More Payments to Companies Delayed

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Nearly 6 billion levs worth of public expenditure in 2012 and has gone through a public procurement scheme. Since the beginning of this year the signed contracts were for over 1.6 billion levs. A large part of the funds, however, were paid only on paper and hundreds of companies face bankruptcy because of late payments by the state and municipalities. Many of the enterprises that are put to the wall are firms working as subcontractors to the winners of public tenders, but never received money for their work.

According to the Ministry of Finance as of 31 December 2012, the total overdue payments of state institutions came to 284.7 million levs – almost 111 million levs of which were the arrears of the government and 173.8 million levs – of municipalities. The amounts are similar to those in September last year, although before Christmas the former financier No 1 Simeon Dyankov explained the Ministry had reduced the debt to 135 million levs. After the first Cabinet meeting of the interim government on March 20, Prime Minister Marin Raikov boasted that the arrears of the central and local governments had fallen to 108 million and 173 million levs respectively. His information was allegedly verifies as at the end of February.

What exactly the situation is became very clear last week when the European Association of Commerce and Industry (EUROCHAMBRES) reported that according to the European Commission the average repayment period for the payment of the public to the private sector in Bulgaria is 52 days. At first glance it might not seem that much of a delay, but in two-thirds of EU Member States this period is shorter. At the same time, only public authorities in Finland and Estonia managed to pay back the businesses in the 30-day period provided by the European Directive on combating late payment in commercial transactions (Late Payments Directive), which came into force in the community on 16 March. As expected, the worst performers were Italy, Greece and Spain – with on average 180, 174 and 160 days for repayment.

The provisions of the Directive have been introduced in the country through the Official Gazette of 28 February 2013, when it promulgated amendments to the Commercial Code. Under the new texts, the period of 30 days will begin from the date of receipt of the invoice or the goods or services and will apply in all cases where the relevant contracts do not mention another payment plan. What is also regulated is the two-month maximum payment period for hospitals with their suppliers and contractors for various services. Now hospitals owe hundreds of millions to businesseses.

The Bulgarian Chamber of Commerce, however, are skeptical that government institutions will implement the new rules immediately. And any late payment has direct implications for entrepreneurs, especially small and medium enterprises – reducing investment, job losses and even closing plants.

The solvency of thousands of companies is at stake, and with it the fate of thousands of jobs, said Arnaldo Abruzzini, Secretary General of EUROCHAMBRES. In his timely payment of invoices is direct, effective and fast way that politicians can improve cash flow in the real economy and to contribute to its growth, and increase jobs.

European Directive shall apply to payments between companies themselves, but nobody knows exactly how high the intercompany indebtedness is in Bulgaria. For 2010 it was estimated at 104 billion levs. Now it is certainly a lot more. The lack of information is due to the fact that trade relations between companies are difficult to track. It is no secret, however, that powerful corporations (which in the local tradition have warm relations with the government and the judiciary) may press smaller players and often earn precisely at their expense. State does its best to track and force companies to be accurate payers to the Treasury, but administration does not care whether the companies to which it pays for services, supplies or works reimburse the sums on their turn to subcontractors on time. The most recent evidence of this is the stoppage of the building of the last lot from the Trakia highway. The situation is similar in the construction of sewerage system and wastewater treatment plants where big consortia and holdings hire small local businesses, and then forget to settle their financial relations.

It is inconceivable that all these companies that are incorrect to partnering companies still earn millions of levs in state orders. Nobody cares about their past violations. There is no mechanism to control or punish them for doing so. Even European directives focus only on procedures for the awarding a contract – every company can be removed from the tender, if it has tax liabilities, but there is no mention of indebtedness to other companies in the implementation of the orders. So the vicious circle is still functioning in which the same large companies are robbing smaller ones of the public money they owe them and thus forces them to close down. The situation is unlikely to change soon.



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