BULGARIAN ECONOMIC TOP NEWS DIGEST
WEEKLY REPORT (1 - 8 October 2010 )
Sections/headline briefs:
MACROECONOMY:
· Raiffeisenbank: Bulgarian Economy Sees Tangible Recovery;
· Bulgaria Gets Crucial Environment Assessment of Oil Pipeline;
· Sofia Heating Utility expects EUR 14.8mn loss in 2010;
· Parliament approves Stefan Konstantinov as healthcare minister;
· EU, South Korea Seal Free-Trade Agreement;
· Sofia Heating Utility expects EUR 14.8mn loss in 2010;
· Electricity exports to Turkey may restart by end-October
INVESTMENTS:
· German LIDL Plans Mass Expansion in Bulgaria
COMPANIES:
· Bulgaria's Port Varna Profits Triple Y/Y
· Inter RAO to Acquire Enel's Bulgaria Coal-Fired Plant – Report
· Top Bulgarian Construction Co Declares Bankruptcy
· Bulgaria Bankrupt Steel Mill New Auction Due on Nov 5
· Aurubis unveils EUR 66m expansion
· Ideal Standard to merge local producing units by year-end
NO COMMENT:
Articles:
MACROECONOMY:
Raiffeisenbank: Bulgarian Economy Sees Tangible Recovery
Bulgaria's economic recovery has become more tangible despite the still underperforming crediting and consumption, according to a macroeconomic analysis of Raiffeisenbank Bulgaria. The Raiffeisenbank analysts have pointed to several developments in the second quarter that confirm the positive trend: In the second quarter, the economic decline slowed down to 1.4% year-on-year; the added value of the economy rose for the first time since 2008. Bulgaria's exports is on the increase, and the trade deficit reached a record low in July 2010. The strong performance of the tourism the same month led to a high positive balance of the current account. Bulgaria's fiscal reserve improved, and the absorption of EU funds led to a monthly budget surplus. Bulgaria's net foreign debt declined by almost EUR 1 B since the beginning of 2010 as a result of the accumulated financial resources in the country. In July 2010, the Bulgarian banks returned EUR 307.8 M of long-term loans. Bulgaria's unemployment dropped down to 9.2% in July, primarily as a result of seasonal employment. The Raiffeisenbank analysis points out that in the second quarter all sectors of the Bulgarian economy registered improvement compared with the first quarter: the added value in agriculture registered a real growth of 3.8%, up from 0.9%; the industry saw a real growth of 2.9% as a result of international and domestic recovery; the decline of the construction sector is slowing down. As a whole, in the second quarter of 2010, the added value of the Bulgarian economy registered a year-on-year growth (0.5%) for the first time since 2008. At the same time, however, Bulgaria's domestic consumption remains at low levels because of the continuing insecurity and incentives for household savings, the Raiffeisenbank analysts point out. The inflation is on the rise based on expectations for the fall months. Individual consumption is down by 4% in 2010 Q2, year-on-year, as households continued to concentrate their financial resources on savings. Despite what is described as good liquidity and readiness on part of the banks to issue loans, credit activity remains relatively low. According to Kaloyan Ganev, the Chief Economist of Raiffeisenbank, the regaining of trust of economic actors has been expected to take time. Yet, the developments of the second half of 2010 are supposed to outweigh the still negative trends in the first half, and consumption is expected to registered growth. The better than expected performance on part of the EU and the euro zone will contribute to the rise of Bulgarian exports. Crediting activity is forecast to remain relatively low in the months to come, and a more tangible recovery is expected to occur only in 2011.
