불가리아 주요 경제뉴스 (25 November – 2 December 2011)

BULGARIAN ECONOMIC TOP NEWS DIGEST

WEEKLY REPORT (25 November – 2 December 2011)

 

Sections/headline briefs:

 

 

MACROECONOMY:

• Business Conditions Get Worse in Bulgaria
• Bulgaria's Oct Monthly Budget Deficit Shrinks to BGN 15 M

·         Bulgaria unlikely to repay loan to Germany for Siemens trains - Prime Minister

·         Strike Loses Bulgaria's Railways EUR 60 000 Daily

·         Bulgaria's economic sentiment weakens in November

INVESTMENTS:

• Renewable energy developers face tough times in Bulgaria
• US Company of "Fortune's" Top 100 to Invest in Bulgaria

 

COMPANIES AND INDUSTRIES:

 

• Bulgaria gives final approval to Dundee Precious Metals' gold mining project near Krumovgrad
• Bulgaria delays tender for fourth mobile carrier 
• Bulgaria's Budget Makes BGN 300 M from Brewing Industry
• ICT Sector Generates 10% of Bulgaria’s GDP – Association
• Joint venture AES Geo Energy to build second wind farm at Kavarna

 

 

 

 

 

 

 

Articles:

 

MACROECONOMY:

Business Conditions Get Worse in Bulgaria

In November business climate in Bulgaria has worsened again compared to October 2011, survey of the National Statistical Institute shows. only retail trade has registered some improvement of business climate, while in the industry, construction and service sphere economic conditions have aggravated. Managers in the industry have low expectations about the development of business in the next months. Production activity is shrinking as in three months it has dropped by 10 points. Construction entrepreneurs are pessimistic about the situation of the firms in the next six months.
The contracts in the development business are getting fewer and fewer and further reduction of staff is anticipated in the coming months. This is why the prices in the development business are expected to drop. The service sector managers are reserved in their expectations about the growth of both companies and demand, lay-offs in the sector are almost inevitable. The main factor that impedes the business development in Bulgaria is the insecure economic environment, according to a survey by the National Statistical Institute. only the retail sector makes a progress mainly due to the expected grand-scale shopping for the Christmas holidays. Strangely, in this situation Bulgarians increase their trips abroad. In October Bulgarians made 296,000 foreign trips which is a growth of these travels of 1.5% compared to the same month last year.

 

Bulgaria's Oct Monthly Budget Deficit Shrinks to BGN 15 M

For the first ten months of 2011, the budget balance in the consolidated fiscal program (CFP) is negative at around BGN 842 M or 1.0% of GDP, according to preliminary data. The information was released by the press office of the Bulgarian Finance Ministry. Compared to 2010, the deficit is going down. on monthly basis, the budget deficit had shrunk to only BGN 15 M in October, compared to September. Cash-based deficit in 2011, under CFP, improved nominally by about BGN 1.06 M or 1.6% of the Gross Domestic Product, GDP, compared to the same period last year when the deficit was BGN 1.9 M or 2.7% of GDP. The deficit for the period January-August 2010 was EUR 1 536.7 M or 2.2% of GDP. Revenues and benefits under the CFP at the end of October amounted to about BGN 20.5 M or 78.3% of annual estimates. Compared to the same period of 2010, revenues have increased by 6.7% (BGN 1 285.2 M), due in most part to higher tax revenues. Revenues from indirect taxesgrew by 12.5% (with BGN 966 M more on yearly basis). There is also a noted increase of revenues from social and health insurance contributions and other directtaxes – 9.3%. By October 31, 2011, State spending from the consolidated budget, including Bulgaria's contribution to the EU general budget, amounted to BGN 21 360.8 M or 75.8% of estimates for the year. In nominal terms, expenditures remain similar to those recorded for the same period last year with a growth of 1.1% where an increase was reported mainly in health insurance costs and maintenance costs. Bulgaria's contribution to the EU general budget, paid at the end of October from the central budget amounted to BGN 587.8 M, in accordance with Regulation 1150/2000 of the Council of the EU. The fiscal reserve by October 31, 2011, amounted to BGN 5.3 B. The final data for the implementation of CFP by October 31 2011 will be published in December. According to government data about the first half of 2011, published at the end of August, as of June 30, 2011, Bulgaria's state fiscal reserve amounted to BGN 5.2 B. Bulgaria's fiscal reserve has grown by some BGN 200 M since May, amounting to BGN 5.2 B as of end June. As of April 30, 2011, Bulgaria's fiscal reserve stood at BGN 4.7 B, a decline of BGN 400 M in just two months, and its lowest point since the pre-crisis years. Bulgaria'sfiscal reserve amounted to BGN 5.1 B as of February 28, 2011, a decline of BGN 300 M. Bulgaria's fiscal reserve stood at BGN 5.4 B at the end of January compared with BGN 6 B at the end of December 2010.

