Bulgarian Coal Magnate’s Plants May Have Saved Around 30M Euros by Under-Declaring Emissions
Bulgarian Coal Magnate’s Plants May Have Saved Around 30M Euros by Under-Declaring Emissions
OCCRP analysis shows two power stations associated with Hristo Kovachki have reported strangely low emissions figures for the past three years.
Two coal plants linked to a Bulgarian energy tycoon appear to have under-declared carbon dioxide emissions for the past three years, data analyzed by OCCRP shows.
The two plants together may have avoided paying the EU between 26.6 million and 32.2 million euros.
The suspect data was confirmed as accurate by a new company set up by a 27-year-old with no apparent background in the emissions verification industry.
Officials at both plants deny inaccurately reporting emissions data.
The heart of Bobov Dol power plant is a hot, dark, noisy chamber. Lumps of coal litter the floor beside pools of oil and water leaking from decades-old machinery, relics of the Soviet era when workers flocked to build one of Bulgaria’s largest coal-fired facilities.
Coal dust hung thick in the air when OCCRP visited the plant in July 2020, leaving reporters coughing through the masks they wore to protect against COVID-19. Several workers operated the factory’s vast furnace and generators, laboring in the sooty air and searing heat with no masks at all.
Bobov Dol, based in a major coal-mining district an hour’s drive southwest of Sofia, is one of more than a dozen mines, power plants, and heating companies believed to be controlled by Hristo Kovachki. The secretive tycoon emerged as a key player in Bulgaria’s energy sector during a wave of privatizations in the 2000s, building a network of coal assets that he is now thought to control through companies in the U.K. and Cyprus.
As Europe moves toward using cleaner forms of energy, many of these assets have become increasingly outdated, inefficient, and mired in debt. Carbon taxes have further raised their cost of operation.
But two of the power stations associated with Kovachki appear to have found a novel way to balance the books. Official emissions data, analyzed by OCCRP, shows Bobov Dol and another coal-fired plant linked to him — Brikel, in south-central Bulgaria — may have under-declared their carbon dioxide emissions for the past three years, saving at least 26.6 million euros.
The suspect data was confirmed as accurate by a company set up by a 27-year-old with no apparent background in the emissions verification industry. Yet within months it had gained 12 clients — all plants associated with Kovachki.
At Bobov Dol power plant, pollution levels continue to breach European Union regulations despite efforts to tame them.
Vasil Vasev, mayor of the nearby village of Golemo Selo, said air quality data recorded by Bulgaria’s Executive Environmental Agency (EEA) shows the plant’s sulfur dioxide emissions at times are nearly double EU limits. A report by Greenpeace Bulgaria published this year found Bobov Dol had repeatedly breached emissions limits for sulfur dioxide and other pollutants, concluding it was seriously harming local air and water quality.
Workers say conditions inside the Bobov Dol plant are so bad they fear for their safety, and miners in the coal mine that feeds it have reportedly staged protests over labor conditions in previous years. Locals now refer to the surrounding town that gave Bobov Dol its name as “Robov Dol,” meaning “city of the exploited people.”
One former employee told OCCRP he was burned after his leg slipped into an unmarked hole while at work. “It was full of hot ashes,” he said, speaking on the condition of anonymity. “I couldn’t report them for fear of losing my job and putting my father’s job at risk as well.”
Another Bobov Dol worker, who also asked not to be named to protect his job, said that “with no investment and little renovation, the plant is increasingly dangerous.”
Bobov Dol’s Director Lyubomir Spasov acknowledged that the working area around the coal process could get dirty, but denied that the conditions were as bad as reported, adding: “The working environment is better than many other workplaces.”
Two spokespeople for Kovachki refused to comment on this story.
Retired miner Georgi Stefanov visits his parents in the cemetery near Bobov Dol, which his father helped to build.
Questionable Emissions Data
When Bulgaria joined the EU in 2007, it also joined the embryonic Emissions Trading System (ETS), a mechanism designed to reduce greenhouse gas emissions that today forms a cornerstone of the bloc’s climate change policy.
