Sofia Airport - is it Really a Priority for Bulgaria? Episode II

The "Reconstruction, Extension and Development of Sofia Airport" is planned to be an important part of two Trans European corridors - N4 and N8. Thus, the project receives large funding - mostly loans - for its development and implementation. This poses many questions concerning the economic aspects of the project - how sustainable the project is and who is really going to benefit from it? We have been searching for the answers of these questions since the project's beginning.

It is a long, long story…

The project was such an important priority that the European Investment Bank approved a loan of EUR 60 million in September 1997, before a concrete plan was even drawn up. The project was so urgent that there was no time to develop and assess alternatives, required by both the European and Bulgarian legislation. But the money kept coming. In June 1998, EUR 40 million came from the Kuwait Fund for Arab Economic Development. Then Phare granted EUR 7,6 million for technical assistance in project planning, design and supervision, and for management of the airport. The total project cost was estimated to be EUR 184 million.

Later, the project becomes a priority within the Stability Pact. Thus, a new financial supplement from the EU was secured. In April 2000, the ISPA program (Instrument for Structural Policies and Accession) approved a grant of EUR 50 million for the project. At that time, plans were still in the design process and a final EIA had not been completed. Afterwards, the EIA reports showed that the meeting of the environmental standards is not included in the project development, which assumed an underestimated project price.

In the project's Paper Sheet included in the Stability Pact documentation, the Economic Rate of Return of the project was estimated at 12%. Later, one can see in the ISPA papers that the Internal Rate of Return has decreased to 3,6% for the terminal and the runway, and without ISPA contribution it is only 1,5%. On the other hand, the total cost of the project has increased to EUR 210 million from which more than EUR 60 million must be secured from the Bulgarian state budget.

Usually, it takes many years before large infrastructure projects start bringing benefit from their operation and such a low Internal Rate of Return (IRR) puts under question the economic sustainability of the project. We should keep in mind that apart from ISPA, the rest of the "generous financial aid" is loans, which must be paid back. Since the beneficent of the loans is the Bulgarian government, one day the Bulgarian taxpayer will be the one to pay back these millions.

According to the Transport Infrastructure Regional Study, an IRR at 12 or 15 % is acceptable, whereas, in over-indebted countries or in countries with limited reimbursement capacity, the actual opportunity cost of capital could easily reach levels of 25 or 30 %, or even higher levels.

Many things have changed since 1996 when the project was designed. The construction work has hardly started at the beginning of the year 2003. The traffic has not increased as initially predicted. On the contrary, the passenger flow has decreased since the national airline company Balkan went bankrupted. NGOs have been pointing out the risks associated with the Sofia airport project. However, the investors decided to go on even though the implementation is very slow and with unknown future.