site.btaMedia Review: October 16

MIDDLE EAST CONFLICT - IMPLICATIONS

On Bulgarian National Radio former deputy foreign minister Milien Keremedchiev said that this year Europe has seen an unprecedented growth in migrant flows. Before the military conflict in Gaza the pressure on European borders was very serious, said Keremedechiev. He is adamant that Bulgaria has to brace for an increase in the number of migrants.

"I am not as enthusiastic as the Defence Minister who deployed 50 servicemen to reinforce controls at Bulgarian borders. The pressure will be much greater. If until now there were 1,500 attempts to cross the border in a day, they can increase severalfold when these refugees head for Europe. And they will do it sooner or later, said Keremedchiev on BNR morning programme.  

According to him as a result in the upcoming EU elections far right and nationalist parties will have stronger showing. “We are yet to see many quarrels in connection with the controls of the EU and most of all Schengen borders,” said Keremedchiev. 
"Bulgaria will not become a full-fledged Schengen member by the end of the year. It should go back to an earlier proposal – for a phased Schengen entry and leave land borders for a later stage. A full- fledged Schengen membership is not possible at the moment." 
 
On Saturday, Defence Minister Todor Tagarev said that Bulgaria has deployed another 50 servicemen to its border with Turkey in addition to the 300 who are already there. This is done in anticipation of Israel’s operation in the Gaza Strip and a possible migrant pressure towards Bulgaria. 

According to the Defence Minister the expected migrant pressures won’t be an obstacle to Bulgaria’s entry into Schengen. "I think everybody understands the current situation and the conditions under which we should control the border. We’ll do everything to ensure that,” said Tagarev.  

NEW TRANSIT FEES FOR RUSSIAN GAS

Sega.bg writes that Serbia and Hungary have both complained of the higher transit fees for Russian natural gas, imposed by Bulgaria.    
   
Serbian President Aleksandar Vucic has announced that he will hold talks with his Bulgarian counterpart Rumen Radev over the increase in gas transit fees, voted through by the Bulgarian Parliament. "This is a big problem for us. It will lead to a drastic increase in the price of gas by an additional 100 euros per 1,000 cu m," said Vucic. 

There are also problems from the new transit fees for Hungary. Hungarian Foreign Minister Peter Szijjártó criticized the fees as unacceptable, saying they threaten European solidarity. 
 
Responding to the criticism from Serbia and Hungary, MP Venko Sabrutev of Continue the Change-Democratic Bulgaria said on national radio that the transit fees Russia pays to Bulgaria are "terribly low". 
 

As of 13 October, a fee of BGN 20/MWh has been in place, which applies to the import and transit of Russian gas. The amendments to the Act on Control over the Implementation of the Restrictive Measures in View of Russia's Actions Destabilizing the Situation in Ukraine were gazetted on Sunday.  
  
Serbia and Hungary import Russian natural gas from Bulgaria via the so-called Balkan Stream, a pipeline that is an extension of the Turkish Stream. 
 
Capital Daily too gives prominence to the news that Bulgaria has introduced a fee of BGN 20 per MWh for the transit of Russian gas, which could provide up to BGN 3 billion per year, but burdens the Serbia and Hungary. 

At the current exchange prices of gas it represents about 20% price increase, which is more than significant at the beginning of the heating season. 
 
Because of the lack of information, it is impossible to say what Bulgaria aims to achieve by introducing this fee. The most logical answer seems to be additional revenue. If the current volumes of transit of Russian gas through the country are maintained, this would generate BGN 2.5-3 billion in budget revenues per year.  
 
However, Serbia, Hungary, Greece and North Macedonia will be directly affected by the new fee, because Gazprom will charge factor it in the final price. Serbia and Hungary have already protested against it. It is therefore not at all certain that the billions mentioned will be collected. Which in turn leads to the second possible objective - to further limit the consumption of Russian gas. Which seems entirely possible. 
There will be an indirect effect throughout Eastern Europe, as traders will seek alternatives to Russian gas. According to unofficial information, talks on the subject have already been held with representatives of Austria, which still consumes 50% Russian gas (although it receives it via Slovakia). That is why there are allegations that Sofia may actually use the new fee as a lever for its entry into Schengen. 

According to Capital Daily sources, the fee was introduced at the insistence of Finance Minister Assen Vassilev, but received the approval of the ruling majority. 
 
Although at first glance the legislative change seems a fair way both to generate additional revenue for the budget and to pay off Turkish Stream faster, the decision seems rather controversial because it is in fact imposing an additional duty that is not approved by the EU as a whole and Bulgaria as a member state is not allowed to impose such additional import charges. On the other hand, the additional transit tax violates the commercial transmission agreement with Gazprom and MET, which is a long-term agreement at a fixed price," says Martin Vladimirov, Director of the Energy and Climate Program at the Centre for the Study of Democracy. 

