Books on Bulgaria
% of GDP
Update No: 103 - (28/11/05)
Grand coalition to form after weeks of delay
An uneasy situation has ended in Bulgaria. It was without a government for weeks
following the June elections after several attempts by the Socialist Party of
Bulgaria (BSP) to form an administration were rejected by the Bulgarian
The Liberal Party of the former King Simeon II (NDSW), who still likes to style
himself "Tsar Simeon II," lost 20 per cent of the vote compared to the
elections four years ago. In view of these losses, Simeon was at first reluctant
to participate in the new government, saying he would not join a cabinet led by
the BSP. Eventually he said he would only agree to the formation of a grand
coalition on condition he kept the premiership. But the BSP insisted on
appointing its own man, Sergej Stanischew, to head the government.
After weeks of wrangling, a broad coalition is now set to form the next
government. The coalition seeking to take over the reins of power in Sofia
comprises the BSP, the Party of the Turkish Minority (DPS) and the NDSW. The
premier is, indeed, Sergej Stanishew (BSP).
The BSP, which had emerged from the Stalinist Communist Party, formed an
electoral alliance with seven small parties and received 31 per cent of the
vote, making it the strongest parliamentary faction. From the outset it had
sought a coalition with the DPS, which emerged as the third-strongest party, and
also wanted to include the NDSW in the government.
The attempt to form a minority government of the BSP and the DPS had failed at
the end of July, even after making many concessions to the right-wing parties.
Finally, President Purvanov assigned the task of forming a government to the
second-strongest parliamentary grouping, the NDSW, which has only 53 of the 240
seats in the parliament. But the attempts to form an alliance of the
conservative and right-wing parties did not come off. Both the Democrats for a
Strong Bulgaria (FCB), around the former government head Ivan Kostow, as well as
the Bulgarian Peoples Union and the Union of Democratic Forces were sceptical of
the NDSW and at loggerheads.
Under massive pressure, Stanishew and Saxe-Coburg Gotha then came to an
agreement. If their negotiations had failed, it would have resulted in new
parliamentary elections, which would have probably had negative consequences for
both parties, making the formation of a government even more difficult.
Moreover, Brussels had put pressure on the parties in Sofia to arrive at an
agreement so as not to endanger the country's planned accession to the European
Union in 2007.
The BSP has eight ministers in the new cabinet, the Tsar's party five and the
DSP three. Plamen Orescharski, a non-partisan member of the new government who
is one of the most hated figures in the country, takes over the finance
ministry. At the beginning of the 1990s, as a member of the right-wing Kostow
government, he was responsible for breaking up and privatising Bulgaria's
state-owned industry, leading to the pauperisation of wide sections of the
The prerequisites for EU entry
"Continuity" is the watchword of all those involved in the new
government. Above all, this means continuing with tight financial policies in
order to ensure the country joins the EU in 2007. The government coalition
demonstrated its character immediately on taking office by its attitude towards
victims of the disastrous flooding which hit Bulgaria in the summer.
More than a quarter of the population were affected by devastating flooding at
the beginning of August. According to conservative estimates, at least 20 were
killed with damage estimated to be over US$630 million. Agricultural production
was completely destroyed in several regions of the country. Tens of thousands
faced utter devastation, with insufficient food and medicines. Only a few
benefited from state assistance, receiving about 500 Euro.
As government circles have announced, the small assistance given to victims was
at the expense of cuts elsewhere and reneging on election promises.
Finance Minister Oresharski used the disaster as an opportunity to announce an
even harsher budget policy. He flatly opposed a proposal by the ministry for
social affairs that donations made to help the afflicted areas enjoy tax
exemption. Promises of a pension increase and 20 per cent wage increase for
public service employees will not be implemented.
At the end of August, representatives of the International Monetary Fund (IMF)
made clear in discussions with the new government that the budget discipline
laid down by the IMF could not be relaxed if the country wants to keep to the
criteria stipulated for its EU entry. Government representatives said they were
ready to follow the demands of the IMF, according to which the present budget
surplus of approximately 600 Euro million should remain untouched.
Like their predecessors, Stanischew together with foreign minister Kalfin and
Meglena Kunewa, who was already minister for Europe under Simeon, visited
Brussels immediately upon entering office. In talks with EU Commission President
Jose Barroso and the German industrial commissioner Günther Verheugen,
Stanischew promised that his government would do everything necessary in the
remaining 16 months to catch up in those areas where it had fallen behind.
