Bulgaria to boost industrial, green and growth investments

Bulgaria

In May, ECOFIN greenlighted Bulgaria’s Recovery and Resilience Plan (the “Plan”) in line with Regulation (EU) 2021/241 establishing the Recovery and Resilience Facility (the “Regulation”). This is a step before the European Commission enters into an agreement with the Bulgarian government enacting the Plan. Amongst other things, the Regulation aims to facilitate a green transition, sustainable growth, and economic digitalization. Following after European policies, the Plan is structured in three pillars which are based on the scope of the Regulation. Specifically, it is built around education and skills, research and innovation, and the smart industry as primary targets for future investment.

Developing industrial ecosystems

The Plan envisages the adoption of a legal framework to attract industrial investment and develop industrial ecosystems. Part of this framework is the Industrial Park Act (“IPA”) which foresees, amongst other things, tax and administrative relief for owners and investors in the planning and operation of industrial parks. Such parks could be designated as high-tech manufacturing areas or perform other operations without being limited by the IPA. Moreover, owners and investors are also granted access to additional financial assistance under the Investment Promotion Act which includes, e.g. state aid, establishing joint ventures, and special administrative servicing.

The IPA is also supplemented by a public support programme, AttractInvestBG, which seeks to facilitate favorable conditions for investors by providing state support through grants. Current or potential operators of industrial parks may apply for a grant given they have a clear view on the economic impact of their project, which shall also implement certain environmental criteria.

Fostering the green transition

One of the country-specific recommendations made by the European Council for Bulgaria was to focus investment-related policy on energy efficiency and energy infrastructure in order to contribute to a progressive decarbonization of the economy. Thus, Bulgarian policy makers have laid out an initiative in the Plan to establish a National Decarbonization Fund, which will offer grants and financial instruments through a one-stop-shop mechanism in order to finance low-carbon energy projects.

Another reform envisaged under the Plan is for the reduction of the administrative burden for renewable energy projects related to their installation, connection and operation. Some of the measures include amendments to the existing legislation in order to simplify licensing and permitting procedures, as well as to remove certain technical approvals by the operators for household installations. The reform is expected to eliminate barriers and introduce a support framework for the construction and connection of RES facilities.

A distinct investment outlined in the Plan is a pilot project for combined heat and power from geothermal sources which essentially constitute a geothermal power plant. The government is planning to finance the construction of such plants as well as the 3D seismic mapping necessary and a specialized university laboratory for research and training.

Equity instruments for the future

The digital transition will be advanced mainly through two funds – the Growth and Innovation Fund (Fund 1) and the Climate Neutrality and Digital Transformation Fund (Fund 2). Fund 1 includes investment plans in the form of a grant scheme for technological modernization, which primarily targets SMEs and is intended to optimize production costs and achieve higher productivity in general. In the near future, the Ministry of Innovation and Growth will come up with a management programme to track the implementation progress of the financed projects.

A separate sub-fund will be established to Fund 1 with the sole aim of providing equity instruments for innovation through venture capital funds, technology transfer funds, and seed and social impact funds. In contrast, Fund 2 will mainly finance digital infrastructure projects such as data centres and 5G networks.

All the equity instruments will be provided by the European Investment Fund (EIF) as a financial and implementing partner, on the grounds of a dedicated funding agreement to be signed between Bulgaria and the EIF for the equity operation.