BULGARIAN ECONOMIC TOP NEWS DIGEST
WEEKLY REPORT ( 13 – 20 AUGUST 2010 )
Sections/headline briefs:
MACROECONOMY:
· Machine building shows signs of recovery
· Economist: Bulgaria 3rd among 37 by 'Shadow Economy'
· Bulgaria lags behind in Newsweek World's Best Country ranking
· China billionaire drops plans to invest in Bulgaria's Vivacom
· A rail block in the Balkans
· Emigrants send to Bulgaria EUR 702 M in a year
- Ministry of Finance: Fitch optimistic about Bulgaria
- Authorities call on municipalities to start water purification projects
- US President to visit Bulgaria in 2011
INVESTMENTS:
· CEZ invests in Bulgarian mountain resort Ribaritsa
· American investor to grow medicinal algae in Bulgaria
· FDI in Bulgaria slump by 78% in 2010 H1
COMPANIES:
· Bulgartransgaz and Azerbaijani Socar discuss construction of gas terminals
· Bulgarian rebar mill to construct meltshop
· Four companies interested in deep-water gas, oil extraction near Silistar
· Melrose Resources opens new fields in Bulgaria
MACROECONOMY:
Machine building shows signs of recovery
The shrinkage in all economy sectors in Bulgaria has naturally had its impact on the machine building segment. This trend poses other risks as users of such devices in Western Europe and the U.S. are trapped in the same adverse market conditions and also cut or even cease their business activities. Along with this, one should recognize that both manufacturers and analysts expect this situation to be preserved at least within the next three to six months. The overall uncertainty in real estate and construction sectors in the first half of 2010 is still squeezing manufacturers of construction machinery and equipment and they have recorded a contraction in demand for their products. Enterprises in the timber industry and agriculture also reduced their production volumes while manufacturers of hydraulic products and systems have also been negatively affected. However, in the first half of the year there were indications of reviving processes on this market. Unfortunately, as companies say, there is no ascertainable trend of increasing number and volume of orders, but their reduction seems to have halted. New customers appear. The index of industrial production in June grew by 11.5 percent compared to the previous month, as reported by the National Statistical Institute. The year-on-year increase came to 3.6 percent. The production of machinery and equipment generated even higher growth - 20.9 percent. Sector enterprises showed improved financial results, but this came not as a result of higher production volumes, but rather due to the increase in metal prices on international markets. In the second quarter Hidropnevmotehnika AD - Kazanlak registered fluctuating number of orders of relatively low volumes. To offset this situation, the company introduced stricter control on expenditures, and continues to follow the company's policy for developing new products or modifications of already produced ones mainly upon request from customers. Given the stagnation in the demand for machines, the company is working with customers only under monthly contracts and can now make plans for not more than two to three months ahead. There are still no long-term contracts with major customers and the products are being bought mainly by foreign clients. The company's sales revenue for the second quarter of 2010 increased by approximately 14 percent as compared to the first three months of the year, but over the same period of 2009 sales rose by about 66 percent. Whether this trend will be preserved in 2010 will be seen in the company's report for the third quarter. There are signs of recovery, but no grounds for undue optimism, company representatives commented. In the second quarter the company generated no loss, but their expectations for a tiny profit also did not prove right. The reasons for the improvement of the firm's financial performance are mostly associated with the continuing recovery on the market of hydraulic products and systems. The decrease in the volume of orders has been noticeable even in largest customers. However, it is difficult to talk of any visible trends in the last quarter. For this period M+S Hydraulic AD - Kazanlak reported increases in sales compared to previous quarters and managed to beat the volumes generated in the second quarter of 2009. Sales revenue in the first half of 2010 came to BGN 29.095 million, up by about 41 percent year-on-year. Given that, the company expects to maintain these levels of income in the third quarter, too. The company's revenue was mostly generated by sales of products (worth BGN28.762 million, up from BGN20.394 million a year earlier). This in turn helped increase company's profit over the period to BGN 2.848 million, up from just USD 623,000 as at 30 June 2009. Export revenue formed again the largest share (BGN 24.086 million) and the internal market sales accounted for BGN 4.777 million.
