Back Issues: The EU, Bulgaria and State Aid - Next 
EU flag in Sofia
EU flag in Sofia

The EU accession process triggered a frantic drive of reforms and adaptations to EU standards in the Bulgarian administration. Besides big areas like agriculture, free movement of goods and environment, it also had an impact on many smaller areas, thoroughly transforming the Bulgarian state apparatus and the way it functioned. One of these smaller areas was State Aid.

The objective of state aid control in the EU is to ensure that government intervention does not distort competition and intra-community trade. State aid is defined as an intervention by public authorities giving one company an advantage over its competitors. Subsidies granted to individuals or general measures open to all enterprises do not constitute state aid (see website of DG competition).

The Europe Agreement of 1993, which came into force in 1995, contained a provision (article 64) on state aid: it was the first time Bulgaria had to tackle the issue. Plamen Vassilev was an expert in the international economy directorate of the Ministry of Finance when his boss told him to get acquainted with article 64. Vassilev, now head of the Ministry of Finance's state aid department, recalls:

"This was something completely new for Bulgaria and for myself as well."

At the time, most of what the EU considers state aid was granted by the Ministry of Finance on a discretionary basis; rules and transparency were lacking. Vassilev worked for nearly a year on this issue before a state aid department – responsible for applying article 64 of the Europe Agreement – was set up in the Ministry of Finance in October 1996. Initially Vassilev was the only person in this department.

In 1996, the first state aid inventory was carried out (by an EC-financed outside consultant, as domestic experts were still unavailable). "This was very difficult then. Nobody knew about it and many ministries tried to keep information to themselves. These were completely unknown topics."

The EC's 1997 Opinion on Bulgaria stated:

"In the field of state aid, Bulgaria does not, at this stage, meet the requirements of a credible state aid control. No rules for the monitoring of state aid exist for the moment and the transparency required in the granting of state aid has not yet been achieved. It is therefore not possible to examine whether the state aid granted is compatible with the Community state aid rules."

Bulgaria has come a long way since then. The beginnings were difficult, Vassilev explains:

"In principle, state aid is forbidden, but there are hundreds of exceptions. It took a while to convince ministries in Sofia that this is important. They were saying that if it's forbidden, why should one deal with it?"

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In 1997 the Bulgarian authorities realised the need for a more serious structure. Vassilev was sent to attend training sessions in Stockholm, London, Brussels, and Maastricht, where he saw how member states dealt with state aid. Additional staff were hired and trained, with different experts made responsible for different aspects of state aid. By 1999 the department had five people. A network was also being created: two contact persons per district in all 28 districts, in every ministry and in some government agencies. By 2006 the department employed 8 people.

Over the years the EC provided the department with a lot of assistance. Four twinning projects – two smaller ones at the beginning and two bigger ones later on – were organised jointly with the Commission for the Protection of Competition, the Bulgarian body entrusted with the control of competition as well as state aid. The EC helped purchase computers for the department, the Commission for the Protection of Competition, and the 28 districts. Each year DG Competition invites officials from the accession countries to a conference on state aid, where they can obtain firsthand information about new developments.

In 2002 the State Aid Act was passed, becoming the legal basis for the state aid department and the Commission for the Protection of Competition. As of 2002 the Ministry of Finance has been able to write official letters to all state aid donors and – using the same methodology as EU member states – to prepare serious annual reports. The state aid inventory has improved significantly from its inception in 1996 (when, using data from the Ministry of Finance, it covered generic subsidies only, but not other forms of state aid). A computerised state aid network is now in place, and all relevant areas are covered. The department also issues opinions on the compatibility of new legal acts with state aid rules. Judgements on state aid issues are delivered by the Commission for the Protection of Competition (Komisia za zastita na konkurenciata), but this power will be transferred to the EU after accession.

The EC, in its 2005 Monitoring Report, reaches a very different conclusion than in 1997:

"Bulgaria is generally meeting the commitments and requirements arising from the accession negotiations in the fields of anti-trust and state aid, and is expected to be in a position to implement the acquis from accession."

The Stockholm European Council in 2001 had asked member states to demonstrate a downward trend in state aid in relation to GDP and to redirect aid towards horizontal objectives (environment, SME, employment aid and regional aid) versus sectoral aid (primarily for manufacturing and coal).

At the time of the big bang enlargement of 2004, Bulgaria had one of the lowest rates of state aid both in absolute terms and as a share of GDP: at 0.36 percent, it is considerably lower than in the new EU member states (1.35 percent) and still less than in the old member states (0.45 percent). Although the share spent on horizontal measures is still lower than in the old member states, it is nearly double the new member state average.

Table: State aid in Bulgaria and the EU, 2002-2004

EU25

EU15

New MS

BG

State aid as % of GDP

0.49

0.45

1.35

0.36

State aid per capita (PPS), €

109

109

161

23

Horizontal objectives of total state aid (%)

68

n/a

23

45

Source: EC, Report – State Aid Scoreboard. Spring 2006 Update, COM(2006) 130 final, 27 March 2006, pp. 11 and 13.

October 2008

 Back Issues: The EU, Bulgaria and State Aid - Next 
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