BULGARIAN ECONOMIC TOP NEWS DIGEST
WEEKLY REPORT (5 - 12 November 2010 )
Sections/headline briefs:
MACROECONOMY:
· Economy turns to growth in Jul-Sep
· Bulgaria, Russia establish South Stream JV
· Environmental impact assessment of Nabucco's Bulgarian stretch begins
· Bulgaria to invest EUR 75mn in healthcare sector
· Bulgaria's PC market shrinks by 1.3% in Q3
· Industry expects 26.4% drop in investments in 2010 - survey
INVESTMENTS:
· FDI drops by 59.6% y/y in Jan-Sep
· Korean Business Eager to Invest in Bulgarian Energy, Infrastructure
· Financial, strategic investors show interest in Bulgartabac
· Bulgaria to build hi-tech park in Bozhurishte
COMPANIES:
- Russia's Gazprom suggests 5-7% gas price cut by end-2012
- German discount retailer Lidl opens first 15 stores in Bulgaria on Nov 25
- Germany's Fraport invites bids for new terminal at Varna airport
- Prista Oil eyes 33% sales growth in 2011
- Interservice Uzunovi to build EUR 12mn solar park
- Towercom Bulgaria selects Thomson Broadcast as strategic DTTV supplier
Articles:
MACROECONOMY:
Economy turns to growth in Jul-Sep
Bulgaria's gross domestic product rose by 0.3% q/q in the third quarter of the year, according to the seasonally-adjusted flash estimate of the statistical office. The growth rate decelerated as compared to Q2 when it reached 0.5% q/q. In annual terms, the economy turned to growth for the first time this year in Jul-Sep, expanding by 0.2%. The increase continued to be engined by exports, which rose by 18.6% y/y and 9.1% as compared to Q2. Final consumption on the other hand marked a considerable decrease both in monthly and annual terms - down by 3.7% q/q and 7.3% y/y. The gross fixed capital formation component also remained in negative territory although the annual decrease dropped to 6.5% in Q3 from 12% in Q2. This quarter the statistical office presented GDP comparisons using constant 2000 prices. This approach, as compared to the volume index that was used till now presents much better results of GDP (GDP dropped in Q1 and Q2 by 0.8% y/y and 0.3% y/y respectively in 2000 prices while the two decreases as per the volume index previously used were 3.2% and 1.4%). Analysts from local news agency investor.bg point out that the presentation of GDP growth in seasonally-adjusted average 2000 prices will facilitate the emergence of annual GDP growth in positive territory, as per government's forecasts. They calculate that in order for the economy to register an increase over the year, GDP will have to grow by at least 0.98% y/y in Q4. Intellinews comment: In the footnotes to the press release, the statistical office explained that the transition to chain-linked estimates of the GDP components based on average 2000 prices was in line with the EU standards. Aside of all deductions that the change may elicit, we point out that the individual final consumption category which is indicative to the developments in domestic demand plunged by 3.5 pps to 7.2% in annual terms and by 3.5 pps to 4% in quarterly terms. This is in contrast to the expectations for recovering domestic demand. Latest published data about CPI also confirms that developments in domestic demand are still uncertain. We project to see slow advancement in the category towards the end of the year but expect that the final consumption will remain in negative territory and GDP growth will continue to be driven mainly by exports.
Bulgaria, Russia establish South Stream JV
The Bulgarian Energy Holding and Russia's Gazprom signed the agreement for the establishment of a joint venture with equal participation, which will manage the Bulgarian stretch of the South Stream natural gas pipeline, Dnevnik daily reported. The registration procedure will be completed by November 2012. The company will accept the results of the feasibility study, which will follow the establishment of the JV, and will afterwards assign the design and the environmental impact assessment (EIA) before the investment proposal is being made. Afterwards, the joint venture will build, own and operate the gas pipeline. The establishment of the entity was envisaged in the project roadmap, signed on July 17, 2010. The South Stream is a joint project of Italy's Eni and Gazprom, envisaging transportation of Russian natural gas through the Black Sea to Bulgaria and further to Italy and southeastern and central Europe. It is due to be completed in 2015 and is estimated to cost EUR 25bn, much above the initially planned EUR 10bn. Gas supplies in the amount of 63bn cubic metres per year under the project are to start from the Beregovaya compressor station in Russia and reach Bulgaria through the Black Sea. The agreement for the establishment of the JV was signed during the visit of Russian PM Vladimir Putin. After talks with his Bulgarian counterpart Boiko Borissov, it emerged that the technical design of the Bulgarian nuclear power plant Belene on the Danube river will be ready by end-2010, econ.bg reported. In February 2008, AtomStroyExport signed a EUR 4bn preliminary contract to build the plant and a few months ago requested an increase of the price by EUR 2.5-3.5bn. After talks with Putin, Borissov said the EUR 4bn price is neither final, nor real. Economy minister Traicho Traikov later on said at a news conference, that Russia offered a price of EUR 6.3bn, but added that for Bulgaria this price is not acceptable. In September 2009, field works on the nuclear plant were frozen after Germany's RWE withdrew from the project.
