EU Funds on Hold

Economic News

22 Jul 2010
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The European Commission (EC) has decided to suspend some farm aid payments to new EU member Bulgaria over suspected fraud, for the first time since the country joined the bloc in January 2007.

The suspended payments were motivated by an investigation launched in 2006 by the European Anti-Fraud Office (OLAF), based on allegations that several Bulgarian food producing firms had bought second-hand equipment, but registered it as being new.

In 2007, OLAF found another case where 7.5m euros of SAPARD (Special Accession Programme for Agriculture and Rural Development) funds had been defrauded by a Bulgarian company. However, a Bulgarian court found the defendants not guilty.

The EU's pre-accession aid to Bulgaria is mainly provided by three instruments: the Phare programme, ISPA (Structural Pre-Accession Instruments) and SAPARD, with a total amount of 160m euros allocated for 2000-2006. Only a fraction of those funds will be frozen, local media reported.

There seem to be different opinions, however, on exactly how much of the agricultural funds intended for Bulgaria are being withheld. "The EC has mentioned one figure and the Bulgarian authorities are mentioning another," Alexander Tolsuzov of SeeNews told OBG. "So far no one seems to know a conclusive number," he added.

According to Finance Minister Plamen Oresharski, the EC frozen funds for Bulgarian agriculture amount to over 100m euros. Deputy Agriculture Minister Dimitur Peichev put the figure between 50m euros and 140m euros. Meanwhile, according to Michael Mann, EU agriculture spokesman, the figure is considerably lower, amounting only to a few million euros.

Under the EU Rural Development Programme (RDP) for 2007-2013, Bulgaria was allocated 3.2bn euro to revamp the agricultural sector. The aim is to enhance the country's forestry and food industries. This will involve developing the technological base, upgrading assets, green investments in agriculture, animal husbandry and downsizing production costs. Bulgaria's agricultural sector needs to increase its productivity, currently at 12% of EU-25 average, according to the RDP.

The EC had already frozen 50m euros in funds related to the Phare programme at the end of January. The reason for this first freezing was linked to a corruption scandal in Bulgaria's Road and Infrastructure Agency, in which officials allegedly took bribes. The EC had also noted other irregularities in fund management procedures. Of these, 36m euros related to programmes managed by the ministry of regional development and public works, while the remaining 14m euros of frozen Phare funds were for programmes under the responsibility of the Central Financing and Negotiating Unit of the ministry of finance.

A technical meeting between Bulgaria and the EC enlargement directorate is scheduled for this week, during which the EC will review the matter and decide its final position.

SAPARD programme funds will remain frozen until May 15, when OLAF completes its investigation. Deputy Finance Minister Dimitar Ivanovski, who is also Bulgaria's SAPARD coordinator, told press that although payments had been suspended, companies that had met their obligations would still receive the amounts they had been promised. However, there could be no further applications for funding of new projects until the matter was clarified.

"We are not going to be paying any EU money towards this until we have cleared up whether there is any misuse of that money or not," Mann was reported as saying.

The EC had already reprimanded Bulgaria over the country's corruption problems. In an interim report, published at the beginning of February, on progress concerning the judiciary reform and the fight against corruption and organised crime, the EC called on Sofia to strengthen actions to fight high-level corruption. The report analysed a sample of high-profile cases regarding corruption and organised crime, determining that only one case had been finalised since 2000. Despite the criticisms, the EC's February warning did not include any sanctions.

According to the country's National Strategic Reference Framework, which details the programmes and areas in which it will spend post-accession EU funds, Bulgaria will receive a total of 6.9bn euros in structural and cohesion funds from the EU until 2013. The biggest part of these, encompassing over 1.6bn euros, will be allocated to the Transport Operational Programme. Environment and water will also receive a considerable amount as well, encompassing over 1.4bn euros. The third most financed area by the EU will be regional development, set to receive 1.4bn euros until 2013.

Absorption of these funds, however, might not be easy. "The biggest difficulty for Bulgaria to receive these funds will be the lack of transparency," Tolsuzov told OBG. "There is also the question of size of a lot of these companies, and their ability to prepare the application documentation for the funds and to correctly implement the projects," he said.

Oresharski has proposed outsourcing the auditing process for EU funding to companies not affiliated with specific programmes.

Discussion over Bulgaria's management of EU funds is set to continue. The EC decision to freeze development funds is a clear statement that Brussels will be increasingly watchful of the way in which development money for new European entrants is utilised.

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