Economist: Bulgaria 3rd among 37 by 'Shadow Economy'
A new report published in the UK “Economist” reveals the size of the so-called 'shadow economy' around the world is growing, according to Friedrich Schneider, of Linz University in Austria.The report points out that for the first time in a decade, transactions taking place outside the taxable and observable frame of the official economy captured by Gross Domestic Product (GDP) numbers are increasing.Schneider explains shadow economy does not mean criminally acquired gains, but t is rather a form of tax evasion - legal economic activity that is not taxed,.The author attributes this growth of informal transactions to the financial crisis.An even more alarming trend on local level is that Bulgaria ranks third among 37 other countries by the share of the shadow economy - over 37%, according to the estimate, only behind Latvia and Estonia.The countries topping the chart by the smallest share of informal transactions, below the average for those studied, are the US, Japan, the UK and Germany.
Bulgaria lags behind in Newsweek World's Best Country ranking
Bulgaria appears to be one of the worst European Union countries to live in, according to a Newsweek magazine ranking that compared living conditions in 100 countries around the world. In the magazine’s analysis, Bulgaria was judged at spot 38 in the general ranking, right before Romania, but lagging behind Slovenia, the Czech Republic, Croatia, Slovakia, Hungary and all the Baltic states. The analysis examined factors such as education and health care, quality of life,economic dynamism, and political environment. The American news magazine ranked Finland top out of the one hundred countries, followed by Switzerland and Sweden. The United States was in 11th place. The final three were the African nations Burkina Faso, Nigeria, and Cameroon. The analysis of educational systems used factors such as the international PISA studies, as well as measures of efficiency and the educational level of the population at large. In this, Finland was in first place, followed by South Korea and Canada, which were in a tie. Bulgaria made it to spot 42. The country collected the same number of scores in the health care ranking, based on a World Health Organisation comparison examining how many years an average citizen could expect to live a full-blown life without being burdened by illness or disability. The top three were Japan, Switzerland and Sweden. A number of factors were considered in assessing quality of life. These included gender equality, the percentage of people living in poverty, the equality of wealth distribution, the suicide rate, the state of the environment, and the proportion of employed people in the population. In this, Bulgaria was in 37th place. Economic dynamism was gauged on the basis of GDP growth, the proportion of services and industrial output in GDP, innovations, the ease with which new companies can reach the market, and the scope of the stock market. Here Bulgaria scored its lowest marks and ranked 54th. The quality of the political environment was gauged through a comparison of democratic freedom, the proportion of citizens involved in elections, and political stability. Bulgariaranked 38th.
China billionaire drops plans to invest in Bulgaria's Vivacom
The Hong Kong-based telecom PCCW has abandoned plans to invest in Bulgaria's biggest telecom Vivacom, Bloomberg reported quoting Managing Director Alex Arena. "The company will continue to look for opportunities overseas, after turning down an offer to invest in Bulgaria's Vivacom," Arena said during a briefing in Hong Kong, according to the Bloomberg report. PCCW have confirmed for the Bulgarian daily “Dnevnik” that the company is no longer interested in investing in the Bulgarian telecom. The news comes at a time when the main lenders for the debt-laden Vivacom – the Royal Bank of Scotland and Deutsche Bank must decide what measures to take. The decision is expected by the end of the month. According to earlier reports, Chinese billionaire Richard Li, who controls Bulgaria’s Vivacom, was ready to invest in the latter in a bid to restructure its debt. PCCW and its chairman's privately-owned equity fund PineBridge were considering investing USD 230 M (EUR 180 M) to rescue the telecom. Pinebridge owns directly a 13% stake in Vivacom but is the telecom's controlling shareholder as the lead partner in a consortium of investors. Reports that Li was going to invest in Vivacom, heir to the State-owned Bulgarian Telecommunications Company (BTC) – first transpired at the beginning of July. Li, chairman of Asian telco PCCW, inherited control of Vivacom in March as part of the acquisition of AIG Investments, a unit of the troubled US insurance group which spans asset management and private equity investments. The unit was renamed Pinebridge Investments ahead of the takeover by Li's Pacific Century group. US insurance giant AIG bought 90% of the company's shares in August 2007 for EUR 1,4 B, later launching an offer to buy out the remaining shares. Vivacom dominates the fixed-line segment with 2.9 million phone lines, which accounts for 97% of the market, but it has been losing customers at an alarming rate in recent years, due to the spread of mobile communications and alternative telecoms in the country.