Environmental impact assessment of Nabucco's Bulgarian stretch begins
The environmental impact assessment of the natural gas pipeline Nabucco on the Bulgarian territory has started, the project company Nabucco pipeline Bulgaria said according to Investor.bg. The pipeline, whose Bulgarian section will be 412km long, will pass through 24 municipalities, with whom the negotiations have already been completed. The 3,300-km pipeline from Central Asia and the Middle East to Europe will have a transit capacity of 31bn cubic metres of natural gas per year (to be reached in 2018, with an option for an increase to 65bn cubic metres) and is expected to meet 5-10% of the European demand. The latest investment estimates for Nabucco prepared in the summer of 2008, pointed to total costs of EUR 7.9bn. The construction works are scheduled to start in end-2011, while the first supplies should be expected at the end of 2014. The national natural gas suppliers of Austria, Bulgaria, Hungary, Romania, and Turkey as well as German company RWE hold equal stakes in Nabucco Gas Pipeline International, while the project is being vastly supported by the EU and the United States.
Bulgaria to invest EUR 75mn in healthcare sector
A total BGN 147mn (EUR 75mn) will be invested in the country's healthcare sector under the health ministry's medium-term framework investment programme, which has been approved by the European Commission, information on the ministry's website shows. The funds will be used for improving access to oncology services and restructuring of children's social institutions. Thirteen hospitals will apply for financing to develop their oncology treatment services. The total funds to be extended for purchasing specialized oncology equipment stand at BGN 137mn. Six hospitals have already filed their funding applications. The medium-term programme also envisages a BGN 10mn investment in the restructuring of social institutions for children of up to 3 years of age. This investment is aimed at supporting the process of deinstitutionalization.
Bulgaria's PC market shrinks by 1.3% in Q3
Bulgaria's personal computer (PC) market recorded an annual decline of 1.3% in volume in the third quarter of 2010, according to data from research company IDC, Monitor daily reported. The market will need more time to recover than analysts had previously expected, IDC said pointing out to the fact that in the first half of the year the PC market registered a growth. The economic recession has led to a market consolidation with the three leading PC retailers Acer, HP and Asus holding a combined market share of over 50%. In Q3, sales of notebooks rose by 16.8%, as every fifth was a mini-notebook. Sales of desktop computers, however, registered a 35.7% annual decrease in the three months to September 2010. ,,We are cautiously optimistic about the market development in both the consumer and business segments in the next few quarters," Evelin Stoev, senior analyst at IDC, said.
Industry expects 26.4% drop in investments in 2010 - survey
Local industrial entrepreneurs expect to make 26.4% less investments in 2010 compared to 2009, shows an investment business inquiry carried out the in second half of October by the country's statistical institute NSI. Energy and water industry companies account for the highest share of expected investments in 2010, 52.3%, followed by intermediate goods industry with 26.3% and food and beverage producers with 10.7%. Industrial entrepreneurs expect to increase investments by 18.1% in 2011 compared to 2010. Around 44% of respondents said they did not plan to invest in acquisition of fixed assets in 2011.
INVESTMENTS:
FDI drops by 59.6% y/y in Jan-Sep
Foreign direct investment in Bulgaria for Jan-Sep 2010 was EUR 901.4 million, or 59.6% y/y lower, according to preliminary data of the central bank. FDI for the nine months of 2010 comprised 2.5% of GDP, as compared to 6.4% of GDP a year earlier. Net direct investment flows reached EUR 101mn in September and EUR 824.7mn in Jan-Sep, down by 3.7% y/y and 61.5% y/y, respectively. FDI inflows went down by 59.6% y/y in Jan-Sep, mainly driven by a reduction in the equity capital attracted which dropped by 49% y/y. The decrease in the intra-company loans of non-banking companies also had negative impact and contributed to the decrease in the FDI inflows to the country. As recalled, net direct investment stood at EUR 101.6mn the previous month and at EUR 764.6mn in Jan-Aug, down by 37.2% y/y and 62.5% y/y respectively while FDI inflows in August dropped by 43.8% in annual terms.
