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bulgaria

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  BULGARIA

REPUBLICAN REFERENCE

Area(sq.k.m)
110,600

Population
7,707,495

Capital
Sofia

Currency
Lev

President
Petar Stoyanov

Private sector
% of GDP

40%

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Background:
Bulgaria earned its independence from the Ottoman Empire in 1878, but having fought on the losing side in both World Wars, it fell within the Soviet sphere of influence and became a People's Republic in 1946. Communist domination ended in 1990, when Bulgaria held its first multi-party election since World War II and began the contentious process of moving toward political democracy and a market economy while combating inflation, unemployment, corruption, and crime. Today, reforms and democratisation keep Bulgaria on a path toward eventual integration into NATO and the EU - with which it began accession negotiations in 2000.

Update No: 059

The process of accession of Bulgaria to the EU is now deemed "irreversible," says the European Union Enlargement Commissioner, Guenter Verheugen. He was speaking to Bulgarian President Georgi Purvanov in Brussels at the end of February.
There are issues needing to be tackled, particularly further privatisation and a campaign against crime and corruption.
Real power in Bulgaria, however rests with the premier, not the president. Hence doubtless why their former monarch, Simeon Saxe-Coburg-Gotha, who had last ruled them as an infant in 1943.-46, preferred the premiership to the presidency last year, when he successfully contested the previous government in parliamentary elections. He is descended from Queen Victoria and is certainly of the royal line.
The former government was doing far too good a job to be popular, carrying out necessary, but painful reforms. There is enormous distress over the 20% rate of unemployment, as the old jobs in outdated industry are destroyed.
The new government has taken its time to establish its credentials with the international community, but is now being given BB- rating by international agencies.
The economy is continuing to grow, GDP rising by 4% this year, after 4.4% in 2001.The current account deficit is continuing to grow from 5.9% in 2001 to 6.5% in 2002, but this is typical of a transition economy.
Bulgaria is on course to become a full-fledged European nation and a member of NATO. But it will take time for it to become prosperous and free of the detritus of communism, crime and corruption.

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ENERGY

Bulgarian government adopts energy strategy


A concept for an energy strategy approved by the cabinet on 21st February envisages building an energy market in Bulgaria in the next three or four years and preserving the potential for exports of energy products through utilization and improved efficiency of the energy facilities, the Council of Ministers Information and Public Relations Directorate said, BTA web site has reported. 
The strategy will include curtailing the role of the state as an administrator, and creating transparent conditions for business in the energy sector and for the protection of the public interest. Also, energy prices should reflect the implicit costs for the entire life span of the enterprises. 
The concept underlines the need to take active legal and pricing moves to encourage investment in energy efficiency as an alternative to excessive construction of production facilities. 
The concept describes power engineering as an environment-friendly quality service to the population. 
The document notes that Bulgaria imports about 70 per cent of its energy resources, which account for about 27 per cent of total imports. Energy products - mainly oil and oil products - account for 14 per cent of exports. Energy products made by enterprises subordinated to the Ministry of Energy and Energy Resources account for a small proportion of them. This goes to show that Bulgaria is extremely energy dependent and has an extremely high energy intensity, exceeding that of all countries of Central and Eastern Europe and all EU applicant countries, the concept says. This energy intensity of the GDP has increased in the past 12 years, in contrast to the downward trend in the other countries. This affects both the efficiency of the energy sector and the competitiveness of the Bulgarian economy.