The progress report set to be published by the European Union commission in
October should finally determine whether entry can take place in 2007, or one
The authorities in Brussels are insisting that the legal system be fundamentally
reformed and that deep-going changes be introduced in agriculture and other
areas. Above all, Bulgaria's economy has not yet been sufficiently liberalised
in the eyes of the EU commission. In the coming months, the government wants
parliament to push through approximately 30 laws.
The trade unions are also being brought on board in order to realise these
policies, which have been pursued by various governments for 15 years and are
directed against the mass of the population. The government has already reached
agreement with representatives of Bulgaria's two largest trade union federations
concerning economic, labour and social policies, whereby the unions have given
their blessing to further welfare cuts in the name of strengthening Bulgaria.
Labour and Social Affairs Minister Emilija Maslarowa (BSP) said the agreement
with the unions provides a sound basis for further cooperation with the IMF.
From the outset, the broad alliance of bourgeois parties was marked by
political instability. Conflicts are pre-programmed, which could also lead to
the breaking up of the government coalition.
The first tensions already emerged during the appointment of 28 regional
representatives. The NDSW accused its coalition partners of ensuring BSP and DPS
were appointed in the larger and relatively wealthy districts, ensuring
additional political and economic influence for the two parties.
Relations between Simeon's party and the DPS remain strained. There have been
fierce disputes over the last four years, during which both parties had been in
government. The DPS, the Turkish minority party, which since 1989 has been
involved in each government, has strong links to Turkish businesses and
represents their interests.
Orescharski's radical austerity measures have also encountered criticism among
sections of the BSP. The finance minister flatly refuses to discuss the demand
for a one-off bonus payment to public service employees, proposed by the BSP and
the trade unions in order to deflect the threatened protests.
Political observers assume that in this situation Simeon's NDSW could possibly
play the role of opposition within the government and torpedo some of the
coalition's projects in order to boost Simeon's chances in next year's
The increasing political crisis gripping the country is not a purely Bulgarian
phenomenon. Similar conditions prevail in neighbouring Romania, which likewise
is seeking to join the EU in 2007. Post-communist measures in privatising
industries, demanded by the IMF and the EU alike, are of course extremely
painful in terms of creating big scale unemployment as over manned industries
are shaken out. This is the trauma that has had to be endured in all the former
communist states of Europe. Bulgaria and Romania delayed the inevitable as long
as possible, but imminent EU membership is now the spur.
Bulgaria Air gets extra slots at Frankfurt airport
Bulgaria Air was awarded extra slots at Frankfurt Airport and will increase the
weekly frequency of its flights to Germany. At the same time, Lufthansa will
launch a new service from Dusseldorf to Sofia. This was agreed while
coordinating the slots and schedules of foreign and Bulgarian airlines for the
forthcoming IATA winter season at the directorate general of the Air Traffic
Services Authority, the transport ministry said, Sofia News Agency reported.
German airline Lufthansa will commenced regular Sofia-Dusseldorf-Sofia flights
at the beginning of November. The Bulgarian air company and Italy's Alitalia
have agreed on joint commercial activities during the flights from Sofia to
Milan and Rome. The agreed prices are lucrative for the Bulgarian air carrier
and the number of flight between the two countries will increase. The weekly
flights between Bulgaria and Greece and Bulgaria and Italy will increase.
DZI Group to increase market share
The supervisory and the managerial boards of DZI Bank recently affirmed in a
press release plans to proceed with the development of the financial group's
market share, New Europe reported.
DZI Bank stated that it occupied eighth position on the Bulgarian banking market
as the assets of the bank stood at more than one billion levs. According to the
statement, the DZI assets have increased by 300 million levs which is 44 per
cent since the beginning of the year. This press release came after the
Bulgarian Stock Exchange halted the trade with the securities of DZI Group, the
largest financial group in the country, whose boss Emil Kyulev was gunned down
in a central Sofia boulevard on October 26 in the morning, reported Bulgarian
news agency. Kyulev recently entered the list of the 100 richest businessmen in
Central and Eastern Europe by the Polish magazine Wprost. He was ranked the
second richest man in Bulgaria. In spite of the murder, the bank stressed the
professional managerial team ruling the institution and its strong determination
to proceed with its expansion strategy.
