BULGARIAN ECONOMIC TOP NEWS DIGEST
WEEKLY REPORT (22 - 28 October 2010 )
Sections/headline briefs:
MACROECONOMY:
· Bulgaria's industrial producer prices up by 9.6% y/y in Sep.
· Government debt rises in Sep, accounts for 14.9% of GDP
· Analysts: Bulgaria's economy to witness first post-crisis y/y growth in Q3
· Bulgaria keeps 51st position in World Bank's Doing Business 2011 ranking
· Bulgaria's electricity production up by 24% y/y in Aug
· Bulgaria's new green energy bill sets limitations for new investments
INVESTMENTS:
COMPANIES:
- Bulgaria expects EC's approval for Trakia motorway construction by end-2010
- Glavbolgarstroy consortium to build stretch of Sofia belt road for EUR 19mn
- Bulgarian cigarettes market share down to 49% in Jan-Sep
- Melrose Resources starts work at Kaliakra, Kavarna gas deposits
- Bulgarian MonBat negotiates with EBRD on EUR 15mn loan
- Sofia underground calls tender for supply of 18 trains
- Bulgarian Prista Oil in talks with EBRD over EUR 50.5mn loan
- Sopharma Jan-Oct sales up 17% on exports growth
Articles:
MACROECONOMY:
Bulgaria's industrial producer prices up by 9.6% y/y in Sep.
Bulgaria's industrial producer price index (PPI) rose by 9.6% y/y in September, decelerating from 11% y/y in August, the statistics office reported. The positive growth sustained for a tenth month in a row, preceded by annual declines in 2009. The increase of the overall price index in September was due to increased prices in all the three items in the sectoral classification. However, inflation slowed down in utilities (13.5% y/y against 14.2% the previous month) and manufacturing (7.4% y/y from 8.1% the previous months), thus resulting in deceleration of the PPI growth. Mining prices were the only industry to post highest price hike of 16.2% y/y in September against 12.3% the previous month. Prices in the food industry increased by 3.2% y/y, chemical industry - by 3.8% y/y, metallurgy - by 26.6% and tobacco - by 8.2% y/y. In monthly terms, prices went up by 0.8% in September against a 0.7% m/m rise the previous month. Increase was witnessed in mining (4% m/m) and manufacturing (1.1% m/m), while the utilities posted a decrease by 0.5% m/m. In the manufacturing industry, the biggest price hikes were in the foods (1.9% m/m) and machine building industries (1.6% m/m). The broader index including export sales rose by 9.6% y/y in September, decelerating from 11% y/y in August, and by 0.1% m/m.
Government debt rises in Sep, accounts for 14.9% of GDP
The government debt reached EUR 5.2bn as at end of September, according to a press release of the Ministry of Finance, published on its website. It gained 3.6% during the month. Domestic debt constituted 36.9% of the total and reached EUR 1.92bn. The nominal monthly increase of government debt stood at EUR 180.6mn and was reportedly driven mainly by the higher amounts of newly issued government securities on domestic market. Total public debt accounted for 14.9% of year-end forecast GDP as at end-Sep, 0.5 pps higher than a month earlier. The respective shares of foreign and domestic debt are 9.4% and 5.5%. The fiscal reserve-public debt (excluding state guarantees) coverage ratio rose to 66%, improving 3.2pps compared to the previous month, due to higher reported fiscal reserve in September.
Analysts: Bulgaria's economy to witness first post-crisis y/y growth in Q3
Bulgaria's economy will report first post-crisis y/ growth in Q3, according to the latest forecast of the Centre for Economic Development (CED). In its October report on the economic conditions in the country, the think-tank presented its forecast for a 1% y/y increase in Q3, that will be engined mainly by the industry sector, in particular mining and quarrying and manufacturing. The construction sector is also projected to improve, as the sector's contraction will slow mainly thanks to investments in new infrastructure projects. CED expects the economy to continue recovering in the fourth quarter of the year. However the growth will not be sufficient to compensate for the contraction of the economy witnessed in the first half of 2010, so the think-tank's full-year forecast is for a weak drop close to zero. CED considers that the country should increase the exports of innovative products that are more competitive. Foreign investments in Bulgaria are not expected to exceed EUR 2bn in 2010, and will rise by 20% in 2011, according to the analysts. CED said the country's economy will grow by 2% to 2.5% in 2011, deeming the government's forecasts for a 3.6% growth as too optimistic.
