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Bulgarian Government Teetering Over South Stream, Investment in Russia Predicted to Plunge

Plus, Hungarian media launch an anti-government protest, and Bosnia takes action against prison overcrowding.

by S. Adam Cardais, Rebecca Johnson, and Madeleine Stern 6 June 2014

1. Objecting to South Stream plans, Bulgarian party calls for snap polls


A junior coalition member has called for early elections over the Bulgarian government’s plan to push forward with construction of Russia’s South Stream natural gas pipeline despite EU opposition to the project, reports.


Lyutvi Mestan
On 5 June, Movement for Rights and Freedom leader Lyutvi Mestan told parliament that Bulgaria should defend its strategic interests “in cooperation, not in confrontation” with Europe. He called for snap polls in November or December in what described as “a shock” to the ruling Socialists, who strongly support South Stream.


The move came two days after Brussels ordered Bulgaria to suspend construction on its link of South Stream pending an investigation into how contracts were awarded for work on the pipeline. Brussels suspects Bulgaria of violating European public procurement rules, The Wall Street Journal reports.


Sofia has a month to reply. In a statement, the Bulgarian Economy and Energy Ministry said all design, construction, and other contracts were awarded in line with Bulgarian and EU law, according to The Journal.


Spearheaded by Russian state-owned Gazprom, South Stream is designed to pump 63 billion cubic meters of natural gas to Europe annually via the Black Sea and the Balkans. Bypassing Ukraine, the pipeline will effectively be a direct link to Bulgaria, and Sofia sees it as strategic despite longstanding EU regulatory concerns that have grown into outright opposition amid the standoff over Ukraine.


The South Stream route. Image from


In April, Bulgarian Economy and Energy Minister Dragomir Stoynev publicly pledged to begin building the Bulgarian link this year while accusing Brussels of trying to block the project for political reasons. He was referring to Brussels’ March decision to suspend high-level talks on South Stream – a move widely seen as retaliation for Russia’s incursion in Crimea.


South Stream requires European environmental and other approvals because it would pass through several EU countries. The now-suspended talks with Russia were aimed at resolving EU concerns raised last year over the intergovernmental agreements signed by Bulgaria, Hungary, and other EU South Stream partners. Brussels says they violate EU competition regulations that prohibit energy producers from also owning the means of transmission – in this case, pipelines.


2. Report: Foreign direct investment will halve in Russia this year


Foreign direct investment will plummet in Russia and drop in its main European trading partners in 2014, according to a new report by a Vienna think tank.


FDI in Russia will fall by as much as 50 percent next year, due in large part to continued U.S. and European sanctions against Russia over its annexation of Crimea, predicts the Vienna Institute for International Economic Studies.


Ukraine itself could see its FDI decrease by 47 percent this year, and the Baltic countries and Bulgaria, which depend heavily on trade with Russia, have already turned in a “sluggish” performance in the first quarter.


“The region will be exposed to two main factors that drive FDI into opposing directions,” researcher Gabor Hunya wrote. “One is the acceleration of economic growth, which spurs FDI. The other is the Ukraine-Russia conflict, which depresses economic growth and increases investment risk in the affected countries. Overall, the small and declining role of FDI in investments can provide only marginal, if any support to economic growth.”


Meanwhile, with the exception of Bulgaria and the Baltics, FDI is expected to rebound in EU countries in Central and Eastern Europe, where it nosedived by 65 percent last year.


According to institute, that precipitous drop was likely caused by foreign firms pulling capital out amid economic uncertainty but is likely to reverse in 2014.


3. Hungarian media in coordinated protest over government tax plan


Privately owned media in Hungary have launched an unprecedented protest against a government tax proposal they say aims to pressure them, The Wall Street Journal reports.


On the evening of 5 June, private broadcasters held a 15-minute blackout in the first coordinated anti-government protest by Hungarian media outlets. Print outlets published a blank page on 6 June.


The move is over a proposal by the ruling Fidesz party to tax Hungarian media companies’ annual advertising revenues. The tax would be on a scale going up to 40 percent, the Associated Press reports, and would be in addition to earnings and payroll taxes.


Dominated by members of Fidesz, parliament is almost certain to pass the bill. And even media outlets that usually see eye-to-eye with the party are speaking out. Peter Csermely, an editor at the generally pro-Fidesz newspaper Magyar Nemzet, said the government was trying “to step on the throat of press freedom,” the AP reports.


Specifically, critics say, the new tax is designed to target RTL, Hungary’s largest broadcaster, because it’s the only outlet that would fall in the top 40-percent tax bracket. RTL says it would have to pay 4.5 billion forints ($20 million), or roughly half what the state expects to take in from the ad tax, according to the AP.


RTL is a rival to TV2, which was recently sold to station executives with suspected ties to Fidesz.


The Journal points out that the new tax is one of the first economic measures Fidesz aims to ram through after winning a second consecutive parliamentary term in April. Since taking power in 2010, Prime Minister Viktor Orban has been widely criticized for trying to muzzle independent media.


4. New Bosnian prison to be first to meet European standards


After 10 years of planning, Bosnia is about to begin building a new, modern state prison to address chronic overcrowding, Balkan Insight reports.


Construction will launch this month following a 4 June deal between the government and contractor, the Czech-Spanish firm OHL. The roughly $54 million project will be the first prison in Bosnia to meet European standards, according to Balkan Insight.


The 300-man facility will also expand Bosnia’s woefully limited prison capacity. In the majority Bosniak and Croat part of the country, hundreds of convicts are awaiting places to serve out their sentences, according to Balkan Insight, and the U.S. State Department always notes overcrowding in the Bosnia section of its annual human rights report.


A new state prison was first proposed in 2004. But it stalled amid concerns about the ballooning price tag as the plans were tweaked to meet European standards. As recently as 2011, the Bosnian Serb-dominated part of the country threatened to pull out of the project.


To date, only a boundary wall has been built. Zoran Basic, who’s leading the new prison efforts, says it will be built by 2016, according to Balkan Insight.


5. Montenegro finds major cocaine cache under bananas


A shipment of bananas on its way from Ecuador to Albania on 5 June didn’t make it after Montenegrin customs officials found 250 kilograms of cocaine beneath the fruit, Reuters reports.


In what he described as the largest seizure in the country’s history, customs chief Vladan Jokovic valued the drugs at about 12.5 million euros ($17 million), the news agency reports.


“The cocaine was found ... in a special compartment under the floor of a shipping container loaded with bananas," Jokovic told reporters.


The drugs were discovered at the port of Bar, a stop on the drug route from South America to Europe. The Adriatic nation remains a transit point for Albanian marijuana, Afghan heroin, and cocaine from Latin America, according to the latest annual report on the global drug trade by the U.S. State Department.


Montenegro has beefed up its drug enforcement efforts and last year assisted the United States, Interpol, Europol, the EU, and neighboring countries in dismantling drug rings, according to the U.S. report. Still, it said, nongovernmental organizations have criticized the government “for its perceived failure to disrupt the activities of major drug traffickers.”


Combating the drug trade is among Montenegro’s tasks in ongoing talks to join the EU. Its national drug strategy is hindered by a lack of resources and knowledge about the extent of drug use and addiction in the country, according to the State Department.

S. Adam Cardais is a TOL contributing editor. Rebecca Johnson and Madeleine Stern are TOL editorial interns.
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