 

Bulgaria unlikely to repay loan to Germany for Siemens trains - Prime Minister

Bulgaria will most likely fail to repay its loan to German state development bank Kreditanstalt fuer Wiederaufbau (KfW), taken out in 2005, which was used to buy Siemens Desiro diesel trains for the country's state railways company BDZ, Prime Minister Boiko Borissov told television station bTV on November 28 2011. Borissov said that Transport Minister Ivaylo Moskovski would soon meet representatives of the bank in Germany to negotiate a possible rescheduling of the loan. The debt is partly guaranteed by the German state. The loan has not been serviced since 2010 and the German bank could decide to claim back the 50 trains.

 

Strike Loses Bulgaria's Railways EUR 60 000 Daily

The highly indebted Bulgarian State Railways BDZ are losing BGN 120 000 (appr. EUR 60 000) daily from the ongoing railway workers strike, BDZ CEO Yordan Nedevhas revealed. The daily losses of BDZ Passenger Services, one of the three subdivisions of BDZ, whose workers have been on strike for seven days now, amount to BGN 100 000, the company CEO said. "These losses are incurred from the fact that commuters do not buy railway tickets now that they are aware of the strike," Nedev stated Wednesday during talks with the railway syndicates that fell through. In addition, BDZ Passenger Services, which is the more profitable part of the state company and has been affected much less by the strike, is losing about BGN 20 000 daily, he pointed out. Bulgaria's major syndicates have managed to terminate the operation of some 70-80% of the trains in the country between 8 am and 4 pm every day since November 24 in opposition to a government plan to lay off 2000 of BDZ's more than 13 000 workers, and to step some 150 trains from operation. As of early October 2011, BDZ's total debts amounted to BGN 771 M; of those BGN 280 M are overdue.

 

Bulgaria's economic sentiment weakens in November

Bulgaria's economic sentiment indicator (ESI) declined by 1.7 points to 93.7 in November compared to the previous month, the European Commission said on November 29 2011. Despite the decline, the rate for Bulgaria is still above the EU average. Confidence in construction dropped by 2.1 points in November although it remain broadly unchanged in the EU. Bulgaria recorded the steepest fall in sentiment in the the retail trade sector, which reached nearly seven points. Overall, the economic confidence deteriorated in the EU, slipping to 92.8 in November from 93.8 in October. In the euro zone, the sentiment dipped to 93.7 from 94.8 the previous month. Confidence in industry in the EU weakened by 1.0 to -7.7, while consumer sentiment shrank by 0.5 points to -20.7. According to an industrial investment survey conducted in October and November 2011, managers in the euro zone expect to cut their investment volumes by two per cent in 2012 compared to 2011, the report said. Sentiment in services decreased by 2.3 points, while confidence in retail trade dropped by 1.4 points in the EU because of managers' negative assessments of the current business situation and business expectations. Confidence in financial services increased by 4.9 pints in the EU in November thanks to managers' improved assessment of recent developments in business situation and demand, the commission said.

