Biography: Rumen Porozhanov was born in 1964. He graduated from the University of National and World Economy where he earned a degree in Economics of Agriculture Management and an additional qualification in Economics of Defense Management. In 1992 he began working at the Ministry of Finance. In 2001 he headed its Directorate for Financing the Manufacturing Sector. On August 2009 he became chief of staff of the finance minister’s cabinet. In October 2009 he became a member of the Supervisory Board of the Bulgarian Development Bank, and later its chair. He headed State Fund Agriculture (SFA) in March 2011.
Mr. Porozhanov, what is the last data on contracted and actually paid funds under the Rural Development Programme (RDP)?
More than 9, 500 contracts have already been signed. The total amount of the subsidy is 1, 070 billion euro, which is 40% of RDP’s budget. Of those, 572 million euro have already been paid from the European Agricultural Fund for Rural Development (EAFRD). This is a little under 22% of the programme’s financial resource. These are only the dry figures; there is a lot of hard work behind them.
It is the middle of the programme period. Do you think these amounts are big or small?
It is apparent that there is a lot of interest toward certain measures. For example, the budget of Measure 112: Setting up Young Farmers, has already been contracted. The budget of Measure 321: Basic Services for the Economy and Rural Population, has almost been exhausted too. There is a lot of interest toward Measure 121: Modernisation of Agricultural Holdings. These three measures have been included in the seventh notification the managing board of SFA sent to Brussels,offering an increase in their budget. Overall, we can say that within the programme as it was negotiated during the pre-accession period, there are certain very popular measures, but there are also measures that do not attract enough candidates. In fact, the extent of fund utilisation will depend on Axis 2. The so-called “green measures” related to forestry, agri-environmental subsidies and payments to farmers in less-favoured regions are there. According to the regulations, at least 25% of each member state’s RDP resource mustbe directed there. So far, a little over 10% of the budget has been paid, which is why I am saying that our big topic now is agri-environmental subsidies. But I must note that the requirements there are more complicated. We must do several things to be able to help beneficiaries better. If necessary, we will create information centers where farmers will be able to receive clarifications or even be urged to apply. It would also be good to review the decrees and, where possible, simplify the application and administration procedures. If we lose RDP funds, it will be exactly funds under this axis. This is why our aim now is to minimise the risk. Brussels is already sending us signals that the “green measures” will be the focus of the next RDP period again. It won’t be surprising if the minimum funding threshold goes over 25%. And so agri-environmental development will be among the most pressing issues for Bulgaria in the coming years.
But the interest in organic production is currently low.
Measure 214: Agri-environment Payments, has been planned to reach 40 000 beneficiaries. But so far they are only 2, 000, and since not all manage to meet the requirements, practically less than 1, 500 use the opportunity. There is another issue: traditions in agri-environmental production are yet to be established in Bulgaria. In partnership, of course, with the state.
The RDP funds set aside for 2007, 2008, and 2009 must be absorbed by the end of this year. According to the rules, whatever remains must be returned. Some publications quoted 180 million euro as the amount we risk losing. What is the actual situation to date?
The situation is not as dramatic, in fact. What we are working on at the moment is reducing the potential losses as much as possible. I would not be surprised if we lose no funds at all. However, this would happen at the expense of other measures and not thanks to a balanced absorption because, as I said, we are behind on Axis 2. We should also not forget that RDP began two years later than scheduled.
How many of the submitted projects have not yet been reviewed?
When I started working at the fund 4 months ago, there were about 2, 000 unreviewed projects from 2009 and 2010. We had to first identify the reasons for the delay and the problems, which was our main task in April. In May we re-organised the work procedures in the fund and created clear deadlines and accountability. We have already finished reviewing all projects from 2009 and, by the end of July, we will sign the last 60 contracts under Measure 312: Support for the Creation and Development of Micro-Enterprises. We will prioritise the evaluation of projects submitted in 2010. This week we will upload information on our website about measures 321 and 312 from Campaign 2010 because their budget is limited and we will not contract about 2/3 of the submitted projects. Each candidate will be able to see where they stand in the overall project ranking.
During one of its sessions days ago, the committee on RDP supervision discussed ways to alleviate the procedure for making advance payments. Would you please tell us more about this?
We offered that candidates can use both a bank guarantee and a guarantee from a third person. This will give beneficiaries better opportunities because bank guarantees are difficult to take and are mainly connected to blocking a resource. This is why the problem of unblocking ways of guaranteeing advance payments is very topical.But we are not willing to open this opportunity infinitely, meaning that we cannot begin to accept pledges, mortgages and so on because the fund cannot become a bank.
How many approved candidates have withdrawn their projects because of lack of funding? How can this problem be resolved?
So far, about 130 projects, whose total subsidy is about 18 million leva, have been annulled because their deadline for making the investment has passed. This is a very small per cent of the programme’s budget. Of course, I am not saying it is impossible to see these numbers increase in the following months and years. According to the programme’s regulations, the beneficiary is required to implement the project using an advance payment and to apply for the whole subsidy only at the end. An amendment to European regulations allowed advance payments to private persons to reach 50% of the approved subsidy. The maximum was 20% until now. The Managing Board of SFA also signed refinancing contracts with 12 banks. They will finance the RDP projects of private persons, churches and cultural centers. During the last two months, we renegotiated the terms of our bank agreements and decided that banks will give credits at a 7% interest rate. We have set the refinance maximum at 500 000 leva per project. The rest will be at the expense of banks. Beneficiaries, however, should know that the procedure will be subject to all rules regarding credit granting. The fact that SFA refinances the projects creates an additional assurance that there is an available financial resource. The Council of Ministers approved an ordinance that will also facilitate the funding of municipalities during the last stage of payments, when their projects are finalised. I think this will all accelerate the absorption of RDP funds.
What financial sanctions has the European Commission imposed on the Bulgarian agriculture sector so far?
There are two bigger sanctions that have to do with weaknesses in the system for identifying agricultural parcels and with technical inspections on the spot. The imposed sanction amounted to 20 200 million euro in 2007 and to 24.5 million euro in 2008. We have agreed to pay the fines within 3 years and we have so far had 15 million euro deducted. There is another, very small financial sanction from the beginning of 2009, which amounts to 11 000 euro.
You are new to the system of agricultural administration and, at the same time, you are an agro-economist by education and a financier by profession. It is interesting to know if you found the four months in the fund enough to identify its problems.
I think this is the most multi-functional structure in the Bulgarian administration. Only the RDP programme constitutes up to 50% of the budget of all structure funds; the Direct Payments, the export subsidies, the intervention measures, etc., are separate. We also administer the tobacco payments and the de minimis programme. We will also, again, handle the excise duty compensations to agricultural producers. The fund is an extremely dynamic and interesting structure. We have about 200 000 beneficiaries. I think it is necessary to manage it well in order to achieve optimal results. It is very important to communicate well with the Ministry of Agriculture and Food and all other administrative bodies, as well as with trade associations. My goal is to turn the fund into one of the best administrations in Bulgaria by the end of the year. The strict deadlines imposed for reviewing projects acts to prevent corruption. The people who work here can already feel the results and this stimulates them.