Pavel Vacek: Bulgaria's Politicised Regulation Has Devalued Czech Investment
Novinite has interviewed H.E. Pavel Vacek, Ambassador of the Czech Republic to Bulgaria, on various bilateral issues, but mostly on issues in Bulgaria's energy sector and the repercussions they have on Czech companies.
Mr Vacek has been his country's envoy to Sofia since April 2011. Prior to his Sofia assignment, he was Director General EU Affairs at the Czech Foreign Ministry (2009-2010).
Born in 1962, he has pursued his diplomatic career since 1984. Within this time he has held a number of offices, first at Czechoslovakia's and after 1992 at the Czech Republic's Foreign Ministry.
Between 2004 and 2007, he led the Organization for Security and Cooperation in Europe (OSCE)'s mission to Albania.
Mr Vacek, earlier this month Bulgaria's Energy Minister announced inspections were due at all electricity distribution companies, days after the competition watchdog accused CEZ of abuse of dominant position. Experts from the ministry have also discovered irregularities at Energo-PRO, another Czech company, including double invoices. How does the Czech Republic look at these developments? Do you think the companies are being mistreated?
The Czech problem in Bulgaria is the concentration of the EUR 1 B investments into the energy sector, particularly into distribution, where the increasingly politicised regulation has devalued the investments. Isn’t it absurd? The same companies which are being tarred and feathered here perform without problems elsewhere: Can you see any debates about monthly electricity bills in Czechia or Austria? There are none... as there are no monthly bills - people pay a flat monthly or quarterly rate in advance and the balance is settled annually. Many clients in my country don’t even know how to find their electric meters, there are no issues with meters, be it tampering or alleged irregularities in readouts. Here, ministers feel the need to comment on bills and meters... Nonsense keeps reverberating: the same false arguments, the same suspicions, the same accusations, the same probes and fines and licence revocation procedures, year after year, government after government, it is frustrating... And yet we have seen the share of the distribution in the overall electricity price fall into the region of a statistical error in the last few years - so it is obvious that the bulk of the Bulgarian electricity problem lies beyond distribution... which has always been clear to an impartial observer.
Is there any political pressure on electricity distributors and do you find any similarities between the situation now and that of February 2013?
Let’s hope for no more political pressure on the regulators - it clearly was there in the past, just check the public statements of February and March 2013 and then again in Spring 2014… Let us see if the current Government has learnt the lessons. However, it has a difficulty to resist populist temptations coming from both left and right. Here, people are made to believe electricity is some sort of public good which should be distributed at symbolic prices or on the basis of a social need. But there are other policies of the State to make this happen, not the energy regulation... The difference I see between two years ago and now and is that the room for populists to exploit the electricity issue has shrunk. Yet the interests which help launch campaigns against the foreign EDCs [electricity distribution companies] are still out there. Certain domestic actors see the EDCs have been turned into modern companies, can be run efficiently and with profit and would like to acquire them, at nice prices... That requires bringing EDCs to their knees, making them sell cheaply their assets and leave... and the oligarchic capture of the state should have made this happen - hence the accusations, hence the campaigns, hence the probes...
Last year you were among the seven ambassadors who openly raised their concerns over prospective changes to the energy sector. Months later, when there is new legislation in place, which do you think is the biggest problem in Bulgaria's energy sector?
The energy law has been amended, let us see whether the DKEVR will have more integrity and independence when it is elected by the Parliament... Doing away with preferential tariffs for some RES [renewable energy sources] is a step dictated by the reality - it is however regrettable it penalises even those RES projects nearing completion which have been based on agreements with the State - another 10 million of Czech investment going down the drain - this time around it is biomass... One must have even more doubts about motifs and effects of some other aspects of the amended law. Will the tenfold increase of fines against EDCs help anybody? What sense does it make that companies can be fined more severely for a technically wrong monthly electricity bill than e.g. for mishandling explosives... Why a non-payer cannot be disconnected before a weekend? To make him enjoy more power for free? Is this the long-awaited reform of the Bulgarian energy sector? What international practices or standards have been followed here? The general problems in the energy sector remain the same: continued cross-subsidising, inefficiency and mismanagement, culture of non-payment in the state sector... I’ve met people from the top management of these companies who have told me they believe State is a better manager than a private entrepreneur - if that was true communism wouldn’t have collapsed...
Apart from energy, where do you see substantial but yet untapped opportunities for deepened economic cooperation between the Czech Republic and Bulgaria?
If you mean the opportunities for Czech export then I see quite some room in the public infrastructure, esp. where the European funding is available; also a good part of the success is in the private sector - Bulgarian manufacturing industries generate demand which is responded to by Czech exporters. This however depends on the economic cycle and foreign investments... If you mean new Czech investments I feel it depends on the treatment of the existing ones.
The Czech Republic ranks as a rather average trade partner to Bulgaria in terms of exchange volume. What do you think is the biggest challenge to a more successful trade relationship?
