불가리아 주요 경제 정보 (1 - 11 JANUARY 2008)

BULGARIAN ECONOMIC TOP NEWS DIGEST

WEEKLY REPORT (1 - 11 JANUARY 2008)

 

 

Sections/headline briefs:

 

MACROECONOMY:

 

·        Bulgaria’s Kozloduy NPP plans to produce 15 Billion kWh per year

·        Bulgaria has lost BGN 350 M from NPP Kozloduy

·        Happy New Year with twice higher electricity bills

·        Bulgaria to pick Belene nuke plant investor, lender by end 2008

·        Tourism experts raise voice against Bourgas-Alexandroupolis pipe

·        Higher tobacco, fuels excise duties go into effect in Bulgaria

·        Bulgaria managed assets top 900 mln levs at end 2007

·        Bulgaria switches to flat tax on personal income

·        2008: Bulgaria staring down a difficult reform path

·        Bulgarian government may create new co for motorway construction

·        US trade mission to be established in Bulgaria

·        US praises Bulgaria's debt settlement with Iraq

·        Тhe number of foreign tourists who visited Bulgaria in 2007 equals the number of the country's entire population

·        Bulgarian 2007 wine exports to top 120 million liters

·        Bulgaria gets �2 billion for developing of transboundary corridors

·        Struma Motorway construction to start in March

·        Dollar collapses to 1.28 BGN

·        Two-step salaries rise in Bulgaria

·        Ten Levs Toll Tax from Sofia to Bourgas

·        Bulgaria likely to export wheat in 2008

·        Bulgarian medicine market overregulated

·        Sofia should address financial imbalances

·        Bulgarian Economy: Latest statistics

·        What pulls economy down is agriculture

·        Gasoline retailers not rushing into biofuel business

·        Bulgaria suing European Commission over CO2 allowances cut

·        Bulgarian government rallies support for Kremikovtzi steel mill

·        Central and Eastern Europe – the new Detroit

 

 

INVESTMENTS:

 

·        Bulgaria to step up effort to attract production FDI

·        Investment projects tabled in 2007 top BGN 9 billion

·        Three countries vie for the investment of the century

·        Greek company to invest 500 million euro in wind plant

·        USA interested in energy efficiency investments in Bulgaria

·        Sofia to boast 180-Meter-High Skyscraper by 2010

·        ECE Projektmanagement upgrades Serdika Centre project to � 210 M

·        Ski resort planned for Biala Cherkva area

·        New vacancy complex near Sunny Beach to light up tourists way

·        Seven golf courses to mushroom near Bansko

·        Kaufland earmarks � 30M for building 5 stores this year

·        Aluminium, plastic parts producer Herti to invest � 13.2 M until 2010

·        Sopharma Buildings to invest �14.6 M in Sofia residential development

·        Bulgarian PM hopes China increases investment

 

COMPANIES:

 

·        UK Penspen wins engineer contract for Nabucco gas pipeline

·        100% stake in Sofia Heating Utility put up for sale

·        Greek pharmaceutical chain eyes acquisition in Bulgaria

·        Cabinet unlocks privatisation of 23 companies

·        China's Huawei wins WiMAX network deal with Bulgaria's Trans Telecom

·        Max Telecom WiMAX coverage reaches 30% of Bulgarian population

·        Alfa Finance Holding buys 58% in Plovdiv airport

·        Nine companies bid for underground transport extension in Sofia

·        Kremikovtsi metallurgic works closing may cut local economy growth

·        PepsiCo agrees to buy Bulgaria's leading nuts and seeds company

·        Overgas to merge seven subsidiaries

• Major mergers and acquisitions

 

ANALYSIS:

 

·        Optimism on economy

·        Crash course for Bulgaria?

·        EU membership does not change Bulgaria

·        Nuclear games precede president Putin's visit to Bulgaria

·        Bulgaria's neighbors desperately need electricity, but they have nowhere to import from, Executive Secretary of the Bulgarian Atomic Forum said

 

 

Articles:

 

 

MACROECONOMY:

 

Bulgaria’s Kozloduy NPP plans to produce 15 Billion kWh per year

According to the Director of the Bulgarian nuclear power plant Kozloduy Alexandar Nikolov, the amount of energy produced this year by the plant is so far 14 444 665 000 kilowatt-hours.‘We expect this amount to reach 14 642 400 000 by the end of the year’, he said in an interview for FOCUS News Agency. ‘For comparison – last year units 5 and 6 produced 12 740 000 000 kWh. There is almost 2 billion kWh difference, and this is a result from the shortened maintenance terms and the implementation of the modernization program’, he said.‘Our plans are to reach 15 Billion kWh annual production. I cannot guarantee that this will become a fact in 2008, but maybe in 2009 it will’, Nikolov said.

Bulgaria has lost BGN 350 M from NPP Kozloduy

A year after the decommissioning of power units 3 and 4 of NPP Kozloduy, calculations show the Bulgarian economy has lost 350 million levs direct revenues to the Fisc (the two power units could have generated 6.7 billion kilowatt-hours of electricity in a year's time).on the other hand, the losses from the premature decommissioning of the power facilities (they could have operated safely for at least six more years) amount to about two billion levs," said Ivan Genov, Director of NPP Kozloduy. By December 31, 2006, when they were decommissioned, the reactors had worked for 25 or 26 years.Their recommended decommissioning, however, hit on the pocket the Bulgarian households and companies alike, because of the hike in the final price of electric supply for domestic and industrial purposes. While power units three and four were operating, the National Electric Company could compensate the losses on the home market with the profits from the export of power, whereas now the losses are compensated with a higher final price of the electricity generated by NPP Kozloduy. In 2006, Bulgaria exported nine billion kilowatt-hours of electricity, whereas this year it will be less than 1.5 billion.Without power units 3 and 4, the capacity of NPP Kozloduy decreased by five billion kilowatt-hours; last year it generated 14.6 billion kilowatt-hours of electricity, experts said. A year after the facilities' shutdown, our experts and their international colleagues share an opinion that the decommissioning of the power-units was politically, but not technically justified.

Happy New Year with twice higher electricity bills

The National Electric Company (NEC) plans to hit the households on the pocket with high electricity bills at the end of this month. The consumption of electricity in the days around Christmas and the New Year holidays increased by 50% or 70%. Because of the low temperatures at the beginning of January, many households will receive electricity bills as high as 200 or 300 levs.The users of central heating in Sofia, Plovdiv, Vratsa and Veliko Turnovo will have to pay the most. The heaters of hundreds of households in these towns and cities remained cold on some of the coldest days due to breakdowns and they had to use electric heaters. Thus, they'll receive a high electricity bill and yet another one - for central heating.

 

Bulgaria to pick Belene nuke plant investor, lender by end 2008

The strategic investor and the bank that will package financially the construction of a 2,000MW nuclear power plant (NPP) at the local Danube town of Belene will be named almost simultaneously towards the back-end of 2008, Dnevnik learned from Lyubomir Velkov, chief executive director of NEK, Bulgaria's national power grid operator. NEK is already reviewing the offers submitted by the candidate lenders. Their names have not been disclosed at the banks' request. The wildcard for their participation was the position of the EU executive on the use of the Russian VVER reactors. However, Brussels gave its blessing to the project in late 2007, influencing positively the financing talks with the banks. Velkov said that after Bulgaria picks a strategic investor for a 49% stake in Belene Power Company (BPC), the outfit that will operate the future NPP, the bank in charge of the project financing will have to negotiate with the selected company. Therefore it is more realistic that the investor and the lender will be chosen by the end of 2008. After the building contract for the Belene plant is signed with Russia's AtomStroyExport during the mid-January visit here of Russian president Vladimir Putin, the actual construction works could be expected to get underway. Italy's Enel, CEZ of the Czech Republic, Germany's RWE and Belgium's Electrabel have handed in offers for the 49% equity stake. NEK has already asked the candidates to improve their bids by mid-January. one of the options under NEK consideration is an export credit for the construction of the NPP extended by Russia's Roseximbank. AtomStroyExport could also raise funding, said industry experts. The Russian company has repeatedly stated it is ready for such a move.

Tourism experts raise voice against Bourgas-Alexandroupolis pipe

The ambitious Bourgas -Alexandroupolis pipeline project is a very bad bargain for Bulgaria. All tourism experts in Bulgaria share this opinion. It would be a folly to put at risk a sector of economy that yield billion-worth profits for a project that will bring us only 30-35 million USD a year in transit fees. only Russia and Greece will reap profits from the pipe, meanwhile it would ruin the Bulgarian tourism industry, restaurant and hotelkeepers are unanimous. Yearly revenues from tourism in Bulgaria have grossed over two billion euros in recent years. About 70 percent of the money comes from the Black Sea resorts. However, possible oil spills in the Bay of Bourgas would leave without livelihood the entire Bourgas region, rings the alarming bell the tourism guild.
 For this reason the Union of Hotelkeepers in the Sunny Beach resort are working out a declaration against the project, said chairperson Elena Ivanova.According to experts, the Bourgas-Alexandroupolis project designers do not guarantee the ecological balance in the region. The fact that the oil will be unloaded in the oil terminal of Rosenets makes the risk of a spill much higher. In contrast, the competing project - Bourgas-Vlore pipeline - envisions that oil will be unloaded on a platform in the open sea. Apart from being more cost-effective, because large tankers will be involved, this approach allows to reduce the impact of a possible spill.Russia will make double profits from the Bourgas-Alexandroupolic pipe - first it will boost the export of its own oil by 35 million tons a year and second, it will benefit from its 51-percent share in the international company that will operate the pipeline.Greece, owner of a large tanker fleet, will also make good money from the transit of oil via the Black Sea. Meanwhile Bulgaria faces the greatest risk of an environmental disaster because oil will be unloaded near the popular black Sea resorts and two-thirds of the pipe will pass through its territory.The pipeline hides more risks than it promises profits, former minister of regional development and MP of the Democrats for Strong Bulgaria Evgeni Chachev said.

Higher tobacco, fuels excise duties go into effect in Bulgaria

Increased tobacco and fuels prices went into effect in Bulgaria on January 1.Cigarette duties will rise by 34% starting from January in the first step of a three-year programme that will see the duty rise to EUR 64 per thousand cigarettes by 2010, from the current EUR 31.Cigarettes will now cost BGN 0.55 more per pack in 2008, the last year before a total ban on smoking in enclosed public places goes into effect.Excise duties on fuels will rise by an average of 10%, with the price of petrol going up by BGN 0.05 per litre and one litre of diesel fuel will be BGN 0.08 more expensive.The Financial Ministry has also decided to increase the excise tax on coals and electricity. The excise tax for coals will be upped by BGN 1.07.

Bulgaria managed assets top 900 mln levs at end 2007

The assets managed by the local mutual funds tripled year-on-year to just under 900 mln levs by the end of December 2007, shows data filed with the Bulgarian bourse and the register of the nation's financial watchdog.If the assets entrusted to non-native mutual schemes like Pioneer and SGAM are thrown in as well, the total figure reaches some 1.1 bln levs. The investment exposure of the funds continues to be mainly towards the local stock market but quite a few have began to diversify on the regional markets. The number of the funds is now 65, up from around 40 at the end of 2006. The top 5 Bulgarian fund families have 60% of the asset total in their custody. DSK Asset Management bosses the segment by the end of December with 129 mln levs just ahead of Raiffeisen Asset Management with 125 mln levs. They are followed by Elana Fund Management with 114 mln, Karoll Capital Management with 99 mln and Capman Asset Management with 95 mln levs. Managed assets now equal in value 3% of household and corporate bank deposits, up from around 1% in early 2007.

