Water Main to Bulgaria’s Pernik – Unsupervised, Expensive and of Poor Quality

Dimitar Stoyanov

Against the backdrop of the state of emergency around COVID-19, a number of other serious social problems are currently sidelined. One of them is the recent blistering problem with the severe water shortage in Bulgaria’s western city of Pernik and the ensuing emergency construction of a water main from the Belmeken dam to the Studena dam. The length of the pipe is 13.5 km and the announced construction price is about BGN 27 million, or over EUR 1 million per km. However, all balance sheets remain shrouded by complete information blackout, while the construction was commissioned without a public tender to the State-owned company Montages. This is the same company to which the government has allocated BGN 500 million for the repair and reconstruction of 182 dams across the country, again, without any transparency and information on how this money has been spent. There is no clarity as to whether Montages, which officially provides social benefits to only about 40-45 people and with together with several small subsidiaries has a staff of 186, can fulfill these colossal contracts by itself as simple arithmetic shows that there will be one employee per dam!

The question immediately arises whether this company, which has had tens of times less work by 2019, has the necessary capacity or is using subcontractors. Who are they and how are they selected to absorb hundreds of millions from the budget? Just a month ago, it became clear that notorious public funds recipients, such as Glavbolgarstroy and the scandalous GP Group had been involved in the construction of the Pernik water main. However, they have said that they would work for free, whatever that means. No one can tell whether and how much “gratis” work they would do, because the institution in charge, the Ministry of Economy and Energy, has not provided information on the value and cash flows of the project. The public has absolutely no idea about the correct implementation and the actual cost of the water main i.e. whether there is a misuse of State money in the form of expenditures, surcharges or poor quality materials, all things that are painfully familiar to Bulgarians as a way to steal from the budget.

A few days ago, the water main was completed, but during the test stage, the pipes already burst in several places and the water sprinkled like a geyser. Bivol’s research and expert reports reveal that the price of the water main to supply Pernik with water has been inflated at least twice. Due to fears for his life and health, our source wanted to remain anonymous, but the editorial staff knows his identity and expertise.

Just days ago, as if to confirm such concerns, Bulgarian Prime Minister Boyko Borisov announced that the country had already recorded a budget deficit of BGN 3.5 billion, but that was only because of the coronavirus crisis. A month ago, the government boasted strict fiscal discipline and a budget surplus of BGN 1.5 billion. Many experts have tried to guess what the Prime Minister has wanted to say when speaking of the deficit. Some have suggested that Borisov is referring to the deficit, which is projected for the end of 2020. For others, Borisov’s revelation about a budget deficit has been expected because the financial crisis has been forecast well ahead of the onset of the coronavirus pandemic. The simple arithmetic justifies the assumption that a number of projects that have been implemented in recent years or are in the process of being implemented are over-spending large budgetary resources. In such cases, the activity of the Prosecutor’s Office always dwindles and the apparent theft of public money goes unpunished, something typical for a country leader in corruption rankings like Bulgaria, which has been in a permanent crisis since 1989.

The crisis is like murky waters

Crises have proven to be an excellent occasion for abuses that the public is unwilling to resolve because of its own massive stress and confusion. In troubled times, dubious projects are being implemented that would normally cause outrage. Overcoming the water crisis in Pernik necessitated the construction of a water supply system, which has to balance part of the city’s consumption with water from the Belmeken dam. The infrastructure provides for bringing water through the Beli Iskar dam to the so-called Rila water main and then to a reservoir in the village of Malo Buchino near Pernik. It was announced immediately prior to the commencement of the construction works that a draft project has been prepared but it remains unclear to this day whether a technical one has been approved and agreed on. Force majeure justifies such omissions.

The government has committed itself to work around the clock and build the facility to the maximum extent possible. Construction began on February 1, 2020. The deadline initially set for completing the 14-kilometer stretch was 45 days. According to official data, the investment for the realization of the water main is BGN 27,039,000 with VAT. The Public Procurement Agency has indicated a value of BGN 22,131,640 excluding VAT, which is an approximately identical figure. According to the site of the local government of Pernik, this amount includes unforeseen operating costs of BGN 1,900,000, a monitoring and management system for the Studena dam at a cost of BGN 150,000, and costs for the supply of pumps, whose amount is unknown. The implementation of the project was entrusted to the State Consolidation Company, which in turn tasked it without a public tender to its subsidiary Montages.