A rail block in the Balkans
Publication: bne Article
Author: Aleksandar Dimishkovski in Skopje
When the construction of a railroad connecting the capitals of Macedonia and Bulgaria began almost 15 years ago, no one expected that a century-old idea would take more than a couple of years to be realized. Nine years after the project was suspended due to a lack of finance, no one today believes Skopje when it promises that it will be finished sometime soon. "I hope that in 2011 we can secure the necessary finance," was the latest pronouncement from the Macedonian transport minister, Mile Janakieski, in early August following a meeting with his Bulgarian counterpart, Aleksandar Tsvetkov, in Sofia. Janakieski said he expects construction of the unfinished railroad to Bulgaria to start at the end of 2011 or the beginning of 2012. In practice, though, it's this kind of empty promise as well as bouts of political point scoring that have been the only two things added to the project over the past decade since it stalled in 2001. That construction was initiated by the current largest opposition party, SDSM, when it was in power in the period 1994-1998 has been used by the ruling VMRO-DPMNE as an excuse to prolong the project. The head of SDSM, Branko Crvenkovski, who was prime minister at that time, is often blamed by VMRO-DPMNE for the failed attempt to build the railroad and his administration's lack of proper plans on how to carry the project through which have cost the country both time and money.
Half-baked
The problem remains firmly on the Macedonian side of the border. Bulgaria has only 2.5 kilometres to build to the Macedonian border, but only one-third of Macedonia's 89-km section has been built at a cost of more than 100m. Worse, it's unclear if and how much of those constructed segments can still be used. For that purpose, Janakieski has announced that a new feasibility study will be done in September, which should cost around 500,000. Most depressing is that this has actually been designated a high-priority project for Macedonia. The planned railway running between Skopje to Sofia is part of Corridor VIII, one of the 10 Pan-European transport corridors identified by the EU as crucial transcontinental links needing substantial investment to enhance Europe's transportation infrastructure. Macedonia's National Programme for Railroad Infrastructure (2008-2012) lists two basic priorities to improve the condition of the rail system: investments in improving the existing infrastructure that will enable trains to move at speeds in excess of 120 km/hour and building the railroad infrastructure that's part of Corridor VIII - an east-west route across the Balkans from Constanta on Romania's Black Sea coast to Durres on the Adriatic in Albania. Figures in this National Programme show what a tall order this will be. The last major investments in Macedonia's railroad infrastructure were done almost 40 years ago. In fact, the majority of the existing infrastructure was constructed between the late 19th century and first half of the 20th century. For example, the sections from the border with Serbia to the Greek border, which are now part of Corridor X, were built between 1873 and 1888. Three countries of the former Yugoslavia - Croatia, Serbia and Slovenia recently signed a declaration to form a joint railway company, whose main goal will be to secure faster movement of people and goods through Corridor X. Given Macedonia's decrepit infrastructure and the fact there's been no serious investment in the past 20 years, those trains will face a major "rail block" when they enter Macedonia.
Emigrants send to Bulgaria EUR 702 M in a year
The Bulgarians who live and work abroad have sent to their families in Bulgaria a total of 702.5 million euro over the past twelve months until June 2010, while our compatriots have sent abroad only 7.5 million euro. Thus, the net revenues from emigrants amount to 695 million euro, Investor.bg says, quoting data of the national bank. For comparison for the twelve months until May 2009, our compatriots working abroad sent back 693.3 million euro. Then, they sent back a total of 713.9 million euro, but the money that the Bulgarians sent abroad was three times as high - 20.6 million euro. Further calculations show that the funds sent to Bulgaria by Bulgarian emigrants are twice as much as the net revenues from the EU funds for the twelve months until May 2010 that amount to 432 million euro. Bulgaria actually received from the EU a total of 867 million euro for the period, but contributed to the common budget of the 27-member bloc 435 million euro.
Ministry of Finance: Fitch optimistic about Bulgaria
Fitch confirmed its credit rating for Bulgaria and characterized the situation in the country as “stable”, announced the Bulgarian Ministry of Finance Thursday. Fitch Ratings themselves report that Bulgaria's rating stays at F3 for short-term foreign currency, BBB- for long-term foreign currency, and BBB for long-term local currency. The outlook for the long-term rating of Bulgaria nevertheless also stays "Negative." Among the main causes Fitch sees for the stability in Bulgaria's rating is the stability in public finances, as well as the political stability of the country and the low level of sovereign debt. It also praises the budget reserve accumulated by the previous (tripartite coalition) government, but criticizes boosted spending near the end of its term in the first half of 2009. The upping of exports and the growth of their market share is pointed out as a signal of hope; the level of human development and the business climate are characterized as favorable. on the downside, Fitch points out a 9.5% increase in unserviced credits, which is expected to rise still. Fitch sees dangers in the outflow of capitals, a possible deterioration of public finances, as well as in in possible shocks from the outside, in particular from Greek banks operating in Bulgaria, which all might cause a downgrading of Bulgaria's credit rating.