41m Euro loan for Bulgarian power sector

The European Bank for Reconstruction and Development (EBRD) is providing a €41m loan to help upgrade and expand the country's power transmission system, as part of the restructuring of the Bulgarian power sector. The investment comes at a crucial time for Bulgaria, which has split its power sector into three parts: generation and distribution - both expected to be privatised - and transmission which is to remain under the state-owned National Electricity Company (NEK). The European Investment Bank is expected to provide an additional €60m loan for the project later this year.
The loan is one of the EBRD'S largest yet in Bulgaria. The power sector is presented as a priority by the EBRD in its new Bulgarian country strategy, published on its website on 17th January at www.ebrd.com. The Bank said it is willing to play a significant role in the financing of independent power generation, as well as exploring ways to help the Bulgarian Government privatise the electricity distribution sector.
The NEK project aims to strengthen Bulgaria's electricity transmission network, regional load dispatch centres and communication system and to provide institutional support for the establishment of a national transmission and dispatch company. This work, in compliance with national and EU standards, should help reduce both emissions and transmission losses. The project will also help Bulgaria prepare for the integration of regional power grids, opening the power sector to cross-border competition.
Upgrading infrastructure is one of three priorities in the EBRD's strategy for Bulgaria, along with investing in the private sector - especially small and medium-sized enterprises (SMEs) - and strengthening the financial and banking sectors. These areas are key to boosting economic growth and providing jobs. The EBRD has a pipeline of potential projects worth over €4500m. But the speed and size of investments will depend largely on the investment climate in Bulgaria, which continues to daunt some investors.
Infrastructure requires substantial investment, particularly as Bulgaria strives to meet conditions for accession to the European Union. Investment in Bulgaria as a share of GDP is estimated at 18 per cent, compared with 30 per cent in some other countries in central and eastern Europe. In addition to the energy sector, the EBRD paper places particular priority on municipal finance and the environment. Where possible, the EBRD will invest without sovereign guarantees. Last year it provided the City of Sofia with Bulgaria's first non-sovereign public-sector loan to construct a water treatment plant. A similar loan to improve public transport in Sofia is planned.
Foreign direct investment, an important source of long-term finance, is strong relative to neighbouring countries, but compares poorly with the average for central and eastern Europe and the Baltic States. FDI will be boosted by the privatisation of the power sector as well as the expected privatisation this year, of the Bulgarian Telecommunications Company, the incumbent fixed line operator, to which the EBRD has offered its support. And last year the Bank provided its largest corporate investment to pharmaceutical maker Balkanpharma, which had been privatised to an Icelandic strategic investor. But in general, with large-scale privatisation almost complete, Bulgaria will need to find new ways to encourage FDI, including green-field investment.
The EBRD intends to assume a key role in developing the private sector and encouraging FDI in parallel with the government's efforts to improve the investment climate. The strategy notes than an unclear interpretation of existing laws and a weak judiciary system are among the obstacles that continue to face investors in Bulgaria. The newly elected government is encouraged to capitalise on the relative economic and political stability to continue pushing ahead with reform.
Improvements to the investment climate will complement the EBRD's ongoing efforts to support SMEs, an important source of jobs in Bulgaria. There has been substantial progress in the banking sector but lending to SMEs, particularly very small businesses, is weak. Last year, the EBRD extended a second credit line to the Union Bank to support SMEs and supported the creation of a bank specialising in financing micro businesses. Going foward, the EBRD will put increasing emphasis on the insurance and pension sectors, as well as leasing, consumer and mortgage finance. For more information contact: Ben Atkins, EBRD, tel: +44 207 338 7236, e-mail: atkinsb@ebrd.com.

Bulgaria and Russia reach agreement on gas supply, nuclear fuel

The brief working visit to Moscow by the Bulgarian delegation led by Energy Minister Milko Kovachev has ended. Chavdar Stefanov of Bulgarian Radio reported from Moscow: 
Two specific agreements have been reached. The issue of the Russian debt accumulated under the Yamburg agreement has been resolved in an operational manner; a timetable has been adopted on the supply to Bulgaria of 312m cubic metres of gas free of charge. The supply will begin in March and will end in November. 
The contracts between the Kozloduy nuclear power plant and Yaotvel for the supply of fresh nuclear fuel in the next few years at the current price have been initialled. 
At the Ministry of Atomic Energy, the delegation was briefed on the Russian energy strategy and the programme for extending the life of the existing nuclear power plants, more specifically, the Novovoronezh plant. 
At the Ministry of Energy, interest was shown in the Bulgarian nuclear strategy, the privatisation and the Burgas-Alexandroupolis oil pipeline construction. Minister Kovachev said that after the completion of the technical-economic study, serious steps should be made in order to establish the economic efficiency of the project and determine what sides should be involved in its implementation. 
In connection with a report published in a Russian newspaper regarding some Bulgarian debt to Gazprom, a source in the delegation pointed out that this does not affect Bulgargaz, but only Overgaz Inc, a company registered in Liechtenstein.

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ENVIRONMENT

Varna-Shoumen water project draws in foreign interest

Suez Lyonnaise des Eaux of France, in a partnership with a German company, is interested in getting a concession for the water companies in the Black Sea city of Varna and Shoumen, Northeastern Bulgaria, New Europe has reported.
"If the legislation is clear and stable, the company will make the investment," a member of the Board of Directors of the French company and co-Chairman of the Business Advisory Council (BAC) with the stability pact, Yves-Thibault de Silguy told reporters, cited by BTA News Agency. Following the session of a two-day working meeting of BAC, De Silguy stated that they re contemplating participation in a project for a concession for the Plovdiv, southern Bulgaria-based water company. De Silguy believes that the best way of introducing the private sector into the water industry in Bulgaria is through concessions or buy-operate-transfer (BOT) contracts. He quoted figures according to which the water sector in Southeast Europe requires investment amounting to some 2.5bn Euros.
The other BAC co-chairman, Manfred Nussbaumer, expressed hope that the construction of Danube Bridge 2 between Vidin and Calafat will start next year. "The project is funded by international donors and it is not easy to come by such resources," he characteristically commented. De Silguy told the press that the aim of the two-day meeting in Sofia was not to review government investment projects and added that experts have already mapped out measures to make the Bulgarian projects lucrative to the investors' eye.