Bulgaria switches to flat tax on personal income

The biggest change in Bulgaria's taxation system for '08 is the introduction of a one-size-fits-all 10% tax rate on personal income. Sole traders will incur a 15% tax to level the playing field with other businesses that are liable for dividend tax. The change also aims to ensure fair taxation rules for the income of sole traders and income accrued by partners and shareholders from participation in commercial corporations. Donations made out to physical persons will not be tax deductible. Donations to legal entities entitle the respective tax-payer to a 5% deduction.

2008: Bulgaria staring down a difficult reform path

The overriding concerns about Bulgaria's economic outlook for 2008 have mainly to do with the likely confluence of global downtrends and domestic redflags like speeding inflation and c/a deficit, economic analysts told Dnevnik.The December reading of the composite business climate indicator of the National Statistical Institute (NSI) shows that early 2008 morale among business managers is moderating on growing concerns about the volatile economic environment, rising prices and flagging domestic demand.The 2008 political calendar features no elections which means it is an opportunity to implement unpalatable but much-needed structural reforms while stoking business activity with continued social security cuts. The recipe is not new but the government is yet to seriously commit to it, observe the analysts. The procrastination in this respect leads to more risks that are harder to counter. Maintaining investment flows and accelerating economic growth are seen as the two biggest challenges for the economy as it heads into 2008. The top near-term challenge will be ensuring a continued high investment activity on the backdrop of a global pro-inflationary environment and deteriorating liquidity of the international financial markets, Dnevnik was told by Hristo Valev, a Karoll investment analyst. According to Georgi Angelov, a senior Open Society economist, the 10% corporate tax and the flat personal income tax are a good bid for higher growth but the government will also have to invest some effort in improving the business environment, implementing structural reforms and alleviating the social security burden. If all this falls into place, 2008 could be the first year of double-digit growth for the Bulgarian economy, said Angelov. The local business is eager to tackle problems created by the declining educational standards and payroll costs that are rising not because of increased quality or productivity but due to personnel shortages. NSI data for September 2007 shows that the average monthly pay was up 20% year-on-year while 17.6% of industrial enterprises complain they are understaffed. At the same time, unemployment is down to a record 6.6%.

Bulgarian government may create new co for motorway construction

The Bulgarian government may set up a commercial corporation that will be in charge of the building motorways and the borrowing of bank loans for their construction. A proposal to this end was discussed recently y the managing board of the infrastructure national fund at the suggestion of transport minister Petar Mutafchiev. The official motivated his proposal by saying that the new company may be incorporated if the Trakia motorway concession is dogged by further delays. A key annex to the concession contract for the completion of the Trakia motorway was supposed to by signed by the government by the end of 2007 but that did not happen. A scenario where the state budget finances the operation of the new company is possible only if the Trakia concession deal falls through completely, said Mutafchiev. According to the official, the transport ministry is concerned that resolving the Trakia concession glitches is taking more than three years and that this is to the detriment of the Bulgarian public. The proposal is opposed by regional development minister Asen Gagauzov on the grounds that the new company would duplicate the functions of state-controlled Avtomegistrali which currently takes care of the maintenance of primary roads.

US trade mission to be established in Bulgaria

A US trade mission will soon be established in Sofia. It will work to facilitate the US investments in Bulgaria. According to the Bulgarian News Agency (BTA), the project was discussed between Bulgaria's Foreign Minister Ivaylo Kalfin and Carlos Gutierrez, Secretary of the U.S. Department of Commerce, during their meeting in Washington D. C. The successful economic cooperation between the two countries materializes in the large-scale projects of US giants like AIG, AES, IBM and HP implemented in Bulgaria. Minister Kalfin also had talks with US National Security Advisor Stephen Hadley. He also delivered a lecture on the Euro-Atlantic future of the Balkans before the German Marshal Fund. Mr. Kalfin also had meetings with the Bulgarian communities in Washington D. C. and Los Angeles.

US praises Bulgaria's debt settlement with Iraq

Bulgaria's government decision for Iraqi debt settlement was highly acclaimed by US officials during a visit of the Bulgarian foreign minister to Washington."The debt settlement will contribute to the further economic stabilization of Bulgaria", Minister Ivaylo Kalfin told Deputy Treasury Secretary Robert Kimmitt, who praised the agreement that allowed Bulgaria to get 30% of the sum owed.In November it was agreed that Iraq will pay USD 360 M in cash in the first half of 2008 to settle its debt, which is USD 1,86 B. Bulgaria decided to write off the rest, thus becoming the first country from the Paris club of creditor nations to reach a settlement with war-torn Iraq.During the official meeting, Kalfin and Kimmitt discussed also the obstacles before the ratification of an agreement for avoiding double taxation between Bulgaria and the US.The agreement was signed in February last year and was supposed to substantially lighten the tax burden over dividends of trans-border trade and provide for special mechanisms to keep it safe from violations by citizens of third countries.The document also includes clauses on exchange of any kind of financial information between the two countries but has not been ratified by the US yet, due to administrative difficulties.Kimmit told Kalfin that as soon as the agreement is ratified it would be considered active as of January 1.
During his six-day trip to the United States that started Thursday, Ivaylo Kalfin is scheduled to meet also with State Secretary Condoleezza Rice, National Security Advisor Stephen Hadley, Commerce Secretary Carlos Gutierrez, and Undersecretary of Defence Eric Edelman.

Тhe number of foreign tourists who visited Bulgaria in 2007 equals the number of the country's entire population

According to a report by the Institute of Analyses and Assessment in Tourism, the number of foreign tourists who visited Bulgaria in 2007 equals the number of the country's entire population. About 7.3 million foreign tourists visited Bulgaria last year, as 2.58 million came for shopping or made a one-day trip. Exactly 4.72 million were the foreign holidaymakers in Bulgaria for 2007, according to the international definition. one-third of them - 1.62 million were here on winter or summer vacation. The number of foreigners who were in this country on a business trip was 1.92 million, and 412,000 made a VFR trip to Bulgaria; 212,000 foreigners spent their winter holiday and 160,000 bought rural- and eco-tourism packages. About 178, 000 came to Bulgaria for balneology and spa treatment. Other 200,000 bought other types of trips.The Bulgarian tourists were 5.9 million in 2007. The average vacation expenditure per capita was between 300 to 800 levs (1euro = 1.95 levs). In 2007, the average price of vacation in Bulgaria was 514.50 levs. 

Bulgarian 2007 wine exports to top 120 million liters

Wine industry pundits estimate Bulgarian wine exports at 120 mln liters in '07, up 9% y/y. Bulgarian wine is big in Russia which accounted for 67 mln liters of export shipments by end-Oct, mainly on the low-price segment. Poland, the UK and the Czech Republic are also traditional markets for Bulgarian wine exporters. Bulgaria's viticulture and wine-making industries will receive some 166 mln euro in EU funding for the '08-'15 period.

Bulgaria gets �2 billion for developing of transboundary corridors

As new member of EU plus the role of gate to the rich Asian market Bulgaria will receive from the EU funds more than 2 billion EUR for developing of transboundaries corridors that pass through the country and for the connections between different kinds of transport. The sum is the biggest among the rest of the EU money for the other 6 operative programs.Along with the national co-financing the money for highways are 990 million EUR for the period 2007-2013.The sum is foreseen for the constructions of: ‘Struma' and ‘Maritsa' highways; first-class sections of highway E 79 (Vidin - Montana, Vratsa - Botevgrad); linking of ‘Hemus' highway with Sofia's ring-road.The projects involve also finishing of the section Kurdjali - Podkova, part of corridor North - South, a.k. corridor number 9.For the rail transport infrastructure are foreseen a total of 580 million EUR. The sum includes the state co-financing.Almost 20 million EUR are prepared for two important systems - for unimpeded sailing on the Danube River and the other is for traffic governing in sea transport.138 million EUR are foreseen for the common project with Romania concerning the Danube islands of Batin and Belene.

Struma Motorway construction to start in March

 

Head of state road infrastructure fund Veselin Georgiev informs that a tender for the completion of Struma Motorway will be called by the end of this month and construction works may start at the end of March or early in April. The price of the motorway, which connects the capital city of Sofia with the Greek border in the south-western area of the country, has been estimated at EUR 600mn initially. Costs, however, are likely to be raised up to EUR 800mn due to more expensive construction in the mountainous region of Kresna Gorge for building tunnels and noise reducing instalments and other facilities protecting biodiversity. The project will be financed by the EU structural fund through the transport operational programme of the country.

Dollar collapses to 1.28 BGN

According to a recent financial prognosis, the dollar will fall to 1.28 BGN by the summer of 2008. "Thus the rate of the dollar will drop to 1.52 Euro," shows the prognosis of UniCredit Group.  However, by the end of 2008, the dollar will regain its present position on the stock exchange market, and will be traded for 1.35 levs.  Currently, the US dollar exchange rate is 1.33 levs. (1euro = 1.95 levs)

Two-step salaries rise in Bulgaria

The salaries in Bulgaria are to be increased twice: one rise as of today and the other from July 1, 2008. Bulgaria's cabinet approved the minimum salary of 220 levs (1euro=1.95levs) in the public sector as of the beginning of 2008. So far, it amounted to 180 levs. In July, the salaries will be raised again by 9.5% and then the minimum salary will reach 319 levs. The budget also envisages a 12% downsizing of the employees in the state and municipal administrations.Bulgarian pensioners will also have higher pensions. The minimum pension adopted by Bulgaria's Cabinet is to become 102,85 levs, reaching 112,62 levs in the beginning of July. As of January 1, 2008 poverty threshold becomes 166 levs. The average pension in Bulgaria is to become 196,40 levs. The old age pension was raised from 76.23 levs to 83.47 levs. The pension ceiling is to remain 490 levs as it was in 2007.

Ten Levs Toll Tax from Sofia to Bourgas

"When the construction of Trakia Highway is finished, the drivers will be charged eight or ten levs toll tax for a trip from Sofia to the coastal city of Bourgas," Bulgaria's Minister of Regional Development and Public Works Assen Gagauzov said yesterday.
 According to him, this will be one of the lowest toll taxes in Europe. He explicitly stated that sixty percent of the revenues from the concession would be received by the state. All sectors of the Trakia highway from Kalotina border checkpoint to the seaside should be opened by 2011, Minister Gagauzov said as he added that there would be an alternative, toll-free road to the seaside."It's important that the construction of all highways, including Hemus and Cherno More, be finished by 2012," Gagauzov said further.

 

Bulgaria likely to export wheat in 2008

 

The market year 2007/2008 began in July with about 150,000-155,000 tons of wheat available in Bulgaria. According to preliminary figures provided by the Ministry of Agriculture, milling wheat production in 2007 amounted to 2.4 million tons, with the average crop amounting to 220 kg per dka and a total of 10.948 million dka reaped. Experts from the ministry forecast that about 2.655 million tons of wheat will be available next year. Based on the country's wheat balance figures, they say consumption would not exceed supply and the amounts available would be sufficient. Although wheat has not been exported in 2007, about 150,000 tons are planned for export in 2008 according to the balance prepared by the Agricultural Development. Still, production is expected to fall down and wheat import to grow. By end-June 2008, Bulgaria is expected to have imported over 100,000 tons of wheat. Information from the Customs Agency shows that 38,000 tons of wheat, including 1,684 tons of wheat flour have been imported as of December 9, 2007. The total consumption for 2007-2008 is forecast to reach 2.511 million tons. Sowing seeds for the 2008 crop will amount to about 265,000 tons. Some 1.3 million tons will be needed for the milling industry and bread production. 1.15 million tons are planned for bread and 150,000 tons - for flour production. About 747,000 tons of wheat are expected to be used for the needs of stock-breeding. The record-high prices of milling wheat in 2007 made it almost unaffordable for the stock-farmers and they are likely to replace it by other fodder crops next year. Agricultural experts forecast the transitional remainder of wheat will amount to 140,000 tons before the market year 2008-2009. Autumn sowing operational figures from the Agriculture and Forestry Directorate show that wheat sown areas occupied 10,048,000 dka as of December 12 and winter barley sown ones - 1,962,000 dka. Due to the more attractive prices of energy crops there is increased interest in them. There are 917,000 dka sown under winter oil rape which is more than twice the areas sown a year earlier. Nearly BGN8MN have been paid to farmers as a compensation to their losses because of the drought, the Agriculture Fund announced. More than BGN7.632MN have been paid for purchase of mineral fertilizers for wheat production, and just BGN760,000 have been lent for the purchase of seeds.