Bulgaria keeps 51st position in World Bank's Doing Business 2011 ranking
Bulgaria remained on the 51st position in terms of ease of doing business in the World Bank's annual report Doing Business 2011, which assesses the investment climate in 183 countries. The ranking places the country ahead of its direct neighbours - Romania is 56th, down 2 places since last year, Greece is 109th, Serbia drops one place to 89th position and the improvement in Turkey's business climate climbs the county up 5 places to 65th position. Bulgaria, however, lags behind Macedonia, which occupies 38th place, two steps down than in 2009. The greatest strengths of Bulgaria, according to the report, are getting credit (6th rank) and starting a business (43rd rank) whereas dealing with construction permits and trading across borders have been recognized as the weakest points (at 119th and 108th position respectively. Apart from the easy access to finance, Bulgaria has also leading positions in terms of improvement in paying taxes where the country is sixth and in respect to the extent of disclosure related to minority investor protection. Mild improvements were observed in terms of trading across borders (108, up by 1 place) and enforcing contracts (87th, up by 1 place). Deterioration was witnessed in terms of registering property (62nd, down by 6 places), closing business (83rd, down by 4 places), protecting investors (44th, down by 3 places) and dealing with construction permits (119th, down by 2 places). one of the main reforms that Bulgaria was praised for in the report was the reduced minimum capital requirement to the token BGN 2 (EUR 1) from BGN 5,000 previously for limited liability companies, and the reduction of labour taxes and mandatory contributions by 2pps in early 2010. Bulgaria was, however, among the 37 economies, which do not clearly regulate the liability of directors for abusive related party transactions. The report scolds Bulgaria for the unfavourable treatment of construction companies, which need to obtain 24 documents (against 6 in Denmark) and the long period needed for the issue of planning permits - 139 days (against 25 days in Singapore) and for the 137 days needed for companies to get connected to the national power grid (against 17-25 days in Germany and Austria).
Bulgaria's electricity production up by 24% y/y in Aug
Electricity production in Bulgaria increased by 0.4% m/m and by 24% y/y to 3.994 GWh in August, the statistics office reported. The output of solid fuels declined by 4% m/m to 2.4mn tonnes, of propane-butane - by 10% m/m to 9,000 tonnes, of unleaded gasoline - by 4.4% m/m to 130,000 tonnes, of diesel fuel - by 5.2% m/m to 110,000 tonnes and of natural gas - by 13.1% m/m to 417,000 cubic meters. Despite the monthly decrease, the production of fuels rose on the year by 30.5% y/y for solid fuels and by 14% for natural gas. Lower production was observed in the other fuel segments - by 43.8% y/y for propane butane, by 2.3% y/y for unleaded gasoline and by 32.9% y/y for diesel fuel. The supplies of propane butane increased by 25% m/m to 30,000 tonnes in August, of diesel fuel - by 58.6% to 111,000 tonnes , of electricity - by 4.4% to 2,584 GWh and of natural gas - by 8.1% m/m - 147mn cubic meters. A decline was witnessed in the supply of solid fuels by 3% to 2.742mn tonnes and of unleaded gasoline - by 2% to 50,000 tonnes. The supply of solid fuels increased by 34.5% y/y in August, of unleaded gasoline - by 38.9% y/y, of diesel fuel - by 37% y/y, of natural gas - by 7.3% y/y and of electricity - by 4.6% y/y. The supply of propane-butane fell by 16.7% y/y.
