Multiple Challenges for Bulgaria (8/8)     Print Email
Sunday, 03 August 2014

By Kelsey Fraser, Editorial Assistant

The EU’s poorest member state, Bulgaria, has been buffeted by serious economic and political issues this year-- the ongoing battle over the status of the Bulgarian portion of the South Stream pipeline, a renewed banking crisis and the recent resignation of Prime Minister Plamen Oresharski on July 24. President Rosen Plevneliev has called for a snap election on October 5th of this year.

The past two governments have stayed in power for only one year before being ousted or resigning. Support for Oresharski’s coalition government was undermined by public accusations of corruption, as well as by his party’s poor showing in May’s European Parliament elections.

President Plevneliev has appointed a caretaker government led by former lawmaker and law professor Georgi Bliznashki. The new caretaker government will be tasked with restoring a loss of confidence in the nation’s banking sector, which has been on a downward spiral in recent weeks. In June, the Corporate Commercial Bank (Corpbank) was taken over by the national bank after a run on deposits. This eventually led to another run on deposits for a second bank, First Investment Bank. President Plevneliev has ordered an audit of Corpbank which will eventually lead to a government decision on whether to bail out the bank or allow it to collapse, as well as deciding the extent to which the government will protect depositors.

In addition to the banking crisis, Bulgaria has been caught up in tensions surrounding the construction of the South Stream pipeline. If it is completed, the pipeline would provide an alternative route for Bulgarians to receive natural gas. Today, almost all of the natural gas used in Bulgaria comes through Russia by way of crisis torn Ukraine. Nearly complete dependence on Russian gas transported through Ukraine makes Bulgaria highly susceptible to shut-offs due to pricing disputes and potential unilateral action by Russia in response to EU sanctions against the Kremlin.

While speaking at The European Institute in May of 2013, just prior to the last snap election which brought Oresharski into power, President Plevneliev predicted that energy sector reforms would be a big issue for the next government. He stated, “The first need to be addressed by this government will be, of course, what brought people on the street, the unreformed energy sector. The next parliament has to take a very responsible position for it on day one, for the Bulgarian energy sector, which needs to be restructured, for the Bulgarian energy regulator who failed.”


Issues of non-compliance with EU pipeline regulations have been raised. The European Commission’s regulations, known as the Third Energy package, were put in place in 2009 to guarantee third-party access to pipelines and separate ownership of energy-producing and energy-transporting companies. The EU claims that Gazprom, Russia’s state owned energy company that has taken the lead on South Stream violates EU law regarding third-party access. Russia has heavily supported the South Stream project and the Kremlin has questioned the European Union’s right to impose such regulations. Russia has lodged a complaint with the World Trade Organization, arguing that intergovernmental agreements supersede EU law.

The United States also became involved in the dispute over the Bulgarian section of the pipeline due to issues regarding the construction company that was awarded the tender. Stroytransgaz is owned by Gennady Timchenko, who is a Russian oligarch sanctioned in the first round of economic sanctions imposed by the U.S. Three U.S. Senators visited Bulgaria in early June, expressing their concern over the South Stream project and Stroytransgaz’s involvement. Following their visit, then Prime Minister Oresharski decided to halt South Stream, in accordance with earlier demands by the EU Commission for the project to be suspended.

The main political parties in Bulgaria still support its eventual completion. However, both the caretaker Prime Minister Bliznashki and President Plevneliev have stated that the project will not be resumed until the Commission, gives its approval--with no specific timeline on when or if that will occur.