Authorities call on municipalities to start water purification projects
The environment ministry has called on a total of 36 municipalities of more than 10,000 inhabitants to start projects for building new or repairing existing water purification stations. The financing for the upgrade amounts to BGN 600mn (EUR 306.8mn) and has been secured under the EU environment operational programme. All projects should be completed by end-2014. In June, the ministry launched the utilisation of BGN 600mn for waste water purification projects.
US President to visit Bulgaria in 2011
US President Obama will be invited to visit Bulgaria next year. The invitation will be extended during his meeting with Bulgaria's PM Borissov in September, told The Standart Bulgaria's Ambassador to USA Mrs Elena Poptodorova. PM Borissov will take part in the session of the UN General Assembly which will take place in New York. Bulgaria's entering the Schengen zone will help the abolishment of US visas for Bulgarian citizens, Mrs Poptodorova added further.
INVESTMENTS:
CEZ invests in Bulgarian mountain resort Ribaritsa
Czech electric power utility CEZannounced a BGN 0.5 M investment in infrastructure in the resort village Ribaritsain the Stara Planina mountains in central Bulgaria. Ribaritsa, close to the town of Teteven, is a favored place for holidays for well-to-do Bulgarians and offers peace and freshness with its old-timey streets and houses and the green Stara Planina hills around it. It also gives many opportunities for hiking in the higher Stara Planina. The Ribaritsa investment aimed at rehabilitation of electricity distribution network to better service the village and surrounding hotels. CEZ announced a total of BGN 2.2 M investment for Western Bulgaria, in which it operates. The company previews total investment in Bulgaria for 2010 at BGN 71 B and expresses desire to up its yearly contribution to BGN 130 M in the future.
American investor to grow medicinal algae in Bulgaria
A US-based consortium of Americans, Canadians and Israelis is starting to build a facility for the cultivation of ten special algae species used as pharmaceutical industry inputs on a 9-ha abandoned fish-breeding pond near the Village of Pomen, Rousse Regional Vice Governor Peter Daskalov said on Sunday. He made the statement after a representative of the US investor conferred in Rousse with Bulgarian Deputy Prime Minister and Finance Minister Simeon Djankov to inform the Government of their investment project. Talks have already been held with the Mayor of Dve Mogili Municipality, which exercises jurisdiction over Pomen.
FDI in Bulgaria slump by 78% in 2010 H1
The foreign direct investments (FDI) in Bulgaria for the first six months of 2010 was EUR 358,5 M, or 1% of the country's GDP, the Bulgarian National Bank (BNB) has announced. The data from BNB shows a drop of FDI by 78%, in comparison to last year when Bulgaria registered foreign investments amounting to EUR 1,6 B, or 4,8% of the GDP. For the period January-July 2010, the Netherlands, Russia and the United States invested the most in Bulgaria - EUR 933 M, EUR 103,4 M and EUR 47,3 M respectively. The public services sector attracted most of the foreign investments. Electricity, heating, fuel and water received EUR 108,2 M of foreign investments, while the real estate – EUR 96 M. In the meantime, Bulgaria has invested EUR 718 M in Austria and a little less than EUR 200 M in the Netherlands Antilles and the UK. For the first time since the beginning of the economic crisis, in the first three months of 2010, the withdrawal of capital from Bulgaria exceeded the foreign investments by EUR 21,9 M, according to preliminary data. For the period January-March 2009, Bulgaria has received foreign investments amounting to EUR 926 M, or 2,7% of the GDP.
COMPANIES:
Bulgartransgaz and Azerbaijani Socar discuss construction of gas terminals
Natural gas transmission utility Bulgartransgaz, the Azerbaijani state oil company Socar and the Shah Deniz consortium comprising British Petroleum, Statoil and Total discussed a project for the construction of two liquefied natural gas terminals in the northern Black Sea city of Varna and in Georgia, daily Klassa reported. Bulgartransgaz CEO Ivan Drenovichki commented that Bulgaria may get half of its gas supplies from Azerbaijan as of 2013, thus meeting half of its demand estimated at 3-6bn cubic metres annually. Currently, Bulgaria receives almost all natural gas supplies from Russia and is working on projects for building interconnection grids with neighbouring countries to diversify the deliveries.
