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BULGARIA

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REPUBLICAN REFERENCE

Area(sq.k.m)
110,910

Population
7,537,929 

Capital
Sofia

Currency
Lev 

President 
Georgi Purvanov

Private sector
% of GDP
40%
 

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Update No: 089 - (30/09/04)

Opposition in front
Bulgaria's opposition Socialists are the front runners in terms of electoral support, some nine months before the next general elections. This is not surprising. Any incumbent government tends to do badly in the former communist world.
People are getting very fed up with the existing regime. It had a huge kudos three years ago in having former monarch Simeon II in charge. Bulgaria's government is currently administered by a coalition encompassing the National Movement Simeon II (NDSV) and the Turkish Movement for Rights and Freedoms (DPS). 
Actually public support for the Bulgarian government has slightly grown from 23 per cent to 25 per cent over the past three months, Bulgaria's MBMD polling agency said 19th September. Citing the results of a new nationwide survey conducted among 1,019 eligible voters between 10 September and 16 September, MBMD head Mira Yanova said 35 per cent of respondents viewed the incumbent cabinet's performance as better than that of the previous government. 

Confidence in ministers on the rise
Except for Foreign Minister Solomon Passy, confidence in all key ministers in the cabinet has grown. The recent hostage crisis in Iraq and the death sentences handed down to five Bulgarian medics by a Libyan court were cited as some of the reasons for the slump in Passy's support. 
For the first time since the ruling party National Movement Simeon II (NMS) came to power in July 2001, Finance Minister Milen Velchev ranks among the three most popular politicians in the country, with 40 per cent voter approval. Positive economic trends and Velchev's position on education reform are seen as the main reason. According to the poll, the most highly-regarded Bulgarian politician is Interior Ministry Chief Secretary Lieutenant General Boyko Borissov, with 65 per cent approval, followed by President Georgi Parvanov, with 61 per cent. 
Prime Minister Simeon Saxe-Coburg garnered 28 per cent public approval, and only 8.4 per cent of the respondents said they would support his election to a second term. 
The most trusted institutions are the presidency and Bulgarian National Television, with 57 per cent and 55 per cent approval respectively. They are followed by Bulgarian National Radio and the police, both enjoying the confidence of 51 per cent of those interviewed. The courts and parliament are among the least trusted institutions, with public support for both at a mere 14 per cent.

Polling mood as of today
If parliamentary elections were held today, four parties and a centre-right coalition would be able to surpass the 4 per cent threshold, the poll showed. 
The opposition Bulgarian Socialist Party would win the vote with 22.7 per cent. The ruling NMS would come out second with 9.2 per cent of the vote, and the right-wing Union of Democratic Forces would be third with 8.8 per cent. The NMS's junior coalition partner, the Movement for Rights and Freedoms, would take 6.7 per cent of the vote. Former Prime Minister Ivan Kostov's party, Democrats for Free Bulgaria, would have little chance of entering the next parliament, as only 2.1 per cent of the respondents said they would vote for it if elections were held today. 
Over 30 per cent of eligible voters said they would not go to the polls, however, while another nearly 13 per cent were undecided about participating.

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AVIATION

Bulgaria lays out sell-off plan for national airline

The Bulgarian government on August 19th approved a plan to privatise troubled national carrier Bulgaria Air; however there are a number of restrictions on potential buyers. Large air carriers are the preferred buyers at the privatisation of Bulgaria's national air carrier, Bulgaria Air, Transport and Communications Minister, Nikolay Vassilev, said after the council of ministers passed the privatisation strategy, New Europe reported.
The new strategy provides for the application of a more flexible privatisation procedure under which a publicly announced two-stage competition will be held. First stage tenders may include strategic investors that are Bulgarian corporate bodies registered under the Commercial Code, in which 100% of the capital is owned directly by companies with revenue from aviation services which exceeded €100m in the last three financial years. In case interest on the part of such investors is weak, financial investors will also be allowed to participate.
Requirements for the latter include their being Bulgarian corporate bodies registered under the Commercial Code in which more than 50% of the capital is owned directly by companies managing financial assets exceeding €200m and own shares in other companies with a total value of more than €200m. Financial investors will be allowed to participate providing three or less than three strategic investors have shown interest in the privatisation of Bulgaria Air.
All bids are to be submitted with a 5-year business plan outlining how prospective buyers would triple the airline's capital without altering the company's shareholder structure. Bulgaria Air is the successor of the former national carrier Balkan Airlines, which went bankrupt after being sold to the Israeli Zeevi Group in 1999 for just US$150,000. 
The application of a more flexible procedure related to the two-stage competition for selection of a buyer is expected to provide better opportunities to achieve better conditions that would guarantee the future of Bulgaria Air. The strategy will allow for the provision of the funds necessary for increasing the company's pool of aircraft, among other things. Last year the company reported a 1.5m levs profit after taxes compared to a loss of 871,000 levs in 2002.
Bulgaria Air currently operates with eight aeroplanes, while there were only two in 2002. The number of destinations has also increased from 12 to 18, including direct flights to London, Paris and Rome, as well as Tel Aviv, Zurich and Vienna, among others. The share of charter flights in the general structure of passenger flights has also increased from 16.64% in 2003 to 28.58% in 2004.

