BULGARIAN ECONOMIC TOP NEWS DIGEST
WEEKLY REPORT (24 September – 1 October 2010 )
Sections/headline briefs:
MACROECONOMY:
· Government approves 2011 draft budget law.
- EC to provide EUR 75mn for Kozloduy units early closure in 2011.
- First GDP Growth of 0.5% Registered in Bulgaria Since Crisis onset
- EC imposes to Bulgaria EUR 6.5mn fine for SAPARD irregularities.
- Business sentiments deteriorate by 1.2pps m/m in September.
· Foreign tourist visits rise 11.3% y/y in August.
· PM nominates Stefan Konstantinov healthcare minister.
INVESTMENTS:
· Italian Companies to Invest Up to EUR 3 B in Bulgaria by 2020
COMPANIES:
.
- Bulgarian Software Companies Expect Restoration of Sector
- Retailer Carrefour to open store in Ruse by year-end
- Russian-owned Bulfeld To Build 100 Mln Euro Shopping Mall in Sofia - Raiffesen Real Estate
- Cabinet grants 7-year gas extraction concession to Melrose Resources.
- Bulgargaz not to ask for natural gas price increase as of Jan 1.
- Sopharma starts drug plant construction in Serbia.
- Administrative court confirms winner in Sofia waste-processing plant tender.
Articles:
MACROECONOMY:
Government approves 2011 draft budget law
The council of ministers approved the draft budget law for next year as well as amendments to four tax laws, the finance ministry said on its website. The government will target a cash-based budget deficit of 2.5% of GDP in 2011 (down from the planned 4.8% on cash base and 3.8% on accrual base this year), based on a 3.6% economic growth. Consolidated government expenditures are planned to remain at this year's level of BGN 27.8bn (EUR 14.2bn, 35% of the GDP forecast for next year). At the same time, total revenues are projected to amount to BGN 25.8bn, up by 5.3%. The government will not change direct tax rates but will increase the excise taxes on some goods (fuel and tobacco) to the average EU levels. It will introduce a flat 9% VAT rate on tourist services as of April 1 (both on individual and package tourism services, which are charged by 20% and 7% respectively). The government debt will not exceed BGN 14bn or 18.15% at the end of 2011, as compared to the planned BGN 6.9bn or 10% of GDP at the end of this year. The budget deficit in 2011 will be financed by EUR 1.2bn from external sources, including a EUR 1bn bond issue. The government intends to present the draft budget law to the parliament for discussions at the beginning of next week.
|
2011 budget law parameters |
|
|
|
|
|
|
2010 |
2011 |
|
GDP |
BGN mn |
71 644 |
77 113 |
|
|
real % |
0.7% |
3.6% |
|
HCPI |
eop |
4.5% |
2.6% |
|
|
average |
3.2% |
3.7% |
|
BGN/USD |
eop |
1.58 |
1.58 |
|
|
average |
1.53 |
1.58 |
|
CA deficit |
% of GDP |
-3.4% |
-2.9% |
|
FDI |
mn EUR |
1 800 |
1 980 |
|
|
% of GDP |
4.9% |
5.0% |
|
Budget revenues |
BGN mn |
24 548 |
25 844 |
|
|
% of GDP |
34.3% |
33.5% |
|
Budget expenditures |
BGN mn |
27 810 |
27 807 |
|
|
% of GDP |
37.7% |
35.0% |
|
Budget saldo |
% of GDP |
-4.8% |
-2.5% |
|
Source: Finance Ministry |
|
|
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EC to provide EUR 75mn for Kozloduy units early closure in 2011
The budget of the European Commission (EC) for next year will comprise EUR 75mn of compensation payments for the early closure of four of the units of Bulgarian nuclear plant in Kozloduy on the Danube River, state news agency BTA reported, quoting the Bulgarian socialist delegation to the EP. The financing is part of the additional EUR 300mn aid for the safe decommissioning of four 440 MW reactors at the nuclear plant, which was approved by the European Parliament (EP) in May and should be paid by 2013. We remind that the government closed the units prior to the country's entry into the EU in 2007, to respond to the EU nuclear safety concerns and now the plant operates only two 1,000 MW generators. Upon the closure, the EU agreed to provide EUR 550mn in financial assistance until 2009.