Bulgarian medicine market overregulated

 

The pharmaceutical market is affected by populism, 20-percent VAT rate and restrictions.
Business and health-care experts consider the intervention of the state in the medicines market as overregulation. The state regulates the prices of medicines that are paid for with public funds, as well as the prices on the free market. The annual turnover of the pharmaceutical sector in Bulgaria amounts to BGN 1.3 billion. If non-prescription drugs are included, the figure grows to BGN 1.5 billion. The National Health Insurance Fund (NHIF), the ministry of health and the hospitals purchasing the medicines are the major players on this market. The public funds in the pharmaceutical sector amount to BGN 600 million annually. The NHIF budgets BGN 280 million for medicines annually, while the ministry of health budgets further BGN 90 million. The hospitals spend BGN 250 million annually on drugs under clinical paths. The incumbents have always expressed their willingness to coordinate the prices of medicines with the budget of the health ministry and purchasing power of the patients. For example, producer prices of drugs in Bulgaria cannot exceed the lowest producer prices in eight EU reference countries. Certain measures for reducing the surplus charges were also introduced. At the same time the state continues to impose 20-percent VAT rate on medicines, one of the highest in the EU. It is impossible for medicines in Bulgaria to be sold at the lowest prices in Europe, Deyan Denev, chairman of the The Association of Foreign Pharmaceutical Manufacturers in Bulgaria (AFPMBG), said. The market is small and insecure. It is justifiable for the state to demand one of the lowest medicine prices in Europe, according to Denev. The EU, however, does not apply the rule of the lowest price. In Romania the rule is applied but further 5% are added to the price of the medicines. Thus, Bulgarian drug makers become disinterested and flee the domestic market. The patients are also affected by this situation and are forced to go to neighbouring countries in order to purchase a medicine that is not registered in Bulgaria.

 

Sofia should address financial imbalances

 

One year after Bulgaria's accession to the EU, its cabinet should take a hard look at the country's macroeconomic imbalances and fix them now, according to an analysis by Danske Bank, quoted by business daily Dnevnik.Although the state of Bulgaria's economy is worrisome, it has not reached a critical point yet, the bank's analysts claim.
Year-on-year inflation in the country rose to 12,6% in November, compared to 6,5% at end-2006, and its current account deficit is expected to reach close to 20% of gross domestic product for last year.Those figures firmly put Bulgaria in a "danger area", where it joins Romania, who also joined the EU in January 2007, and the three Baltic States.
A mitigating factor is that the biggest chunk of the current account gap comes from investments flooding into the country, rather than consumption-fuelled imports.But should foreign investors lose their confidence in the performance of Bulgaria's economy, it could scare multinationals corporations out of the country, the report's authors said.
The cabinet has limited space for manoeuvre when it comes to fiscal policies, since the Bulgarian currency is pegged to the euro under a currency board system, so the main focus should be on tight wage policies, Danske Bank recommended.

Bulgarian Economy: Latest statistics

The National Statistical Institute (NSI) released the latest statistics on the Bulgarian economy. The confidence index in industry in December decreased by 1.5 points from November, the press release says. The decrease is due to more moderate expectations of business leaders concerning industrial production in the following three months. on the other hand, their assessment of the current level of orders is positive while the stock of goods is decreasing.The industrial production index increased by 10.4 points between October 2006 and October 2007. The period witnessed growth in electricity, natural gas and water production and distribution and in the processing industry - by 27.4 points and 8.4 points, respectively. Decline was registered only in the extracting industry. Bulgaria's gross domestic product (GDP) in the third quarter of 2007 was 15.659 bln. leva in current prices. Per capita GDP stood at 2,033.9 leva. Calculated on the basis of an average exchange rate of 1.4234 leva to the US dollar, the values were, respectively, 11.000 bln. dollars and 1,428.8 dollars. In euro, the values were, respectively, 8.006 bln. and 1,039.9. In real terms, GDP grew 4.5 per cent from the third quarter of 2006. Between July and October 2007, the consumer confidence index decreased by 5.8 points. The decrease was 7.6 points among the rural population and 4.8 points among the urban population. Polls show that consumers' perceptions and expectations grew more pessimistic for a second quarter in a row. Net revenues from sales in retail trade and in repair of personal possessions and household goods in October 2007 increased 2.3 per cent from October 2006. The increase was larger in trade in textiles, apparel, footwear and leather products, at 14.0 per cent, and pharmaceuticals and medical goods, at 10.8 per cent. Individual consumption absorbed 70.4 per cent of GDP generated in the third quarter of 2007. The index increased 5.0 per cent from the third quarter of 2006. Between July and October 2007, the use of industrial facilities increased by 1.5 points to 71.9 per cent.Employed persons totalled 3,315,500 in the third quarter of 2007. They accounted for 49.9 per cent of the population aged 15 or over. Unemployment continued to decrease between the third quarter of 2006 and the third quarter of 2007. Employed persons increased by 114,700 and the employment rate increased by 1.8 points. Unemployed persons in the third quarter of 2007 totalled 235,100 and accounted for 6.6 per cent of the country's workforce. They decreased by 75,300 people from the third quarter of 2006, and the unemployment rate decreased by 2.2 points.Business barometer polls conducted by the NSI in December 2007 show that labour shortage is a problem for 17.6 per cent of enterprises.The average monthly wage in September 2007 was 434 leva, 3.6 per cent up from August 2007 and 19.6 per cent up from September 2006.In December 2007, the perceptions of industrial leaders concerning the intensity of production orders from abroad improved from November 2007.Bulgaria's current account deficit amounted to 681.0 million euro in October 2007, compared with 546.3 million euro in October 2006. Between January and October 2007 the current account deficit was 4.554 bln. euro (17.0 per cent of projected GDP in 2007), compared with 2.646 bln. euro in January-October 2006 (10.5 per cent of GDP).The main reason for the increase of the current account deficit was that the foreign trade deficit grew by 1.559 bln. euro. The foreign trade deficit in January-October 2007 was 5.778 bln. euro (21.6 per cent of projected GDP in 2007), compared with 4.219 bln. euro (16.8 per cent of GDP) in January-October 2006.
Bulgarian exports between January and October 2007 totalled 11.037 bln. euro (FOB), compared with 9.986 bln. euro in January-October 2006. Imports in January-October 2007 totalled 16.816 bln. euro (FOB), compared with 14.205 bln. euro in January-October 2006.Bulgarian direct investment abroad in January-October 2007 stood at 147.0 million euro, compared to 68.3 million euro in January-October 2006.Foreign direct investment in Bulgaria in January-October 2007 totalled 4.671 bln. euro (17.5 per cent of projected GDP in 2007), compared to 3.503 bln. euro (14.0 per cent of GDP) in January-October 2006. Foreign direct investment in January-October 2007 equalled 102.6 per cent of the current account deficit, compared to 132.4 per cent in January-October 2006.
The foreign trade balance in the third quarter of 2007 was negative as imports of goods and services exceeded exports by 1.763 bln. leva. Foreign trade increased 10.2 per cent in real terms over that period. Exports in the third quarter of 2007 increased 6.2 per cent from the third quarter of 2006, and imports increased 9.6 per cent. In November 2007, the harmonized index of consumer prices grew 11.4 per cent from November 2006. Among a total of twelve groups of goods and services, prices did not grow only in communications and in alcoholic drinks and tobacco products. Industrial producer prices on the domestic market in October 2007 increased 11.3 per cent from October 2006. Prices grew 11.5 per cent in the processing and extracting industries and 10.6 per cent in production and distribution of electricity, natural gas and water. Latest barometer polls conducted by the NSI show that in December 2007 one out of every five industrial leaders continues to expect prices to grow in the following three months.Receivables on loans extended to nonfinancial enterprises and households in October 2007 reached 33.245 bln. leva (63.6 per cent of projected GDP in 2007). Such receivables increased 59.1 per cent, year on year, compared with 56.4 per cent in September 2007. The year-on-year increase with nonfinancial enterprises was 63.5 per cent (compared to 61.9 per cent in September), and with households 52.5 per cent (compared to 48.2 per cent in September).

What pulls economy down is agriculture

Bulgarians had a positive attitude as a whole towards the accession of the country in the EU, President of Confederation of the Employers and Industrials Ivo Prokopiev said for Bulgarian National Television. According to him success on macroeconomic level was hard to reach common people but it was the place to start. The becoming richer of common people was depending on the state institutions. With the decrease of the tax obligations the companies had no incentive any longer to hide incomes. In his opinion the average Bulgarian citizen had become richer but poorer people were those who suffered more from the inflation. He adde that what was pulling economy down was agriculture where the situation was catastrophic and there was a drop of 43% in this sector.

Gasoline retailers not rushing into biofuel business

Petroleum products with biofuel component are still available at less than a handful filling stations across Bulgaria. The fuel retailers blame the slow uptake on the limited output capacity of the producers while the local biodiesel and bioethanol makers are slamming the regulatory framework. Dnevnik found that biofuels are currently sold only at the filing stations of the nation's two biggest fuel retailers, Petrol and Lukoil. Motorists can fill up with biodiesel at 42 Petrol outlets. Lukoil offers diesel fuel blended with 5% imported bio component at three filling stations in Burgas. Lukoil sources said there is only token customer demand for the new product. The other major distributors - OMV, Shell and Eko Elda, have not added biofuel pumps, still wary of the quality of the domestic output. The renewable energy sources and biofuels legislation that entered into force in June 2007 requires fuel importers and producers to offer diesel fuel and gasoline blended with 5% biodiesel and bioethanol, respectively. However, representatives of the fuel retailers said the provision is merely a recommendation and there is no document that expressly states this is in any way obligatory. The Bulgarian government recently adopted a program for the promotion of the use of alternative fuels for transportation purposes. The aim is to increase their share in total consumption to 2% in 2008.

Bulgaria suing European Commission over CO2 emission allowances cut

At the end of last year, Bulgaria lodged an appeal with the Luxembourg-based European Court of Justice (ECJ) against a European Commission decision dated October 26, 2007 on the national plan for distribution of greenhouse gas emission allowances for 2007 and for the 2008-2012 period, Bulgaria's Permanent Representation to the EU said Thursday. Approached by BTA, Barbara Helfferich, Spokesperson for EU Environment Commissioner Stavros Dimas, said the EC Environment Directorate General had not been formally informed by Bulgaria of the legal action, even though they were aware of such plans. At her first news briefing for 2008, Helferrich suggested that information be sought from the ECJ which, however, is still in vacation. In October, the European Commission approved 42.3 million t of carbon dioxide emissions for Bulgaria for 2008-2012, or 37.4 per cent less than the quantity proposed by Bulgaria. on December 21, the Government Information Service said that the appeal before the Court of First Instance would argue that the Commission decision violated procedural law, substantive law an basic principles of Community law.Unless the allowances are increased by some 15 million tonnes, the prices of heat power and electricity in Bulgaria may rise and some manufacturing operations may have to be closed down, which would lead to an increased import of a number of goods, pushing up the trade deficit and unemployment and resulting in other adverse economic developments, Bulgarian experts note.

