal in its original version and the blurring of the the plot lines in the scandal. The main question now is whether the Bulgarian state will be able to acquire ČEZ’s assets.
It is clear that Ginka Varbakova and her company “Inercom Bulgaria” cannot have the deal for herself because of the resistance of the public opinion. Varbakova has signed a contract with ČEZ, but has no experience and own financial resources to manage a business of €1 billion per year, which has prompted the public to stand against such a way of securing the supply of 40% of the population in the country.
The drama was further inflated by the serious doubts that Varbakova was a decoy in the whole picture. Prime Minister Boyko Borissov became involved in the scandal because of the letter of support provided by the state-owned Bulgarian Development Bank. Russian interests became also obvious in the scandal through the offshore companies of a Russian-Georgian billionaire with Bulgarian citizenship and even through the pro-Russian Czech President Miloš Zeman.
Two days ago, ČEZ Vice President of the board of directors Tomas Pleskac told the Czech newspaper “Lidové noviny” that Bulgaria has been repeatedly invited to buy the company’s assets in the country but has refused. An important detail is that the newspaper is owned by Czech Prime Minister Andrej Babiš.
On the same day, “Hospodářské noviny” newspaper reported that Gina Varbakova’s contract to buy ČEZ Bulgaria contained clause requiring her to cooperate in the court case at the International Center for Settlement of Investment Disputes.
[In July 2016, it became known that the ČEZ Energy Group launched an international investment arbitration against Bulgaria at the ICSID International Center for Settlement of Investment Disputes.]
The arbitration case is about €600 million euros. It was filed by ČEZ in July 2016 because of the intervention of the Bulgarian state on the energy market, which led to a deterioration of the conditions for doing business by the private company.
This development has put a huge question mark on the possible entry of the sate into the deal because ČEZ cannot expect Bulgaria to contribute to its condemnation. In the last three days Varbakova is in Prague for negotiations with ČEZ, and their result will not be clear until the end of the week. The reason is precisely the arbitration case – the admission of the Bulgarian state to the deal between “Inercom” and ČEZ is entirely dependent on reaching an out-of-court settlement and paying compensations.
“An eventual change in the contract with “Inercom” will be a long process. ČEZ’s lawyers will have to obtain assurances that the changes will not harm the interests of ČEZ Group in the arbitration the company is leading against Bulgaria”, ČEZ said on Wednesday.
This arbitration case is too important for ČEZ because what is at stake (€600 million) is an amount almost twice as high as the sale price of the company’s assets in Bulgaria (€340 million). According to the Czech newspaper “Hospodářské noviny” ČEZ is currently preparing a new offer for a deal with Bulgaria – sale of the controlling stake if the government accepts payment of compensation in the case.
In Bulgaria, however, there is serious resistance against the state’s entry into the deal. Finance Minister Vladislav Goranov is against the deal, although he said he would still comply with the political decision of GERB. Deputy Prime Minister Valery Simeonov (from the United Patriots junior coalition partner) is opposed to the state’s participation in Varbakova’s deal. “The total buyout of the Bulgarian assets of ČEZ Group by the state is a return to socialism and Bolshevism,” commented Simeonov.
The Movement of Rights and Freedoms (DPS, officially in opposition) is also opposed to state involvement, but the main opposition party BSP supports this deal. Prime Minister Boyko Borissov was very active at the beginning of the scandal, but his efforts were focused on taking distance from the deal. He ordered financial intelligence and tax officials to check the capital of Ginka Varbakova, but these belated actions only increased the doubts. The resignation of Energy Minister Temenuzhka Petkova, who announced she was a friend of Ginka Varbakova, didn’t help.
The new development is that Minister Petkova will keep her job.
Meanwhile, the scandal continued in the Czech Republic because of the news that the deal was hostage to conflict between Czech President Miloš Zeman and acting Prime Minister Andrej Babiš. Namely, Zeman is referred to as the person who politically controls ČEZ in which 70% of the shares are owned by the Czech state. Zeman is often blamed his serious contacts with the Kremlin, and the deal may become a hostage to geopolitical interests.
A confirmation of this scenario is the behavior of the newspaper “Lidové noviny”, which revealed the scheme for financing the transaction by Varbakova. Especially problematic is the scheme for financing the deal by offshore companies of a Russian-Georgian businessman with Bulgarian citizenship Paata Gamgoneishvili, whose name appears in the Panama Dossier investigation.
So far, it is clear that the ČEZ deal with Varbakova in Bulgaria is dead and all other options are impossible without the political support of the authorities in Sofia and Prague.