Cabinet grants 7-year gas extraction concession to Melrose Resources
The government awarded a 7-year concession to UK oil and gas exploration, development and production company Melrose Resources for extraction of natural gas from the Kaliakra field, Dnevnik Daily reported. The field occupies a plot of 19 square kilometres of the northern Black Sea continental shelf. Melrose should extract at least 255mn cubic metres of natural gas annually in the period from 2011 through 2015. The government expects to receive more than USD 73mn for the concession period. A month ago, the cabinet granted a 10-year concession to Melrose for extraction of natural gas from a 4.36 sq km plot in Kavarna, also on the northern Black Sea continental shelf. Its reserves are estimated at 773mn cubic metres. Melrose Resources said it expected to start extraction from the two fields in Kaliakra and Kavarna in H2 and extracted volumes are to account for some 20% of the country's overall consumption in the next 6 years. Earlier in the week, Dimitar Gogov, CEO of the state-run natural gas supplier Bulgargaz, said that Melrose had offered to sell natural gas at prices, which are by 30% lower than those of Russia's gas major Gazprom and may fall even further as of Jan 1.
First GDP Growth of 0.5% Registered in Bulgaria Since Crisis onset
Sofia, September 30 (BTA) - A positive 0.5 per cent growth of GDP was registered for the first time since the onset of the crisis in the second quarter of the current year in comparison with the preceding one, Prime Minister Boyko Borissov said. He was speaking at the opening of a conference of the heads of EU statistical services Thursday.The data are based on the revised methodology of calculating GDP by European standards.According to most economists, this means the end of the recession in Bulgaria and is due mainly to the increase of exports, the Prime Minister said.
EC imposes to Bulgaria EUR 6.5mn fine for SAPARD irregularities.
The European Commission (EC) sent a letter to the Bulgarian authorities last week (Sep 24), informing that it will impose a EUR 6.5mn fine on the country with respect to irregularities in the implementation of the pre-accession agricultural programme SAPARD, local business newswire Investor.bg reported. The fine results from non-compliance with the multi-annual financial agreement of the programme, the newswire quoted Kalina Ilieva, director of the state agriculture fund, which is responsible for the programme implementation, as saying. Ilieva claimed that authorities had provided undue payments to some companies under SAPARD in the period 2007-2008 and had not reacted properly to demands of the EC to eliminate the irregularities.
Business sentiments deteriorate by 1.2pps m/m in September
The composite business sentiment indicator deteriorated by 1.2pps m/m to 12.4 in September, the monthly survey of the national statistical institute showed. We remind that the indicator has been improving in the previous two months. In annual terms, the business climate improved by 3.8pps, decelerating from 4.6pps y/y a month earlier. The worsening in September was due to the construction, the services and the retail business, while sentiments in the industrial sector were flat as compared to a month earlier. None of the surveyed sectors expects inflationary pressure and the services managers even project downward moves of prices. Most of the companies reported an increase in the uncertainty of the economic environment and business owners in industry and the services projected staff cuts. Intellinews comment: According to national accounts data, the agriculture and the industry marked an increase in their value added in Q2, while the decline of the services was close to zero. The figures hint of an improvement in domestic production, which we expect to continue by the end of the year and the GDP to post a small growth in the full-year readings.
Foreign tourist visits rise 11.3% y/y in August
Foreign tourist visits rose by 11.3% y/y to 1.6mn in August, statistical institute data showed. The upward trend sustained for a fifth consecutive month, accelerating from 6.9% y/y in July. Unlike the previous months when the number of foreigners coming on vacation increased faster than the total number of visits, the transit visits were the component with highest growth rate (more than 15% y/y) in August, the statistical office said. The number of Bulgarian trips abroad dropped by 30.6% y/y to 379,700 in August, slowing from 31.9% y/y in July, the data release added. Last month, tourism chamber chairman Tsvetan Tonchev projected that tourist revenues are to reach BGN 6.5bn (EUR 3.3bn) in 2010, which is close to the last year's figure. At the same time, the number of tourists to the country is expected to increase this year. The prices of tourist packages have fallen by some 15% compared to 2009.
