BULGARIAN ECONOMIC TOP NEWS DIGEST
WEEKLY REPORT (22 - 28 October 2010 )
Sections/headline briefs:
MACROECONOMY:
· Bulgaria, South Korea Strike Comprehensive Transport Deal
· Cabinet relocates EUR 250mn from infrastructure to Sofia
· Bulgaria's Lumber Industry Picks Up, Furniture Lags Behind
INVESTMENTS:
- EBRD may invest in Chiren natural gas storage expansion in 2011
· Bulgaria to Pour BGN 1.7 B in Infrastructure in 2011
· US, Arab, Canadian Companies to Invest EUR 1 B in Bulgaria's Formula one Project
COMPANIES:
- BEH, Gazprom sign agreement for South Stream project in Bulgaria
- NEC, Alpine agree on EUR 13.3mn price cut at Tsankov Kamak hydropower project
- Local Hewlett Packard unit vows to open 2,000 jobs in two years
- Gazprom plans no further reduction of natural gas prices for Bulgaria
- Bulgarian Companies Participate in NATO Tenders
Articles:
MACROECONOMY:
Bulgaria, South Korea Strike Comprehensive Transport Deal
Bulgaria and the Republic of Korea have signed a wide-ranging cooperation memorandum on roads, railways, ports, and airports. The agreement was inked by Bulgarian Transport Minister Alexander Tsvetkov and Chung Jong-hwan, Korea's Minister of Land, Transport and Maritime Affairs, on Monday at a ceremony in the city of Busan, South Korea. It stipulates cooperation and exchange in the field of construction of transport infrastructure, and aims at exchanging expertise and technologies in the transport sphere, joint training of specialists and joint infrastructure projects. The ministers agreed to set up two workings groups – for railway transport and for transport infrastructure – which should be seeking practical opportunities for the application of the agreement. In Busan, the Bulgarian government delegation visited the 17th World Congress for Intelligent Transport Systems; as part of the forum, Minister Tsvetkov took part in a ministerial round table on environment-friendly transport. The program of the Bulgarian delegation in South Korea further includes meetings with the Bulgarian-Korean Business Committee for Economic Cooperation, with representatives of the Hyundai Rotem Company, and a visit to one of the largest Korean maritime shipping companies, Hanjin Shipping.
Cabinet relocates EUR 250mn from infrastructure to Sofia
The cabinet has decided to relocate EUR 250mn from the country's transport operational programme to the project for extension of the underground lines in the capital city of Sofia, the minister responsible for EU funds utilisation Tomislav Donchev reported quoted by local newswire Mediapool. The amount will finance also the purchase of subway cars. The transfer of funds, initially earmarked for railway and road projects, takes into account the delay in the implementation of large-scale railroad projects and the lower than planned construction price of the three segments of the Trakia Motorway, which will link the capital city of Sofia with the southern Black Sea city of Burgas.
Bulgaria's Lumber Industry Picks Up, Furniture Lags Behind
Bulgaria's lumber industry has started to overcome the effects of the economic crisis but the furniture manufacturing is still declining, according to participants in the "World of Furniture" expo in Sofia. Georgi Kostov, Deputy Agriculture Minister and head of the State Forestry Agency, said Bulgaria's state budget revenues from the lumber industry in the state-owned forest plots will amount to BGN 60 M in 2010. Bulgaria extracts about 4 million cubic meters of lumber per year, and most of that goes for exports to Turkey and Iraq which are seeing a boom of construction; at the same time, the Bulgarian furniture industry takes up only 1 million cubic meters of timber annually, according to the Bulgarian Chamber for Woodworking and FurnitureIndustries. Yet, in the past 2-3 months, the volume of furniture production has started to increase slightly, according to Kalin Simeonov, Chair of the Chamber. Bulgaria's furniture production is expected to slump by 10% in 2010, which is an improvement considering the shock decline of 20% in 2009. The major reason for that is the reduced domestic consumption. "The good news is that the export is on the rise," Simeonov said. In his words, the recovery of the Bulgarian furniture industry could be expected in about six months.
INVESTMENTS:
EBRD may invest in Chiren natural gas storage expansion in 2011
The EBRD may provide financing for the expansion of the country's sole natural gas storage facility in Chiren, EBRD regional director for Bulgaria, Poland and Albania Stefka Slavova told local newswire Investor.bg. The credit may be extended as of 2011 at the earliest, after the investment value of the project has been established. Also, Slavova said that the EBRD has signed contracts for projects in Bulgaria, valued at EUR 341mn, since the beginning of the year, and the financing is to exceed EUR 500mn by end-December, thus jumping above this year's limit for the country. In 2009, the state-run Bulgarian Energy Holding (BEH)unveiled its intentions to negotiate a EUR 250mn loan from the EBRD for the modernisation and expansion of the storage facility in Chiren.
