Bulgaria will pay its newest warships in an unclear financial scheme with many questions

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SOFIA, (BM) – The Ministry of Defense is on the verge of finalizing negotiations on the second megaproject for rearming the Bulgarian army according to NATO standards – the acquisition of two new modular patrol ships for the needs of the navy, learned BulgarianMilitary.com citing the Bulgarian news agency Capital.

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The value of the modernization program is BGN 984 million with VAT [approx. $600 million – ed.], which according to the investment project approved by the parliament must be paid within nine years.

Last week, Defense Minister Krassimir Karakachanov announced that the contract with the potential contractor would be signed “within days”. According to Capital, the contract with the German shipbuilding company Fr.Lurssen Werft GmbH & Co.KG, which was canceled in the first place in the bidding, should be signed in the first week of November.

A source close to the talks also claims that a new scheme for deferred payment of the two warships is likely to be reached. The idea was to transfer most of the amount in advance so that Lurssen would not have to take out a bank loan, which would further increase the cost of the vessels. For this year, the Ministry of Defense had allocated BGN 171 million for the first installment for the patrol ships, which, however, unexpectedly turned out to be transferred from the Ministry of Finance to the budget for next year. Karakachanov saw in this action the long arm of “certain circles that are trying to hinder the deal”.

Most likely, the Minister of Defense refers to the attempt of the Italian shipyard Fincantieri, which was ranked second, to appeal the procedure before the Supreme Administrative Court (SAC). In the case, the Italians hired a lawyer, Cetin Kazak, who is not only a lawyer but also a member of the Central Operations Bureau of the MRF.

According to our source [Capital’s source – ed.] from the Ministry of Defense (MoD), the idea of ​​a larger initial payment at the beginning of the modernization project is also to reduce the political risk for it and make its eventual termination more difficult when changing the power configuration after the parliamentary elections.

He claims that disagreements with the finance ministry have already been cleared and that a small first installment for the ships is likely to be made after the signing with the Germans in November. At the moment there are no special obstacles for this to be done – the budget is still accumulating a surplus, and in addition the state is placing a new loan worth BGN 5 billion.

Read more: Three Offers Are Expected On the Project for Building Of Two Bulgarian Patrol Ships

It remains to be seen whether the mega-project in question, worth nearly BGN 1 billion, will have to be re-approved by parliament. According to the Ministry of Defense, this will not be necessary, as it becomes another for a contract with a company and not for an interstate agreement, which is subject to ratification by the National Assembly. However, the current practice is that contracts worth up to BGN 50 million can be concluded independently by the ministers, up to BGN 100 million can be approved by the Council of Ministers, and above this amount can be voted by the deputies in the parliament.

It is also interesting what will be the industrial cooperation that will be agreed with the German shipbuilding company, so that at least part of the nearly a billion levs in question will be reinvested in the Bulgarian economy. According to Capital, Lurssen are about to acquire part of Varna’s Delfin private shipyard, where the hull of the new warships will be assembled and the non-specialized part of the equipment integration will be carried out.

The idea of ​​the Germans was also that the joint venture would serve future orders for more price-oriented markets. For now, however, it seems more likely that the first of the two patrol ships will be integrated in Germany and the second in Bulgaria when Dolphin acquires the relevant know-how from Lurssen.

As we reported on June 16 the Bulgarian Ministry of Defense (MoD) has begun negotiations with the German company Lurssen for the construction of two modular patrol ships for the needs of the Navy, with the project costing nearly BGN 1 billion.

According to Defense Minister Krassimir Karakachanov, this will most likely happen today [June 16 – ed.], as the reason for the delay was the epidemic of the new coronavirus.

In practice, the procedure for acquiring the two corvettes was temporarily frozen due to a complaint by the other participant in the race – the Italian defense company Fincantieri, before the Supreme Administrative Court (SAC).

It is not clear what exactly is the fate of the case at the moment, as on May 29 the magistrates classified the proceedings. However, it seems that the dispute is clearly not in favor of Finkantier”, as the Ministry of Defense has already decided to move to the next step and start negotiating with the Germans on the parameters of a possible deal, which, according to Karakachanov, should be concluded by the end of the year at the latest.

As we reported in May, the complaint is probably an attempt to sabotage the modernization program by postponing it by procedural means, according to Kapital sources. If the project is not finalized in parliament by the end of the summer or the beginning of autumn, the agreement with the Germans will hardly be able to be signed in time.

Read more: Bulgarian Replacement of Navy Ships will Be a Costly and Timely Challenge

According to unofficial information, the subcontractor of the German military company will be the Bulgarian shipyard Dolphin. The company was determined as the winner in the previous attempt to implement the same project, but withdrew at the last moment, after it turned out to be surprising that 20% VAT should be deducted from the budget. It is also claimed that Dolphin will now have to take on the “rough work” on the project and will construct the hulls of the two corvettes, while Lurrsen will take on the systematic integration of equipment and armaments.

Two second-hand warships bought from the Netherlands arrived in Bulgaria

The two minesweepers were bought from the Netherlands for 1.9M euros and were now delivered by a heavy truck, as we reported in September.

The new ships of the Navy, which were bought “second hand” in the fall of last year from the Netherlands, arrived in Varna, BNR reports. They are loaded on a semi-submersible truck flying the flag of Curacao. The warships were loaded on September 7 in the Netherlands and are expected to cross the sea-lake canal before 4 pm and be launched tomorrow.

The ships were renovated, they cost our country 1.9 million euros and another 2 million levs to be transported to Bulgaria. Parliament ratified the contract for the purchase of the two minesweepers Maasluis and Hellevutsleis in early December 2019.

Both ships are of the same class as the minesweeper “Ciber”, which was bought from Belgium in 2004 – tripartite. Of these, 45 ships were built between 1981 and 1989. The project is a joint development of Belgium, the Netherlands and France, recalls National Radio.

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