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Update No: 062 - (20/06/02)

The once and future king
The Bulgars have taken a gamble, voting in as a premier their ex-king, Simeon II, whose political party was only months old when it won elections last year. He is a businessman with the instincts of a technocrat, surrounding himself with a team of internationally trained financiers and experts. But maybe he still nurtures monarchical ambitions, although he so far has disavowed any such thing. 

Rapprochement with Russia
Being an ex-king is a big plus in diplomacy, one's interlocutor having a natural curiosity as to how he would conduct himself. He visited Moscow on a four-day trip in June. He described his meeting with Putin and Patriarch Alexy II as "perfect" and "very interesting." The Russians are not viewed with such outright hostility in Bulgaria as in other Central European countries liberated by them from Nazism in 1944-45. For the Bulgars remember the very genuine liberation of their country from Turkish rule in 1878 in which Russia was the main instigator.
Bulgaria is likely to remain a major transit country for exports of Russian gas to Europe. Russian interest is likely to be very strong in the Bulgarian Energy Ministry's decision to sell off seven power distribution companies by July 2003. An international consultant was to be chosen in June to prepare a strategy for the sale. The sale of Bulgartabac, the tobacco firm is also of especial interest to the Russians, already with claims upon it. 

EU accession looms
The accession of Bulgaria to the EU is going ahead relatively smoothly. It is likely to be in the first wave, due to be included in 2004-05. Bulgaria closed three more chapters of l'acquis communitaire in June, bringing to 20 the number of chapters it has closed, nine more than Romania.
The Netherlands are showing an exceptional concern to help Bulgaria's progress in accession talks, offering cooperation in justice, home affairs, agriculture, environmental protection and finances, among several issues. The foreign minister, Solomon Passy, signed a cooperation pact with his Dutch counterpart, Jaszias Van Aartsen, to that effect in June.
Deputy Premier and Economy Minister Vassilev pledged Bulgaria's full commitment to the EU and to its enlargement at the recent meeting of the business forum on "Entrepreneurship and Sustainable Development in Enlarged Europe." He said: "If Bulgaria is to succeed in the EU's competitive environment, we must invest more than others in education and high technologies, stimulate private entrepreneurs and make the young people stay in the country." The new government is fortunate in this respect for the legacy left it by its predecessors. 

Economy on the mend
The previous government took a number of unpopular measures that has left the economy in better shape, albeit with still high unemployment and low wages for those in work. 
One big plus for Bulgaria is a well-educated work force with higher standards of literacy and numeracy than is common in the EU. It should fare well in the new economy of computers and the internet. Indeed Bulgarian and Romanian computer buffs are at a premium in the European labour market.

Low international profile 
This has yet to translate into foreign direct investment (FDI), which is much more modest as yet than into Romania. FDI was a mere US$1150m in 2000 and US$164m in 2001, while projected at US$200m for 2002. There is great scope for improvement with figures of over one billion US dollars annually for neighbouring Hungary. Bulgaria still has an image problem, being associated with cheap Soviet-era holidays, fork-lift trucks and shoddy design.
But the Bulgarians are making strenuous efforts to change all this. GDP growth at 5.8% in 2000 and 4.5% in 2001 has been positive. Growth of GDP is expected to be 3.5% this year, not a poor performance given weak export demand from the EU.

Brighter prospects ahead
Bulgaria is a country that can only go up in living standards and international estimation. The king is committing himself to a 800-day deadline after last year's election to double living standards, a promise unlikely to be kept. But if things by then, in 2003, the 60th anniversary of his accession to the throne as a small boy in 1943, are appreciably on the mend he should win a re-endorsement in subsequent elections. 

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BANKING

Finance Ministry announces final Biochimbank bidders 

Finance Minister, Milen Velchev, opened the offer fromthe three bidders for Biochimbank, Bulgaria's fourth largest bank. The bidders are Bank Austria; a consortium of Bulgaria's Bebrosbank, owned by Hong Kong investment fund, iRegen, and British-based Charlemagne Capital fund; local Rosseximbank in consortium with Russia's MezhPrombank, submitted their offers recently, novinite.com reported.
Velchev said that all bidders had offered to pay either as high or a higher price than the minimum price, set by Bulgaria, of 95m Bulgarian levs. The Bank Consolidation company (BCC), the governmental body that manages the privatisation of state banks is expected to analyse the three bids and then choose a preferred buyer or buyers in early June.
Then 45 days for negotiations will ensue and afterwards a contract for the sale will be signed. In October 2001, BCC offered for sale all of its 99.6 per cent stake in Biochimbank.

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BONDS

Bulgaria swaps part of its Brady debt

After the successful Eurobond deal in November 2001, Bulgaria made another appearance on the international financial markets in March. This time, quite surprisingly, the finance ministry announced an invitation to the holders of approximately US$4.7bn of Bulgaria's outstanding Brady bonds to swap them for either US dollar or Euro-Denominated Global Bonds, or an amount in US dollars in cash, Internet Securities Bulgaria reported in AMC Bulgaria. As a result of the deal, a total of US$1.33bn Brady bonds had been retired in exchange for US$1.25bn new debt issuance leading to around U$80m debt reduction in nominal terms.
The debt swap is believed to bring several benefits. Debt stock has been decreased; the share of the Euro-denominated debt increased, reducing foreign exchange risk; the floating interest rates on the Brady bonds has been replaced with fixed coupon payments of 8.25% for the dollar and 7.5% for the Euro bonds, minimising the vulnerability to interest rate fluctuations. In addition, the government will avoid interest payments pegged to the GDP growth clause. Furthermore, the government released collateral totalling some US$190m that is expected to raise the fiscal reserves and improve liquidity. The short- and medium-term debt amortisation payments will be shifted to 2012 and 2015, and the total debt service would drop by some US$410m for the next five years and some US$670m over 2002-2012.