Korean Business Eager to Invest in Bulgarian Energy, Infrastructure
Korean companies are preparing to invest in Bulgaria's energy sector, including in renewable energy, South Korea's Ambassador to Bulgaria Chun Bi-ho, said in a public lecture in Sofia. His Excellency did not reveal details but said a large Korean company wanted to acquire a Bulgarian energy firm, which is to be privatized. In addition, another company from South Korea has interest in taking part in the modernization of Bulgaria's electricity network. At the same time, there is also interest on part of Korean construction and engineering firms considering Bulgarian infrastructure projects. The South Korean Ambassador to Sofia pointed out that representatives of 15 Korean tourism companies came to Bulgaria in August 2010, as part of what was described at the time as an "unprecedented" business delegation, to study opportunities in Bulgaria for tour operators. Spa tourism and mineral waters are said to have been their major focus. Ambassador Chun Bi-ho, who has been in Sofia since March 2010, made clear his desire to facilitate as many contacts as possible between Bulgarian companies and government and the business sector in South Korea. He urged companies from both countries to prepare to take advantage of the many opportunities to emerge with the coming into force of the EU-South Korea free-trade agreement, to become active as of July 1, 2011.
Financial, strategic investors show interest in Bulgartabac
Financial and strategic investors are showing interest in the privatisation of local tobacco company Bulgartabac, the country's economy minister Traicho Traikov said at a meeting with representatives of the Bulgarian Business Leaders Forum as cited by Dnevnik daily. The minister did not disclose further details. The sell-off of the country's tobacco holding is on the privatisation agency's 2010 agenda. According to Traikov, the information memorandum for the company, which is being drafted by consultancy Citigroup, will be published soon. Traikov explained that one of the criteria for selecting a buyer for Bulgartabac envisages retaining the annual amount of excise revenues. The government owns 79.83% in Bulgartabac. The company controls some 50% of the domestic tobacco market, according to economy ministry estimates. The net profit of the tobacco holding plunged to BGN 2.6mn (EUR 1.3mn) last year as compared to BGN 58.9mn in 2008 due mainly to one-off gains from the sale of two cigarette plants in the tune of BGN 52.1mn. The individual sales of Bulgartabac fell by 17.1% to BGN 36.9mn last year also contributing to the worsening financials.
Bulgaria to build hi-tech park in Bozhurishte
State-owned Industrial Zones said it will invest in the construction of a hi-tech park in Bozhurishte, company CEO Kiril Nikolov was quoted as saying by Dnevnik daily. The project, whose value was not disclosed, will be aimed mainly at investments in information technology, life sciences, nanotechnology, energy and robotics and mechanics. Industrial Zones is now in talks with two strategic partners for the project's implementation, Nikolov added. We remind that in September, Bulgarian economy ministry reached an agreement with Chinese Zhejiang Province Governor to set up a Chinese-Bulgarian joint venture to operate the Bozhurishte industrial park. The Bulgarian partner in the joint company is Industrial Zones.
COMPANIES:
Russia's Gazprom suggests 5-7% gas price cut by end-2012
Russia's Gazprom made a package offer, which envisages decrease of gas prices for Bulgaria by 5-7% until the end of 2012, investor.bg reported quoting ITAR-TASS. The two parties also agreed on excluding gas supply intermediaries during 2012. The Russian and the Bulgarian gas distributors Gazprom and Bulgargaz decided to sign a direct long-term gas delivery contract by June 30, 2011, which will guarantee supply terms, which are no less favourable than those of other providers. The gas transit volume is expected to soar to 22-23bn cubic meters by 2030 from 15.15bn currently. The agreement came shortly after economy minister Traicho Traikov had expressed hopes for cutting Russian gas delivery prices by at least 5%. The gas prices have already been decreased by 5% in July for a fixed volume of gas.
