Chapter 2: Bulgaria

(continued)

2.3 Overview of the Environmental Market

Environmental Expenditures

Financial resources for environmental expenditures have decreased in recent years, mainly because Bulgaria's severe economic problems have constrained the ability of key sectors to finance environmental expenditures. This has especially discouraged investments in cleaner production processes that require enterprise resources and environmental investments that recover costs via user charges. The government has also tried to reduce public expenditures and contain high budget deficits as part of its macroeconomic stabilization. In addition, the difficult economic conditions have brought pressure to relax or suspend environmental requirements, particularly where they may affect employment.

TABLE 2.2: ENVIRONMENTAL EXPENDITURES, 1993-1995
Year	Environmental expenditures (mln USD)	Share of GDP (%)

1993	137.5	1.3
1994	108.4	1.0
1995	118.0	0.9
Source: Ministry of Environment, 1996

Total spending on environmental protection in Bulgaria was 1.3 percent of the gross domestic product in 1993 and has decreased since then. In 1995, only 0.9 percent of GDP was spent on environmental protection activities. As shown in table 2.2, annual environmental expenditures amounted to more than USD 137 million in 1993, USD 108 million in 1994 and USD 118 million in 1995.

In 1994, 29 percent of environmental expenditures was derived from governmental sources, 8 percent from local authorities and 63 percent from private and state-owned enterprises. A minor part was derived from the national and municipal Environmental Protection Funds and from international financial assistance. The state budget for 1996 provides expenditures mainly for nuclear safety - USD 70,000 has been allocated to the safety and storage of radioactive waste fund, and USD 5 million is provided for safety investments for the Koslodui nuclear plant.

Although the biggest share of environmental expenditures comes from domestic sources, total commitment of foreign assistance in 1994 amounted to approximately USD 12 million. However, only a portion of the committed funds had been disbursed. Loans totaled more than USD 240 million. In addition, Bulgaria has reached an agreement for a public debt-for-environment swap with Switzerland, and the PHARE Programme provided USD 3.5 million in 1996 for environmental activities.

Two eco-investments started in 1996 are the result of agreements between the Bulgarian and Japanese governments for treatment of a nonferrous metal plant in Plovdiv (USD 60 million) and of mining facilities in Eliseina (USD 20 million). The investments are mainly for technical equipment, waste recycling and air pollution prevention. Additional investments in sewage and drainage systems for some municipalities totaled USD 10 million. These were mainly investments made by the German consortium RWE-RTZ.

Urgent investment will be needed in the near future upon the adoption of EU standards concerning water quality, municipal waste management and modernization of the industry. These regulations will necessitate an overall increase of environmental expenditures.

State Environmental Funds

As in other transition economies, both budgetary funds and earmarked revenues for environmental protection are very limited in Bulgaria. The National Environmental Protection Fund was established in 1993 and is operated by the Ministry of Environment. The Environmental Protection Law of 1991 provided the legal framework for the creation of a National Environmental Protection Fund and Municipal Environmental Protection Funds. The primary objective of the funds is to finance the clean-up of environmental pollution.

Sixty percent of the pollution charges and 70 percent of the pollution fines are allocated to the National Environmental Protection Fund. The rest of the pollution charges and fines are allocated to the Municipal Environmental Funds. Additional revenue sources for the funds include fees collected by the Ministry of Environment for special services; proceeds from the privatization of state-owned companies and from taxes on fuel; and installments and interest payments. By the end of 1995, environmental funds had been established in 170 of Bulgaria's 251 municipalities.

In 1996, the Executive Office received 647 applications for funding from municipalities, companies and environmental NGOs. The number of applicants is expected to increase in the future, especially because high inflation makes the long repayment period of loans from the fund particularly attractive. Further, loans given by the environmental funds tend to carry lower interest rates than commercial banks charge.

Total fund revenues for 1996 were estimated at USD 10.6 million, while expenditures amounted to USD 9.3 million. Revenue and expenditure figures for the past four years are shown in Table 2.3.