Bulgaria Gets Crucial Environment Assessment of Oil Pipeline
Bulgaria's environment ministry has received an environment assessment study of the planned Burgas-Alexandroupolis oil pipeline and is expected to rule on it in a month. Construction of the line has been on ice even after Bulgaria's government balked at the potential environmental damage that the pipeline could inflict on its resort-dotted coastline. The cabinet has stated that its final decision on the country's participation in the project will depend on its upcoming international environmental assessment. In the summer this year Bulgaria's Prime Minister Boyko Borisov unexpectedly said that his country was "giving up" on Burgas-Alexandroupolis oil pipeline project. In a dramatic twist that left all of Europe confused, Borisov retracted his statements shortly afterwards, saying that the Bulgarian government hasn't made a final decision regarding the construction of the pipeline. After it took office in July 2009, Bulgaria's new center-right government of the GERB party made it clear it was going to reconsider the country's participation in the three large-scale energy projects - South Stream gas pipeline, Burgas-Alexandroupolis oil pipeline, and Belene Nuclear Power Plant. Three Bulgarian Black Sea municipalities - Burgas, Pomorie, and Sozopol - have voted against the pipe in local referendums over environmental concerns. Municipalities neighboring Pomorie and nearby Burgas are also harboring fears that the pipeline could damage their lucrative tourism business, while environmental NGOs have branded the existing plans to build an oil terminal out at sea a disaster waiting to happen. Bulgaria, Greece and Russia agreed to build the pipeline between Burgas and Alexandroupolis, taking Caspian oil to the Mediterranean skirting the congested Bosphorus, in 2007 after more than a decade of intermittent talks. The agreement for the company which will construct the Burgas-Alexandroupolis oil transit pipeline was signed by Bulgaria during Russian President Putin's visit toBulgaria in 2008. The 280-kilometer pipeline, with 166 kilometers passing through Bulgaria, would have an initial annual capacity of 35 million tonnes, which could be later expanded to 50 million tonnes. Its costs are estimated at up to USD 900 M.
Sofia Heating Utility expects EUR 14.8mn loss in 2010
The heating utility in the capital city of Sofia expects to post a BGN 29mn (EUR 14.8mn) loss in 2010, the company's viability plan, quoted by Dnevnik Daily, showed. The document presents the stabilization measures agreed by the company management, amid municipality plans to privatise the utility later. However, Sofia mayor Yordanka Fandakova and the municipal council economic commission returned the plan for amendments, claiming it lacked specific measures for improving the company's performance. Sofia municipality fully controls Sofia Heating Utility, which is one of the largest energy suppliers in the country with a heat production capacity of more than 3,000MW and cogeneration units with a total electricity production capacity of 280MW. Company debt reached BGN 490mn (EUR 250.5mn) as of mid-2010, down by BGN 13mn y/y. Its claims were reported at BGN 321mn respectively, down by BGN 2mn y/y. The utility posted profit of BGN 8mn in H1, as compared to a loss of BGN 27mn in H1 last year. The number of customers of the company were 418,000 at end-2009.
Parliament approves Stefan Konstantinov as healthcare minister
The parliament approved Stefan Konstantinov as Bulgaria's new healthcare minister to replace Ana-Maria Borisova, who resigned on Wednesday last week (Sep 29) over the tension her healthcare system reform measures caused in the sector and the society, local newswire Investor.bg reported. The candidature of Konstantinov was supported by the ruling centre-right CEDB and the nationalist Attack. The opposition parties, socialist BSP and ethnic MRF, voted against Konstantinov, as they saw his nomination as an attempt to contain the doctors' protests planned for mid-October. The deputies from the Blue Coalition, a partner of the CEDB government, abstained, as Konstantinov failed to present an action plan for reform. Intellinews comment: We remind that this is the third healthcare minister in the CEDB government for its 14-month ruling. In April, Bozhidar Nanev resigned 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 healthcare system reform proves to be one of the milestones of the CEDB ruling so far, as it faces financial collapse. In addition, the cabinet shows no capacity to nominate specialists to head the main institutions in the sector as shown by the frequent changes in the ministerial position, the head of the national health insurance fund and the parliamentary commission. We also remind that currently, the parliament is into discussions of a non-confidence motion over issues in the healthcare sector, which is to be voted on Friday (Oct 8).
EU, South Korea Seal Free-Trade Agreement
The EU and South Korea have signed a much anticipated and celebrated free-trade agreement. The document was signed at a ceremony in Brussels by South Korean and EU trade officials in the presence of South Korean President Lee Myung-bak, EC President Jose Manuel Barroso, and EU Council President Herman Van Rompuy. The agreement requires that the EU and South Korea eliminate almost 99% of their of trade tariffs for industry and agriculture within five years, and to eliminate remaining tariffs subsequently. It will eliminate Korean import duties worth EUR 1.6 B annually and EU duties of EUR 1.1 B, according to the EU. The pact could increase Korea’s gross domestic product by as much as 5.6 percentage points over 10 years and create as many as 253,000 jobs in Asia’s fourth- largest economy, according to a joint report by the country’s state research institutes. The EU-South Korea trade was worth EUR 54 B in 2009, with an EUR 10 B deficit for the EU. The EU-Korea accord is the second-biggest such pact ever after the USD 1 T North American Free Trade Agreement (NAFTA) among the US, Canada and Mexico that began in 1994. The EU-South Korea agreement was delayed by Italy’s objections connected with the condition of its auto industry vis-a-vis the competition from South Korea car manufacturers. Italy agreed only after securing a six-month delay in its implementation; the free-trade agreement will enter into force on July 1, 2011. The signing of the deal followed talks between European and Asian leaders at summits in Brussels on Tuesday and Wednesday between the EU and ASEAN,South Korea, and China. The EU has started free-trade agreement talks with Malaysia, and is planning to seek similar bilateral deals with other Asian nations.