 

Bulgarian government rallies support for Kremikovtzi steel mill

The Bulgarian government has officially backed the efforts of Kremikovtzi, the nation's biggest steel maker, to return to profitability and improve its balance sheet performance. The economy ministry, a 25% shareholder in the steel mill, last week issued a press release, highlighting the company's significance for the Bulgarian economy. According to the press statement, a possible closure of the mill would increase the negative pull on the nation's c/a deficit since Kremikovtzi sales cover over 10% of the imbalance. The press release further points out that the steel maker recorded sales of over 800 mln levs in January-September 2007, accounting for almost 2% of Bulgaria's GDP. A possible shutdown would slow down the country's economic growth and create problems for other companies the bulk of whose business is as Kremikovtzi suppliers, said the government press release. The economy ministry said it is not turning a blind eye to the environmental problems created by Kremikovtzi but said these would not be remedied with the closure of the plant or with the enforcement of administrative measures but rather by the implementation of a concrete investment program. There was some chatter in mid-2007 that Sofia city mayor Boiko Borisov and the capital's chief architect had reportedly found strategic investors interested in developing the site of the plant into a business district. Kremikovtzi executive director Alexander Tomov was quick to dismiss the idea and suggested to develop some 1,200 ha of company-owned land near the plant site into an industrial and commercial zone. The company plans to spend 311 mln levs to align its operation to EU environment standards through 2011. At the moment, the steel maker is waiting for the eco ministry to take a decision later this month on its application for an integrated pollution prevention and control permit.

Central and Eastern Europe – the new Detroit

A research carried out by UniCredit Group shows Central and Eastern Europe (CEE) to be a major factor in world automobile industry. For 2006 the produced units add up to 69 million. Main investors in the region are North America, Japan, and Western Europe. Overproduction, growing competition, increasing expenses for research and development, and high petrol prices are just a few of the challenges they face daily. All of these point to CEE as the natural outsourcing target, Debora Revoltela, head economist of UniCredit Group for CEE, points out. Total investments in the regional business development exceed EUR 20 billion. Quickly developing business environment in the countries of CEE creates the favorable potential. But good perspectives are not realized sales and the hope for internal market expand is the target. 30% of the production is based in Czech Republic. With the recent PSA and Kia investments to back up Volkswagen presence in Slovakia, it will soon be serious competition. The only set backs are the old material base which diminishes productivity. Investments in this area will improve the conditions considerably.

 

 

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Bulgaria to step up effort to attract production FDI

Bulgaria would step up efforts to attract more foreign direct investment (FDI) in production in 2008, Stoyan Stalev, excutive director of the investment promotion agency said on January 8. Real estate had pushed FDI to a record high in 2007, Reuters said. Bulgaria attracted more than 5 billion euro in FDI in 2007, compared to 4.4 billion euro in 2006. "Foreign direct investment was estimated at 5.1 to 5.2 billion euro. We hope to keep that level in 2008," Reuters quoted Stalev as saying. According to Stalev, investment projects launched in 2007 created around 27 000 jobs and would invest about 9 billion leva over a three-year period. But the one-sidedness of investments created serious imbalances in the economy, Reuters said. "We were not very successful in attracting investment in the processing industry or production ... It would be a real success if we increase their share," Stalev said. "We need to encourage long-term foreign direct investment in manufacturing to achieve a healthy balance between services and production," Stalev said. Stalev said the investment promotion agency would focus on attracting more investors in high-tech and energy sectors. Bulgaria's investment encouragement laws had been changed to offer support to only production-linked investors by building necessary infrastructure and co-financing training of personnel for the high-tech industry, Reuters said. "We need to do that to keep a skilled workforce in the country," Stalev said. "The gap between education and business needs is still big." Stalev told Reuters that the agency would focus on attracting investors from Europe who have not been very active so far, such as from the Scandinavian countries and France, as well as Japan and South Korea.

Investment projects tabled in 2007 top BGN 9 billion

Bulgaria's investment promotion authority handed out First Class Investor certificates to 60 projects with a combined tally of 9 bln levs in 2007.The project will be implemented over the next three years. The InvestBulgaria Agency issued 33 certificates in 2004-2006.Under the local investment promotion law, investors with project worth in excess of 70 mln levs are entitled to administrative support. In some cases, the government undertakes to pick up the tab for the infrastructure necessary for the respective project. Due to state budget restrictions, budget funding was extended only for the construction of infrastructure needed for the projects of Germany's Lindner and France's Montupet. Exactly 25 of the 60 certified projects involve shopping malls, retail parks, residential schemes and golf resorts. Among the most notable projects in this category are the mixed-use developments in Sofia and Plovdiv of Spanish company Riofisa and the residential complex in Sofia planned by Germany's ECE. The major tourism projects that got underway in 2007 included with 640 levs expansion of ski resort Borovets, the 208 mln lev Kamchia recreational complex, the 72 mln lev golf resort near Pravets and the Ibar II golf course near Dolna Bania and the 160 mln lev golf resort planned by the Kalvacha Investment company for the area of the village of Priaporets, in the Burgas region.Industrial manufacture, energy and environmental protection also attracted solid investment in 2007. Italy's Enel and national power grid operator NEK were certified as major investors for the modernisation of the Maritsa Iztok thermal power plant. Belgium's Solvay was recognised for its expansion plans of its Devnya soda ash plant. Svishtov-based cellulose maker Sviloza also plans to absorb 113 mln levs in investment over the next three years. A big-ticket investment in the metallurgical industry will be deployed by local holding Intertrust which has set aside 94 mln euro for a new factory for cold-rolled coils near Sofia. Modernisation project are also in progress at zinc and lead producer OZK (133 mln levs), steel mill Stomana Industry (98 mln levs) and Sofia Med (94 mln levs). 2007 saw the start of construction of four wind parks. U.S. corporation AES and local partner Geo Power are investing 361 mln levs in a 120MW wind farm near Kavarna. Spain's Eolica Navara is developing a 175 mln lev wind park near Suvorovo. Balkan Energy is another company investing in renewable energy. It is building a 236 mln lev wind park in Dobrudja. Another major energy project is the 83 mln lev biomass plantations planned by Spain's Ferry Group.

Three countries vie for the investment of the century

The construction of a new steel complex in Bulgaria is under discussion. The Austrian Voest Alpine steel giant plans to build a metallurgical plant in Bulgaria, Romania or Ukraine. The investment worth varies between 6 and 10 billion euro. Some 10,000 new jobs will be opened, Romanian newspaper Adevarul wrote. The Austrians will consider three possible locations for the new plant in Ukraine and two - in Bulgaria; all of them at the Black Sea coast. By the middle of 2008, three possibile sites will be singled out to be scrutinized and analyzed; it might be that all three of them are in one and the same country. The project design and implementation will take 4-5 years. The steel works is to be put into operation by the end of 2012 or in the beginning of 2013. The media qualified it as "the battle for the investment of the year." The sum of 10 billion euro exceeds Bulgaria's annual state budget (the state budget for 2008 amounts to 18.3 billion euro.)Adevarul writes that Bulgaria has proved to be more aggressive in attracting investments than Romania, but our country lacks a large-scale port infrastructure.Voest Alpine has been an active investor in Bulgaria for the last several years. The company is one of Kremikovtsi's strategic partners. Rumous have been spread that the Austrians intend to buy Bulgaria's biggest steel works. Voest Alpine is the majority owner of Assarel Medet in Panagyurishte - the biggest plant for copper ore processing on the Balkans.

Greek company to invest 500 million euro in wind plant

The Greek company Marivent Ltd. will invest 500 million euro in a wind-energy park near the town of Pernik.The park's energy capacity would be 800 MWh, Greek embassy to Finland said in a media statement.Marivent announced that it had already signed a contract for the construction with local authorities.The new plant will sell energy to the Bulgarian National Electric Company (NEC) for 20 years.Marivent would complete the project in less than 30 months, the bulletin said. The company itself and EU funds would provide money for the project, according to investor.bg said. Marivent expected 4.5 billion euro in earnings over the next 20 years.The project was considered one of the biggest in the sector in the EU.

USA interested in energy efficiency investments in Bulgaria

Bulgarian Foreign Minister Ivailo Kalfin is on a work visitation in Sacramento, California where he discussed the investment and business contacts' expansion opportunities between Bulgaria and California. Main themes on the meeting between Bulgarian Minister Kalfin and vice-administrator of California International Trade and Investments Garrett Ashley were usage of renewable energy sources and energy efficiency.Minister Kalfin and Garrett Ashley discussed the opportunities for economical and business relations in the areas as telecommunication, new technologies and saving environment enterprises.Both countries' representatives talked about the possibility a business delegation from California to visit Bulgaria. The meeting host expressed interest in taxes reforms and business conditions in Bulgaria.

Sofia to boast 180-Meter-High Skyscraper by 2010

 

Sofia will join many world capitals and sport its own skyscraper by 2010, Germanys ECE Project management and Advance Properties together with Balkancar Sredez AD and GTM-Angel Balevski EAD. Europe Tower Sofia, a 180-meter-high, 40-floor building will become the new landmark of the bustling city, with investors willing to commit USD734.6 million (EUR 500) for the development of the Europe Park Sofia new urban quarter in the city.

ECE Projektmanagement upgrades Serdika Centre project to � 210 M

 

The local arm of the German ECE Projektmanagement has upgraded the planned investment in the construction of Serdika Centre in the capital city Sofia to EUR 210mn from previously announced EUR 180mn. Construction works on the trade and business centre located on a total of 85,000 square metres have already started and are expected to finish in 2009. Serdika Centre is expected to open more than 2,000 jobs and to attract more than 1mn customers.

Ski resort planned for Biala Cherkva area

The Kuklen municipality, in Southern Bulgaria, plans to team up with private partners to develop a new ski resort some 35 km from Plovdiv, Bulgaria's second largest city. The resort will be located in the Rhodope mountain and will have 7-8 runs with a total length of 12 km, said Kuklen mayor Dimitar Sotirov. The highest elevation point in the area is 1,670 m which would ensure a vertical drop of 450 m. A 20 km gondola lift is also planned from the village of Markovo to Biala Cherkva. The Plovdiv regional and district courts have both ruled in favor of the Kuklen municipality in a legal dispute over the ownership of 22.6 sq m of forest land. A hearing on the case is scheduled for April 8 at the Supreme Cassation Court. If the highest court upholds the ruling, the municipality will start a procedure for the exchange of the woodland stock with the properties that will accommodate the ski piste routes. Sotirov said private investors are already showing interest in the project. The official added that the development of the concept for the ski runs and lift and the water supply and electricity grids will begin after the conclusive court judgment. No lodges or hotels are planned for the initial phase of resort development. There is already one 1.1 km ski run and a ski tow in the Biala Cherkva zone, both property of Ski Club Plovdiv.

New vacancy complex near Sunny Beach to light up tourists way

“Far” (Lighthouse) vacancy complex in St. Vlas seaside resort will be entered in exploitation this February. The investor ‘Prime Property BG' entered 9 million BGN (4,5 million EUR) in the project.The complex is located in the South-Eastern part of the sea resort, near one of the biggest Bulgarian summer resorts of Sunny Beach.The architecture decision is in accordance with the Mediterranean style. Buildings' facades are made from natural materials - mineral plaster, stone and wood.The territory is over 10,000 sq m. The residential part is 8,000 sq m.The project includes 5 sections with a total of 110 apartments. There will be also a bar, a restaurant and underground parking lot for 44 cars.For the moments only foreign citizens had bought apartments in the complex. The price is between 1,000-1,300 EUR/sq m.