Actually, what is it that should make Bulgaria an above-average partner for us...? But I think more than EUR 650 M of the Czech export last year and a trade turnover nearing EUR 1 B are not bad results... Actually, these are the records of all times since 1989… The rate of growth of mutual trade is impressive, it has consistently exceeded the rate of economic growth in both countries in the last several years... The biggest challenge for a Czech exporter is to identify the right niche here and within it to find a serious, reliable and solvent partner - client.
For the past 4 years in which you have been Ambassador to Sofia, which political or economic changes in Bulgaria do you consider to have been the most important ones?
Among the good things definitely is the disappearance of the never-ending "ostavka" street protests - people probably understand better now that if you dislike the existing government then try to change it via next election not via street riots... Things have improved in the public infrastructure, Burgas and the Southern coast are more accessible now, municipal transport and waste-management are modernised...
Czech businesses are a lot more represented in Bulgaria than Bulgarian ones in the Czech Republic. Given your observations on Bulgaria's environment, what steps do Bulgarian entrepreneurs have to take to be more successful abroad?
The capacity and interest to invest abroad have to do with the economic strength, surplus capital and plans of individual companies and here we are talking about two different countries - the one with the product per capita three times bigger than the other... I do follow and assist Czech investors here; I don’t have any advice for Bulgarian investors in Czechia – those few who already are there must know better...
Czechs and Bulgarians were in the same bloc during the Cold War, and now there are significant political and economic gaps between their respective countries. What is it that has made the Czech Republic more successful in its democratization?
Czechoslovakia was among the 10 most industrialised countries of the world before WWII - that remains the reference for us... Since 1989 we have been able to economically outperform only the poorest member states of the EU. At this rate it will have taken more than half a century since the end of communism to get to the EU average - that the legacy of communism is so heavy is part of the disillusionment... Successful long-term strategies of change are known but they are not pursued easily by governments straightjacketed by short-term election horizons and coalition politicking - that probably holds true in both countries...
Czech President Mr Milo? Zeman maintains notably close ties with Russia, and so did (and does) his predecessor Mr V?clav Klaus. This causes some confusion about Prague's stance in recent EU-Russia relations. All this said, should some EU states be allowed to maintain privileged relations
with Russia in the light of current sanctions?
Beware of recycling misapprehensions of others... What confusion, whose confusion? About what? Are we talking a breach of agreed EU policies? I’m not aware of one. Do we see Czech constitutional representatives travel to court Moscow or receive their Russian counterparts in Prague? We don’t... But I see a procession of others. It is not Prague who weakens the EUs unity towards Russia. What privileged relations you think Prague has with Moscow? I’m aware of none. Or shall we speak of 300.000 properties and some strategic industries owned by Russian subjects in Bulgaria…? On the other hand, I believe Czechs tend to be more on the pragmatic, rather than the ideological end of the spectrum of opinions when it comes to dealing with Russia as a problem. However you should look to Berlin and Paris if you want to know better what comes next in the EU - Russia relationship that is now dominated by the Russian - Ukrainian conflict whether we like it or not. And we know the way of aggression towards neighbours and confrontation with Europe was chosen by Moscow not by us…
Mentioning Mr Klaus, he is also known as an outspoken Euroskeptic. Do you think that EU integration should have a limit beyond which it could hurt smaller member states, a group both the Czech Republic and Bulgaria belong to?
Size is not the only criterion here, it is rather common interests which are the basis for alliances... And interests are partly given objectively, partly they are identified by governments, political representations. And this applies also to the European integration, both in terms of its end state as well as the process... The objective of the European integration is one of the most political questions ever - its limits have to do with political convictions, mine are as legitimate as yours... Personally, I believe the key interests of smaller actors like the Czech Republic are always better met within a strong EU than outside of it, within the mainstream of the European integration rather than on the fringes of it, despite all misgivings people may have, rightly or wrongly, about the EU.
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Wow, and this comes from a diplomat? I am sorry, but this does not sound diplomatic at all! I have worked with government representatives of various countries around the world and the language used by Amb. Vacek is really not appropriate for his office. Is he trying to belittle Bulgaria and make it look like an unequal partner to the Czech Republic? Every single one of his replies points in that direction. Statements such as "Actually, what is it that should make Bulgaria an above-average partner for us...?" are really insulting and would not be taken lightly in any other country. It is sad that no one has commented on this interview yet. And the protests... they appear to annoy Amb. Vacek. Well, apologies for the inconvenience to big Czech businesses but the protests were about so much more than "ostavka". It would worthwhile to his office to pay some attention to what was really going on in the country in 2013-2014. Other Ambassadors representing the most developed economies in the world had done so and had come out with statements supporting the democratic protests. And, dare I mention, people actually burnt themselves to death in those protests that Amb. Vacek easily dismisses.