The structure of public procurement in Bulgaria – the new initiative of EKIP and BizMonitor

           Държавата обича да преразпределя средствата, придобити от данъчни постъпления, към сфери, които нарича „приоритетни“. Този процес е обикновено непрозрачен, и манипулиран с цел облагодетелстването на едни или други интереси. Няма друга област в публичното управление, където това да е по-видимо, от разпределянето на обществените поръчки. В структурата на българската икономика, последните са ключов инструмент за икономическо развитие на отделните предприемачи в условията на ниско местно потребление и свиване на външните пазари. Зависимостта на българския бизнес от обществени поръчки води до огромна конкуренция между фирмите-изпълнители за достъп до политическа власт, което създава добра среда за развиване на корупционни практики сред държавната администрация и сред политическото представителство. Изследването на структурата на обществените поръчки в България ни дава сметка, колко ефективно се харчат средствата на данъкоплатците, но и в кои сектори може да се наблюдава преплитане на политически и икономически интереси.

It is these problems that the Monthly Business Monitor, prepared by EKIP and BizMonitor, will attempt to outline. The two organizations took the initiative to present statistics on all public procurement contracts won during the month in Bulgaria. The aim is to document all public procurement and structure state funding by sectors and individual segments. First, it provides a clearer picture of the target groups that the state and state institutions identify when allocating public finances. Second, the Report divides public procurement by sectors, sub-sectors and regions, identifying the different concentration of public procurement in Bulgaria. Through the database and detailed statistics, the reader can easily reach, on the one hand, the contractors who won projects, and on the other hand, understand the main trends in the selection of state funding priorities. Last but not least, the Business Monitor also presents the main public procurement announcements for each month, with an emphasis on larger contracts. The first three reports for June, July and August can be found on the BizMonitor website

Basic excerpts

During the summer, the state allocated the most funds in the field of construction and real estate, where 1009 public procurement contracts were awarded for a total value of 1.061 billion leva. The concentration in the construction sector is obvious, with nearly 38% of all public procurement contracts being awarded for road repair activities, renewal of the water supply network and construction of transport systems. The largest number of public procurement contracts in the construction sector was in June, with nearly 50% of all such contracts.

The second priority sector is "Mechanical Engineering and Technological Equipment". The most significant share of funding falls on the sub-sector "Medical Equipment, Pharmaceuticals and Personal Hygiene Products", which accounts for 40% of all public procurement in July. In total, nearly 745 million leva were provided in the "Mechanical Engineering and Technological Equipment" sector during this period. Thus, two out of 16 economic sectors account for between 60 and 70% of all public procurement.

The concentration of public procurement in a few priority sectors also coincides with a disproportionate influence of a few large companies that win the largest contracts in the country. The least represented sectors are: "Defense and Security", "Financial Services" and "Entertainment Sector", but while these sectors are not structurally determining for the Bulgarian economy, the limited state funding for projects in the field of information technology and education shows that state-owned enterprises and institutions continue to not consider the development of the long-term competitiveness of our production as a strategic goal. Instead, they rely on "visible to all" large infrastructure projects such as highways, sports halls and sewage treatment plants.

In addition to sectors, there is also a strong concentration of public procurement. In June, for example, the largest number of procurements, a total of 247 or 21% of the total number of procurements for the month, were awarded in Sofia and Sofia City. This is about 3 times more awarded public procurements compared to the second region in terms of number of procurements, Stara Zagora, in which 73 public procurements or 7% of the total number of procurements for the month were awarded. The total financing of public procurements in Sofia City for the first seven months of 2014 amounted to BGN 1,441,061,259.

The tendency of governments to allocate a large portion of funds mainly to Sofia raises doubts that public funds are being spent not where they can have the strongest positive economic effect, but in the regions where they would be most visible to the public. In general, the largest share of public procurement is in large regional cities such as Plovdiv, Stara Zagora and Varna, while the remaining funds are scattered among many smaller settlements and municipalities.

The financing of public procurement goes through two channels, through state funds and from European funds. Of the total 2.37 billion leva allocated during the summer months, between 75 and 80% of public procurements receive state funding, with the rest being contracts with partial or full European funding. For many large projects, especially in infrastructure, the state provides co-financing of funds allocated by the EC. The summer was marked by the suspension of many of the European operational programs due to a number of violations in the implementation of the projects. The result is that the state was put under serious pressure to pay companies the funds needed to cover the costs of implementing European projects. The effect is already visible in the recalculation of the budget deficit for 2014. The acting Minister of Finance announced that the fiscal hole could reach 4.5% of GDP this year. It should be emphasized that the deficit is a consequence of many factors, but the fact is that the suspension of European funds due to suspicions of corruption puts the implementation of the budget framework at risk.

Problem areas

The Business Monitor identifies some ongoing irregularities in the conduct of tender procedures. It is worrying that the practice of not using electronic tendering as part of the public procurement procedure continues. There is not a single procurement in the summer that meets this challenge, although European legislation requires Bulgaria to use this procedure in at least 30% of public procurement. Bulgaria risks being sanctioned by the EC for failure to implement the agreements made. Negotiations for the conclusion of the new financial partnership agreement with the EU for the period 2014-2020 are also becoming more difficult.

The concentration of huge budget funds in each of the months in a small number of public procurements is also striking. A typical example can be taken as the month of July, when 20 contracts of a significant scale were awarded. Their financing is worth 276,754,595 BGN or 34% of the total financing of public procurements for the month. In general, the 20 largest public procurements in the month represent only about 2-5% of the total number of projects for the period. This raises doubts that state institutions give priority to larger-scale projects, where a large financial resource can be poured in at once. In the case of large procurements, decisions are usually made at the highest political level in various enterprises, agencies and ministries, which predisposes to the possibility of corruption practices, in which some politicians favor close participants in a tender. The lack of strong competition and the high market competition in key sectors contribute to the increase in corruption risks in large public procurements.

Order of the month

One of the more interesting orders in the summer was the assignment of the modernization of the separation scheme of steam generators type PGV-1000M for the 5th and 6th units of the Kozloduy NPP. The order is worth 8.5 million leva and was won by Atomenergoremont EOOD, associated with the businessman and owner of a number of district heating plants, Hristo Kovachki. Interestingly, this is the second large order that the company, specializing in nuclear repair activities, has won in the last six months. Earlier in May, Atomenergoremont EOOD won a public contract for 30.1 million leva for planned repair and maintenance of nuclear equipment at the Kozloduy NPP. At that time, the company was the only candidate in the competition. It is not excluded that the situation is similar now, considering the technical criteria specified in the order. These nearly 39 million BGN earned by Atomenergoremont EOOD in the form of public procurements equals more than the company's entire revenue for 2013, equaling BGN 32.5 million.

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