site.btaChecks Find Financial Indiscipline, Irregular Public Procurements, Ineffective Controls at Defence Ministry

Sofia, July 30 (BTA) - Checks underway since July 12, 2021 found breaches of financial discipline, a failure to comply with the requirements of the Public Procurement Act and ineffective controls over the performance of construction contracts at the Defence Ministry unit in charge of defence infrastructure and two state-owned ordnance factories. The findings were cited by caretaker Defence Minister Georgi Panayotov when he addressed Parliament on Friday, answering a question from Hristo Gadjev MP of GERB.

They concern the Directorate General for Defence Infrastructure, the Military Clubs and Military Recreation Executive Agency, TEREM Holding EAD and TEREM-SHIPYARD Flotski Arsenal - Varna EOOD.

Part of the reports on the checks has been referred to the Public Financial Inspection Agency and the Sofia Military District Prosecution Office.

Panayotov specified that 80 per cent of all public procurements for infrastructure projects in 2020 were awarded directly to particular contractors without market research. The infrastructure contracts related to the acquisition of the F-16 jet fighters were concluded as engineering contracts covering the preparation of a conceptual and a schematic design before the award of the building and installation works, the Defence Minister added.

Bulgaria's principal military airfield at Graf Ignatievo had to be remodelled and upgraded at the cost of 300 million leva, allocated by the previous government, in order to accommodate the F-16 Block 70 jets that are expected to go into service starting in late 2023.

"The contracts do not set a deadline for the completion of the designs, including a deadline for their approval by the contracting entity. The first design stage has yet to be completed, i.e. a conceptual design has not been approved yet under most of the contracts. This invites the conclusion that performance is seven or eight months overdue," Panayotov pointed out.

In his words, 95 per cent of the contracts concluded for the F-16 infrastructure were paid in advance, for which approximately 184 million leva were remitted between late 2020 and early 2021. "While technically this did not constitute a gross violation of the Public Procurement Act, the results are negative and there are indications of corruption," the Defence Minister said.

The Director General of the Directorate General for Defence Infrastructure has been dismissed. The Disciplinary Board under the Minister is identifying the individuals who are to blame, and they will be disciplined, Panayotov reported.

"The check at TEREM Holding EAD found that the Board of Directors had not adopted its rules of procedure and had not considered a new business programme as a benchmark against which the company's performance could be judged. The subsidiaries persistently tend to report operating losses, with operating costs exceeding operating income," the Defence Minister said. "The contracts concluded do not ensure the subsidiaries' production for a longer period of time. Because of all this, the subsidiaries' financing has to be made up by 7,789,000 leva," Panayotov said.

"TEREM Holding EAD has lent its subsidiaries 41,664,000 leva, including interest, and this money will practically never be repaid," the Defence Minister commented. A provisional Board of Directors has been appointed at the company, but the previous management has blocked its registration using procedural chicanery, Panayotov said. Competitive procedures have been announced for nominating Board of Directors members.

TEREM is a state-owned company run by the Defence Ministry which specializes in repairs, modernization and logistical support of aviation equipment, ships and vessels, armoured vehicles, small arms, artillery and missile systems, ammunition, radar and communication equipment. NV/LG