Bulgaria to Pour BGN 1.7 B in Infrastructure in 2011
Bulgaria's government is planning a total investment of about BGN 1.7 B ininfrastructure construction in 2011. The figure was revealed by Regional Development Minister Rosen Plevneliev on Tuesday, the professional holiday of builders in Bulgaria. Plevneliev said the BGN 1.7 B in question will come from EU funds and the state budget. Of those, BGN 1.2 B will go into roads and highways, and the rest will be invested in municipal infrastructure projects. BGN 590 M are expected from the EU operational program Regional Development, BGN 520 M – from operational program Transport, BGN 227 M will come from state investment loans, and the rest will be straight from the state budget. Plevneliev pointed out that the money slated for infrastructure in 2011 is twice more than it was in the peak year 2008, when the Bulgarian government allocated BGN 900 M from the budget for infrastructure. In 2008, of the BGN 768 M absorbed for road from the state budget, BGN 400 M went for road rehabilitation, and BGN 368 M – for investment activities. Plevneliev stressed the importance of infrastructure building for the Bulgarian economy, pointing out that the large foreign investments in real estate that fueled the local economy in 2007-2008 are going. In 2008, foreign investors poured BGN 1.1 B into Bulgarian properties whereas in 2010 so far the figure is only BGN 90 M.
US, Arab, Canadian Companies to Invest EUR 1 B in Bulgaria's Formula one Project
Companies from Abu Dhabi, the USA, and Canada are to come together to form a consortium for investing in Bulgaria's circuit for Formula one and adjacent venues, Novinite.com (Sofia News Agency) learned. In an exclusive interview for Novinite.com (Sofia News Agency), Bogdan Nikolov, Chairman of the Bulgarian Motorcycling Federation, revealed that the Abu Dhabi company EABG, which first expressed interest in investing in Bulgaria's F1 project in August 2010, will be forming a consortium of Arab, American and Canadian companies for investing in Bulgaria's future Formula one track. Anwar Badwan, an adviser to EABG, who is organizing the consortium, confirmed for Novinite.com (Sofia News Agency) over the phone the information that US and Canadian companies will be participating in it. The expected investment of the consortium in the Bulgarian Formula one track project could surpass EUR 1 B, including not just the circuit but an entire new town north of Sofia with 7000 luxury villa and a number of entertainment and shopping venues. The representatives of the Abu Dhabi companies are said to have spent 20 days in the US negotiating for partnership with American and Canadian firms. The head of the BMF, Bogdan Nikolov, who has been a major figure in initiating the project on Bulgaria's part, and has been involved in talks with FIA for a BulgarianFormula one Grand Prix, told Novinite.com (Sofia News Agency) that the international consortium, and the Bulgarian government have to finalize their agreement, and then to sign a contract for hosting a Formula one Grand Prix withBernard Ecclestone, the President and CEO of Formula one management and administration. "Everything is almost ready. We have the project for the racetrack. There are four contracts to be signed – for TV rights, for commercial rights, for advertising, and the main one – for hosting the race. Those have been drafted. The contract for hosting is right here, sent to us by Mr. Ecclestone, we only need to write the name of the other party. So everything depends on whether we will make it. We still have time but it is not much," Nikolov said. He pointed out that according to the talks the Bulgarian government will not contribute any funds but only non-cash assets to the future joint-stock company, namely, the 320-hectare plot of the former military air field at Dobroslavtsi near Sofia. It will also most likely provide a 10-year gratis period of tax exemption for the investors. Nikolov revealed that the potential Bulgarian Formula one track, designed by Belgian specialists, will be absolutely unique in that it will be the only one in the world with heating of the asphalt covering, which should make it very attractive for tire producers to test their tires in various temperatures. If the talks for the forming of the international consortium and the role of the Bulgarian government work out, FIA head Bernard Ecclestone should be expected in Sofia to sign the contract for the Bulgarian Grand Prix as of 2012 between November 15 and December 15, Nikolov said. Bulgaria is also expected to host aMoto GP race on the same track in 2012. "The circuits for Moto GP and Formula one are basically the same with small differences in the safety zones. The safety zones for Moto GP tracks are larger and longer. We have created a project that meets the requirements of both FIA(Fédération Internationale de l'Automobile) and FIM (International Motorcycling Federation) for a circuit for Formula one and Moto GP. If 365 days in the year, the track must be in use 220 days in order to be a profitable investment. The climate in Sofia allows that," the BMF Chair said. He also disclosed that the future Bulgarian Formula one track will be built to fit 100 000 spectators. In August 2010, representatives of the Abu Dhabi consortium EABG (Emirates Associated Business Group), visited Sofia and expressed interest in investing in the project, meeting with the Bulgarian Prime Minister Boyko Borisov and Economy Minister Traicho Traikov. Subsequently, however, the situation unraveled into a scandal as mainstream Bulgarian media confused the title of EABG chair Mohammed Abdul Jalil al Blouki, and EABG official Anwar Badwan received death threats from two Bulgarians living in Chicago, who were exposed, but according to the Interior Minister, were making a joke. Despite the scandal, in September, Badwan made it clear that the Abu Dhabiconsortium is still interested in investing into a Formula one track in Bulgaria. According to Nikolov, the entire scandal was invested by "competitive" interests that wanted to hurt Bulgarian Prime Minister Boyko Borisov. However, he refused to comment in detail on who might have engineered the scandal. "If there is Formula one Grand Prix in Sofia, there won't be races on Istanbul Park and Hungaroring. We will be the only Grand Prix in Eastern Europe," Nikolov said.