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CREDIT RATINGS

Fitch upgrades Bulgaria

International rating agency Fitch has upgraded the credit ratings of three Bulgarian banks, Sofia News Agency reported recently. 
Fitch raised the long-term foreign currency rating of the United Bulgarian Bank (UBB), Bulgarian Postbank and Bulbank from BB+ to BBB-, the rating that it assigned to the country just several days ago. According to the agency the banks' raised credit ratings will guarantee their stability as reliable financial institutions.
The improvement in sovereign creditworthiness is underpinned by Bulgaria's sound fiscal policy and advances on key structural reforms. Tight budgets, together with progress on privatisation (especially the sale of BTC) and solid economic growth, are delivering rapid reductions in the general government debt burden, while liability management such as the July 2004 US$679m Brady bond retirement is helping to smooth future debt redemption profiles.
General government debt ended 2003 at 46.2% gross domestic product (GDP) and Fitch forecasts an end-2004 level of 40.2% GDP. Tax cuts and possible political change after the 2005 elections could have some adverse impact on public finances, but Fitch judges these risks to be relatively small. A new two-year IMF programme, expected to be signed this year, will also help maintain policy discipline. The rating upgrade is further supported by progress on Bulgaria's EU accession. It has now provisionally closed all of its EU accession chapters and is making good progress on their application. Meaningful implementation of the chapters is critical, especially with the proposed introduction of so-called safeguard clauses in the Accession Treaty for the next wave of EU candidates.
The demands of EU accession, together with those of the currency board arrangement, should support continued policy discipline. EU membership should also strengthen foreign investment and promote continued economic convergence, helping to raise GDP per capita. As an EU member, Bulgaria will become eligible for sizeable structural funds and access to balance of payments support. Once in the EU, Bulgaria is likely to adopt the Euro as soon as possible, perhaps as early as 2009.
Developments on Bulgaria's external economic accounts have been less encouraging as the current account deficit has widened sharply in 2003 to 8.3% to GDP, and is unlikely to be reversed substantially during 2004-2006. For 2004 Fitch forecasts a current account deficit of 8.2% GDP. Strong credit growth has been driving the current account deficit, and this is expected to continue despite central bank measures to curb its expansion.
While consumption growth has contributed to the current account deficit, the deterioration is largely due to strong investment growth. The risks from such a large external imbalance are mitigated by sound fiscal policies, a strengthened banking system and substantial non-debt creating inflows of foreign direct investment which cover approximately 70% of the external deficit. However, Fitch warns that the size of the current account deficit highlights the importance of maintaining fiscal discipline and further structural reform.
Gross external debt has increased in nominal terms, but this is sustained by strong GDP growth and robust export earnings. Gross external debt is forecast to moderate to around 57% GDP by the end of 2004, a marked improvement on 2003 levels, while net external debt to current account receipts is around 40%, in line with the median level for BBB category rated sovereigns.

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ENERGY

Bulgaria gas field helps lift Melrose

The start of gas production at a Bulgarian offshore field in June boosted revenues at Melrose Resources and will enable the small oil and gas company to finance further exploration without raising more capital or increasing debt, the Financial Times reported on September 2nd.
Melrose began pumping gas from the Galata field in the Black Sea on June 5th, pushing group production from just above 1,100 barrels of oil equivalent a day at the start of the year to its current level of 13,000 barrels.
David Curry, chief executive, said getting Galata to production had been a step towards "consolidation" for Melrose. More drilling in Bulgaria plus further exploration in Egypt, where the group also holds licences, could now be mainly funded with revenues from gas sales.
"At the moment we see ourselves as self-funding," he said, adding that, thanks to the revenues from Bulgaria, Melrose would start paying a dividend next year with the first pay-out scheduled for May.
Melrose is also looking at adding a fourth geographical area to its existing interests in Bulgaria, Egypt and the US. "We are looking at opportunities in the Mediterranean in particular," Mr Curry said.
Melrose has reserves of 40m barrels of oil, which are spread almost evenly across its three interests.