Seven golf courses to mushroom near Bansko

Seven new golf courses are being built on the territory of the Bansko and Razlog resorts. "Our ultimate goal is attracting wealthy lovers of this aristocratic sport from all over Europe. This way we'll be able to profit from tourism around the year," Lyuben Tatarski, Razlog Municipality Mayor, explained.The first golf facility is supposed to be operational this spring.It also transpired that the joint venture Razlog Municipality and the local construction company Balkanstroy set up, is about to invest 240 million levs (1 euro =  1.95 levs) in a state of the art skiing center and a golf complex, which will spread over 600 hectares in the Betolovoto area. The skiing center will comprise 20 modern skiing facilities, a 19,4-kilometre-long ski lift, and the common length of the ski-runs will be 58,5 km. The golf course will have eighteen holes and will vie with some of the world's best. The joint venture will also build up new hotels to shelter some 3,000 tourists.

Kaufland earmarks � 30M for building 5 stores this year

 

The German-owned retail chain Kaufland is planning to invest EUR 25mn to EUR 30mn in the construction of five stores this year. The retailer runs 14 units at present and plans to open a store in each settlement with population of more than 100,000 inhabitants. In August last year, the German company announced plans to expand the number of retail stores to 40 in five years, covering 20 cities in the country. Its long-term investment plan is estimated at some EUR 300mn.

Aluminium, plastic parts producer Herti to invest � 13.2 M until 2010

 

The local producer of aluminium and plastic caps Herti is intending to invest BGN 25.9mn until 2010, according to the IPO prospectus of the company, which was recently approved by the state financial commission. The financing of the investments is structured as follows: 46.3% of planned investments would come from a  loan, some 35% will be financed from public offering funds expected at BGN 9.18mn while the remaining 18.5% from own resources. Herti targets market share expansion, reduction of production costs and raising productivity, equipment modernisation and environment protection. The company is planning to offer 3mn shares of face and minimal issue value of BGN 1 and BGN 3.1 in order to increase its capital by 25% to BGN 15mn. Austria ’s Mayer Export Import, which is one of the major stakeholders with share of 34%, may offer 1.4mn shares additionally in case of high demand.  The company is located in the north-eastern city of Shumen and although offering only 13 to 14% of total production domestically it holds leading position on the local market. It has established subsidiaries in France and in UK this year. The sales of the company stood at BGN 23.6mn last year and reached BGN 13.5mn in Q1.

Sopharma Buildings to invest �14.6 mln euro in Sofia residential development

Newly set up real estate investment trust Sopharma Buildings will invest 14.6 mln euro in a housing development in Sofia, shows the IPO prospectus of the company that has been approved by the local financial regulator. The project should be completed in 36 months. Sopharma Buildings plans to finance its business with two capital raises by the end of 2008. After the law-prescribed 150,000 lev hike, the company plans a 5 mln lev increase by the end of Q1 and a third increase by the end of Q4. The fund also plans to raise an external resource of 10 mln levs for the implementation of its investment program. According to the IPO prospectus, the pipeline can feature up to 100% of residential and office properties. The REIT will target the residential markets in Sofia, Plovdiv, Varna and Burgas. The fund was registered by investment company Nadezhda (30%), Ognian Donev (24%), Ventsislav Stoev (24%), drug maker Sopharma (10%), among other shareholders.

Bulgarian PM hopes China increases investment

The Bulgarian government attaches great importance to its relations with China, and hopes that more and more Chinese enterprises invest in the country, Bulgarian Prime Minister Sergei Stanishev said Wednesday. Stanishev made these remarks during a meeting with Chinese Ambassador to Bulgaria Zhang Wanxue Wednesday afternoon. The Bulgarian government hopes that the two countries would further strengthen bilateral cooperation in fields like politics, economy, culture and education. As a member of the European Union (EU), Bulgaria would actively promote cooperation between China and the EU, Stanishev said. Bulgaria was the second country in the world to recognize the People's Republic of China when it was founded in 1949, which demonstrates a genuine friendship between the two countries and their peoples. Bulgaria always upholds the one-China policy, and will not change this policy in the future. Bulgaria opposes the Taiwan authorities' attempts to seek UN membership through a referendum, Stanishev said. Zhang Wanxue congratulated the Bulgarian government on its achievements in various fields and on the country's accession to the EU. He said that China would further expand cooperation with Bulgaria in fields like politics, economy and trade.

 

 

 

 

 

 

 

 

 

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UK Penspen wins engineer contract for Nabucco gas pipeline

Nabucco Gas Pipeline International GmbH whose shareholders are Botas, Bulgargaz-Holding, Transgaz, MOL and OMV has awarded a contract to Penspen Limited, the international oil and gas consultancy based in the UK, to undertake the role of Owner's Engineers to assist in the setting up and then to manage the local FEED contractors in Austria, Hungary, Romania, Bulgaria and Turkey, the British company said in a press release posted on its corporate website. Penspen said its scope of services includes the overall management of the local FEED contractors, the review of the technical feasibility study, route confirmation, preparation of the design basis, hydraulic studies, overall SCADA and telecommunications, GIS and preparation of tender packages for the next phase. The planned Nabucco natural gas pipeline constitutes a dedicated gas transit and transportation pipeline from Turkey to Austria via Bulgaria, Romania and Hungary. The aim is to create a pipeline system for natural gas transmission from different sources in the Caspian Sea Region and the Middle East to Central Europe.

100% stake in Sofia Heating Utility put up for sale

Plans for the privatisation of Sofia's heating utility company are about get back on track after they collapsed last year over a consultancy fee. An agreement for the privatisation of a 100% stake in Toplofikatsiya-Sofia is expected to be signed by the municipality of the capital and the energy and economy ministry next week, the press office of the ministry announced. only strategic investors with previous experience and financial clout will be eligible buyers of the company to protect the interest of the clients," Energy and Economy Minister Petar Dimitrov announced.Toplofikatsiya-Sofia, which has been in the news for over a year after it was found drained to the brink of bankruptcy, provides heating to about 400,000 households in the capital Sofia. While the average monthly wage in the capital is set at about EUR 300, a household's monthly heating bill in the winter normally tops EUR 150, statistics show.The former head of Sofia's heating utility company, Valentin Dimitrov, was arrested in 2006 after an audit of the Toplofikatsiya Sofia heating utility found major irregularities in the company books, while the firm itself had to file for bankruptcy.Dimitrov's case is one of the highest-profile corruption investigations against a state employee to make it to court.

Greek pharmaceutical chain eyes acquisition in Bulgaria

 

Greek pharmaceutical firm Alapis targets the acquisition of a Bulgarian chain of pharmacies before the end of the month as part of its strategy of expansion throughout southeastern Europe, Greek newspaper Imerisia was quoted by business daily Dnevnik on Wednesday.The Greek company has steadily expanded its presence on its domestic market through acquisitions in 2007 and now wants to employ the same model to boost its regional reach.To finance its future buys in the region, Alapis has agreed a syndicated loan from nine banks, worth EUR 640 M, last month.The size of the loan is indicative of the company's ambitions, its previous acquisitions having been a lot smaller, Dnevnik said.Alapis is already reportedly in talks to buy a Serbian pharmaceutical chain and has a representative office in Albania.For this year, the firm targets a net profit of EUR 120 M on sales of EUR 700 M.

Cabinet unlocks privatisation of 23 companies

 

The government decided at the end of last year to take out 23 state companies from the privatisation ban list. The firms under consideration will undergo due diligence. The set of companies admitted for privatisation includes the airports in Varna and Burgas as wells as Technoexportstroy and Automagistrali. The latter two hold 24% and 25% stakes respectively in the Bulgarian-Portuguese consortium designated for taking over the 35-year concession contract for the 443-kilometre Trakia Motorway. The two companies control the same stakes in the special purpose vehicle expected to apply for the concession of the 450-kilometre Hemus Motorway to north-eastern Black Sea city of Varna . Some of the other companies are the airports in the two Black Sea cities Varna and Burgas, the smaller port in Varna Lesport, the specialised in industrial construction Montazhi.

China's Huawei wins WiMAX network deal with Bulgaria's Trans Telecom

 

China's Huawei Technologies on Monday said it has won a deal with Bulgarian telecoms services providers Trans Telecom to deploy a commercial WiMAX network covering central business districts and parts of the country's major cities. According to the contract, Huawei will supply an end-to-end WiMAX solution working on 3.5 GHz frequency band, including terminals, as well as a major upgrade of the Trans Telecom central exchange equipment for the operation of a fully mobile WiMAX network in 2008," Huawei said in a statement. The financial parametres of the deal were not immediately available. WiMAX is a standards-based wireless technology that provides high-throughput broadband connections over long distances and can handle Internet, video, voice or data transmission. Its main advantage is the opportunity to offer high-quality data transmission to places where the installation of fibre-optic cables is economically inefficient or unfeasible. Huawei has previously supplied equipment to Globul, the Bulgarian arm of Greek mobile phone operator Cosmote, and to the country's dominant fixed-line telecom BTC.TransTelecom is owned by Bulgaria's biggest fuel trader Petrol. Another four Bulgarian-based companies also hold nationwide licences to provide point-to-multipoint wireless broadband services which allow them to use the WiMAX standard. Telecoms operators see the use of the WiMAX technology as a way to overcome the last-mile hurdle set by BTC. The "last mile" is a telecoms jargon for the telephone cable linking the switching station to the customer at home.

 

Max Telecom WiMAX coverage reaches 30% of Bulgarian population

Bulgarian start-up telco Max Telecom said its WiMAX network now blankets 2.5 mln Bulgarians or 30% of the country's population. The company said it will target 90% coverage by the end of 2008. Ski resorts Bansko and Pamporovo were included in the carrier's wireless network this month. It is now commercially viable in 30 population centers, including Sofia, Blagoevgrad, Burgas, Dupnitsa, Pazardjik, Pernik, Petrich, Plovdiv, Sandanski and Sliven.The current datacasting capacity of the network is 2 Mbps which will increase to 5 Mbps by February 2008. Max Telecom will release by the end of the month a product that bundles together high-speed Internet, email hosting and mobile TV at a subscription price of 33.99 levs. The package will comprise a telephone number with a carrier selection code 0999, high-speed Internet access, 5GB of email hosting capacity and over 50 TV channels streamed online. Subscribers also get 60 min of free calls to fixed-line networks in Bulgaria, Europe, the U.S. and Canada. Max Telecom will charge 0.096 levs/min for calls to domestic fixed-line networks made using its WiMAX-delivered VoIP service. The tariff for calls to wireless networks is 0.49 levs/min. The rates are part of the Max Vox 99 subscription plan available against a monthly fee of 11.99 levs. Calls are made through a standard phone device or a downloadable virtual phone software. The company has so far invested 15 mln euro in the WiMAX rollout and has budgeted as much for investment in 2008.

Alfa Finance Holding buys 58% in Plovdiv airport

The local Alfa Finance Holding said it has acquired for an undisclosed amount a 58.08% stake in the Plovdiv airport.The new owner said it plans to team up with a partner with prior experience as an airport operator.The passenger terminal of the airport will be modernised at an undisclosed cost.Although the seller of the airport stake was not named it is believed to be majority shareholder TADO. The remaining equity was held by the transport ministry.The airport is used mainly for seasonal passenger charter flights with traffic peaking in December-April. The rest of the time, it operates as a cargo hub.The airport, which is the back-up landing strip of the Sofia airport, has serviced 100,000 passengers so far in 2007, up from 67,000 in 2006. Alfa Finance Holding, a leading Bulgarian industrial and financial group active in financial services, real estate management, mining and logistics, recently implemented the nation's first successful public-private partnership. It teamed up with the transport ministry to build the Silistra-Calarasi ferry boat complex.