Bulgarian rebar mill to construct meltshop
Bulgarian rebar mill Helios Metalurg expects to begin constructing its electric arc furnace-based meltshop in the first quarter of 2011, a company representative tells Steel Business Briefing. The company, based in Plovdiv, south-east of Sofia, is in the process of completing planning work for the construction, as well as choosing an equipment supplier and also a financial organisation to support the project. It will be Helios Metalurg’s first meltshop, as it currently sources billet for re-rolling from external suppliers. The new furnace will ensure the company becomes self-sufficient in billet for its rebar mill, which has a capacity of 140,000 tonnes/year. Helios Metalurg’s output increased by 19% in the second quarter of 2010 compared to the first, following growth in demand, although the company declined to quantify tonnages. Commenting on the remainder of summer, Helios tells SBB that “demand is not expected to increase sharply.” “It is expected that after August-September the investment processes in Bulgaria will intensify and new infrastructural projects will start, which will lead to demand increasing,” the company adds. Current prices for 12mm rebar in Bulgaria are around Ђ445/tonne ($583/t) ex-works, SBB is told. As well as its Plovdiv-based rebar mill, Helios Metalurg also has service centres in Sofia and Bourgas, with a combined processing capacity of 2,100 tonnes/month of steel. Besides producing 12-28mm rebar, the company stocks some 28,000 t of material at any one time, including wire rod and mesh, merchant bars, hollow sections and pipes, as well as hot and cold rolled coils.
Four companies interested in deep-water gas, oil extraction near Silistar
Four companies are interested in deep-water gas and oil extraction in the Black Sea near Silistar, a protected beach area some 6 km south of Sinemorets on Bulgaria's southernmost sea coast, the economy ministry said. The institution declined to unveil the names of the candidates until binding offers have been submitted, which is expected to take place by Aug 23. According to information by local newswire Mediapool, two of the candidates are the local Overgas and Prouchvane i Dobiv na Neft i Gaz, part of the country's largest holding company Chimimport. US company Integrity Towers has also shown interest and the fourth candidate remains unnamed. The competition was opened at the beginning of July. Extraction from the Silistar field is expected to continue five years.
Melrose Resources opens new fields in Bulgaria
British oil and gas explorer Melrose Resources announced it expects to receive a boost when the first of two Bulgarian fields begins production in September.Dave Thomas, chief executive, said the Bulgarian fields were crucial to increasing the company’s cash flow.“Cash from operations will grow steeply. As soon as these Bulgarian developments come on, we’re on a strong growth curve – assuming a USD 70 barrel of oil, [we’re expecting] USD 240 M in cash flow from our operations in 2013,” said Thomas, as cited by the Financial Times.British oil and gas explorer Melrose Resources reported a 30% rise in half yearly pre-tax profit, helped by higher oil prices.For the six months ended 30 June pre-tax profit rose to USD 26.2 M compared to USD 19.8 M the same time a year before. Revenue increased 13% to USD 110 M while working interest production climbed 13% to 40.1 mboepd.The opening of new fields in Bulgaria is expected to boost production by 7,500 barrels of oil equivalent per day.“Production was slightly better than expected and the second half will be driven by Bulgaria. As for the net debt, Melrose sells fixed-price gas and if the oil price stays buoyant I don’t see it as an issue,” said Nick Copeman, an oil analyst at Oriel Securities.Bulgaria’s government granted two weeks ago a ten-year concession for the extraction of natural gas to the UK company Melrose Resources.The concession refers to the Kavarna deposit.The news about the concession came a week after the government and Melrose announced the discovery of new natural gas deposits in the Black Sea off the northern Bulgarian coast, whose extraction is expected to bring down the natural gas prices in the country.The Kavarna deposit is located in the Black Sea shelf near the town of Kavarna, and has an area of 4.36 square km. It is estimated to have about 773 million cubic meters of gas, and its extraction can start in 3-4 months.The new deposit is located close to the Galata platform and the adjacent gas processing facilities in the region of Varna built by Melrose Resources.The Kavarna deposit itself is not big but together with two other deposits nearby –Kaliakra and Kavarna East – it has a total of 3 billion cubic meters of natural gas.