The awarding of a project of great public interest to a State-owned company is not a precedent but it is a precedent for the subsequent recruitment of private subcontractors and subcontractors’ subcontractors, involving redistribution and absorption of public money. A similar precedent for actually circumventing the Public Procurement Act was introduced in Bulgaria’s legislation in 2015. Then, controversial amendments to the State Property Act were tacitly proposed and voted upon approval by the Council of Ministers. According to the amendments, State-owned companies may associate with private companies of their choice without a competitive tender procedure. Non-competitive selection can be made even for projects funded by the European Union (EU). Bivol exposed this vicious scheme in its investigation into the assignment of the construction of the Struma highway by the Road Infrastructure Agency and the State-owned company Highways (see here).

In the midst of construction works on the water supply and sewerage pipeline from Malo Buchino, the government suddenly announced that notorious construction companies Glavbolgarstroy, Raycommerce, GP Group and Groma Hold are also involved in them.

Bivol was the first to sound the alarm that works on the infrastructure had not been going as planned and had been even stalling (see here). The construction of a reservoir and pumping station near Malo Buchino also proved to be more time-consuming task than expected. Almost 50 days after the start of the works, the infrastructure was tested. The tests proved to be another problem for the project. Due to loose connections, the water main looked like a fountain, a very expensive fountain.

Poor quality, but expensive in return

Aside from the gap between the promises and the real-time of building the water main, its cost is another extremely disturbing detail. Experts, who have contacted Bivol, have specified that according to the prices established in the country, one linear meter of finished water main should cost between BGN 672 and BGN 750.39. These estimates use:

Data on the prices of materials from the Internet;

An hourly rate of BGN 5 is applied – the average for the country because it is most often offered at auctions by construction companies;

Additional costs are calculated 100% – for consumables, insurance, work clothes, and temporary construction, among others;

Another 10% in delivery costs are calculated along with a 10% profit and 40% in additional costs for mechanization;

These are the parameters that are typically set in the bidders’ offers that cover the stay of machines at the site.
All visible types of construction works that are shown in TV reports are also calculated. The reports showed that the depth of the digging was about 1.5 meters. The pipeline is constructed into the easements of existing roads, which avoids the construction of temporary roads. The estimates also earmark 10% for unforeseen expenses. The Building Manager’s pricing program that is considered standard is used and all of this shows that for a length of 13,500 meters, the resulting price would be between BGN 9,072,000 and BGN 10,130,265 and cannot exceed by much BGN 13 million.

The pumping station is also a very curious element. A report by TV channel bTV shows that several water pumps have been installed along the water main route. Online search reveals that the price of one horizontal pressure pump that is suitable for such a site does not exceed BGN 200,000. Depending on the engine, prices in Bulgaria of pumps of the D-1600D30 type, which are horizontal pressure pumps, reach up to BGN 49,500 without VAT. Talks between the authorities and a dealer representative have led to an agreement of a 10% discount for the purchase of three pumps. Even without the discount, the cost of the pumps with VAT would be about BGN 180,000. The site of the Public Procurement Agency shows price announcements for the construction of sites similar to the reservoir and the water pumping station in Malo Buchino amounting to about BGN 800,000 with VAT! However, due to the lack of clarity about the exact parameters of the site, the experts with whom Bivol has spoken bet on a price that is over 3.5 times higher or BGN 3 million. Even with the latter figure, the infrastructure’s value rises to about BGN 13 million. Moreover, even with the unrealistic 30% in unforeseen costs, the price still cannot exceed BGN 15 million! Then each of those 13,500 meters would cost the taxpayer BGN 1,076. Thus, the entire water main route would cost BGN 14,526,000. Even with a pumping station at triple the real cost, the cost of the facility can swell to a maximum of about BGN 17.5 million, way below the announced investment of up to BGN 27 million. The National Security Agency (DANS) and Prosecutor General Ivan Geshev should be the ones to unravel this mystery and the mystery with the BGN 500 million allocated for the repair and reconstruction of 182 Bulgarian dams but they remain silent and idle.

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