But just three-and-a-half years later, it was temporarily suspended for providing unreliable data on the country’s emissions. The Environmental Minister at the time, Nona Karadzhova, reportedly blamed the “criminal inaction of the previous government” for the suspension.
Under the ETS, all major polluters must submit an annual report declaring how much carbon dioxide they emitted that year. Power plants calculate how much carbon dioxide they produce using an “emissions factor,” which reflects how much of the greenhouse gas is released by the fuel they burn, then pay for a quota for those emissions.
Smaller plants use the national average emissions factor, but large plants like Bobov Dol and Brikel are meant to use figures calculated by accredited laboratories.
Reporters who analyzed official data the two plants submitted to the EEA found they appear to have significantly underreported their emissions factor for the past three years.
Between 2018 and 2020, Bobov Dol burned a mixture of sub-bituminous coal, which the EEA says should have an emissions factor of 96.1, and lignite, which should have a factor of 104.2. But the data show the plant reported a factor below 80 for all three years. In Brikel, which was burning lignite, the emissions factor was given as 90.5 for 2018, 79.5 in 2019, and 76.2 in 2020.
Peter Seizov, a sustainability expert who has consulted with the EEA over a decade, said the values were so clearly incorrect that he left them out of reports he wrote for the EU determining Bulgaria’s average emissions factors for those years.
“I do exclude these values from calculation,” Seizov said. “I consider them outliers compared to the default values … to the values reported by other plants in the region, and to values provided by the same plants during past periods.”
Sam Van den plas, policy director at Carbon Market Watch, a non-profit that monitors climate change mitigation efforts, agreed, saying the figures are “significantly lower than the default values applicable under the EU carbon market rules.”
Working out how much Bobov Dol and Brikel have saved by under-declaring their emissions is a tricky business because the price of carbon dioxide under the ETS varies widely. Based on the annual average carbon price of around 21 euros per ton in 2019 and 27 euros in 2020 and 2021 — which an expert said were conservative figures — OCCRP calculated the two plants together may have avoided paying the EU between 26.6 million and 32.2 million euros.
Yanilin Pavlov, the executive director of Brikel, said the plant reported lower emissions because it had started to use more enriched coal. He added that the emissions had been “calculated on the basis of data from independent accredited laboratories and confirmed by the competent authorities.”
Spasov, Bobov Dol’s director, denied the plant had reported inaccurate emissions data. Shown a report confirming the emissions data that was signed by one of his chief engineers, Spasov said it came from a verifier.
“The report is not ours. It’s from a verification company approved by both national and European institutions,” he said.
A conveyor belt carries coal to the furnace inside Bobov Dol power plant.
The New Verifier
In early 2019, when Bobov Dol and Brikel appear to have started under-declaring their carbon emissions, they also changed the company that checked their data, dropping the established verifier Green and Fair — with whom they’d worked for about a decade — in favor of a company called GMI Verify.
GMI Verify was a newcomer at the time. When its owner, Gabriela Milenova Ilieva, founded the company in August 2018, she was just 27 years old. Reporters found no evidence she has a background in verifying emissions data, or that she worked for any other companies at all before founding GMI Verify.
Yet within five months, GMI Verify had won contracts to verify emissions from 12 Bulgarian thermal power plants and heating plants. All are linked to Kovachki, who is thought to have acquired them during a wave of privatizations in the early 2000s.
Reporters found other links between GMI Verify and Kovachki. For one thing, GMI Verify’s headquarters in Sofia are inside the same building as the offices of OZK Zastrahovane, an insurance company controlled by Kovachki through his company LM Impex.
When a reporter visited the address listed for GMI Verify’s offices, they found only a residential apartment. Neighbors said they had never heard of the company.
GMI Verify’s attorney, Elena Hristova Dobreva, worked as a manager at Brikel and Maritza 3, another coal-fired plant associated with Kovachki whose emissions are also now checked by the verifier. In 2015, Dobreva was also a candidate for the municipal council in Stara Zagora, where Brikel is located, for the Bulgarian Democratic Centre (BDC), a party with which Kovachki is affiliated.