PM nominates Stefan Konstantinov healthcare minister.
PM Boyko Borisov nominated Stefan Konstantinov as Bulgaria's new healthcare minister, the council of ministers said on its website. Stefan Konstantinov is deputy head of the doctors' association. Konstatinov will replace Ana-Maria Borisova, who resigned on Wednesday (Sep 29) over the tension her healthcare system reform measures caused in the sector and the society. Konstantinov will be the third healthcare minister of the centr-right CEDB government after the resignation of Bozhidar Nanev in April on accusations of the import of 80,000 doses of swine flu vaccines and the provision of antivirals against other influenza viruses at the end of 2009. The parliament is expected to vote the nomination on Wednesday, newswire Investor.bg reported. The opposition parties, socialist BSP and ethnic MRF, informed that they will not support Konstantinov as they see his nomination as an attempt to contain the doctors' protests planned for mid-October. The Blue Coalition, a partner of the CEDB government, also stated that it would not vote in favour of Konstantinov unless an action plan for reform is presented. Still, the nomination of Stefan Konstantinov has good chances to be approved by the parliament, as CEDB controls 48.4% of the seats in the parliament and another 8.9% are held by its partner, the nationalist Attack.
INVESTMENTS:
Italian Companies to Invest Up to EUR 3 B in Bulgaria by 2020
Foreign direct investments by Italian companies in Bulgaria will amount to EUR 1-3 B in the next ten years, according to estimates of Confindustria Bulgaria, the Italian business association in Bulgaria.
This figure was revealed Wednesday by Massimo Bartocci, the head ofConfindustria Bulgaria, at a special news conference, which announced that the General Assembly of Confindustria Balcani, the union of Italian business associations in the Balkan countries, will take place in Sofia on October 13, 2010. Italy's Ambassador to Bulgaria Stefano Benazzo, the CEO of Unicredit Bulbank Bulgaria Levon Hampartsumyan, and the CEO of Generali Bulgaria Holding Boris Chuhran also took part in the press conference. "The fact that we chose the Bulgarian capital Sofia for the meeting of Confindustria Balcani demonstrates Bulgaria's major role in the region, the dynamics of Italian companies working in the country, and its economic potential," Bartocci said.
Data of Confindustria Balcani shows that there are currently 800 Italian businesses that are active in Bulgaria. on this criteria, Bulgaria ranks second in the region after Romania, which boasts 4 000 Italian companies – a development seen much as a result of the fact that firms from Northern Italy started outsourcing some operations in Romania as early as the mid 1990s. Albania and Serbia come in next with about 300 active Italian businesses each. Confindustria Bulgaria, which unites about 200 enterprises representing a total investment of EUR 2 B, with an annual turnover of EUR 1.3 B, and 20 000 Bulgarian employees, expects that by 2020 the number of Italian companies operating in the country will grow by 20-30% reaching at least 1000.
Its estimates of the expected Italian FDI in Bulgaria ranged within EUR 1-3 B depending on three major factors: the dynamics of the real estate market; the ability of Italian companies to participate in the energy (including renewable energy) market in Bulgaria; the global economic development and the expected influx investment into manufacturing for the local consumer markets based on the so called "multi-localization".
The Italcementi Group, which owns and runs the Bulgarian factory Devnya Cement, has already pledged an investment of EUR 250 M (expected to reach EUR 350 M) over the next 2 years into a new facility that is going to increase the plant's daily output of cement by 3000 tonnes. According to Italy's Ambassador in SofiaStefano Benazzo, this is a clear indication that Italcementi expects better days for the Bulgarian construction and property markets.
The representatives of Confindustria Bulgaria and Confindustria Balcaniemphasized the importance of the Balkans for the Italian businesses and the Italian economy pointing out by comparing Italy's trade with the Balkans to its trade with the so called BRIC countries (Brazil, Russia, India, China).
In 2009 Italy's trade with the Balkans amounted to EUR 17 B; Italy's total exports to the Balkan states was EUR 10.1 B, equaling its exports to China (EUR 6.6 B),India (EUR 2.7 B), and Brazil (EUR 2.7 B) combined, and far surpassing its exports to Russia (EUR 6.5 B).