Nine companies bid for underground transport extension in Sofia

 

Nine companies, out of ten candidates, filed offers in the EUR 185.2mn tender for building the second line of the Sofia underground transport, CEO of Sofia’s municipal firm Metropoliten, which runs the subway transport system in the capital city, Stoian Bratoev said for SeeNews. The nine bidders are the Spanish construction group Fomento De Construcciones Y Contratas (FCC), the Italian consortium Pizrotti-Seli, the Greek construction group J&P Avax, a consortium between the German construction group Hochtief and the local construction firm Glavbolgarstroy, the Italian consortium Condotte-Ansaldo, the Czech construction company Metrostav, the Spanish Obrascon Huarte Lain (OHL), the local Moststroy in consortium with the Turkish Dogus, and the local mining consulting and engineering company Geotechmin. The length of the line is estimated at 6.5km and will be serviced by 7 stations. The appointed commission has to assess the offers by Feb 15 and Bratoev expects that the contract may be signed in March. Construction works under that scenario are expected to start end of March and would continue up to 2011.

Kremikovtsi metallurgic works closing may cut local economy growth

Bulgarian Ministry of Economy and Energetic expressed their position in relation with the discussions for closing the metallurgic works of Kremikovtsi. The Ministry's position says that a works' destabilization will decrease rate of economy growth and state budget's incomes.Net incomes of Kremikovtsi's sales for the nine months of 2007 go to almost 780 million BGN (390 million EUR). The works realized a jump of 26,6% compared to the same period in 2006.The total income for the budget of Kremikovtsi's activities exceeds the sum of 170 million BGN (85 million EUR).Its destabilization will lead to decrease of export and making the deficit on the current account worse.For the nine months of 2007, over 80% of Kremikovtsi production is for export and covers more than 10% of the current account's deficit.The potential Gross Domestic Product will go down due to the net incomes of the works from sales for 2007 are almost 2% of the state's GDP.The Ministry expects growing the number of unemployed people. The metallurgic works give job to 5,640 people. Counting the additional productions the workers in Kremikovtsi are round 10,000.There is a danger for other key for economy companies related to Kremikovtsi.More than 60% of the cargo stream of Burgas harbor, over 90% of the cargo stream of the port of Lom and more than 30% of Bulgarian state railway (Sofia - Burgas; Sofia - Lom) comes from and goes to Kremikovtsi.In a period when local economy needs attracting of direct foreign investments, in a time of leading aggressive investment policy aiming faster convergent with EU's economy is inadmissible to be lost such an active investor on the amount of more than 1,7 million BGN (850 million EUR).Closing of Kremikovtsi is not the only solution of the pollution issues.

 

PepsiCo agrees to buy Bulgaria's leading nuts and seeds company

 

PepsiCo announced today that it has reached a definitive agreement to purchase Penelopa, Bulgaria's leading producer and seller of branded nuts and seeds. Penelopa, founded 10 years ago by current owner Yanko Lolov, sells peanuts, sunflower seeds and other savory snacks throughout Bulgaria, principally through its dedicated national direct distribution system. The company operates one plant, located in Sliven, and employs nearly 200 people. "Penelopa is an outstanding company that will dramatically increase our presence in Bulgaria, a consumer market enjoying robust economic growth, as well as in the broader Balkans region," said Michael White, PepsiCo vice chairman and chief executive officer of PepsiCo International. "Furthermore Penelopa's line of high quality nuts and seeds is very consistent with our global focus on addressing consumers' growing interest in health and wellness." Currently PepsiCo savory snacks under the Lay's, Ruffles, Cheetos and Doritos brands are imported into Bulgaria from Romania, Greece and Turkey. A variety of PepsiCo beverage brands also are available in Bulgaria, including: Pepsi, Pepsi Light, Pepsi Twist, Pepsi X, 7UP, Mirinda, Evervess, Mountain Dew and Gatorade. Terms of the agreement were not disclosed.

Overgas to merge seven subsidiaries

 

The state energy commission will discuss today the request of the country’s biggest natural gas retailer Overgas to merge seven of its subsidiaries into Dunavgas. The latter received its 35-years license for natural gas distribution in 13 municipalities in northern Bulgaria three years ago. The merger will not increase the capital of Dunavgas and the individual licenses of the eight companies will be terminated. The merger, which was planned in November, is expected to optimise company’s expenditures. The new entity plans to construct 82.8 kilometres of pipelines. The eight companies employ a total of 155 workers but that number would increase to 669 employees after the approval of the commission. Russia ’s Gazprom and its trade arm Gazexport own 50% of Overgas. The remaining half of the shares is controlled by the locally registered Overgas Holding.

 

 

 

 

 

Major mergers and acquisitions

 

Author: The Sofia Echo

In its first year of European Union membership, Bulgaria saw many major shifts in the world of business, as several large foreign consortiums and companies entered the market. AIG Capital Partners (AIGCP) officially acquired 90 per cent of the country’s main landline telecom Bulgarian Telecommunication Company (BTC) in block deals on the Bulgarian Stock Exchange on August 17.AIGCP is part of AIG Global Investment Group. In April 2007 AIGCP signed a 1.08 billion euro deal to take over 65 per cent of BTC from Iceland’s investment group Novator. The block transactions that followed formalised the agreement signed earlier. A further 25 per cent of the shares, composed of minority stakes held by Bulgarian and foreign entities indirectly linked to Novator, were transferred.The block transfers price terms for the 65 per cent stake were booked at two billion leva, and 772.45 million leva for the 25 per cent stake.The company’s market capitalisation decreased by seven per cent on the day of the block deals, standing at 3.1 billion. on October 23 the State Financial Commission approved the improved BTC buyout offer. The local subsidiary of AIG Capital Partners, NEF Telecom (NEFT), submitted it to BTC minority shareholders. The new price NEFT proposed was 11.3 leva a share, which was 5.3 per cent more than the previously offered amount of 10.73 leva. The offer was for 28 663 960 shares. Bulgarian state fleet Maritime Navibulgare EAD underwent a long privatisation competition procedure in 2007. Finally, on October 12 the state Privatisation Agency (PA) admitted only one company, German consortium KG Maritime Shipping (KGMS), to participate further in the Navibulgare privatisation procedure. KGMS was competing for the sale of 7 631 460 shares, which was 70 per cent of Varna-based Varna Navibulgare. Chartworld Shipping Corporation of Athens and Essar Shipping&Logistics Limited of Cyprus were the other two participants to submit their documentation for participation in the last stage of the privatisation procedure. KG Maritime Partners AD (KGMP), Sofia, is a strategic investor and has a 70 per cent shareholder participation in KGMS. Trader Advance Properties OOD holds the remaining 30 per cent of KGMS. Martrade Shipping and Transport GmbH, Duesseldorf has a 99 per cent shareholder participation in KGMP and the ship manager Accord Ship Management Ltd, India, holds the remaining one per cent. The PA said that one of the advantages of KGMS was that the company was a charter executor and managed more than 100 ships with a tonnage considerably bigger than Navibulgare’s tonnage. The term KGMS has to file its initial offer expired on November 8 2007. However, the term for submitting a commitment offer for Navibulgare purchase was until 3pm on January 9 2008, the PA said. on March 21, Shell Gas Holdings announced that it had signed an agreement for the sale of its Bulgarian propane-butane business to French company Rubis. The deal also included the sale of its propane-butane business in Czech Republic, Germany, Romania, Spain and Switzerland. The transaction happened in accordance with Shell’s strategy for “oil extraction and production business expansion and increasing of the winning oil products trade business,” a company media statement said. The rest of the Shell oil products trade business in Bulgaria was not included in the deal and Shell announced that it would retain it. Its activities include wholesale and retail trade in fuels through Shell commercial complexes, oils, wholesale fuel trade, supply and distribution. Furthermore, on April 27 the State Antitrust Commission (SAC) approved the acquisition of Bulgarian car batteries producer Energia by the Luxembourg-registered Enersys Holdings, part of the US group Enersys. Enersys signed a deal to take over 88 per cent of Energia from two local entities in January 2007 and later on expanded the stake to more than 90 per cent. The acquisition amounted to $17 million. Energia is among the top four largest car battery producers in Bulgaria. Following this, local retail food chain Familia signed a franchise contract with Ena Markets chain on May 15, according to which Ena now runs 17 of the 26 Familia stores. Familia was owned by Equest, which took it over in 2006, but in December 2007 Equest was reported to be in talks about selling Familia. In July, Swiss-registered investment group Julius Baer acquired 6.7 per cent of Bulgaria’s largest holding company, Chimimport. This was followed by an increase in the holding’s stock price. Chimimport market capitalisation neared the billion euro benchmark on July 9. The holding has equity participations in 44 local companies. Later, on September 21, Chimimport acquired two agricultural companies, Bek International and Zarneni Hrani, Valchi Dol, for a total of 32.1 million leva. Chimimport’s grain business includes six other companies and in 2007 was consolidated into a single entity. In July, Israel-based IT company one1 Software Technologies acquired 66 per cent of its local peer Stanga for $1.75 million. Stanga was established about eight years ago in Sofia and currently employs more than 100 highly qualified specialists. on October 4, the SAC approved the acquisition of Eurobet (EB) by Eurofootball (EF). EF organises betting on sports results, while EB works in the field of lotto games. After the acquisition, EF started offering a full range of products and EB expanded the number of points for client servicing. At the end of July, Pirelli and UniCredit Bulbank (UCB) signed an agreement for the establishment of Pirelli Real Estate Bulgaria. Pirelli started offering its own business model, while simultaneously counting on co-operation with UCB to become a leader on the Bulgarian market. The main purposes of the joint company were to develop regional platforms for asset management and special service platforms, as well as to attract foreign investment capital to co-finance various sectors of the real estate industry. Pirelli received 75 per cent,and UCB 25 per cent of the new company. on August 3, BNP Paribas acquired Bulgarian consumer credit specialist JetFinance International through its subsidiary Cetelem. In January, Bulgaria’s financial regulator approved a buyout offer by Luxembourg-registered Eurobank Holding to the minority shareholders of DZI Bank. Eurobank holding, owned by Greece’s Eurobank, bought a total of 74.8 per cent in DZI Bank in two separate transactions in mid-December 2006 and then further increased its stake to 91.3 per cent. At the beginning of February, one of the leading financial groups in Europe, Belgium’s KBC Group, acquired 70 per cent of Bulgaria’s DZI Insurance and launched a public bid for the remaining shares. KBC paid 185 million euro for the 70 per cent stake, while about 75 million euro, an amount equal to 70 per cent of the undistributed capital gain proceeds received by DZI Insurance for the sale of their stake in DZI Bank, was paid by KBC to Kontract Sofia. on May 17, DZI and Postbank announced the merger of the two financial institutions. Their information systems operational merger was completed by the end of July and the juridical merger at the end of September 2007. Creating the biggest financial institution in Bulgaria, the three Bulgarian banks owned by Italy’s UniCredit Group – Bulbank, HVB Biochim and Hebrosbank – merged in the end of April 2007, establishing UniCredit Bulbank.