OCCRP spent weeks trying to speak to GMI Verify’s employees, but they remained tight-lipped. Ilieva did not respond to a request for comment.
Reporters did manage to briefly speak with one employee, Ludmil Valchkovski, who had verified multiple reports from the two plants. When asked why he had certified such low figures, he declined to answer questions in detail.
“This data is official. Everything is on the EEA [website]; just look at it,” he said.
Mine chief Kiril Popov at Bobov Dol mine, which supplies Bobov Dol power plant with coal.
Kovachki’s Energy ‘Empire’
Bulgaria’s energy sector has been a byword for corruption since the 2000s, when the state sold off many of its assets. Kovachki is thought to have been a key beneficiary of this wave of privatizations.
“Kovac[h]ki’s current empire is vast,” a U.S. diplomatic cable, published by WikiLeaks, said in 2006, listing at least four mines, five district heating facilities, five coal companies, and several thermal power plants owned or controlled by the energy tycoon.
In a 2018 press release accompanying its report on Bulgaria’s coal industry, Greenpeace said Kovachki’s empire spans more than 150 companies, including eight mines, eight district heating companies, and three power plants. More than a dozen of them — including Brikel, Bobov Dol and other plants checked by GMI Verify — were privatized between 2003 and 2008 at low prices and through controversial tender processes, the report said.
It is not possible to directly prove through public records that the elusive tycoon still owns the assets, but there are indications they remain under his control.
In 2011, the same year he was convicted of tax fraud, Kovachki transferred ownership of seven of his coal plants to offshore companies, according to Mario Gavrilov, a former spokesman for Bulgaria’s Commission for Protection of Competition (CPC). Gavrilov said Kovachki was granted approval to transfer the assets, which included Brikel power plant. (Kovachki’s tax fraud conviction was later overturned.)
“In May 2011 CPC took a decision [that] allowed 5 of Kovachki’s companies to be transferred to [the] Seychelles,” Gavrilov wrote in a message to reporters, describing them as “offshore companies.”
“Another 2 companies were transferred a few days after this date again [to the] Seychelles,” he added.
OCCRP found records showing that the ownership of four energy assets associated with Kovachki, including Brikel, were transferred to the Seychelles in 2011 and 2012. The ownership histories of several of the other plants are unclear.
Bulgarian energy tycoon Hristo Kovachki arrives at court in Sofia, Bulgaria, on April 14, 2011. Kovachki was given a suspended sentence of three years for large-scale tax evasion, which was later overturned.
Three years later, after Bulgaria’s then-president was implicated in a scheme involving offshore companies, the country passed new laws restricting offshore ownership. That year, control of several of the energy assets linked to Kovachki appear to have been transferred to the U.K. and Cyprus. Corporate records show 10 of the 12 plants who work with GMI Verify are owned by companies domiciled in these countries, all of them incorporated in May 2014.
“The new former owners were very elderly people — about 80 years” old, Gavrilov told OCCRP.
According to the most recent available records, Brikel is officially owned by a company belonging to 81-year-old David Fordham, a British man who also holds directorships in seven other U.K. companies.
Bobov Dol nominally belongs to a British company controlled by Belize citizen Erlene May Rodriguez, an accountant for a Belize-based financial services company who holds positions in eight U.K.-registered companies.
Neither Rodriguez nor Fordham replied to requests for comment. Both companies have been described as “dormant” in their accounts since 2015.
OCCRP was unable to find any evidence linking Kovachki to the owners of these companies, but his role in the energy empire is an open secret in Bulgaria.
A political party linked to Kovachki has also reportedly been accused of pressuring and paying workers at Bobov Dol to vote for its candidates — accusations backed up by a former worker at the plant.
Greenpeace said workers at Kovachki’s companies were obliged to vote for candidates chosen by their bosses, noting that in 2007 the tycoon’s party “received approximately as many votes as the number of staff working for the Bobov Dol mines and power plants" in local elections.