COMPANIES:
BEH, Gazprom sign agreement for South Stream project in Bulgaria
Bulgarian state-run Bulgarian Energy Holding (BEH) and Russian gas major Gazprom signed an agreement for the implementation of research for the construction of the South Stream pipeline for natural gas transit from Russia to Southeast and Central Europe and Italy on the territory of Bulgaria, Gazprom said on its website. The document outlines the cooperation mechanism between the two companies and the deadlines for the research. Gazprom expects to decide on the project by June 2011. Last week, Bulgarian PM Boyko Borisov and Russian PM Vladimir Putin decided in a phone conversation that the joint project company for the construction of the pipeline on the territory of Bulgaria should be set up by Nov 15. The price of the pipeline on the territory of the country was estimated at USD 835mn (half of which will be covered by Bulgaria, and the remaining amount will be paid by Russia) and is to be updated after the pre-project research is prepared. Gas supplies in the amount of 63bn cubic metres per year under the project will start from the Beregovaya compressor station in Russia and will reach Bulgaria through the Black Sea. The pipeline network on the territory of the country will have two extensions to Serbia and Greece. The total investment is to reach EUR 25bn, as compared to the initial plans of EUR 10bn. Field works on the South Stream project are to start in 2013 and be completed in 2015. Full capacity is to be reached in 2018.
NEC, Alpine agree on EUR 13.3mn price cut at Tsankov Kamak hydropower project
State power system operator NEC and Austrian Alpine Bau GmbH signed a memorandum for reducing the price of construction works on the hydropower project Tsankov Kamak by BGN 26mn (EUR 13.3mn), the economy ministry said on its website. The Internet page of the government, in turn, reported that the price of the total project is EUR 476mn. The project comprises the construction of a dam of 111mn cubic metres and an 80 MW hydropower plant with an expected 185mn KWh annual electricity production. It is located in the southern part of the country. The project should be completed by end-December. Bank Austria and Credit Suisse First Boston have provided a total of EUR 220mn for this project. Last week, NEC asked its parent, the Bulgarian Energy Holding, to allow public procurement for the extension of a EUR 40-50mn loan for the completion of the project. The company also considers asking for an expansion of its overdraft lines from the local Corporate Commercial Bank and Investbank. The initial expenditures calculated upon the launching of the project in 2004 were EUR 220mn.
Local Hewlett Packard unit vows to open 2,000 jobs in two years
Economy minister Traycho Traykov, finance minister Simeon Dyankov and CEO of the local subsidiary of Hewlett-Packard (HP) Iravan Hira signed a memorandum for expansion of the activities and the investment of HP in the country, the government said on its website. The document envisages the opening of 2,000 jobs in the following two years. The project aims at providing services to the HP network in Europe, the near East and Africa and clients from all over the world. Hewlett Packard Global Delivery Bulgaria Centre is providing only outsourcing activities, namely remote IT infrastructure support of small and medium-sized enterprises and multinational corporations, organizing and monitoring of logistics in troubleshooting, and outsourcing management of IT infrastructure. Its sales increased by 29% to BGN 89.7mn (EUR 45.9mn) in 2009 but its profit declined by 13% to BGN 5.95mn due to expenditures for renting and providing equipment to a new office building. The company raised the number of its employees by 28% to 1,934 as of the end of last year.
Gazprom plans no further reduction of natural gas prices for Bulgaria
Russia's gas energy major Gazprom does not intend to cut further the prices of natural gas for Bulgaria, the manager of the external relations department of the company Stanislav Tsigankov said for the national radio BNR. Tsigankov commented that the prices of the gas supplies to Bulgaria are the lowest in Europe. We remind that the local authorities informed in July that Gazprom agreed to sign annexes to the existing gas supply contracts but declined to announce the details of the agreement. Economy and energy minister Traycho Traykov stated that without the said agreement and the local extraction by UK's Melrose Resources, natural gas prices would have risen by 13-14% as of Oct 1. Instead, the state energy commission allowed a 0.94% decrease. Minister Traykov hoped to negotiate further reduction of the price of the natural gas deliveries to Bulgaria during the visit of Gazprom CEO Alexey Miller in Bulgaria earlier in the month.
Bulgarian Companies Participate in NATO Tenders
Bulgarian companies will be able to participate more actively in tenders and public procurements of the NATO. This is possible following an agreement between Bulgaria's deputy economy minister Evgeni Angelov and Antonios Chatzidakis, NAMSA General Manager. Representatives of about twenty companies from Bulgaria's defense industry also participated in the meeting. At the beginning of next month, Bulgaria's defense companies will be given an opportunity to present their activities within an 'industrial day', organized in the NAMSA headquarters in Luxembourg.