INVESTMENTS:

 

Renewable energy developers face tough times in Bulgaria

Three years earlier, in 2008, Bulgaria seemed to be the most attractive market for renewable energy on the Balkan peninsula. The country had just joined the European Union, with the currency board in place, currency risk was minimal and it had an established feed-in tariff support scheme coupled with fairly good natural resources for the development of all kinds of renewable energy. It all looked so promising. At the end of 2011, that same market looks in a totally different way for investors. Thanks to the very good conditions mentioned above people from a wide array of backgrounds decided to invest in renewable energy in Bulgaria, creating a development explosion comparable to earlier centuries’ gold rushes and recent real estate booms. The result came unpleasant for both the government and the developers because there were too many projects, more than the regulatory authorities or the grid could handle and in the case of wind energy -- concentrated on one grid-lacking area -- northeastern Bulgaria.

Different figures came from different authorities, some estimating planned projects at 14,000 MW, well above the 12,000 MW current power production capacity of the country. Industry associations argued that most of these projects were nothing more than a piece of paper and will never move on from the drawing table but no one could say which one is real and which one is not. Thus, in May 2011, a new law for energy from renewable sources came into force, introducing filters to sift out projects and leave speculators out. Annual capacity allowances were introduced, meaning that the law puts a cap on the capacity of new renewable energy plants that can connect to the grid each year. Now developers first have to apply for available grid capacity and pay BGN 5,000 (USD 3,400/EUR 2,600) per megawatt planned to reserve that capacity. Then, when signing preliminary grid-connection contract, developers again have to pay BGN 50,000 per MW for plants above 5 MW or BGN 25,000 per MW for plants below 5 MW. The money should be used by the grid operator for making the grid connection of the plant.

So far, so good. Grid must be developed to take on the renewables and most investors were willing to pay that price. The problem came with the way tariff is fixed at completion of construction. The new law says that the energy market regulator reviews feed-in tariffs for renewable energy once a year. There is no predictable degression rate set and no limit to the downward revision of the premium component of the tariff. That, according to the Bulgarian Wind Energy Association, makes larger wind energy projects unbankable. The reason is that the construction of a regular wind energy project typically takes 18 to 24 months during which time the tariff can be lowered twice. That makes banks highly reluctant to lend money to wind energy projects before completion as there is no way to predict what the future feed-in tariffs will be and hence whether the projects will be able to repay the loan. Things look brighter for solar power, even though PV feed-in tariffs were reduced by 30% in June this year. Most PV developers say that thanks to the falling PV modules prices, solar roof projects which can be built within one tariff window still bring fairly good return on investment.

So, good or bad, rules for new projects look more or less set. The real problem the government has not yet solved is how to deal with existing projects which have already concluded preliminary or final grid-connection contracts. Under the new law all these projects that wanted to "stay in the game" had to pay BGN 50,000 per MW for plants above 5 MW or BGN 25,000 per MW for plants below 5 MW, and all projects with preliminary grid-connection contracts have to request a final contract within a year. It was expected that only a few projects will actually post guarantees and problem will be solved. However, that is not what happened in reality. Even though by law the number of these projects had to be known by September, the energy regulator has not announced any official figures yet. Valentin Nikolov, deputy chairman of the Parliamentary Committee on Economic Policy, Energy and Tourism, in November told local media that the total number of projects with preliminary or final grid-connection contracts stood at 4,700 MW and that the government has already started to work on amendments to the renewable energy law, just six months after it was passed. Moreover, the draft changes leaked to press mean more trouble for renewable energy developers and investors.

One of the proposed amendments suggests that fixing of the tariff will be further moved from completion of construction at present to commissioning into operation and the time of grid connection of the projects will be determined by the plans for development of the transmission and distribution electricity grids. That may mean years of waiting for some of the projects. The draft law is expected to enter parliament for discussion sometime next month. At the same time, last week, prime minister Boiko Borisov publicly called renewable energy developers "bad investors", as they added value to the country's economy and produced expensive electricity which weighed on everyone's electricity bills. The constant shifts in policy and clumsy attempts of the government to tame the renewables boom -- in 2009 the ecology minister started talking about moratorium on project development until national plan for renewables development is being prepared and in 2010 the transmission operator NEK stated it would not connect projects until the new law on renewable energy is in place, now new amendments to the law -- have so far accomplished one thing. Investors' confidence in the Bulgarian market is dropping fast and some are preparing to leave the country, including the distribution grid operator in northeastern Bulgaria - a division of German utility E.on AG (ETR:EOAN).