Sofia Heating Utility expects EUR 14.8mn loss in 2010
The heating utility in the capital city of Sofia expects to post a BGN 29mn (EUR 14.8mn) loss in 2010, the company's viability plan, quoted by Dnevnik Daily, showed. The document presents the stabilization measures agreed by the company management, amid municipality plans to privatise the utility later. However, Sofia mayor Yordanka Fandakova and the municipal council economic commission returned the plan for amendments, claiming it lacked specific measures for improving the company's performance. Sofia municipality fully controls Sofia Heating Utility, which is one of the largest energy suppliers in the country with a heat production capacity of more than 3,000MW and cogeneration units with a total electricity production capacity of 280MW. Company debt reached BGN 490mn (EUR 250.5mn) as of mid-2010, down by BGN 13mn y/y. Its claims were reported at BGN 321mn respectively, down by BGN 2mn y/y. The utility posted profit of BGN 8mn in H1, as compared to a loss of BGN 27mn in H1 last year. The number of customers of the company were 418,000 at end-2009.
Electricity exports to Turkey may restart by end-October
Bulgarian economy and energy minister Traycho Traykov and Turkish minister of energy and natural resources Taner Yildiz agreed that Bulgarian electricity exports to Turkey may restart as of Oct 24, when the synchronisation of the Turkish grids to the European ones will be completed, the Bulgarian economy ministry said on its website. Bulgarian national grid operator NEC estimated that it may provide some 150 MW to Turkey in November and December and up to 500 MW per month as of January next year. NEC is expected to announce tenders for electricity sales on the Turkish market. So far, a total of 12 companies have shown interest. Turkey stopped importing electricity from Bulgaria in April 2003, which has been contracted under the agreement for allowing Turkish investors to Bulgarian infrastructure projects. The Turkish electricity company interrupted electricity imports from Bulgaria, claiming the country had not fulfilled its investment project commitments. The power supply contract was allegedly conditioned on Turkish investments for the construction of a hydropower plant in Gorna Arda and a road construction project.
INVESTMENTS:
German LIDL Plans Mass Expansion in Bulgaria
Bulgaria's Prime Minister, Boyko Borisov, officially opened Wednesday the brand new logistic center of the German supermarket chain LIDL. The 38 000 square-meter center is in the village of Ravno Pole, in the outskirts of the capital Sofia. The investment is estimated at BGN 56 M while the new center will provide over 150 new job openings. Milena Dragiyska, Manager of LIDL Bulgaria said that by Christmas the number of people employed by the company would go up 5 times, after the opening of stores in a total of 25 municipalities. 4 of the new stores will be in Sofia while one third of all goods stored at the Ravno Pole logistics center will be Bulgarian-made. "I support such investors, those who build facilities worth BGN millions on bare land, and have always been against those who received free factories and enterprises by the State and now want subsidies," Borisov declared. The Ambassador of Germany to Bulgaria, Matthias Hoepfner, was also present at the ceremony.
COMPANIES:
Bulgaria's Port Varna Profits Triple Y/Y
Bulgaria's Black Sea Port Varna has seen its revenues almost triple in the first nine months of 2010, year-on-year. In January-September, Port Varna processed a total of 5.958 million tonnes of goods and materials, which is 1.112 million tonnes more than in the same period of 2009. About 1.5 million tonnes of these come for the exports of grain. The greatest increase comes from the transport of grain, ores, coal, fertilizers, non-metalliferous minerals, and container goods, the Transport Ministry announced. Financially, Port Varna Jsc has registered a total of revenue of BGN 38.5 M vs. the total expenditure of BGN 34.9 M. The net profit of BGN 3.6 M is almost triple the port's profit in the first three quarters of 2009. Estimates for the fourth quarter show that by the end of the year, Port Varna will have processed about 8 million tonnes of goods and cargoes, an increase of 15%. The financial results of Port Varna have come out a day after Greece's Port Thessaloniki announced a campaign to attract Bulgarian companies with its services. For comparison, in 2009, Port Thessaloniki processed a total of 14.4 million tonnes of goods and cargoes.
