Bulgaria’s Environment Ministry and the European Bank for Reconstruction and Development (EBRD) were misled into picking the consortium of Italy’s Idreco and China’s Insigma to install environmental upgrades at the state-owned Maritsa Iztok 2 thermal power plant, Bulgarian site Mediapool reported, quoting the European Union’s anti-fraud office Olaf.

Olaf’s investigation, launched in February, was the result of complaints filed with the European Commission by the Italian subsidiary of French engineering group Alstom, itself embroiled in litigation with Insigma over technology licensing.

According to Mediapool, the investigation, which has not been finalised yet, found that the Italian-Chinese consortium did not meet one of the criteria stipulated in the Bulgarian public tender, namely that bidders should prove their track record in the form of references from three power plants that have used environmental equipment installed by the consortium’s members for a period of at least two years.

The references provided by the consortium, all from Chinese power plants, did not fully meet the requirements in that they fell short of the two-year period, the report said.

This assertion would not come as a surprise to authorities in Sofia, with Economy and Energy Minister Traicho Traikov saying in February, shortly after Olaf’s investigation was launched, that "the Chinese-Italian consortium was not exactly honest in describing its previous experience with similar projects during the tender process".

However, it appears that blame is now being assigned to the commission that evaluated the bids in the tender, because it failed to detail the failings of the consortium’s bid, focusing in its recommendation only on the fact that Idreco and Insigma offered to carry out the works for the lowest price, Mediapool said.

That way, both the Environment Ministry and EBRD were misled into awarding the contract to the consortium. The bank gave Bulgaria a 34 million euro loan to cover part of the total project costs, set at 85.6 million euro, but Bulgaria later exercised an option to increase the amount borrowed to 55 million euro, according to Mediapool.

EBRD, which did not raise any objections during the tender process or afterward, has reportedly threatened to pull its funding should Olaf’s report find any irregularities in the tender proceedings. Separately, 36.2 million euro in funding secured for the project under the EU’s pre-accession aid programme Ispa have been frozen for the duration of the investigation.

The plant must install desulphurisation equipment to meet EU environmental guidelines. Such equipment should have been in place at the time Bulgaria joined the bloc in January 2007, but the country was given a grace period until November 2011 for Maritsa Iztok 2, a deadline that could be missed because of the delay caused by Olaf’s investigation.

In case the environmental installations are not operational by that time, not only would Bulgaria face infringement proceedings launched by the European Commission, but it would have to refund the money allocated by the EBRD and Ispa.

Four of the plant’s six units already have desulphurisation installations, which became operational in 2008 and 2009 despite not securing the required permits until much later, according to reports in Bulgarian media. The contract with Idreco and Insigma is for the remaining two units of Maritza Iztok 2.

The tender’s results have been challenged by Alstom, which put in its own bid, as an extension of the legal battle in Singapore between Alstom Power and Insigma. The French company gave Insigma in 2004 a licence to use Alstom’s technology. According to Alstom, the licence was valid only in Asia, but Insigma disregarded the terms of the agreement.

After unsuccessful attempts to have the choice of Idreco-Insigma overturned by Bulgarian courts, Alstom lodged a complaint with the European Commission, which prompted the Olaf investigation.

Accounting deficiencies
Maritsa Iztok 2 consistently reported high profit throughout 2009, a total 100 million leva for the full year, but at the same time accumulated 150 million leva worth of debt to coal suppliers, repairs contractors and its parent company, the Bulgarian Energy Holding (BEH), Mediapool said. At the same time, it was owed about 65 million leva by energy traders for electricity bought from the plant, Mediapool said, claiming to have seen the power plant’s full accounts.

Nevertheless, company officials were optimistic that its own revenue could cover the lost external funding if the plant could secure a long-term guaranteed electricity sale deal with state-owned power grid operator and energy trader NEK, also a subsidiary of BEH, Mediapool reported. The current contract with NEK expires in mid-2010.

It remains to be seen whether the country’s energy regulator would approve such a contract and at what price, given that Prime Minister Boiko Borissov in April criticised similar deals in place between NEK and US firm AES, which owns Maritza East 1 power plant, and Italy’s Enel, which owns Maritza East 3. The fees stipulated in those contracts were exorbitant and the Cabinet would seek to renegotiate the terms of the contracts, Borissov said.