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FINANCIAL NEWS

Bulgarian exports to Russia predicted to top US$200m 

An agreement that will ease the visa regulations between Bulgaria and Russia will be signed in Sofia in late February or early March at the latest, the Russian ambassador, Vladimir Titov, told the press on 15th February, BTA web site has reported. 
The Russian embassy organised a working meeting with Economy Minister Nikolay Vasilev and his deputy Lyubka Kachakova in preparation for the 21st-22nd February session of the Bulgarian-Russian Intergovernmental Commission for Economic Scientific and Technical Cooperation. 
Bulgarian export to Russia this year is likely to top US$200m, according to Vasilev. The mixed committee will discuss at its session measures to facilitate trade and overcome the non-tariff barriers. 
In 2000 Bulgarian exports to Russia totalled US$117m and then rose by 25 per cent in 2001, the economy minister recalled. 
The official delegation that is visiting Sofia for the commission session will being along a group of businessmen to whom Nikolay Vasilev will present the economic situation in the country and the intentions of the new government. "The idea is to draw as many Russian businessmen as possible, as well as more serious Russian investment, and to increase the commercial exchange in both directions," Vasilev said.

Foreign debt in 2001 drops, country risk "upgraded"

Bulgaria's external public debt stood at US$8,512m in December 2001, down from US$8,970m a year earlier, Deputy Finance Minister Krasimir Katev told BTA News Agency. It was recomputed in dollars on the last working day of the year at the national bank's exchange rate, he said. 
Official figures of the Finance Ministry show a decrease in the external public debt by about US$450m in 2001. 
The domestic public debt is almost unchanged, with a slight rise. If the Eurobonds had not been issued, the external public debt would have dropped by about US$600m, Katev said. Both the external and the domestic public debt decreased substantially from 2000, Katev said. Lending grew, including lending by Bulgarian financial institutions to private and state-owned economic agents on Bulgarian territory, he said. 
Loans issued by the Bulgarian banking system to the real economy increased from about 2,600m leva to some 3,400 or 3,500m leva. At the same time the indebtedness of private companies due to external loans increased, which implies that the private sector is working, Katev said. 
The Eurobond issue was a factor in the upgrading of Bulgaria's credit rating by all international rating agencies that assess Bulgaria. This also led to a reassessment of the risk level, which was reduced by about 2 per cent in the past three months, compared to the pre-issue period. 
The debt is expected to remain almost unchanged in 2002. On the one hand, some US$500m or US$550m are due in principal repayments, but on the other hand, new external loans are expected, including about US$175m from the IMF, about US$150m from the World Bank and state-guaranteed loans. 
The agreement with the IMF, which is subject to approval by the IMF Board of Directors by the end of February, sets the limit on new bonds at US$300m with a maturity of up to five years, and the limit on state guarantees of external debt (without concessions) at US$600m plus.
This includes new guarantees of US$430m in 2002 and US$200m approved in 2000 but not ratified by parliament in 2001. 
No new Eurobond issue is planned for this year, unless the external situation worsens substantially and the trade deficit overshoots the target. This will become clear around mid-year.

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FOREIGN INVESTMENT

Canon-Bulgaria opens

Canon officially opened its daughter company in Bulgarian - Canon Bulgaria. The company was registered in June 2001 and is owned by CEE Canon East Europe Vertriebsgesellschaft m.b. H., based in Vienna, Austria. Canon-Bulgaria will distribute Canon photo and video products in Bulgaria, New Europe has reported.
Celebrating its opening that Bulgarian branch organised a photo competition "Photo of the year - Bulgaria 2002" with a 3,000 lev award for the best "Art photography" and "Reporter's photography." "Canon believes that the better future of the community depends on all of us," Canon Bulgaria Manager, Atanas Nastradinov, commented on the company's initiative. Nastradinov added that Canon Bulgaria will pay special attention to the development of new business opportunities and the improvement of the brand's position in the corporate and state sectors. "We're convinced that Canon Bulgaria will help increase both profits and the scope of the offered services," the Canon East Europe Photo and Video manager, said.