German discount retailer Lidl opens first 15 stores in Bulgaria on Nov 25
German discount retailer Lidl said it will open its first 15 stores in Bulgaria on November 25, Dnevnik daily reported. Four of the stores will be located in the capital Sofia and the remaining in Plovdiv, Varna, Stara Zagora, Pazardzhik, Sliven, Kardzhali, Petrich, Montana, Lovech and Gabrovo. We remind that Lidl opened a BGN 56mn (EUR 28.6mn)logistics hub in Ravno Pole, near Sofia, in early October 2010. The retailer, which is part of Schwarz Group, received permission from the anti-trust watchdog to buy local chain Plus, owned by German Tengelmann. Plus operates 23 stores in the country. Lidl also bought Plus stores in Romania, but the company is still awaiting regulatory approval. Lidl's main rival in Bulgaria is German retail chain Penny Market, which entered the market in the autumn of 2009, when the company announced plans to open 50 outlets by the end of 2010. The other unit of Schwarz Group, Kaufland, set foot on the Bulgarian market in early 2006 and now operates 26 stores in 22 locations.
Prista Oil eyes 33% sales growth in 2011
Bulgarian lubricants producer Prista, controlled by local businessmen Atanas Bobokov and Plamen Bobokov, expects sales next year to increase by 33% y/y mainly on the back of stronger sales in Turkey and CEE Europe, Dnevnik daily reported. The company's consolidated revenue is forecast to increase by 67% y/y to EUR 300mn in 2011. Its gross profit is to stand at between EUR 27mn and EUR 29mn next year. Prista Oil will focus on expanding its presence on the markets abroad and in particular in Turkey, where it runs a production plant, as well as in central and eastern Europe. In 2012, the company plans to enter the markets of Poland, Ukraine, Belarus and the Baltic states, Plamen Bobokov said. The company plans to finance its expansion programme with a loan of up to EUR 50.5mn from the EBRD. Part of the loan will be used for the construction of a plant that will produce antifreeze, windshield wiper fluid and brake fruit. Prista Oil also plans to use another part of the EBRD to repay a debt of one of its minority shareholders, US investment fund Gramercy Emerging Markets Fund. The fund, which holds a 30% stake in the company, extended a five-year EUR-60-million loan to Prista Oil in 2007.
Germany's Fraport invites bids for new terminal at Varna airport
Germany's Fraport Twin Star Airport Management opened a tender to select a company to build the new passenger terminal at its airport in Varna, on the Black Sea coast, Dnevnik daily reported. Eligible bidders are companies with an annual turnover of at least EUR 50mn in each of the past three years. Candidates will have two months to draft their offers. Fraport, which also operates the other Black Sea airport of Bourgas, said it will invest EUR 75mn in the two airports, as EUR 36mn will be invested in the Bourgas airport. Fraport has already hired UK firm Halcrow Group, Paskall and Watson and Bulgarian Savant Elbul for the design of the new terminal at the Varnaa irport, which is expected to be built by end-2012. Fraport Twin Star Airport Management, a 60/40 joint venture of Fraport and Bulgarian company BM Star, won a 35-year concession to manage the airports in Bourgas and Varna in 2006. We remind that Fraport launched a BGN 12mn expansion project at the Bourgas airport last month. The project envisages the construction of new administrative buildings and fire-fighting facilities at the airport, as well as four stands for large airplanes.
Interservice Uzunovi to build EUR 12mn solar park
Local diversified company Interservice Uzunovi will invest EUR 12mn in the construction of a photovoltaic plant in Ravno Pole, northeastern Bulgaria, the company said in a statement on its website. The construction of the facility started on November 17. The solar park, which has a projected capacity of 5MWp, is expected to start operations in six months' time. The first stage of construction works is expected to be completed in February 2011. Financing for the project has been secured via a loan from local MKB Unionbank. The facility will be equipped with SHARP photovoltaic panels. Local Solarpro has been selected as chief contractor for the project.
Towercom Bulgaria selects Thomson Broadcast as strategic DTTV supplier
Towercom Bulgaria, which is rolling out a digital terrestrial TV (DTTV) network in the country, has selected Thomson Broadcast as strategic supplier, Thomson Broadcast said in a statement. The deal includes the acquisition of Thomson Broadcast Elite GreenPower transmitters. Towercom selected the Thomson Broadcast transmission solution as it offers a good balance between cost of ownership and outstanding output power efficiency, said Lyudmil Christov, CTO of Towercom. The DTTV rollout in Bulgaria is the first major deployment of the Elite GreenPower series in Eastern Europe, Nicolas Dallery, president of Thomson Broadcast, explained. In 2009, Towercom won a tender to construct two multiplexers, part of the country's DTTV platform. The remaining four multiplexers will be run by Latvian system integrator company Hannu Pro. As member of the European Union, Bulgaria has to digitize its analogue TV channels by the end of 2012.