"We believe that in Italy's case another "B" should be added to "BRIC" to stand for the Balkans," Bertocci said.
Italy's trade with Bulgaria amounted to EUR 2.3 B in 2009, down from the EUR 3 B per year before the economic crisis. It is Bulgaria's third largest trading partner after Germany and Greece; in 2009, Bulgaria's exports to Italy were EUR 1.3 B vs. imports of EUR 1 B, according to data of Confindustria Bulgaria.
"Thinking about the Balkans as an organic and integrated reality is one of the keys for the future development of the countries from the region, which presents a strategically important market on the European and global stage. Italian entrepreneurship wants to play a central role in this development," Bartocci declared.
He outlined Bulgaria's currency pegged to the euro, the stable banking system, the low taxes, the low budget deficit, good educator of the labor pool, central geographic location, and the fact that the government's austerity measures are backed by the citizens are major factors in making the country attractive to foreign and Italian investors.
"Bulgaria has gone a long way since the 1990s but it still has to go even further. Its success depends on three important factors: education, entrepreneurship, and persistence," the head of the Italian business association in Bulgaria said.
"In its role as a leading bank in the country, Unicredit Bulbank commits to being a partner of Confindustria Balcani in its quest to increase Italian investments in Bulgaria, thus supporting its economy and its citizens," vowed banker Levon Hampartsumyan.
Topics related with Italy's investments and trade in the Balkans will be the focus of the general assembly meeting of Confindustria Balcani in Sofia on October 13. The meeting will be attended by representatives of Italian business associations and companies active in Romania, Bulgaria, Albania, Serbia, Croatia, Montenegro, Macedonia, Bosnia and Herzegovina.
About 1000 Italian companies active in the Balkans are members of ConfindustriaBalcani, which founded in Tirana in April 2010 with the key role of ConfindustriaBulgaria. For the first three years of its existence Confindustria Balcani will be managed by Confindustria Bulgaria (formerly the the Committee of the Italian Entrepreneurship in Bulgaria (CIIB)).
Italy's domestic business association Confindustria has over 150 000 member companies, which provide employment to over 5 million people with combined revenue of EUR 500 B.
COMPANIES:
Bulgarian Software Companies Expect Restoration of Sector
Sofia, September 30 (BTA) - Software companies in Bulgaria expect restoration of the sector and a gradual increase of sales. This is indicated by a survey of the condition of the sector called "Barometer of Bulgarian IT Industry" presented at the BTA Press Club Thursday by the Bulgarian Association of Software Companies (BASSCOM).The survey was conducted online among 57 companies, members of BASSCOM and the Bulgarian Web Association, in the period between january and April 2010.In the past year the companies reported revenues of an average 1.74 million leva per company, compared to an average 2.4 million leva. For the sector in general, revenue from sales in 2009 declined by 27 per cent in comparison with 2008. Profit in 2009 dropped by 46 per cent year-on-year and amounted to an average 0.14 million leva. According to 47 per cent of the respondents in the survey, this year the number of employees will increase by 10 per cent. Last year the number of jobs in the sector rose by 8 per cent. Nearly half of the respondents expect that state policy will have no influence on their business, while 36.7 per cent think it will, but rather on the negative side. What BASSCOM wants from the government is considerable improvement of IT investments in the state sector, new markets and fundamental improvements in the education system. To meet the need of highly qualified specialists in software engineering the European Software Institute - Centre Bulgaria is launching a pilot system of courses and a master's programme in SEMP (Systems Engineering Management Plan).
Retailer Carrefour to open store in Ruse by year-end.
Europe's largest retailer Carrefour will open a store in Mall Rousse in the northern Danube town, according to a statement of mall investor Real Estate Services Bulgaria (RESB), quoted by local business newswire Investor.bg. The hypermarket will be located on 8,000 sqm in the trade centre and will open by the end of the year when the launching of the whole centre is expected. Carrefour set foot in the country in 2009 and already runs stores in Sofia, Plovdiv, Varna and Burgas. Mall Rousse will comprise a total of 40,000 sqm of trade areas. The portfolio of RESB in the country exceeds EUR 300mn distributed among more than 260,000 sqm of business areas.