New licences expected for transmission and supply of low-cost electricity

Private-owned companies will sell cheaper electricity after being entered as electricity traders. So far, four or five companies have applied for licences, the head of the Energy Regulatory Commission (ERC), Konstantin Shushulov, said on August 14th. They are expected to buy power from the electricity transmission companies and offer it at lower prices to consumers. Under the Energy Act, the transmission and selling of electricity are separate activities. The ERC has approved and is expected to hand over the new licences for transmission and supply of electricity to eight companies namely, Stolichno (Sofia city), Greater Sofia, Plovdiv, Varna, Pleven, Gorna Oriahovitsa, Stara Zagora and Golden Sands, New Europe reported.

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FOREIGN ECONOMIC COOPERATION

Macedonian president visits Bulgaria

Macedonian President, Branko Crvenkovski, paid an official visit at the invitation of Bulgarian President, Georgi Purvanov, on August 30th. President Crvenkovski was greeted with an official ceremony and military honours at Sofia's Aleksandr Nevskiy Square, Khorizont Radio reported.
Branko Crvenkovski's first official visit to Bulgaria after his election as president began with a one-to-one talk with President Purvanov. The two presidents reviewed bilateral relations and discussed the specific forms of Bulgarian aid for Macedonia's candidacy for membership in the EU and NATO. A memorandum on cooperation in the process of European and Euro-Atlantic integration between the Bulgarian and Macedonian governments was signed.

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FOREIGN INVESTMENTS

Foreign investments in first half of 2004 increase year-on-year

January-June foreign direct investment (FDI) in Bulgaria equalled 978.6m euros (5 per cent of GDP), which compares to 651.4m euros (3.7 per cent of GDP) during the like period of 2003, according to estimates released by the central bank on August 30th. In the period under review, the attracted equity capital totalled 538.3m euros, which is 55 per cent of all foreign direct investment. This is 346.1m euros up year-on-year, the BTA web site reported.
The increase of attracted equity capital was mostly due to the revenues from the sale of the Bulgarian Telecommunications Company (BTC) and the increase of the capital of the company, set up in connection with the deal on MobilTel.
Equity capital from non-privatisation deals was 295.5m euros, 84.1 per cent (or 134.9m euros) up compared to the like period of last year.
By countries, the largest investments came from Austria (35.5 per cent of the total foreign direct investment), followed by the Netherlands with 18.4 per cent and Luxembourg with 18 per cent.
Reinvested profit in the period under review equalled 58.5m euros, which was by 19.7m euros up compared to the like period of 2003, according to preliminary estimates of the central bank.

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RETAIL

Kaufland to set up new shops with major investment

Germany's Kaufland Stiftung and Co KG recently announced the first Bulgarian cities in which it will start construction works: capital Sofia, the northern town of Shumen and southern cities Yambol, Haskovo and Plovdiv. The group is expected to invest €300m in at least 40 supermarkets in this country, Standart reported on August 12th. 
The first 10 are scheduled to open doors in 2005. Some 1,200 jobs will be created there, it transpired after the talks held by Deputy Economy Minister, Radoslav Bozadjiev, with Bruno Fergen, member of the company's management body. The two of them deliberated on the newly devised investment encouragement act. It stipulates Bulgarian Investment Agency to certify the class of the investments. The first- and second-class investors will be rendered individual administrative services by the central and local bodies.
Fergen commented that he hoped Kaufland would be among the first strategic investors, certified under the new act. He said further that foreign investing services and the support of the state. Bulgaria is a country of enormous potential but it seems that this potential has not been awakened as yet. Kaufland aspired to make investments in this country as early as spring 2004.
Initially, the company announced they intended to open 30 stores, investing €200m. After studying the market and the business climate in the country, it was decided that the number of the to-be-built stores be increased.
Kaufland is one of three German retail groups that plan to step on the Bulgarian market, rivalling Billa and Metro hypermarkets, which have already gained good positions in the country.

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TRANSPORT

Bulgaria to begin second Danube bridge construction in August 2005

The construction of the Danube-2 Bridge will begin in August 2005. The expropriation of land in Vidin will begin in September. All this became clear at a meeting recently at Prime Minister Simeon Saxe-Coburg-Gotha's office, BGNES web site reported.
The meeting was attended by Valentin Tserovski, minister of regional development and public work; his deputy, Savin Kovachev; Sofiya Kasidova, deputy minister of transportation and communications; Martin Donchev, Vidin Oblast administrator; Milen Keremedchiev, Stability Pact national coordinator; and Oleg Chukanov, Vidin deputy mayor.

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