Ecologists have postponed investment of BGN 6 billion
What are the lost profits from delayed business projects due to questioning of environmental protection procedures? The answer to this question is the subject of a Study of KS2 EOOD ordered by the Ministry of Environment and Water (MoEW).
The analysis categorizes and estimates the expenses (direct, indirect, induced) for the economy, the state treasury, and the public incurred in the deferment/delay of investment intentions and projects due to questioning of environmental procedures for the period from 1 January 2007 to 31 January 2018.
The scope of the analysis covers:
- contracts/projects that have become publicly available;
- postponed projects in the field of national infrastructure building;
- projects and contracts subject of litigation or any such decisions resulting from a conflict between the objectives of different policies.
Specific cases related to delayed or postponed projects and plans were analysed in the area of: tourism, road infrastructure and waste water treatment plants in the Black Sea region; deferred investments in mineral deposits - Ada Tepe near Krumovgrad (gold), Tran (gold and silver), General Toshevo and Breznik (natural gas); management plans for Pirin National Park and Vitosha Natural Park; construction of Struma Highway, etc.
The lost profits (from non-realization and delay) and expenses incurred (non-refundable loss, value-at-risk, alternative expenses) were assessed. Where possible, the study estimated and analysed the direct (resulting from the initial value of the investment/project), indirect (effects of the increase in the value of the main activities in the implementation of the investment/project) and induced socio-economic impacts (additional expenses on suppliers/activities, etc., income of the workers, landowners, enterprises involved in the implementation of the project/investment).
Based on the study and under certain assumptions, the actual and possible negative effects (economic, social) of the delay/non-implementation/appeal of projects/investment intentions in relation to environmental procedures were assessed. The effects can be summarized as follows:
Unrealized employment due to deferred investments is estimated at 22,181 jobs for the whole study period (by a 2.5-year delay) and additional unrealized employment of 10,875 jobs for the same period (in case of non-implementation of part of the projects in the future).
The overall effect of the lost economic and fiscal benefits for the whole period is estimated to be BGN 1,145 billion (assuming an average delay time of 2.5 years), including effects. such as:
- Missed consumption - estimated at BGN 343 million (0.212% of total consumption based on average values for the whole study period);
- Negative fiscal effects - estimated at BGN 277 million (in the form of uncollected taxes due to unrealized income);
- Savings of the population - estimated at BGN 147 million (0.116% of the average long-term savings in the country).
The overall negative effect for the period (2007-2017) shows that each day of delay or termination of a project results in lost net benefits to society and the economy of BGN 952,595 per day (i.e. almost BGN 1,000,000 per day, excluding investments finally terminated or deferred for a longer period).
As a result of the calculations, the following aspects have also been pointed out: negative consequences for society (in the form of lost profits such as consumption, savings, taxes and social security contributions) - amounting to a total of BGN 505 million; net value of lost profits from unrealized investments after the delay period - BGN 498 million; losses incurred by the owners of lands and forests near or within protected areas (along the Black Sea coast and in mountain areas) - BGN 416 million.
The permanently lost profits for the entire period from projects and investment intentions that have been postponed for a long period or rejected and may therefore be considered conditionally (at a given stage) as irrecoverable losses (for the economy, budget, investors, owners, population, tourism) are estimated at over BGN 2 billion.
The ultimate losses should also be added to the value of permanently lost profits. Then the negative socio-economic effects for the 11-year analysis period come to more than BGN 2.6 billion. They are comparable to the volume of losses from natural disasters and industrial accidents for the period 2010-2017.
Potential losses or public "cost of reform" for investments already made, which would be contested if radical proposals were approved (expropriation, limitation of rights, etc.) for suspension, relocation, ban of access, cancellation of contracts and other forms of seizure of rights – the effect is estimated at BGN 1.4 billion and mainly affects the areas of the Northern Black Sea coast, Pirin and Vitosha Mountains. However, the list of radical proposals is far from complete.
The total deferred investments for 2007-2017 are estimated at over BGN 6 billion (calculated on the assumption that the affected environmentally-related investment projects represent approximately 3% of the investment in the economy for the period). As a basis for the calculations, NSI data on the total costs of acquiring tangible and intangible assets with ecological use for the period 2010-2013 were used.
For specific cases, additional losses were also estimated and examples are given, such as:
- For 5 years of delayed construction, the fuel losses during traffic jams in the Burgas - Sunny Beach section for one year are worth over BGN 22 million.
- Postponing the adoption of a new Management Plan for Pirin National Park does not allow the updating of the concession contract. This reduces the potentially positive fiscal effect of a double increase in concession remuneration: with an average of about BGN 180 thousand for the first 14 years to a project amount of BGN 350 thousand in case of a change in the contract. In this regard, the lost profits for the state and municipal budgets from concession fees per year are estimated at approximately BGN 240 thousand. Depending on the parameters set, if the current situation remains, the receivables uncollected by the concession providers until the end of the contract will be between BGN 1.12 and 2 million. The value at risk in case of radical decision for Bansko ski area is up to 158 million BGN turnover of the business in the region (of which BGN 20 million income for the budget).
- Only the provision of access to the mountains by cable lines as an alternative to busy road access requires investments of about BGN 100 million (probably around BGN 20 million for Bansko ski area). Apart from this, the restoration and development of Vitosha, the area around Kom Peak in Stara Planina and the renovation of existing ski destinations of local importance will require between BGN 115 and 125 million. Thus, if the relatively limited investments of the national and natural parks themselves are added thereto, the deferred investments come to between BGN 230 and 245 million for a period of five years. The study allows for the assessment of future lost benefits if and when there are new projects for ski and winter tourism areas (beyond the foregoing directions).
- According to the general road traffic accident statistics for the last five years, death toll for motorway accidents amounts to an average of about 3.2-3.3 times less than that for first-class roads, i.e. the delay in the construction of Struma Highway in the section of Kresna Gorge alone and the other similar highway sections cost the loss of human lives for the years of delay, and this time the delay is the longest - 12 years. The death toll in the gorge is between 5 and 10 people per year, and if they were able to use a highway, the number would be three times less;
- Depending on the assessment method (assuming and presuming that human life can be rewarded or measured in money), the damage from the loss of life in this highway section varies from BGN 2,82 million to BGN 110 million for 10 years (according to a more realistic assessment method) or BGN 11 million per year.
As a result of the analysis of the deadlines and peculiarities of the cases of investment proposals, environmental impact assessments and environmental assessments (with respondent MOEW), the authors of the study found that, after 2013, the contested decisions have increased between three and four times and that the grounds for appeal are often one and the same.
Overall, with respect to the methodology, method and approach of analysis, it was stated that the analysis is based on conservative assumptions, and that the summarized results represent a minimal scenario of the effects in the four categories analysed (temporary and permanent lost profits, final losses and potential losses).
Against this background, the authors point out a positive trend that in 2018, after a significant improvement from previous years, Bulgaria ranks 30th out of 175 countries with respect to environmental quality and conservation policy according to the Environmental Performance Index (EPI) of Yale University. From the new EU Member States only Slovakia and Lithuania rank higher than Bulgaria.