Russian-owned Bulfeld To Build 100 Mln Euro Shopping Mall in Sofia - Raiffesen Real Estate
SOFIA (Bulgaria), September 29 (SeeNews) - Russian-owned company Bulfeld has started building a shopping mall in Sofia worth 100 million euro ($134.4 million), Sofia-based Raiffesen Real Estate said on Wednesday. The Paradise Center mall, with a built-up area of nearly 175,000 square metres and a gross leasable area of 75,000 square metres, is expected to open doors in the fall of 2012, the real estate company said in a statement, quoting Property Xpress, which covers news of the real estate market in Eastern Europe. "At the beginning, construction of the mall will be financed with equity. The company is in an advanced stage of negotiations with Unicredit Bulbank to attract a bank loan for the project," Raiffeisen Real Estate, which is a wholly-owned subsidiary of Raiffeisenbank Bulgaria, said. Paradise Center will comprise an underground parking for 1,850 vehicles, a cinema theatre, a small amphitheatre, rest zones on the roof and various other attractions. "The idea is to attract tenants, operating in the medium price segment, and we are already negotiating with potential anchors," Raiffeisen Real Estate quoted Bulfeld General Manager David Mihajlovic as saying. Bulfeld has also started building a similar project, with a gross leasable area of 20,000 square metres, within the Ilianci bazaar in Sofia. Bulfeld is controlled by Paata Gamgoneishvili and Roland Isaev in partnership with Joseph Blaoshvili, who are also major shareholders in Bulreal company, which in turn bought the Ilianci bazaar in 2005 for about 16 million euro, the statement added.
Bulgargaz not to ask for natural gas price increase as of Jan 1
Dimitar Gogov, CEO of the state-run natural gas supplier Bulgargaz, told the state energy commission that the company would not ask for an increase in the natural gas price as of Jan 1, business newswire Investor.bg reported. Gogov also said that the prices offered by UK company Melrose Resources, which is involved in local gas extraction, are by 30% lower than those of Russia's gas major Gazprom and may fall even further as of Jan 1. Annual gas consumption in Bulgaria exceeds 3bn cubic metres and is almost fully covered by Gazprom. Melrose is expected to start providing 500mn annually. We remind that at the beginning of September, natural gas supplier Bulgargaz proposed to the state energy commission to allow a reduction in the price of natural gas by 1.36% to BGN 535.1 (EUR 273.6) per 1,000 cubic metres, VAT excluded as of Oct 1, not taking into consideration the BGN 78mn in missed revenues in H1 as a result of the lower prices, which would have additionally raised prices by BGN 92.65 per 1,000 cubic metres. Last week, the regulator projected that the prices of the natural gas would decrease by 0.96%, including compensations for the missed revenues, which are only BGN 16mn, according to the commission.
Sopharma starts drug plant construction in Serbia
Bulgarian leading pharmaceutical producer Sopharma started construction works on a new pharmaceutical plant near the Serbian capital of Belgrade, the company informed through the local stock exchange. The facility will be located on 12,000 sqm of land and will provide jobs to 110 employees. The investment is estimated at EUR 8mn. In Jan-Aug, the total sales of Sopharma increased by 17% y/y, including a 27% y/y exports expansion.
Administrative court confirms winner in Sofia waste-processing plant tender
The supreme administrative court confirmed the Hut-Stanilov consortium, comprising local company Stanilov and German firm Heilit (which is part of the Strabag group) as winner in the tender for building a waste-processing plant in the capital city of Sofia. The decision allows the municipality to sign the contract with Hut-Stanilov. The consortium won the contract as it filed the cheapest offer of BGN 208.8mn (EUR 106.8mn) for the construction of the plant and projected the lowest annual operational costs for the facility of BGN 9.4mn. EU funds are to ensure EUR 81mn of the total amount. However, recently the EC asked for further explanation of how the goals of the project will be achieved, and requested more in-depth economic and financial analyses on the selected technology before allowing EU financing under the country's environment operational programme. The plant is to start operations in 2012.