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ENERGY

Sofia power plant attracts key US Horizon interest

US company Horizon confirmed its interest in building substitute facilities on the sites of thermal power plants Sofia and Sofia-East. More than a year ago the company made a special presentation of its projects on the two thermal power plants, novinite.com reported recently.
A total of US$180m are to be invested in this project, 50% of that in the equipment and the remainder in the construction works. According to sources from the Energy Ministry the construction works may be assigned entirely to Bulgarian companies.
Other companies have also shown interest in Sofia thermal power plant, among them are Canada's Northland Power, Austria's BA Technologies, Greece's Prometheus Gas and International Water. The project is due to start in the near future, but before it can the distribution of the loans from the European Bank for Reconstruction and Development and the World Bank must be fixed, so that energy losses are reduced before the production facilities are put on sale.

Bulgarian president, Russian managers discuss development of gas market 

A delegation from the Russian companies, Gazprom and Gazexport, headed by the deputy chairman of the Gazprom Managing Board, Sergey Lukash, met on 6th June with the Bulgarian President Georgi Purvanov to discuss the development of the Bulgarian gas market, the national programme for gasification and the opportunities for increasing Russian gas transits through Bulgaria, BTA web site has reported. 
The two sides at the meeting agreed that gasification will help improve the energy efficiency of the Bulgarian economy and bring it up to the European standards, said the presidential press secretariat. 
Some US$520m in energy costs can be saved every year if Bulgaria implements the programme for gasification, the general manager of Bulgarian gas supplier Overgas, Sasho Donchev, told a news conference. The gasification may be completed in 10 years on an investment of US$400-420m, he said. 
The distribution of gas through the gas distribution companies will take another US$170m in annual investments at a relatively slow rate of return of 12 years, the Overgas manager also said. 
According to him, EBRD [European Bank for Reconstruction and Development], the International Finance Corporation and many other international financial institutions are interested in providing funding for such a programme. 
According to Gazexport Director General Oleg Sienko, Bulgaria is a transit country which is very important for the transportation of Russian gas across the Balkans. The existing gas transport capacities are used only 11 per cent. "There are conditions for the construction of a gas transport corridor to Italy and this project is viewed by the Bulgarian side and ourselves as a strategic matter," Sienko said. 
Sasho Donchev added that "the shortest way for Russian natural gas to southern Italy is through Bulgaria." 
"Everything about the Gazprom business is of interest for us," Sergey Lukash of Gazprom said when he was asked whether the gas giant is interested in the privatisation of the Bulgarian gas transport network. He said that decisions are to be made jointly with the governments of Russia and Bulgaria and that joint ventures will probably be set up to implement projects within the national gasification programme.

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FOREIGN ECONOMIC RELATIONS

Bulgaria's trade exchange with Greece grows 10 per cent in 2001 

Bulgarian-Greek trade stood at US$860m in 2001, up by 10 or 15 per cent on 2000. Bulgaria had a trade deficit of about US$40m. 
Trade is expected to grow further in 2002, BTA News Agency learned from Dimostenis Parnasos, first counsellor on trade and economic affairs at the Greek Embassy. 
Greek investment in Bulgaria has exceeded US$870m since 1991. In 2001, Greece was the biggest foreign investor with US$217m. Greek investment is concentrated mainly in banking, telecommunications, insurance, health care and industry. 
An agreement on the avoidance of double taxation between Bulgaria and Greece became effective in January. This is the subject of a seminar on 29th May, organized by the Greek Embassy's Trade and Economic Section. In addition to the agreement, the participants will discuss VAT [Value-Added tax] levied on foreign companies in Greece and Bulgaria, VAT payment and input VAT recovery procedures in Bulgaria. 
Parnasos said the agreement applied to companies as well as to individuals working in Bulgaria or Greece...

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FOREIGN LOANS

Japan inks underground network deal with Bulgaria

Parliament has ratified the agreement between Bulgaria and Japan for Sofia's underground railway for which Japan will extend a loan amounting to US$104.3m to Bulgaria that will be used for the expansion of the network that is being constructed in the capital, Sofia. 
The funds will finance the construction of the most difficult, in technical terms, section of the underground line, from the seventh to ninth stations. The Japanese Bank for International Cooperation will grant the loan against state guarantees. The loan has to be repaid in thirty years and has a ten year grace period, novinite.com recently reported.

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TELECOMMUNICATIONS

Mobikom gets green light to develop new systems

The government recently decided to change Bulgaria's first mobile phone operator, Mobikom, to build a digital mobile network, the Sofia Echo daily has reported.
Until now, Mobikom has had the right to develop and run an analogue mobile network in the 450 MHz frequency range. The new strategy would allow Mobikom to develop GSM or CDMA technologies, the Ministry of Transport and Communications said. The move is expected to boost competition in the sector, as Mobikom would be able to compete side by side with the other mobile operators, which have GSM, or digital, licences - MobilTel and GloBul. Mobikom's Executive Director, Tim Buisseret, told The Echo that the recent government decision actually followed a general policy approved by the Parliament earlier this year. "It is really paving the way for third generation mobile phone network systems," Buisseret said. Mobikom had no plans to develop a GSM-type mobile system but a CDMA one. Although GSM subscribers far outnumber NMT, the analogue system used by Mobikom, subscribers all over the world, according to Buisseret, the NMT system still has some advantages like superior coverage and is especially better for use in countries where there are distant rural areas.

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