We shall not allow another situation like that with the euro funds

Last week the Parliament passed urgent amendments to the Social Insurance Code allowing the pension funds to participate in the financing of infrastructural projects, something they have been insisting on for several years. According to those amendments the pension funds may invest up to 10 percent of their assets in bonds issued especially for the purpose by EU banks with state share of at least 50 percent. We are discussing the topic with the CEO of Doverie Pension Assurance Company, Mrs. Daniela Petkova.

When and how did discussions on the participation of the pension funds in infrastructural projects start?

Our meetings started more than 5 years ago but the more important thing is that those changes happened after we found a partner in the person of the Bulgarian Development Bank, which felt interested enough to issue such bonds. The idea for the legislative changes formed within the framework of our common meetings with them.

Does that mean your conversations have brought quick results?

Yes. Every decision comes in its right moment, you know. Without saying that it was not right to allow such option by now, I am yet aware of the fact that in this moment this is also an anticrisis measure, as far as infrastructural projects create employment and stimulate economy. That is why I think that the changes should be viewed in this way.

How would the pension funds benefit from investment in such projects?

Pension funds, no matter whether in a period of crisis or not, are interested in the inclusion of a new investment instrument in their portfolios from several aspects. First, this leads to diversification of the portfolios, which is a strong factor for increasing their security, as far as our strategic goal in the sphere of investments is to preserve the value of money and then to achieve higher yield. From this point of view we are perfectly satisfied. Of course, there are many significant details on the realization of those amendments to the Code to be yet defined more precisely.

First, the yield will be discussed. I do not think anyone expects the pension funds to provide assets under their management free or at levels different from the market ones. The yield levels will be negotiated taking also the risk into account. In view of the fact that the issuer will be a bank with over 50% state share it may be considered that we have a specific type of almost state guarantees.

Another thing we are to negotiate is the collateral security that every bond issue has. It is possible the project itself with its finished stages to serve as security. But I repeat again, the conversations on these issues are still to be opened and we are yet to discuss the particular projects.

Are you going to control the spending of the money from the bonds?

Here I am a little bit worried. As bond holders we shall demand to exercise control on how the funds are spent. I don't know whether the people that start to build certain expectations that some BGN 250 million (which is 10% of our assets) will enter certain infrastructural projects are aware that we really want to control the usage of that money. In a certain sense, since we are Bulgarian institutional investors and we operate in this country for a long time we have much more information from the controlling bodies of EU.

I hope no one expects that these are a mere BGN 250 million which will just enter in some kind of projects that no one knows what they are and what happens with them. We shall control them day-to-day. Besides, we can see things that sometimes the European institutions could not see. The intentions of the pension funds are that not a penny of that money, in any moment could arouse any suspicion from the point of view of its transparent usage.

In this respect I think in the person of BDB we will have a good partner. And may be the last important thing is that the text of the new amendment to the Code should be read very carefully. All media that have up to now put questions about the future realization of that legal change bring it only to that particular Bulgarian bank. And this is a legal aspect valid for all infrastructural projects of EU as a whole and for all banks from EU having more than 50% state participation. I say this because there is already some interest shown by investment advisors of such banks in countries members of EU, which should not be a surprise for anyone.

That is an opportunity, which in view of the amount of the funds could not be uninteresting for any country, no matter how bigger and richer than Bulgaria it is. I really hope that the concrete actions for realization of those changes in Bulgaria will be taken soon so that the situation won't turn like that with the municipal bonds. Presently, it seems to me, much greater part of the assets of the Bulgarian pension funds are invested in municipal bond issues of EU countries than in such issued by Bulgarian municipalities.

You mentioned that some banks have already shown interest in the issuance of infrastructure bonds to finance projects outside Bulgaria...

Yes, their intermediaries stated their wish to make use of that instrument. It does not mean however that the infrastructural projects will be abroad, various combinations are possible. It is possible to receive an offer for financing projects in Bulgaria through a bank in another EU country. There are various ways and combinations and we want to make use of such opportunities in other countries also.

What will be the financing scheme?

Bonds will be issued by banks answering the conditions.

How will the projects be chosen and what yield may be expected?

We are still to discuss that issue.

How is the money of the insured guaranteed?

The guarantee is the bank, the issuer. It is like a platform standing between the money of the pension fund and the respective contractors of the infrastructural projects. This is exactly the best point of the idea since the money of the pension funds, i.e. of the insured persons, will not be invested directly in the project, we are not to announce tenders and appoint contractors and we will have a kind of a buffer zone ensuring some additional comfort for the funds. The pension funds give their money to the bank. If there are any troubles with the project we have before us not just the project but an institution with 50 percent of state participation which guarantees by itself that the funds will not be lost.

Aren't you troubled by the fact that a great part of the infrastructural projects in Bulgaria involve corruption?

Yes, we are troubled, despite the mentioned intermediation of the banks. We always care about the final realization of the money and that is why I said that we will exercise very serious control since we never allow the money of the pension funds to be used for anything that is not completely transparent or effective. And of course it must be legal.

The chairman of the Budget Commission, Roumen Ovcharov explained that one of the purposes of the amendments is the pension funds to realize higher yields, is that true?

It could hardly be so. But doubtlessly that is an instrument that, taken alone, will be a factor influencing the security of the investments of the pension funds since it helps better diversification. From another point of view the very fact that an investment bears lower risk always leads to lower return.

How do you interpret the fact that you have insisted on those changes for several years but they are adopted just now several weeks before the elections?

May be the crisis had to happen so that it could be realized that the assets accumulated in the Bulgarian pension funds are a resource that might be quite useful. Supplementary pension insurance is yet a young business in Bulgaria. Some years ago the accumulated resource was not so big and the infrastructural projects usually need a lot of money. Everything, including the state supervision had to mature enough. The Bulgaria's membership in EU also played its part - when we see that something has been done in other countries for years we should ask ourselves why it shouldn't happen here.

Probably there are also some political reasons for the changes to happen just now. Let's say, for the manner in which some of those deals are made in Bulgaria it is clear that they could not be made with the money of the pension funds, so those on which the projects depend were not much interested. Roughly speaking, we do not pay commissions, it is impossible and we shall not allow things to happen the same way as we hear it happens with money from European institutions.