TABLE 2.3: REVENUES AND EXPENDITURES OF THE STATE ENVIRONMENTAL FUND (MLN USD)
	1993	1994	1995	1996¹

Total revenues	3.8	6.0	7.9	10.6
Total expenditures	2.2	3.6	6.3	9.3
1) estimated Source: Ministry of Environment, National Environmental Protection Fund, 1997

Over the past four years, the largest portion of the Fund's spending was allocated to water-related projects, predominately for the construction of wastewater treatment plants (45 percent of the total spending in 1996). Spending on air pollution was mainly directed toward air purification equipment and amounted to 13 percent of total spending. Only 8 percent was spent on waste-related projects. Monitoring and information systems were given a high priority in the past (45 percent of total spending in 1993), but spending in this area had decreased to 17 percent by 1996. Table 2.4 shows the breakdown of spending by media.

TABLE 2.4: FUND EXPENDITURES BY MEDIA
	1993	1994	1995	1996¹

Air	12%	32%	25%	13%
Water	33%	31%	38%	45%
Waste	4%	2%	3%	8%
Monitoring and Information Systems	45%	30%	29%	17%
Other	6%	5%	5%	17%
1) estimated Source: Ministry of Environment, National Environmental Protection Fund, 1997

According to the Fund's managing board, in 1997 priorities were given to air treatment projects (52 percent of total planned spending), water-related projects (32 percent) and waste-related projects (10 percent).

The activities of the National Environmental Protection Fund, the application documents, the terms of financing and the priorities and the areas for financing are published in the mass media. Furthermore, printed brochures are provided free of charge to ministries and institutions as well as to municipalities and interested companies. In 1996, main recipients of funds were state-owned and private enterprises, which received 37 percent of the expenditure, and municipalities, which received 22 percent.

TABLE 2.5: FUND EXPENDITURES BY TYPE OF RECIPIENT
	1993	1994	1995	1996¹

Enterprises (private and state-owned)	34%	26%	27%	37%
State administration	-	-	7%	12%
Municipal/local administration	23%	40%	31%	22%
NGOs, public institutions, etc.	3%	4%	6%	12%
Other²	40%	30%	29%	17%
1) estimated 2) includes expenditures for the national environmental monitoring and control system and financing to support the FundÕs executive office Source: Ministry of Environment, National Environmental Protection Fund, 1997

The National Trust Ecofund (NTEF)

In addition to the National Environmental Protection Fund and the Municipal Environmental Protection Fund, the National Trust Ecofund was set forth in 1995 as part of the conditions of the debt-for-environment swap agreement between the governments of Bulgaria and Switzerland. The Ecofund became operational in October 1996. Its main objectives are to manage the funds provided under the debt-for-environment agreement, the debt-for-nature agreement and other types of agreements made with international or Bulgarian sources to finance environmental projects and activities in Bulgaria. The Ecofund would particularly focus on agreements regarding air pollution reduction, water pollution prevention, site remediation activities and the protection of biodiversity.

The Ecofund started in 1996 with an initial USD 7.5 million, but the first investment projects were approved only at the beginning of 1997. Expenditures for 1996 amounted to USD 400,000, which mainly covered administrative and operational costs.

Environmental Priorities

Bulgaria's environmental problems are serious and have been only partly addressed in the past. In particular, air pollution is an urgent environmental problem in the cities. The extreme high concentration of particles, heavy metals, volatile organic compounds and SO2 poses significant risks to human health. Local industries are identified as the main polluters, especially the petroleum refining and petrochemical industries, including power and chemical plants and cement, iron and steel factories. Even though some progress has been made as a result of major investments in air pollution abatement technologies, the population of some urban areas is still exposed to extensive levels of pollutants. For example, traffic-related air pollution increased significantly over the past years.

Another area of major concern is solid waste which is collected and disposed of improperly and therefore causes serious soil and water contamination. Nevertheless, ground water is of good quality and usable as drinking water except in a few cases.

Water degradation comes mainly from industrial effluents and from municipal sewage. Although there has been some progress, many industries have not installed proper pre-treatment facilities, and the industrial wastewater is directly charged into the municipal sewage system. Compounding the problem, the technologies used in municipal treatment plants are generally outdated or in poor condition. Overall, industrial pollution control equipment is old and not functioning properly.

An inventory of polluted agricultural lands in 1993 revealed almost 20,000 hectares of land contaminated with heavy metals; 1,900 hectares with radionuclides; 400 hectares with severe acidity; and 25 hectares with oil products deposited mainly through industrial activities.