 

 

 

 

 

 

 

ANALYSIS:

 

 

Optimism on economy

Author: Elena Koinova, The Sofia Echo

Past a year of strike turbulence that highlighted the urgent need for reform of the health care and education sectors, few analysts are pessimistic about the general health of the Bulgarian economy. Optimism permeates forecasts for the Bulgarian economy in 2008 by both local and foreign governmental authorities and think-tanks. The background to the upbeat projections is that Bulgaria’s economy has generated sufficient momentum to make it easy to predict macro-economic parameters for the rest of this year. Economists maintain that the economy’s fiscal and monetary systems are under no immediate threat, given that the country remains under the oversight of International Monetary Fund (IMF). The assurance lent by this means that no political party has called for this to change. Then there is the overriding consensus that Bulgaria should aspire for euro adoption as soon as possible. The entire political spectrum has united around a tentative eurozone accession deadline of 2012. Hence, the need to stick to the Maastricht criteria as tightly as possible. At present, Bulgaria has been complying with four of the five Maastricht criteria, with the fifth – inflation of three per cent annually – eluding the country. This and the current account (CA) deficit are the only significant woes of the Bulgarian economy, most analysts say. The latter, however, is also not perceived as worrisome because the widening of the CA deficit has largely been attributed to factors external to – and in general positive for – the Bulgarian economy. Namely, growth in the volume of foreign direct investments in the country (indicative of foreigners’ perceptions of the local investment climate); the waiver of duties for European Union imports since the turn of the year 2007 (to align with the common European community market principles) and the resulting spurt in inflow of EU commodities, among others. While the gap is expected to remain high – at least until Bulgarian business conforms to all regulations that allow it to export in the EU with no restrictions whatsoever, the remainder of the macro-economic parameters are expected to be in check. And the forecasts are: While the Government as a whole is by no means the only voice offering a positive outlook, the Ministry of Finance is the most positive of all. Below are projections for the main macro-economic parameters of the government, the European Commission (EC), UniCredit Group and local economic think-tank Industry Watch. According to the 2008 Budget Bill, the Finance Ministry expects gross domestic product (GDP) to grow on a par with the years before (6.4 per cent). The pace of economic growth in 2009 and 2010, respectively, is expected to be 6.8 per cent and 6.9 per cent. The EC is no less upbeat, seeing gross national output at 6.2 per cent. UniCredit Group, when the bank issued its forecast in early autumn 2007, was a bit less conservative, seeing growth at 6.0 per cent. Industry Watch puts its GDP growth forecast at 5.7 per cent. Inflation, which last year went into the double digits over the one-off spurt of power and food prices, is foreseen by the Government to halve year-on-year to 4.5 per cent in 2008. The EC expects inflation at 4.3 per cent. UniCredit Group hopes inflation to grow by 4.5 per cent, while Industry Watch anticipates an inflation rate at 4.5 per cent. The Government is holding to its Maastricht pledge for a budget surplus of three per cent of GDP, on a par with the year before. The EC expects a public budget surplus at two per cent, UniCredit Group at 1.5 per cent and Industry Watch at 1.6 per cent of GDP. In line with the these observations, the CA gap is seen at the highs of 2007. The Cabinet sees the gap at 21.9 per cent in 2008. The EC puts it at minus 17.2 per cent, UniCredit Group at minus 12.5 per cent. Industry Watch has provided no figures to this end. The sectors to excel. The finance and real estate sectors are seen to again lead the way this year, experts agreed at a number of forums last year. The latest confirmation came during the Economist roundtable in early December. Even though Bulgarian National Bank (BNB) has enforced restrictions to stem loan growth, loans – especially in the corporate credit segment – are still to be in strong demand. Corporate loan exposure is said to increase the fastest with the factors to trigger growth being economic dynamics and the accelerated investment activity. The trend is also likely to gain momentum as Bulgarian business begins absorbing EU funds. It is said to run concurrent to the increase in bank deposits’ exposure. A number of banks have geared up the range and interest rates of deposits. The non-banking segment is also set to gain speed now that Bulgarians are experiencing a swift increase in the volume of salaries. These excess funds are said to be redirected to collective investment schemes geared to retail investors as well as the more active search for alternative savings products with higher returns. Expectations are that the securities market will also be thriving now that the country enjoys stable economic growth, a more liberal regime of the pension industry, the growing significance of mutual funds and the capital inflow from abroad, according to Industry Watch. The bourse is said to continue enjoying a spurt of initial public offerings (IPOs). The real estate sector will be pulled by luxury developments segment and office developments. Attractive mortgage loan offers, on the other hand, are said to keep the real estate market vibrant, where demand will pull the average prices of the real estate market in the 15 to 22 per cent range, according to Era Bulgaria. Expectations are that the dwellings in highest demand will be two-room flats in new buildings, as well as three-room flats in existing brick or prefabricated buildings.The construction sector is also set to thrive this year amid the expected inflow of funds from the EU structural funds. The industry will continue its upward trend due to the increase of raw materials’ prices and due to the increase in internal and external demand. Tourism is also a sector to watch with ample growth reserves. A trend to watch, according to Postbank officials, will be the rise of public-private partnerships between banks and municipalities as a lever of development at a local level. The trend will be fuelled by the need to finance a number of basic infrastructure projects and PPPs are a relevant business model to follow. According to Postbank, municipalities will rely on relations with business to spearhead improvements in public infrastructure. Positive sentiment about the Bulgarian economy is indicative from forecasts by the Labour and Social Policy Ministry and individual think-tanks. Forecasts are that employment will increase by 150 000 both because of the decrease in corporate and personal income tax rate to 10 per cent and the resulting bringing of illegal unemployment “into the light”. Analysts believe the pace of employment will increase by 4.6 per cent, slower than last year but still sustaining unemployment below seven per cent. Expectations are that the level of employment is to increase even on further cut to the social security burden.

Crash course for Bulgaria?

Author: Budapest Business Journal

 

Bulgaria entered the EU a year ago to great fanfare, but its ever increasing inflation and current-account deficit numbers suggest the party may now be over. Bulgarian annual price rises have jumped from the single-digits in 2006 to 12.6% year-on-year in November 2007. Meanwhile, the current-account deficit came in at a whopping 17% of GDP for the year to October and will likely top 20% of GDP for 2007 as a whole. Not long ago a current account deficit of 7% of GDP sent alarm bells ringing. Not surprisingly, analysts have started sounding warnings. A recent WSJ piece pointed to "coming strains" for Bulgaria, saying the country is in an increasingly "tight spot", as policymakers there are constrained by the currency board (hence, lack of monetary policy tools) from reining in the double-digit inflation and surging imports. Meanwhile, Danske Bank, in a recent report, classified Bulgaria in the "danger zone", along with the Baltic states and Romania, saying they are the most likely emerging European countries to face an economic hard landing. on the surface, Bulgaria appears very similar to the overheating Baltics and looks set for a hard landing, but things might not be as dire as they seem. While analysts agree that Bulgaria's current account deficit is the country's chief risk and that its trajectory is unsustainable, not all seem as willing as Danske Bank to place Bulgaria in the same "danger zone" as the Baltic states. Some analysts have dissected the capital inflows funding Bulgaria's current-account deficit, providing insight into the country's true level of vulnerability. In a recent report, the IMF points out that Bulgaria's capital inflows are primarily a private investment, rather, than a consumption, story. At the very least, this suggests Bulgaria's current-account deficit is not the result of a consumer spending binge that would provide no boost to the country's longer-term productivity.Between 2002 and 2007, (Bulgaria's) gross domestic investment as a share of GDP surged by 15 percentage points, mainly due to rising private investment. This sharp increase in investment stands out in the cross-country comparison, not only relative to the neighboring countries but also with fast-growing emerging countries in the other regions. At the same time, the private consumption-GDP ratio has in fact trended downward somewhat-despite the rapid rising retail sales and high household credit growth-while consumer goods imports only picked up moderately. The IMF concludes Bulgaria's deficit is largely the result of a one-off private investment boom, triggered by its strong macro stability record and a marked reduction in microeconomic risks (anchored by EU accession). once the boom tapers off, as the IMF expects will happen, the current account deficit is projected to approach equilibrium levels estimated to be around 8% of GDP, with a range of 5-10% reflecting different estimation methodologies and whether or not future EU capital grants are taken into account. So while the IMF notes that the present trajectory of Bulgaria's current-account deficit is unsustainable, its assessment does not suggest an abrupt or painful current-account adjustment is imminent or a given. Further solace is provided by the fact that Bulgaria's current-account deficit does not appear to be the result of eroding external competitiveness, according to both Fitch and the IMF (quoted below)....real effective exchange appreciation over recent years has been moderate when benchmarked against conventional relationships between the exchange rate and the current account. Purchasing-power-parity and dollar-wage comparisons across countries, as well as recent trends in export market shares, also suggest that Bulgaria's prices and costs remain broadly competitive. Finally, regression-based estimates of the real equilibrium exchange rate also do not indicate signs of substantial overvaluation.To fund its sky-high current-account deficit, Bulgaria relies heavily on continuing capital inflows. That means Bulgaria is vulnerable to any shock or loss of confidence that could stop them. But looking at the structure of Bulgaria's capital inflows mitigates some of the concern that there will be an abrupt unwinding. Unlike many of its emerging Europe peers, Bulgaria's FDI in recent years has more than fully financed its current-account deficit. Because FDI is generally longer-term and harder to unwind than portfolio investment, a sudden capital reversal is unlikely, as Fitch notes in a March report. And depending on the destination of the FDI, the current-account deficit could be self-correcting if the FDI boosts Bulgaria's export capacity, helping it generate revenues to close the trade deficit in the future.So what sectors is Bulgaria's FDI flowing into? Are they potential export earners?A recent EFG Eurobank report finds most FDI is going into manufacturing, which will likely boost Bulgaria's future export capacity. The problem is a growing proportion of FDI is destined to real estate, a sector unlikely to generate future export earnings that would help close the trade deficit.This is an important trend to keep an eye on in evaluating Bulgaria's vulnerabilities going forward. At the end of 2006, manufacturing was the sector commanding the highest FDI share (24% of total FDI stock), followed by real estate, renting & business activities (16.3%), financial intermediation (16.1%) and retail trade & repairs (14.3%).Of these sectors, real estate has realized the highest rise in inward direct investment over the past four years (6.9% of total FDI stock at the end of 2002).How does Bulgaria's currency board fit into this discussion of the country's external imbalances? Is the currency board to blame?This has been alluded to by ECB policymaker Lorenzo Bini Smaghi and by the WSJ when it stated, "Bulgaria is in an increasingly tight spot, with its euro-pegged currency powerless to rein in double-digit inflation and spurring a surge in imports and domestic loans." It seems unclear that having a flexible exchange rate (and thus having monetary policy as a tool) would significantly reduce Bulgaria's external imbalances. The argument is that interest rates could be raised to cool the economy. Nevertheless, a change in the exchange rate regime could have the unintended effect of making Bulgaria's economy less stable and hurting investor confidence in the country, thereby reducing capital inflows.An added impediment to moving away from the currency board is that it enjoys widespread political support. Many credit the currency board with putting Bulgaria on the right economic track, making the country the attractive FDI magnet it has become. Since the currency board's introduction in 1997, Bulgaria has enjoyed strong and steady growth, improving living standards, and falling unemployment - a stark contrast from the unstable economic situation prior to its implementation. As a result, support for a switch to a more flexible exchange rate regime is not there. Plus, currency boards traditionally have a better record dealing with inflation so it's unclear that a switch to a more flexible exchange rate regime would be the answer to getting Bulgaria's spiking inflation under control, especially since the recent spike is largely due to supply shocks, such as rising world oil prices and drought-induced jumps in food prices.Fiscal policy is available as a tool to stem domestic demand and the widening current-account deficit, but it's a blunt tool and there are limits to how much further fiscal tightening can be implemented. As EFG Eurobank points out here, Bulgaria has been running a very responsible fiscal policy. The budget surplus stood at 6.5%-of-GDP of GDP in October, an outcome significantly higher than both a revised full-year target of 3.3% of GDP and the 2% of GDP surplus agreed with the IMF. Some fiscal loosening is expected towards the end of 2007, mainly due to increases in pensions and wages, and we now expect the budget surplus to come in around 3-4%-of-GDP by year end.Acknowledging Bulgaria's complicated position as a country with a currency board and widening current-account deficit, IMF Resident Representative James Roaf advocates controls on bank lending as an imperfect solution to cool domestic demand. Like many of its CEE neighbors, the fact that Bulgaria is running a current-account deficit is not surprising since it is trying to "catch-up," or converge with the EU and needs investment to do so. Yet, Bulgaria's present current-account deficit trajectory, expected to top 20% of GDP for 2007, is not only unsustainable but also exceptionally high even by emerging Europe standards and leaves the country vulnerable to shocks.Ideally, Bulgaria's external imbalances will unwind gracefully and the country's strong annual GDP growth (above 6%) is expected to continue in 2008, but there are no guarantees. Nevertheless, putting Bulgaria in the same "danger zone" category as the Baltics seems hasty, especially considering the government's responsible fiscal policy, the fact that the current-account deficit has been financing mostly private investment rather than consumption, and the fact that Bulgaria's current-account deficit continues to be financed primarily by FDI. (RGE Monitor)

