Written by Yasen Georgiev – EPI, EECFA Bulgaria
In our post about a year ago we wrote about the opportunities the RRF could bring to Bulgarian construction. After months of no updates, September and October this year brought news for the future prospects of Bulgaria’s Recovery and Resilience Plan (RRP). In late September 2023 Bulgaria’s government submitted a modified version of the RRP to the European Commission (EC), whereas in early October the country submitted in Brussels its second payment request worth €724mln.
The modified version, which still needs to be approved by the EC, comes to meet the respective regulation on EU level that grants allocation for all member states are to be updated in June 2022 based on each country’s post-pandemic recovery performance. Since Bulgaria registered a comparatively better economic outcome in 2020 and 2021 than initially expected, the maximum grant allocation under the RRP was reduced by €580mln (from €6.27bln to €5.69bln).
In order to align the RRP with this downward revision, the government proposed a modification of the plan. It concerns 17 projects included in the original version of the plan, some of them extensive construction works.
Notable downsized projects are those linked to:
- building national infrastructure for storage of electricity from renewables (decrease by around €400mln to €400mln);
- modernisation of hospital facilities (decrease by around €80.5mln to around €100mln);
- improving the energy efficiency of the building stock (decrease by €43mln to €880mln);
- modernisation of educational infrastructures: renovation of schools and kindergartens, construction of new ones as well as renovation of student residences (decrease by around €1mln to €290mln).
Three projects were completely dropped out of the updated RRP:
- the construction of an intermodal transport terminal in Ruse (€23mln);
- the digital transformation of the Bulgarian Post (€52mln;
- digitalising of the management, control and efficient use of water (€58mln).
Simultaneously, funding has been revised upward for these projects:
- the extension of Sofia’s third metro line (increase by around €11.5mln to €122.6mln)
- construction and/or renovation of youth centres (increase by around €1mln to €33mln).
The second payment, which was initially due by the end of 2022, relates to 61 milestones and 5 targets. Projects under this payment are in such areas as energy-efficient street lighting, smart industry, renovation of buildings, digitalisation of the electricity transmission grid, renewable sources, electricity storage, and the digitalisation of railway transport, among others. Reforms within the scope of the second payment aim at the decarbonisation of the energy sector by boosting the uptake of renewable energy and energy efficiency improvements, providing support for sustainable urban transport, making public procurement more competitive, and many more.
Now the European Commission is assessing the request according to the respective regulation since payments are performance-based and contingent on project implementation and reforms outlined in the RRP.
Against this backdrop, there are growing concerns that Bulgaria is substantially lagging behind in making full use of resources available under the plan. The third payment request (€724mln) should have been submitted by the end of June 2023, which was not the case, since even as of mid-October only 6 out of 46 milestones and targets were implemented. A delay is expected with the submission of the fourth payment request (€612mln) that is due by the end of 2023. It includes commitments for meeting 41 milestones and targets, of which only one was implemented by mid-October.
These delays would not be worrying if the available funding was disbursed under the traditional multi-annual financial framework which allows for budget phasing and transfers between funding periods. However, in case of this funding instrument, all measures must be implemented within a very tight frame: the Regulation establishing the Recovery and Resilience Plans requires all milestones and targets within the national plans to be completed by August 2026.
The delay so far has mainly been due to the lack of working parliament and a political instability over a period of two years. Nowadays, under the condition of a functioning legislative body and a government, which has a supporting majority in it, it remains to be seen how Bulgaria will catch up in channelling these resources in its economy for the sake of the comprehensive and horizontal green and digital transition that all EU countries are currently facing.
Check out the forecast for Bulgaria’s construction sector up to 2025 in the EECFA Forecast Report. Orders and sample report: eecfa.com.