In his words, the government is probably hoping that because it is an action against Gazprom and Russia, the EC will not object and Gazprom will not dare to stop the transit as a countermeasure not to threaten the gas supply agreements with Serbia and Hungary. 
 
Participants in the gas market, however, told Capital that the measure could throw Bulgaria off the gas map as a transit country. And that this fee actually benefits LNG projects in Greece and bypass routes to Central Europe via North Macedonia and Albania. In the short term, the liquidity of the Balkan gas hub is also likely to fall. 

ECONOMY

Dnevnik.bg has reproduced an analysis of the Institute for Market Economics (IME), according to which the economy will inevitably slow down. 
  
A growing number of current indicators give a worrying picture of the short- and medium-term economic outlook. The immediate observations should form the framework for next year's budget. More broadly, however, it is important to recall once again that purely inertial developments, including developments in the international economic environment, are leading to less than favourable growth scenarios. 
While the war in Ukraine brought short-term benefits to many businesses in 2022, recent months have already seen the effects of the economic slowdown in China, rising interest rates in the US and Europe and slowing down of investment, production and consumption in Bulgaria’s leading trading partners. 
 
Since the beginning of 2023, there has been a serious decline in both exports of goods in general and activity in the industry. In manufacturing, there is a year-on-year decline in the real production index from March to August. 
 
Exports for the eight months to August fell 7.6 percent from the same period in 2022, with a 22 percent decline in August alone.   
  
In short, the external environment is deteriorating, and this will inevitably have a growing impact on Bulgaria. Stricter monetary policy by the Federal Reserve and the European Central Bank means harder access to credit at higher interest rates. This is being passed on initially to investment activity and the financial asset and real estate markets. 
 
As of August, revenues from the most significant source - the value added tax - were 1.7% lower than those in the first eight months of 2022. The good performance - at least so far - is in income tax and social security revenues, reflecting low unemployment and wage growth, and corporate tax revenue, which, however, is largely the result of chance profits in 2022. 

PLANS FOR NEW LOAN

24 Chasa writes that plans by Finance Minister Assen Vassilev, whom GERB has already announced as a favourite for replacement in the rotation of Prime Ministers Nikolay Denkov and Mariya Gabriel in March, strained over the weekend relations within the ruling majority of Continue the Change-Democratic Bulgaria and GERB.

"We're a few billion in the red. We haven’t been informed that the cabinet is planning to raise new loans,” said GERB leader Boyko Borissov, lashing out at his partners in the government on Sunday. A day earlier, Finance Minister Assen Vassilev announced that new debt is to be raised by the end of the year, probably on the international markets. “We inherited a very large undercollection of VAT revenues, especially in customs, i.e. VAT on imports," Vassilev motivated the need for new loans from the state, but without specifying what amount and for what period. 

Boyko Borissov, however, attacked Continue the Change of the undercollection of budget revenues. He asked Vassilev to say which government is to blame for the lower VAT collection. 
 
GERB deputy Temenuzhka Petkova, who is member of the parliamentary budget committee, also explained that she had learned from the media that Vasilev plans to draw new debt. According to her, under Borissov's government the budget was always in surplus and there was money for projects thanks to the prudent fiscal policy that the GERB government had pursued. "Now we are moving from debt to debt. It is not clear what the amount will be, and we are waiting to see by how much the debt will increase," Petkova said. 
 

*** 

The public finances and the economy were commented in the studio of "The Day Begins" by the financier Experts Lyubomir Karimanski and Petar Ganev, senior researcher at the Institute for Market Economics, commented public finances.
  
"VAT collection this year is not going well at all. We should not concentrate on one-off revenues, which are not qualitative revenues to the treasury, as for example 100% collection of dividends from the state companies, which partly deprives them of funds for their investment programs. Thermal power plants implemented investments at 50% in 2022, and in 2023 they will not be done. These one-off revenues may be a plus for the state, but we see that VAT is lagging behind last year," Karimanski said.  
  
"The budget has its problems, it was said to be overstretched. VAT revenues are very similar to last year, however, BGN 1.7-1.8 billion more were budgeted, so that's what's missing - the expectation of higher revenues. Most likely we will meet the 3% deficit threshold, but this will only happen with management of the expenditure part in December," said Peter Ganev. 

LOCAL ELECTIONS

Speaking on the morning programme of bTV, former caretaker cabinet spokesperson Anton Kutev said that the polls show that Continue the Change will lose some positions in the elections and GERB will manage to hold them.  “Three things are important for the state - education, health and poverty. I do not know in the 120 days of the government what has been done about these three things.”  
 
Borissov's presence in the governance is out of fear of possible prosecutions, of possible court testimony by Vasil Bojkov, or something else. He said judicial reforms are not done the way the government proposes.  
 
“I am convinced that there is tension within the ruling majority. This is such a game of blackmail and arm-twisting. They are open in their dislike of each other,” Kutev added.    
  
He said the president does not trust the parties. This is a political clash and where it will lead remains to be seen, Kutev added.