A U.S. diplomatic cable from 2009 — the first year the party, at that time known as LIDER and now as the Bulgarian Democratic Center, stood in a parliamentary election — said it had already “gained notoriety for its vote-buying success.”
“It is widely believed that, tired of paying bribes to sitting MPs, Kovachki established the party as a more direct and cost-effective way to expand his political Influence,” said the cable, published by Wikileaks.
The former Bobov Dol worker told OCCRP he was paid to vote for management’s chosen candidate when he was at the plant.
“When there are elections coming up they tell you who you should vote for and they pay you if you vote for a certain party or candidate,” he said.
The chair of the Association of the Organizations of Bulgarian Employers, an umbrella organization bringing together groups representing many of Bulgaria’s major employers, has publicly complained to the Commission for the Protection of Competition about Kovachki’s control of the energy sector.
“From our point of view, it is absurd that everyone in Bulgaria perfectly recognizes the elementary scheme of using proxies, behind which, according to a number of reports in the media, stands mainly Mr. Hristo Kovachki,” the association said in a statement.
Kovachki has never outright denied the many media reports listing him as the owner of the plants. Over the years he has been described as a consultant for one plant or another in various reports, including during a TV appearance in the wake of a waste-burning scandal exposed by OCCRP’s partner Bivol last year.
Many of the plants linked to Kovachki are indebted to the First Investment Bank of Bulgaria (Fibank), which is part-owned by the best man at his wedding, Ivaylo Mutafchiev.
A Fibank spokesperson denied the bank had extended loans to any “company the ultimate beneficial owner of which it identified was Mr. Hristo Kovachki,” though he said some of the energy assets associated with the tycoon may have been used as collateral to secure loans made to third parties.
“FIB acts as a socially responsible lender and rejects any insinuation that it may be even remotely responsible for any perceived shortcomings in the energy sector in Bulgaria,” spokesman Hristo Hristov said in a statement sent to reporters.
Two coal powered plants, U.S.-owned AES coal and Brikel, associated with Bulgarian tycoon Hristo Kovachki, sit next to a lake in the Bulgarian coal region of Stara Zagara.
Multiple Bulgarian authorities denied responsibility for allowing Bobov Dol and Brikel to underreport their emissions.
Evgeni Sokolovski, a consultant with the verifier Green and Fair, suggested that either the EEA or Bulgaria’s Accreditation Service Executive Agency (EA-BAS) could be responsible, but added that “they are going to bounce the ball to each other, as I’m doing with you now.”
Irena Borislavova, CEO of EA-BAS, at first referred questions to the EEA, but then promised that her organization would look into the matter.
The EEA’s CEO, Rositsa Karamfilova-Blagova, said the body does not directly check the accuracy of emissions figures, but will accept the data if “the calculations were made in an accredited laboratory and the report is correctly verified.” She said EA-BAS was responsible for overseeing verification laboratories.
Mihail Bachvarov, who was the deputy director of the EEA between May and October 2020, said he was fired soon after the director at the time, Manuela Georgieva, whom he had worked with previously at the Ministry of the Environment, was removed from her position.
“I think it was a political decision…. The government isn’t interested in having experts in certain positions.”
Georgieva did not respond to repeated attempts to seek comment. The government did not respond to a request for comment.
Under-declaring also undermines the EU’s ETS, which is a key part of the bloc’s strategy to reduce its emissions to zero by 2050. The system was designed to provide an economic incentive for polluters to use greener forms of energy, but it has faced widespread accusations of fraud that have cost taxpayers billions.
In Bulgaria, the misdeclared emissions may have sapped revenues from the state budget that are meant to be invested in low-carbon technologies. In 2019, the country’s total revenue from its greenhouse gas allowance was 439 million euros, which fell to 206 million euros the year after.
False reporting “represents a loss in auctioning revenues from the sale of EU carbon market allowances for the government,” said Van den plas, from Carbon Market Watch, adding that the European Commission could investigate if the Bulgarian authorities’ actions breach EU laws.
Demetra Andonova and Dimitar Stoyanov (Bivol) contributed reporting.
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