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FOREIGN LOANS

EBRD and IFC to attempt production restart at Bulgaria's Celhart

The European Bank for Reconstruction and Development and the International Finance Corporation are leading efforts to restructure Bulgarian paper and sack maker Celhart, where production has been halted since last year. To facilitate such restructuring, the EBRD and IFC as major secured creditors of Celhart have appointed a manager of the company in line with Bulgarian legislation. The two international financial institutions are in advanced discussions with Celhart's management and its parent company, Isiklar Ambalaj.
The main objective of the EBRD and IFC is to restart production at the mill as soon as possible. To that end, IFC and the EBRD have initiated a search for an experienced industry operator for the mill. Both intuitions are prepared to financially support the restart of operations of the mill.
The appropriate authorities in Sofia and Plovdiv, where Celhart is based, are being kept informed of the status of the discussions and the steps being taken and have expressed their support. The EBRD and IFC are being assisted by local advisors Elana and Lega InterConsult, one of the leading Bulgarian financial and legal consultants.
Celhart was privatised by Isiklar Holding, a leading Turkish industrial group with a dominant position in brown paper (kraft) sack manufacturing in Turkey. In November 1998, the EBRD and IFC each agreed to provide Celhart a US$13.9m loan and US$1.5m in the form of new equity capital. The purpose of the investments was to rehabilitate and modernise Celhart's production facilities to meet growing demand from kraft sacks and improve its environmental controls.
For further information contact Jeff Hiday, EBRD, tel: +44 207 338 6997, e-mail: HidayJ@ebrd.com or Afshin Molavi, IFC, tel: +1 202 458 5674, e-mail: amolavi@ifc.org.

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RETAIL INDUSTRY

Germanos keeps on investing

Germanos, Greek telecoms equipment retailer and distributor of Bulgaria's second GSM operator Globul, is to invest US$15m in 2002-2003 for funding the opening of another 400 stores in European countries, including Bulgaria, ANA News Agency has reported. 
The company's expansion project in Bulgaria will include 60 new stores in addition to the 28 already operating in the country. The expansion over the two-year period will include boosting operations on some markets and entering new ones. The company projects 2001 profit at 41.4m Euros as against 39.6m for the previous year. Germanos consolidated revenues for the first time will include revenues from its branches from Bulgaria, Romania and Poland and total 499.1m Euros.

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TELECOMMUNICATIONS

Turk Telecom interested in sale of Bulgarian Telecom

Turk Telecom is interested in the privatisation of the Bulgarian Telecommunications Company (BTC), Transport and Telecommunications Minister Plamen Petrov told the final plenary session of the Bulgarian-Turkish transport and telecommunications commission BTA web site has reported. 
Delegations headed by Petrov and his Turkish counterpart Oktai Vural had talks in Sofia on 28th February and 1st March, on promoting relations in transport and telecommunications. The 19th session of the commission ended with the signing of an agreement on cooperation in posts and telecommunications, and a programme for cooperation and holding consultations between Bulgaria's commission of communications regulation and the Turkish telecommunications regulatory body. 
The Turkish side has accepted a Bulgarian request for the issue of an extra 3,000 licences for backhaul cargo and 500 licences for transportation of cargoes to and from a third country. The two delegations agreed to revise the size of road tolls in April and to exchange on a monthly basis information on the pace of the projects for the electrification and modernisation of the Plovdiv-Svilengrad railway line and on the tunnel under Bosphorus. 
Bulgaria and Turkey agreed to hold urgent talks on signing a new agreement on merchant shipping which will solve the problem of the recognition of seamen's passports.

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TRANSPORT

Cabinet asks parliament to ratify second Danube bridge loan agreement

The Council of Ministers on 14th February decided to move for parliamentary ratification of a 50m euro loan agreement signed in December 2000 between Bulgaria and the European Investment Bank (EIB). The amount is part of the funds necessary for the construction of a new bridge to span the Bulgarian-Romanian section of the Danube River at Vidin-Calafat, BTA web site, has reported. 
The project cost is projected at 180m euros. Sofia has assumed the task of raising the funds for the bridge and the adjacent transport infrastructure on Bulgarian territory. Romania is expected to raise 28m euros to build the infrastructure on its side. 
The EIB has promised to lend 70m euros for the Bulgarian part of the project. The 50m euro agreement stipulates 4 per cent annual interest; the loan will be repayable within 25 years with an 8-year grace period. 
The Agence Francaise de Development has promised to grant 500,000 euros for a feasibility study and consultancy assistance. Another 4,998,000 euros is expected to come from the ISPA [Investment for Structural Policies for Pre-Accession] Programme of the European Union, already approved under the Stability Pact for Southeastern Europe. EU PHARE [EU economic reconstruction aid for Eastern Europe programme] will provide 200,000 euros in grant aid. The German Credit Institution for Reconstruction is expected to release 470,000 euros. 
Bulgaria's national budget will be the source of 3.9m euros in funding for project design, supervision and management, and of 20m euros for construction work.

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