Inter RAO to Acquire Enel's Bulgaria Coal-Fired Plant - Report
Russia's state power trader Inter RAO has been tipped as the most likely buyer of a a majority stake in Bulgaria's Maritsa East 3 coal-fired power plant, controlled by Italy's Enel SpA, according to reports. Inter RAO may be the leading candidate among five bidders interested in Maritza, Italian daily Il Messaggero reported, without citing sources. According to the report Enel, advised by Deutsche Bank AG, aims to pocked EUR 600 M from the sale and talks are at advanced stage.
Fulvio Conti, CEO of Enel SpA, said at the beginning of September that the Italian company will sell its stake in Bulgaria's Maritsa East 3 power plant in the fall of 2010. Conti made it clear that Enel plans to sell gas distribution assets in Spain by September, and its Bulgarian coal-fired power plant shortly after that, but declined to give a value for the sales. In late July, Austria's utility EVN, which already owns EVN Bulgaria, an electricity distribution company in south and southeast Bulgaria, confirmed it is holding talks for the acquisition of a majority stake in the Maritsa East 3 coal-fired power plant. British utility International Power, US power producer AES Corp. and CEZ AS are also said to have shown interest in acquiring Enel majority stake in Maritsa East 3. A year ago Enel increased the capacity of Maritsa East Three plant to 908 megawatts, up from 840 MW, and also put new desulphurisation installations on the plant's four units. Experts comment that the potential buyer is probably eying a 100% stake in the plant, in which the state owns a 27% stake. The rumors were fanned by a statement of Energy and Economy Minister Traicho Traikov, who recently announced that the state can land EUR 200 M from the sale of its stake in the plant. The plant is located in the Maritsa East lignite coal mining complex in southern Bulgaria.
Top Bulgarian Construction Co Declares Bankruptcy
Investors on the Bulgarian Stock Exchange (BSE) are selling scores of shares of the construction company Moststroy (Bridge Construction) after it declared insolvency Wednesday. In addition to the Holding, controlled by one of the wealthiest Bulgarians, Vasil Bozhkov, three other affiliates in Sofia, Plovdiv and Veliko Tarnovo, also filed for bankruptcy. On Thursday shares of the company, which is one of the winning bidders to buildLot 4 of the Trakiya Highway, were almost wiped off from BSE loosing 90% of their value – from BGN 1.5 a share down to BGN 0.5. The shares of the other Holding, owned by Bozhkov – Patishta (Roads) are following a similar trend in the last few days after it was revealed he parted with the control package in his main companies. Moststroy and the three affiliates are insolvent, and heavily in debt while the Holding is facing several legal actions, frozen assets and property, the company's announcement said, adding the major part of the debt belongs to the United Bulgarian Bank and to the equipment leasing company "Interlease." In August "Interlease" annulled all contracts with Moststroy and took back all of its machinery. Around the same time, employees of "Moststroy Veliko Tarnovo" complained about not being paid since the beginning of the year. The company's management states the insolvency is just a form of restructuring of the business and after implementing a recovery plan, it could begin functioning normally once again. Moststroy books show the company has BNG 28 M in debt and revenues of merely BGN 893 000, all when the firm was chosen and a month ago began building Lot 4of the Trakiya Highway from the city of Yambol to the town of Karnobat, which is the last section of the much anticipated road. The Holding took part in the public bid for Lot 4 with Patishta as a leading partner. The latter also has short-term debt in the amount of over BGN 100 M, but Minister on Regional Development, Rosen Plevneliev, still reassured all this would not interfere with the completion of the highway. If the recovery plan fails, the company must be liquidated.