Bulgaria's national environmental strategy emphasizes the importance of economic reform and structural change in promoting more efficient use of natural resources and energy, encouraging a shift toward less-damaging economic activities and technologies and encouraging a shift toward generating the revenue required by government, enterprises, and households to finance environmental expenditures.

TABLE 2.6: ENVIRONMENTAL EXPENDITURES BY MEDIA
	1994	1995

Air pollution	29%	27%
Water and Wastewater	44%	34%
Waste	13%	16%
Other	14%	22%
Source: Ministry of Environment, 1996

These goals are reflected in the environmental expenditures. In 1995, priority was given to water and wastewater-related projects (34 percent of total environmental expenditures), followed by air pollution control activities (27 percent), and waste related projects (16 percent).

Legislation and Enforcement

In 1990, the Ministry of Environment was created and the environmental framework law was passed, introducing the polluter pays principle and the process of environmental impact assessment. Also, an environmental strategy was formulated in 1992 and revised and updated in 1994. The strategy outlines further development of the institutional, legal and regulatory framework and identifies areas of major concern which require immediate action.

Currently all of the Bulgarian environmental legislation is undergoing major revision, and new legislation tends to be in compliance with EU standards, such as the draft water act. However, the compliance level is still very low in the areas of air and water quality, waste management, chemical substances, radiation protection and nature protection. In addition, new environmental impact assessment regulations need to be developed, as past amendments to the standing legislation have weakened its impact. Air emission standards are inadequate, although an air pollution law has been drafted which proposes the introduction of a system of permits. Also, water emission standards are inadequate. Apart from the area of hazardous waste, in which some regulations exist, there is no coherent national policy, no legislation for waste management, no official control of waste management practices and no specific regulation on incineration of waste. Furthermore, the newly drafted waste law does not list all types of waste. Finally, regulations on chemical substances and agricultural pollution are lacking or need to be updated.

Although the national environmental monitoring network was strengthened in the past, enforcement of legislation is still inconsistent and needs more political commitment, better staffing and improved capacity of the national and municipal institutions, in particular the environmental inspectorates.

Environmental Administration

The primary institutions in Bulgaria concerned with environmental protection are the Parliamentary Commission on Environmental Protection and Water Resources, the Ministry of Environment and its related agencies, and the municipal authorities.

The central government is in principal responsible for environmental decisionmaking, and the main duties are carried out within the Ministry of Environment. These major duties include formulating draft environmental legislation; coordinating environmental protection activities and pollution control; monitoring the state of the environment; coordinating and managing the National Environmental Protection Fund and issuing permits for water discharges.

The Ministry for Environment acts through 16 regional environmental inspectorates which carry out controlling, licensing and monitoring functions within their area. The National Center for the Environment and Sustainable Development organizes the activity of the national automated systems for ecological monitoring by managing and controlling the regional environmental inspectorates with respect to environmental monitoring. Other responsibilities include the dissemination of information on the state of the environment. In addition to the Ministry of Environment and its related institutions, the following institutions have competence related to environmental protection: the Ministry of Health, the Ministry of Agriculture and Food, the Ministry of Territorial Development and Building, the Committee of Forests and the National Council of Water Resources at the Council of Ministers.

Bulgaria is divided into nine regions which together contain 255 municipalities. The larger municipalities operate their own environmental departments, and local authorities have the right to adopt and enforce local standards and collect environmental taxes.

Pollution monitoring is still centralized. There are a number of metallurgy, energy, chemical and cement enterprises that are major polluters but which have not been equipped with proper pollution monitoring and control systems.

The monitoring and control of surface water pollution is carried out by the National System for Ecological Monitoring. In 1995, the national network for control and protection of the surface waters purity covered 340 monitoring points, including 278 points along the internal rivers, 21 along the Bulgarian sector of the Danube River, 15 for internal lakes and 26 for the Black Sea. The condition of the underground waters is monitored by a network of 238 points.

Monitoring and control over air pollution also is carried out by the National System for Ecological Monitoring. The system has been in existence since 1972 and covers 42 settlements with 105 station points.

REC * PUBLICATIONS * EMERGING ENVIRONMENTAL MARKET 2 * BULGARIA