Renewable energy in Bulgaria does seem to be facing tough times as it fights the credit crunch and the rising political risk in the market. On the "bright" side, long-term, renewable energy does have good prospects in Bulgaria. The resources are here to stay, the EU 20/20/20 targets and beyond also, the aging coal-fired power plants also need to be replaced with new capacities. Just the local political and regulatory framework need to change a bit so as to allow a more stable and sustainable development of the sector.

US Company of "Fortune's" Top 100 to Invest in Bulgaria

A US information technology company, ranked among the Top 100 by the FOTRUNE Magazine, will invest in Bulgaria before the end of this year, InvestBulgaria Agency Executive Director Borislav Stefanov said in a BTA interview. "If we look at the jobs that this company creates, the money it pays for salaries and rents, we are definitely above the Class A investment thresholds," Stefanov pointed out. In 2011 the Agency has received 20-30 queries for information on projects of this type. It is a matter of time before these projects are implemented in Bulgaria. Unfortunately, the effective Investment Promotion Act limits the definition of investments to tangible fixed assets, which makes it very difficult to certify investors in high tech, including shared services such as outsourcing of business processes. Even the largest companies in Bulgaria do not invest in buildings and equipment. They lease a building, may pay millions in rents and salaries, but, under the effective law, this does not qualify as investment. The InvestBulgaria Executive Director said that the difference between the loans contracted and repaid by subsidiaries operating in Bulgaria to parent companies abroad is starting to narrow at the end of the year. Foreign investors most often complain of poor coordination between, say, the tax administration and the municipal authorities. In most cases, when communication is with a single institution, it is at least possible, be it slow or fast. When several ministries and local government are involved, however, things tend to get tricky, Stefanov said, He expects investments in 2011 to be less than in 2010. one reason is that finance and trade have been stagnant for a second year now. Approximately 1,000 - 1,500 million euro are invested annually in industry, telecommunications and energy, and this will most probably be the case this year, too, he added. Stefanov listed several of his Agency's proposals for amendments to the Investment Promotion Act and the Regulations for its application, intended to attract foreign investors. Investors in high technologies regard the incentives provided by the State for job creation as a major advantage in choosing an investment destination. Under the effective law, companies do not get such incentives, whereas some neighbouring countries offer an investor 2,000-5,000 euro per job created. "We cannot afford that much, but we could at least refund to such employers a specified percentage of the expenditures on social insurance contributions for a specified period, say, during the first two or three years," Stefanov said. The Ministry of Economy, Energy and Tourism is expected to decide whether to propose to the Government to draft amendments to the Investment Promotion Act along these lines.

 

 

COMPANIES AND INDUSTRIES:

 

Bulgaria gives final approval to Dundee Precious Metals' gold mining project near Krumovgrad

Bulgaria has approved a proposal by the Supreme Expert Council to allow Balkan Mineral and Mining, a unit of Canada-based Dundee Precious Metals, to start its gold mining project near the southeastern town of Krumovgrad, Environment Minister Nona Karadzhova said as quoted by Bulgarian news agency BTA on November 25 2011. In October 2011, the Minister returned for review for the third time the environmental impact assessment (EIA) of the project, which envisions mining and processing of ores at the Ada Tepe field. According to Karadzhova, the eco assessment complies with all requirements preventing risks to water supply zones, health, environment and biodiversity. Furthermore, the project will also boost employment in one of the regions with the highest jobless rates in the country, she said. Dundee Precious Metals, which started exploration works at a gold field near Chelopech in 2004, plans to invest between $120 million and $130 million in ore mining and processing at the Ada Tepe deposit. The project could be launched in 2013 at the earliest, but it is more likely to start in about four years. The Canadian company has so far invested about $200 million in its Bulgarian projects.