 

EU membership does not change Bulgaria

Author: Die Presse

After a whole year as a member of the European Union, corruption and crime still remain Bulgaria's worst sins. In neighboring Romania, which is also a one-year member of the Union, reigns an economic crisis, and the reforms in its legislation are being constantly undermined. The attitude of skepticism towards these two Balkan countries, which were ready to become part of the European community neither economically, nor politically dominated even before they have acceded. Now, the truthfulness of all the criticism can be perceived even better. Indeed, their economies marked an unprecedented progress, but despite the threats that sanctions may as well be applied, reforms are continuing to limp along. The battle against crime in Bulgaria has not yet had much success. The settling of old mafia scores and the contracted murder cases remain unsolved. Up to this moment, Bulgaria has not satisfied even one criterion for EU membership. In its report from June 2007, the European Commission reproached both Bulgaria and Romania for the weak legal punishment of crimes that have to do with corruption or irresponsible discharging from duty of key state administration figures. Nevertheless, the Commission gave up its intentions to impose sanctions such as, for example, cuts in the EU subsidies. "The European Commission closed its eyes for all the disadvantages and did a doubtful service to Bulgaria," Bavarian Minister of European Affairs Emilia Muller said with disappointment. But the possibilities for application of sanctions on the part of the EU to both Bulgaria and Romania are limited. Although the Balkan duo already did receive a certain portion of EU funds, their absorption produced very little effect. It was both countries' economies and ordinary citizens that were mostly affected by the accession. According to the optimistic views, the large number of public scandals could be evaluated rather positively than negatively, because this means that the institutions are really beginning to function fast. This is the view the expert on corruption Emil Tsekov from the Center for the Study of Democracy adopts. And there is yet another advantage that he sees: the suspension from power of corrupt representatives of the Bulgarian state administration and politicians, clearly is the result of Bulgaria's accession to the EU.

Nuclear games precede president Putin's visit to Bulgaria

Author: Standart Daily

A heated up million-euro scandal from Russia is raging in Bulgaria in the coldest days of January. And whilst the snow is falling peacefully all over the country the tension about the construction of Bulgaria's second nuclear power plant is gradually building up, just before the visit of Russian President Vladimir Putin to Bulgaria on January 18, when the contract between our National Electric Company (NEC) and AtomStroyExport concerning the construction of NPP Belene, is expected to be signed. However, over the past few days the Russian company has been breaking the nerves of their Bulgarian partners with some new and unexpected conditions. Just a few days before the visit of their President to Bulgaria the Russian constructors are trying to strike a bargain for hundreds of millions of euro using the old equipment on the site of NPP Belene. The shady deal will equally harm the interests of Bulgaria and Russia and only the Russian company AtomStroyExport will benefit from it.
 The haggle is about four PGV-1000M steam generators. According to the bid of the Russian company, with which they won the tender for the construction of our second nuclear power plant, AtomStroyExport is to buy out the old nuclear power facilities. The power generators were supplied from Russia in 1992 and then they cost 160 million US dollars. However, in the current agreement it is provided that NEC will receive only 38 million euro for the facilities.Participants in the negotiations told our reporter that AtomStroyExport had been literary twisting the hands of the Bulgarian party. Reportedly, the Russian company does not want to buy the facilities by piece, but only the whole lot.
 Thus, the message of AtomStroyExport to our National Electric Company, which holds a 51-percent stake in the project, is this: "You must either sell us all of the facilities, or keep them all!" sources from the Ministry of Economy and Energy told The Standart.
 "In the meantime, Kozloduy NPP expressed its intention to buy the four steam generators in order to re-equip one of its nuclear power units with them," explained Alexander Nikolov, director of Kozloduy's "Production" department. According to him, at the start of the negotiations with the Russians, the NEC sent them a letter, asking them whether they were interested in the PGV-1000M steam generators."It would be not enough to say that we have interest: after ten years it will be a must for us to buy them, because we will have to replace the now operating generators in unit 5. The Belene PGV-1000M generators have 30 years long exploitation period. Currently, Kozloduy NPP works with this type of generators, too" Nikolov explained.In his opinion, with a NEC decision the state could have given the steam generators to Kozloduy NPP both for free or for a much lower price than their present delivery cost. AtomStroyExport has imperial mode of behaviour, experts comment.According to them, with its claims the company damages the interests of both Bulgaria and Russia, because the Belene PGV-1000M generators will be sold to Kalininskaya NPP at a much higher cost than their real purchase prize. Apart from the expenditures on decommissioning and transport to Russia, the cost will be increased by the profit for AtomStroyExport.The shady deal could become even shadier, if it turns out that the steam generators won't even leave Bulgaria and that AtomStroyExport will simply take them from Belene and sell them to Kozloduy, experts say. "This is completely untrue. Such a thing could never happen," the Russians disagreed. The company's management, however, refuse to give more details regarding the buying out of the equipment, because they are bracing themselves for the Russian Christmas. Because of the scandal, the Bulgarian Ministry of Economy and Energy insists that Kozloduy NPP demands an offer for four new steam generators by Russia's only one producer, the Machine Building Plant ZiO-Podolsk JSC. Thus NEC will be able to compare the prices of the new equipment with the offer of the Russians for Belene's. Even an annex to the contract for buying out the old equipment from Belene NPP may be signed, so that the already negotiated price can increase. Last year the Russian company Atom Export Stroy was chosen as the contractor to build the plant.The scales dipped in their advantage not only due to the more favourable prices of the project implementation, of the mounting of new-generation reactors and of the electricity to be produced they offered, but also for their readiness to buy out all the old technological equipment available at the grounds and sell it to the Kalininskaya NPP. And it is exactly this old technological equipment what today turns into the apple of discord for Belene NPP. Several weeks ago, when Bulgaria anticipated Brussels to give a green light to the introduction of the Russian technology, AtomStroyExport were far more inclined to compromises in the negotiations. However, as soon as the EC approved the project for Belene NPP and practically allowed the Russians to set foot on EU territory, AtomStroyExport immediately consolidated their positions. But the company should bear in mind one thing: that Brussels are keeping a close eye on every move they make, because Belene NPP is their interview for nuclear entry visa to the rest of the EU member states.

Bulgaria's neighbors desperately need electricity, but they have nowhere to import from, Executive Secretary of the Bulgarian Atomic Forum said

 

Author: Ivailo Velkov, Standart News Daily

 

- Mr. Georgiev, a year after the decommissioning of power units 3 and 4 of NPP Kozloduy, the question about their reopening is quite topical. What are the arguments in support of such an option?
 - The energy stability of the whole region is put at risk. Albania, Croatia, Macedonia, Serbia and Montenegro are seriously threatened by power shortage. Currently, they buy electricity at prices that are several times higher than that they used to negotiate with NPP Kozloduy.
 However, the bigger problem that the region faces is that there isn't an alternative provider of electricity. Everybody speaks of power lines with higher traffic capacity that will allow the import of electricity from Western Europe, but no such facilities have been built so far. Yet, the households and the factories need electricity today, not tomorrow.
 - Will we manage to convince the EU, quoting article 36 of the Accession Treaty, that the reopening of the reactors is necessary in case of an energy crisis in the region?
 - This is our only chance. By quoting this article we can save not only Bulgaria but also the whole region from an energy crisis.
 - Do we have ostensible reasons to quote this article?
 - Well, it is obvious that the region's energy problems started as early as last year. Then, a meeting of the energy ministers of Albania, Macedonia and Serbia was organised. The ministers clearly stated that they had energy problems and they needed the electricity, which had been supplied to their countries by these two reactors.
 - Since then, the situation has gone from bad to worse, because the consumption of electricity in Bulgaria has increased and we can no longer export as much power as we used to export. Some people say that Bulgaria still exports electricity in the moment, but what we actually export is the so-called emergency power supply. When a peak of electricity consumption is reached in some of the neighboring countries, they ask us to supply extra power to them. And this is the only case in which we export electricity. In fact, the electricity generated by reactors 3 and 4 was meant mainly for export. And now this electricity is no longer generated.
 - What arguments will you use before the European Commission for re-opening of the units?
 - only a month a half ago Bulgaria received signals from the EC that the emissions of waste gases in the atmosphere should be reduced by over 30%. This is the first and main argument our politicians should use in negotiating the re-opening of the third and fourth units of Kozloduy nuclear power plant.
 - Without them functioning, can Bulgaria really reduce the emission of waste gases?
 - Everything is possible but the price will be unbearably high. Perhaps half the thermal power plants in Bulgaria will have to be closed because they will need huge investments for modernization. This will mean closing of industrial capacities. In other words the EC continues exerting economic pressure on Bulgaria pushing it downwards.
 - This means an absolute electricity deficit, if we decommission one more unit.
 - That is right. That is why this reason is the first in the list. We can also add the actual climatic conditions that require the greater consumption of electricity.
 - What would have happened to Greece if instead of the end of December Bulgaria had decommissioned the third and fourth units in the summer?
 - There would have been no Olympic Games or they would have been candle-lit. Because it were namely the third and fourth units of Kozloduy that provided the electricity for illuminating Greece at that time.
 - But in the long run, Greece that lived on these units was among the most ardent supporters of the units' decommissioning.
 - These are crafty scheming. We are launching a campaign, the banner of which is a very interesting film by Toma Tomov that may stir the public's interest in the matter. The film is intended for the Bulgarian and foreign public - sounded in Bulgarian and in English. We will first present it to the MEPs in Brussels. It will be broadcasted by Bulgarian and foreign media. I hope we will rouse a campaign similar to You Are Not Alone that rescued the Bulgarian nurses from Libya. Hopefully all these will lead to reconsidering the issue by the EC. We managed to stand our ground in the EU for the spelling of euro, we brought home the nurses, why not succeed in re-opening the two units?
 - Is the closure of units 3 and 4 the price which Bulgaria pays for its EU membership?
 - That's right. The decision for decommissioning of units 3 and 4 is a political act. The first step for the closure of these nuclear reactors was made 10-12 years before the act itself. At that time they could really be criticized from a technical point of view. The problem is that none of the Bulgarian politicians hasn't demonstrated the will for reconsidering this question after a certain period of time, i.e 12 years, in which more than 500 million euro were spent on the units' modernization which made them look in a completely different way. This was the price for Bulgaria's EU entry.
 - Is Kozloduy NPP ready for a new peer review?
 - Yes, it is, and not simply for a peer review, it is ready for International Atomic Energy Agency (IAEA) inspection.
 - Is Kozloduy NPP prepared to re-open the units, in case of assent of behalf of Brussels?
 - Yes. Units 3 and 4 are in perfect technical condition, they will need only a certain period of time for bringing them in good exploitation state. But as a whole, there is hardly any hindrance for their re-opening.
 - Could Bulgaria reach an agreement with Brussels on a new annex to the contract allowing the exploitation of units 3 and 4 until Belene NPP is constructed or until the nuclear reactors' term of exploitation expires?
 - Both options are possible, but there should be grounds for such developments. And above all, a strong figure should defend the idea and convince Brussels that it is good enough to be realized.