Bulgaria Bankrupt Steel Mill New Auction Due on Nov 5
The second auction of bankrupt steel giant Kremikovtzi, considered the pride of the communist-era industry in Bulgaria, will take place on November 5, the factory's receiver announced. Unlike the first closed-bid auction, which failed in the middle of September, the second auction will be with direct bidding. The starting price will be BGN 452 414 008, down by 20% over the initial tag. A 10% deposit is to be paid in advance. The bidder with the highest offer will be selected for buyer. "I am certain that Kremikovtzi's assets will be sold and its creditors will be redeemed," Tsvetan Bankov said. According to him the rail transport network and the electricity and natural gas distribution grids on the site of the plant are its biggest asset and should draw investors now that the price is lower. The first closed-bid auction of Kremikovtzi failed to attract any bidders in the middle of September. It started at BGN 565 517 510, which according to trade unions and analysts is far below the market price. Prospective investors were invited to deliver sealed bids between noon and 1 p.m. on September 13, with a 10% deposit to be paid in advance, but no one turned up. The site and assets of the struggling company, built in the 1960s, were offered for sale four months after the behemoth was sent into liquidation, its businesses - wound up and its assets – offloaded. Last year the smelter shut down some of its furnaces due to lack of raw materials after Ukrainian tycoon Konstyantin Zhevago cancelled a deal with the plant. It was previously owned by Pramod Mittal, the younger brother of ArcelorMittalChief Executive Officer Lakshmi Mittal. The auction comes nearly a year after the majority of creditors of the troubled steel-maker rejected the rescue plan for the struggling company, while workers staged numerous rallies to call on the state to approve the recovery plan and bring to justice those, who have allegedly siphoned the company. The sprawling communist-era behemoth near Sofia was declared bankrupt end of May and cleared for liquidation in June, after years of struggle with dire economic conditions, and multiple controversies about mismanagement and financial draining. In a high profile case, Alexander Tomov, former CEO of Kremikovtzi and Bulgarian football great CSKA, is currently facing trial. The total debts of Bulgaria's former largest steel-maker amount to BGN 1,9 B, whereas the market value of all of its assets has been estimated at BGN 837 M. Kremikovtzi, one of Bulgaria's biggest companies, provided jobs for over 5 000 people and its future was a politically sensitive issue ahead of the general elections last summer. Different views about the future of Kremikovtzi site have been recently discussed by the Bulgarian public and authorities, including a possible retainment of the operating mill, creating a museum, a residential neighborhood and a new industrial park.
Aurubis unveils EUR 66m expansion
ADPnews) - Oct 6, 2010 - Aurubis, Europe's biggest copper producer, has pumped BGN 130 million (USD 92m/EUR 66m) into a capacity ramp-up at its enrichment factory near the Bulgarian town of Pirdop, the company said in a statement. The official ribbon-cutting ceremony will take place this Thursday. Plans for the capacity expansion were announced in May 2009. Two years ago Aurubis received a first-class investor certificate thanks to its total investment of EUR 122 million (USD 169m) in its Pirdop facility. Around EUR 67 million was spent on the construction of a new cathode copper refinery, which was completed in August 2008. Aurubis Bulgaria is capable of producing around 180,000 tonnes of cathode copper a year.
Ideal Standard to merge local producing units by year-end
Brussels-based Ideal Standard International, part of the US Bain Capital Partners, decided to merge its two local bathroom suite and accessory producing units Ideal Standard Vidima and Ideal Standard Bulgaria into Ideal Standard Vidima, local business newswire Investor.bg informed. Both factories are located in Sevlievo, in central Bulgaria. The merger is to take place by the end of the year and is expected to strengthen the market positions of the company as one of the biggest employers in the country, providing jobs to 3,200 workers. The move is part of the strategy of Ideal Standard International to simplify its legal structure as much as possible and would not affect the production process at its two local subsidiaries. The two units supply more than 180 different products to 15 markets in Europe.
NO COMMENT:
The Ministry of Joy
Customs officers found their own state within a state. It has recently turned out that the Bulgarian customs officers have their own ministry. It has nothing to do with finances, however. In fact they now have The Ministry of Joy. It is located in the village of Stanke Dimitrovo, on the bank of Ivailovgrad reservoir. Behind a three-meter-high stone wall there are fairy-tale palaces, property of customs officials, Road Tolls and Permits department officials and businessmen from Sofia and Slivengrad. There are no documents that could evidence the existence of this paradise. Legally these 45 palaces are a mirage. The same applies to the stately mansion of the Parishev brothers with a black-and-gold signboard ,,The Ministry of Joy." As the villas do not exist on paper their owners do not pay taxes. However, they do use electricity from the state-owned power distributor and never complain of water supply problems.