Bulgaria's new green energy bill sets limitations for new investments
Bulgaria's energy watchdog will pick the green energy project applications that will be implemented every year by June 30, in an attempt to reduce the number of unsuccessful projects, Dnevnik daily reported quoting the new renewable energy bill. The bill, which is currently subject to public discussion, also envisages that investors will have to provide a guarantee deposit of BGN 10,000 per application project and a fee of EUR 25,000 per MW of installed capacity when joining the national power distribution grid. Due to the unrealistically high number of RES projects, a significant portion of which fail, the government decided to introduce thresholds in order to work only with potentially successful projects. The power distributors will have to present to the electricity system operator their forecasts for the maximum new power capacities that can be connected to their grids each year by Feb 28. The electricity system operator will co-ordinate the approved forecasts with its ten-year grid development programme, as well as with the energy watchdog and the economy ministry. The bill also envisages long-term contracts for guaranteed green electricity (E-RES) purchases - 25 years for photovoltaic and geothermal sources and 15 years for all other renewable sources. Bulgaria needs to achieve a 16% green energy target over the next decade, according to the EU country-specific targets for 2020.
INVESTMENTS:
COMPANIES:
Bulgaria expects EC's approval for Trakia motorway construction by end-2010
Regional development minister Rossen Plevneliev forecast that the European Commission will approve the application for the Trakia motorway construction by the end of 2010, Monitor daily quoted Plevneliev as saying. The minister added that the government has provided 5% in advance payment for the separate lots: BGN 6.9mn for lot 2, BGN6.7mn for lot 3 and BGN 10.5 for lot 4, VAT incl. The roads agency and the transport ministry contract, which envisages a EUR 350mn grant will be paid from the cohesion fund with the road agency getting 80% and the ministry - 20% of the sum. The construction of the Trakia motorway, part of pan-European transport Corridor 8, should be completed in 2012. The builders of the motorway have already been chosen. In related news, Plevneliev announced that the procedure for the construction of the Struma highway will begin by end-November. Struma, which links Sofia with the country's border with Greece and is part of the Pan-European transport corridor 4, will be completed by 2013. According to Plevneliev, Bulgaria will have the opportunity to use some BGN 1.2bn for roads construction and upgrade, provided from EU funds and from state investment loans. Bulgaria will strive to get from the EU transport and regional development programme some BGN 520mn and BGN 590mn, respectively. Of the BGN 220mn of expected investment loans, BGN 197mn will be allocated for roads.
Glavbolgarstroy consortium to build stretch of Sofia belt road for EUR 19mn
Bulgaria's roads agency signed a contract with a local consortium of Glavbolgarstroy and GBS Infrastrukturno Stroitelstvo, to build a 4-km stretch of the Sofia belt road for BGN 37.3mn (EUR 19.1mn) ,VAT excl., investor.bg reported quoting the authority. The project will be supervised by local firm Ruteks. The road section, which is part of Lot 31, is being financed by the EU-supported regional development operation programme. The road section is located between the 41st and the 45th km in the southern section of the belt road. The consortium defeated four other bidders in the tender, which expired in mid-September.
Bulgarian cigarettes market share down to 49% in Jan-Sep
Bulgarian cigarettes accounted for 49% of the market sales in January-September, down from 58% a year ago, Dnevnik daily reported quoting industry data. The market share of Bulgartabak contracted to 35% from 47.5% a year earlier, but in an interview for Dnevnik the company said the trend over the past few months was positive both for the company and for the industry in general. The share of Plovdiv-based Kings Tabako increased to 14% in Jan-Sep, from 10% a year ago. In terms of price dynamics, the Bulgarian cigarettes dominate the cheaper market segment. Kings Tabako and Slunce Stara Zagora sell at lowest prices, while Bulgartabak decreased prices by BGN 0.2 in July. The imported cigarettes on the other hand are more expensive, with some foreign brands' prices recently raised or expected to be raised. According to the customs authorities, the illegal cigarette trade accounts for 30% of the market. Cigarette consumption is expected to fall by about 40% to 10 billion pieces in 2010.
