Bulgaria reforms on hold as government clings to stability
* Street protests wane but threat to government persists
* European vote a test for Socialist-led government
* Government woos voters with lower electricity bills
* Moves in energy sector may scare off foreign investors
SOFIA, Jan 30 (Reuters) - A few months ago Bulgarian Prime Minister Plamen Oresharski's government looked as though it would fall as ten of thousands joined protests against endemic corruption.
Without clear leaders, the protesters ran out of steam and now only a handful remain outside the parliament of the small Balkan country, outflanked by so many riot police they joke it feels like a police rally.
The government looks likely to hang on at least until the European elections in May. However its vulnerable position means it lacks the clout to reform the corrupt political system or the slow and inefficient judiciary.
"Because of the political uncertainty, there is a big reluctance to carry out any reforms that would lower public trust even further," said Ivan Krastev, a political analyst in Sofia.
"Everybody is in survival mode - the government, the opposition and different political parties."
Moreover, the Socialist-led coalition has upset investors by slashing household electricity bills twice in six months, adding to the state power utility NEK's debt and squeezing local power producers and foreign distributors such as the Czech CEZ and Austrian EVN AG.
The move was a bid to shore up the government's position as power costs eat up a large part of household incomes in winter. Protests over high prices and low living standards brought down the previous, centre-right government last February.
Oresharski's government in December went after the sector it blamed for pushing up costs - green energy. It imposed a surprise 20 percent charge on wind and solar plants, squeezing many foreign investors that had earlier poured into Bulgaria to take advantage of generous renewable subsidies.
Energy companies said the charge, which was pushed through parliament without ever being debated, would cause bankruptcies and scare off foreign investors, at a time when foreign direct investment fell 30 percent in the first eleven months of 2013.
"Recent rapid changes in energy policy and regulations have raised significant concerns in the investor community and has impacted the attractiveness of investment," Daniel Berg, the office head for Bulgaria for the European Bank for Reconstruction and Development (EBRD), told Reuters.
"Better policymaking can help improve the country's image, and this will help attract additional investment."
The government's prospects have been helped by an improved economic outlook. Growth has been slow since Bulgaria exited a deep recession in 2010 but this year it is expected to quicken to 1.8 percent, up from 0.6 percent in 2013.
The country's stock exchange shrugged off last year's political turmoil, with its turnover jumping 124 percent in 2013 and another stellar performance is predicted this year.
Oresharski's administration has won cautious praise for its efforts to speed up government clearances for businesses, who must obtain dozens of different permits and licences in a process that can stall projects for years. It has also paid business back 500 million levs ($350 million) in tax rebates, a process that had been held up for months.
But the government's overall lack of reformist drive - and the uncertain political climate - still feed a perception that little has changed for the better since Bulgaria joined the European Union with high hopes of prosperity in 2007.
Brussels in January delivered its harshest report yet since Bulgaria's accession, calling its progress in fighting graft "not sufficient and fragile". It remains the second most corrupt EU member according to Transparency International, and has yet to send a corrupt high level official to jail.
The British ambassador to Sofia called the report "depressing reading" on his Twitter account, adding Bulgaria had made "a few tiny steps forward; some big steps back."
Prospects of slow foreign inflows for this year, coupled with weak domestic demand and political uncertainty, prompted ratings agency Standard and Poor's to change the outlook on Bulgaria's investment grade rating to negative in December. Fitch Ratings kept its outlook as "stable" in a January note, but flagged the risk of fresh unrest in 2014.
The spark for the protests was the attempted appointment of Delyan Peevski, a controversial media figure, to a top security job. For many, it was seen as a depressing reminder of the cosy relationships between politicians and vested interests.
Having already survived two confidence votes, the government has batted back demands for a snap election, arguing that it could harm Bulgaria's nascent economic recovery, and would likely produce the same results as last year's vote.
But anger against the political class still festers. One in five people surveyed by pollster Gallup International in January said they would take to the streets again.
"I was and I am still furious," says Rafael Chichek, 42, who runs a furniture business. "You pay your taxes, you pay your bills, and for what? They put the money in their pockets and refuse to do anything."
The Socialists are still vulnerable. The party is plagued with internal squabbles, while the government's approval rating languishes at around 20 percent. A key test will be their performance at the European elections in late May, as a poor showing could spark fresh demands for early polls.
Their prospects have already been dented by the decision by a former president and socialist leader to run a separate list of candidates from the ruling party for the vote. That is likely to play into the hands of the main opposition GERB.
"The government looks a tad more stable now, but it is far, far from a lasting stability," said Andrei Raichev, a political analyst with Gallup International.
"Because the protests may have died, but the discontent has not died at all," he said.
Should the government make another mistake similar to Peevski's appointment, then "nothing can save them."