Brussels approves Czech national recovery plan but warns about Babis' conflict of interest

Brussels approves Czech national recovery plan but warns about Babis' conflict of interest
Prime Minister Andrej Babis is challenging the ruling on his conflict of interest via the government and subsidiaries of his Agrofert holding.
By bne IntelliNews July 20, 2021

The European Commission has approved the Czech Republic’s national recovery plan, but the CZK180bn (€7bn) in grants could be held up because of Prime Minister Andrej Babis’ continuing conflict of interest.

At a meeting with Babis in Prague on July 19, President of the European Commission Ursula von der Leyen said: "The European Commission will check that funds are spent wisely. We also have tools to protect the budget, because it is primarily about taxpayers' funds in the European Union."

When asked directly whether Babis’ conflict of interest could prevent the Czech Republic from collecting money, she said: "There is a requirement to provide and collect information about the people behind the entities that receive funding. These milestones must be met before the first large sum is paid in mid-2022."

The EU’s auditors have found that Babis is in a conflict of interest because of his continuing control of Agrofert, his agro-chemical holding. Agrofert, the largest Czech private recipient of EU subsidies, is therefore not able to access any of the money paid out from the union’s structural funds. Money already paid to Agrofert by the Czech state will not be refunded by Brussels and should also be recouped, though the government has so far made no attempt to recover the money.

Babis insists he no longer has control of the holding, and two Agrofert subsidiaries are already challenging the Commission block on them receiving EU funding. However, the auditors argue that the trust fund he has set up is not truly independent and he remains the prime beneficiary.

More importantly, the conflict of interest may end up being viewed as a systemic problem by Brussels. If the Czech Republic refuses to comply with this ban on funding Agrofert, and the conflict of interest is not removed – either by Babis leaving office at the general election in October or selling his company – this could hold up Czechia receiving money from the recovery fund and lead to any pre-financing being clawed back.

The EU has said it is investigating whether Babis’ case represents a systemic issue. The newly established EU European Public Prosecutor’s Office is also looking into the conflict of interest and MEPs voted overwhelmingly on June 10 to issue proceedings against Babis for breaches of EU law regarding his conflict of interest.

The Commission now has a new tool to protect its budget from infractions by member states that it could use against Czechia. Under the new rule of law mechanism, payments can be suspended if there are deficiencies in the rule of law. It can also claw back any pre-financing.

Hungary and Poland are disputing the mechanism’s legality in the European Court of Justice. Meanwhile the European Parliament has passed a resolution threatening legal action against the Commission if it fails to apply it.

The Czech government has dismissed the problem, arguing that it is setting up the control systems the Commission demands.

"If the material sent by the government to Brussels is fulfilled, then the problem will not arise, I consider it solved," said Social Democrat leader and Deputy Prime Minister Jan Hamacek on July 19.

“Since I entered the government and I am the prime minister now, I have not felt that we have some systemic problem,” Babis told the press conference with von der Leyen.

However, opposition parties have dismissed these assurances. “It will be possible to obtain the money only if the Czech authorities prevent Babis from diverting the money for his companies again," chairman of the Pirates, Ivan Bartos, said on Twitter. "But it's hard to imagine under the current government. It's crazy," he added.

The EU’s national recovery and resilience plans (NRRPs) are being drawn up to plan the spending of the €672.5bn Recovery and Resilience Facility (RRF), made up of total available grants of €312.5bn and loans of €360bn, which is meant to speed the bloc’s recovery from the COVID-19 pandemic and equip it to grow strongly in a sustainable way.

Under the RRF, which is available until 2026, the Czech Republic, which does not plan to use loans under the facility, will receive CZK180bn. Some 13%, or CZ23bn, is available for pre-financing this year. In total, the country’s NRRP envisions the spending of CZK208.9bn, of which CZK180bn will come from the EU.

The Czech investments are split into six categories: Physical Infrastructure and Green Transition (CZK85.2bn), Digital Transformation (CZK27.8bn), Education and Labour Market (CZK48.1bn), Post-Covid Institutional, regulatory and business support (CZK10.8bn), Research and Innovation (CZK13.2bn) and Health and Resilience (CZK12.4bn).

Among the projects, the Czech Republic will spend €270mn on the digitalisation of job seekers’ services, as well as €390mn to digitalise government systems and services, including the health system.

Railways are to be renovated, electrified and upgraded, and the country plans to future-proof its dominant automotive industry by investing in sustainable mobility.

The Czech Republic must spend at least 37% of the money on projects associated with climate protection and a further 20% on digitising its economy. The Czech plan fulfils these criteria, allocating 42% of the budget on the former and 22% on digitisation.

Many member states across the European Union dragged out the submission of their final plans beyond the end of April deadline. Of the bloc’s eastern members, Bulgaria still has to finalise its plans, and only Slovenia, Latvia and Croatia so far have had their plans approved.

Hungary has had its plan sent back twice. The first time was because of its plan to use the EU loan facility to fund the controversial hiving off of its universities into foundations, to prevent an incoming opposition-led government having control of them; the second time was because the Commission is still dissatisfied with the government’s anti-corruption efforts.