Bulgaria faces loss of aid over corruption

Bulgaria risks losing billions of euros in European Union aid to modernise roads, railways and ports as a result of corruption and mismanagement of pre-accession funding under its Socialist-led coalition government.

The Union's poorest member state is already set to lose at least €600m (£477m, $950m) in pre-accession transfers after a strongly critical progress report by the European Commission, which is expected to be adopted by EU foreign ministers this week.

The transfers would help Bulgaria to sustain high annual growth rates and achieve its goal of becoming south-east Europe's transport and energy hub by 2015.

"If Bulgaria is to catch up with central European EU members, the infrastructure projects must go ahead as scheduled," said Ognian Shentov of the Sofia-based Centre for the Study of Democracy.

"Otherwise foreign investment will slow and goods will travel through Romania and Greece instead."

Several recent developments have highlighted the need to improve management of infrastructure projects.

The national road infrastructure fund, which managed tenders for highway construction, was shut down last month after an audit by KPMG, the international accountants, revealed widespread irregularities.

Lyobomir Lilov, the road fund director, was arrested last January after a sting operation by Bulgarian police.

The country's biggest public private project, a €700m road upgrade between the border with Serbia and the Black Sea port of Burgas, offered as a 30-year concession, collapsed last month after three years of negotiations with a Portuguese-Bulgarian consortium.

The Portuguese partners, led by MFS, a Lisbon-based contractor, pulled out of the project after disagreeing over contract terms with two state-owned Bulgarian construction companies.

The Bulgarian finance ministry says it will back a scaled-down project.

Work would be shared among a large number of local construction companies in order to meet deadlines.

"It's no longer about building a gleaming European toll-road," said a Sofia-based banker.

In an effort to deflect EU criticism and accelerate disbursement procedures, the government in May appointed Meglena Plugchieva as new deputy prime minister to supervise the reorganisation of agencies handling transfers from Brussels.

Ms Plugchieva, Bulgaria's former ambassador to Germany, has asked Olaf, the Commission's anti-fraud unit, to send a team to Sofia for two weeks every month to carry out audits of funding procedures.

"We aim to salvage as much pre-accession funding as possible and make sure we can access the much larger amounts that will be available in future," she said.