Melrose Resources starts work at Kaliakra, Kavarna gas deposits
British oil and gas explorer Melrose Resources will start work at the Kaliakra and Kavarna gas deposits in Bulgaria today, the economy ministry announced on its website. The two deposits have a combined stock of around 2.5bn cubic metres and could cover up to 15% of Bulgaria's natural gas consumption in the next few years. The deposits are expected to provide at least 255mn cubic metres of natural gas a year until 2015, Dnevnik business daily reported. Melrose Resources is an Edinburgh-based oil and gas exploration, development and production company. The company has interests in Egypt, Bulgaria, Romania, United States, France and Turkey. It was founded in the 1990s and its shares are traded on the London Stock Exchange since 1999.
Bulgarian MonBat negotiates with EBRD on EUR 15mn loan
Bulgarian car battery maker MonBat is currently negotiating with the EBRD on a loan of up to EUR 15mn for capacity expansion, Dnevnik daily reported, quoting a company statement. The company plans to invest the credit in boosting production and in completing the construction of a lead battery recycling unit in Montana. MonBat expects to increase efficiency and cut energy expenses, as well as reduce the volume of toxic waste. The energy efficiency and environmental upgrades would cost about EUR 0.5mn.
Sofia underground calls tender for supply of 18 trains
The Sofia underground operator Metropoliten called a tender for the supply of 18 new trains, Dnevnik daily reported. The price ceiling is BGN 10.8mn (VAT excl) per train or a total of BGN 194.4mn (VAT excl). The offered price will have the biggest relative weight in the evaluation of the bids, which should be submitted by December 20. The trains should be supplied by 2012 for the launch of a new stretch of the city underground. The bidders should have completed at least to similar orders over the past three years and have produced at least 300 train cars in the period 2007-2009. Another requirement is the quality management certificate ISO 9001:2008. The deal is being financed with funds under the EU-supported operational programme on Transport.
Bulgarian Prista Oil in talks with EBRD over EUR 50.5mn loan
Bulgarian lubricants producer and distributor Prista Oil is currently in talks with the EBRD for a loan of up to EUR 50.5mn for expansion of production capacity and construction of a sales network abroad, Dnevnik daily reported quoting a company statement. The company plans to build a production plant for a range of car fluids with part of the loan. Another portion of the credit will go for the development of a network of motor lube drainage units in central and eastern Europe, as well as in Turkey. A part of the EBRD funding will be used to refinance an existing loan from one of Prista Oil's minority shareholders Gramercy Emerging Markets Fund (30%).
Sopharma Jan-Oct sales up 17% on exports growth
Bulgarian drug maker Sopharma said its sales revenue increased by 17% y/y in January to October 2010, on the back of a 26% rise in exports, investor.bg website reported. In October Sopharma sales continued to rise for a third month in a row, increasing by 1%, as exports increased by 4%, while domestic sales fell by the same rate. Sopharma sales increased by 34% y/y in September 2010 and by 14% in August. The company's sales revenue in August improved mainly thanks to a 20% rise of exports.
No Bidders for Bulgaria Steel Behemoth, Second Auction Fails
The second auction of bankrupt steel giant Kremikovtzi, considered the pride of the communist-era industry in Bulgaria, has failed to attract any bidders and now the government will have to cut further its price. Unlike the first closed-bid auction, the second was with direct bidding. The starting price was BGN 452 414 008, down by 20% over the initial tag at the first tender, which also failed due to lack of prospective buyers. As no one made an offer on Friday, yet another auction will be held following a reassessment of the company's assets. The bidder with the highest offer will be selected for buyer. The factory's receiver Tsvetan Bankov has expressed confidence thatKremikovtzi's assets will be sold and its creditors will be redeemed. 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 once the price is lowered even further. Bankov attributed the failure of November 5 auction to what he called "too high a price". 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.