 

Bulgaria delays tender for fourth mobile carrier

Bulgaria's telecom regulator CRC has cancelled a procedure to grant a licence for operating a mobile network using a 2 Ghz frequency. The watchdog had agreed to award a permit for two vacant frequencies in the 15 MHz range which in theory could be used to build a fourth mobile operator under the UMTS technology. The delay was prompted by the lack of candidates for the tender, which was announced on September 27. Prospective bidders were expected to submit applications until October 14 and pay a participation deposit of two million leva until November 14. The tender, which could have facilitated the launch of a fourth mobile operator in the country, followed a request in early July by local company 4G COM for a 3G licence. The tender itself was scheduled for December 7. As many as six companies had bought tender documents worth 4000 euro, namely the country's three mobile operators Mobiltel, Globul and Vivatel, Internet and cable TV operator Blizoo, 4G COM and Traxcom. The companies eventually decided not to take part in the tender as they were dissatisfied with the proposed conditions. A UMTS licence in the 2 GHz frequency range provides for building a 3G mobile network chiefly for using broadband internet and also for voice data.

 

Bulgaria's Budget Makes BGN 300 M from Brewing Industry

Bulgaria's brewing industry brings the state budget some BGN 297 M annually, according to the Chair of the Bulgarian Brewers' Union and General Manager of Heineken Zagorka Ruud van den Eijnden. The total added value of the Bulgarian beer production and distribution is estimated at BGN 219 M, Ruud van den Eijnden said at the Fall Beer Fair of the Brewers Union in Bulgaria. He further revealed that Bulgarian breweries employ directly 3 000 people, and the respective distribution firms – 8 000. The 2011 Fall Beer Fair was part of a triple celebration of the Bulgarian Brewers' Union – 130 years of brewing industry in Bulgaria; 20 years of the Brewers' Union in Bulgaria, and 55 years of brewing science research in Bulgaria.

 

ICT Sector Generates 10% of Bulgaria’s GDP - Association

The software sector in Bulgaria generated a total of BGN 1 B (approximately EUR 512 M) last year, according to the Bulgarian Association of Software Companies (BASSCOM). "Roughly speaking, we reckon that the whole ICT sector generates between 9.5% and 10% of the GDP," a BASSCOM representative, Georgi Brashnarov, has told the Bulgarian Capital Daily. However, if no concrete measures are taken for improving the education of high-quality employees for the software sector, it would miss the opportunity to register a 10-fold growth over the next decade, another BASSCOM representative, Yavor Dzhenev, has stated for the newspaper. According to Brashnarov, incentives should be created for Bulgarians studying abroad to return to their home country and be employed in its software sector. BASSCOM believes that Bulgaria is no longer attractive for its low salaries in the sector, since they have increased to reach a level observed in developed economies. Over the past few years, the software sector in Bulgaria has been growing despite the crisis, with new employees being hired and salaries increasing, the association points out.

 

Joint venture AES Geo Energy to build second wind farm at Kavarna

Geo Power helped purchase the land plots for the future substations and is sharing in the construction of a new power line. The international joint venture AES Geo Energy is planning to build a second wind farm near the Bulgarian seaside town of Kavarna, according to Thomas Funke, chief executive of the Bulgarian-German partner in the venture. He spoke at a renewable energy seminar for journalists hosted by the German Embassy in Sofia on Thursday. A year and a half ago, AES Geo Energy, formed by the US energy company AES and the Bulgarian-German company Geo Power, built the St Nicholas Wind Warm at Kavarna, the largest facility of its kind in Southeastern Europe with an output capacity of 156 megawatts, Funke recalled. The farm is operating at 80 per cent of its capacity due to problems with the grid connection. When the wind farm went into operation, Bulgaria National Electric Company was not ready to receive the electricity generated by it. This can be handled by building two substations in the area, Funke said. In order to step up the project, Geo Power helped purchase the land plots for the future substations and is sharing in the construction of a new power line. German Ambassador to Bulgaria Matthias Hoepfner told the seminar that there is broad public consensus in Germany that nuclear power is only a transitional phase for the country's energy industry, while renewable sources are its future.

 

 

 

Reported by:

Georgi Iliev

KOTRA Sofia

Korea Trade-Investment Promotion Agency

Commercial Section of the Embassy of the Republic of Korea