S&P upgrades Bulbank ratings to BB/A-2
Standard & Poor's Ratings Services announced recently that it raised its
long and short-term counterparty credit and certificate of deposit ratings on
Bulgaria-based Bulbank A.D. (Bulbank) to BBB/ A-2 from BBB-/A-3, according to a
press release. The outlook is stable, New Europe reported.
"The rating action follows the upgrade of the Republic of Bulgaria to a
foreign currency rating of BBB/Positive/A-3 from BBB-/Positive/A-3, and a local
currency rating to BBB+/Stable/A-2 from BBB/ Positive/A-3," said Standard
& Poor's credit analyst Alise Ross. Ross added that commercial initiatives
established with UniCredito will produce results and reinforce Bulbank's
franchise, financial performance, and credit quality, as reflected by the stable
outlook. Future upward rating actions will depend on the resilience of Bulbank's
franchise to the heightened competition in the banking sector and evolution of
the Bulgarian operating environment as the economy matures. The ratings on
Bulbank reflect strong support from its parent, Italy-based UniCredito, its
solid position in the banking system, strong capitalisation and funding and good
profitability. The ratings summarise Bulgarian economic and industry risks,
Bulbank's underdeveloped commercial profile, and untested asset quality.
UES, Bulgaria sign initial deal on Varna power plant
RAO Unified Energy System of Russia (UES) and the Bulgarian government recently
initialled an agreement on UES' intention to acquire Bulgaria's Varna heat and
power plant, Margarita Nagoga, head of the energy holding's PR department, said,
Interfax News Agency reported.
"This (agreement) does not imply the purchase, we're saying that we have
passed fundamental decisions," she said. UES also signed a protocol with
Bulgaria that will set up a list of issues concerning the further conditions for
how the Varna plant will function and conditions for its eventual purchase, she
Power plant sold to Russian RAO UES
The Bulgarian government recently cleared the long-delayed sale of a major
coal-fired power plant to Russia's energy giant RAO Unified Energy Systems. In
May, RAO UES won the tender for the thermal power plant in the Black Sea port of
Varna, offering 578.8 million Euro. The deal was postponed several times on the
ground that the Russian investor was not satisfied with a recent equipment
delivery deal between the Varna utility and German producer Siemens AG, New
Meanwhile, RAO UES has started talks with Enel Spa to share the ownership and
the management of the owned site. The alliance talks that started with Enel
could involve investments spreading from Bulgaria to Russia, the Italian daily
La Repubblica said without citing sources. Both companies could also jointly bid
for a Bulgarian nuclear power plant in the town of Belene, it added. A
partnership between the two companies could give Enel access to Russia's power
generation market, where UES is expected to sell some of its production
capacity, the newspaper said. Earlier this month, Siemens EOOD, the Bulgaria
unit of Siemens AG, announced an 11 million Euro deal with the Varna plant for
equipment delivery over the next three years. On October 26, Siemens AG agreed
to cancel the contract with the Bulgarian government in order to allow it to
privatise the state-owned power plant.
Greek exports to Bulgaria to reach 1bn Euro
According to the temporary figures provided by the Greek National agency for the
January-July 2005 period, the Greek exports to Bulgaria increased by 29.5 per
cent compared to the same period in 2004 and reached 452.6 million Euro, Sofia
News Agency reported.
The Greek exports to Bulgaria are expected to reach one billion Euro this year
establishing a trade surplus of 400 million Euro for Greece that the providing
positive pace recorded in the January-July seven months period continues. During
this period, Greek exports to Bulgaria recorded an increase of about 30 per
cent. Meanwhile, imports from Bulgaria also rose 31.59 per cent to 333.8 million
Euro. This year imports are predicted to be close to 600 million Euro bringing
the volume of bilateral trade relations up to 1.6 billion Euro. Women's cotton
clothing tops the Greek exports list even though the specific product recorded a
decline compared to the same period in 2004 (32.3 million Euro.)
FOOD AND DRINK
Bulgaria's beer consumption up by 1.7%
Bulgarian beer makers sold 3.476m hectolitres in January-September, up 1.7% on
the year-ago period, according to statistics of the Union of Brewers in
Bulgaria, Bulgarian News Agency reported.
The sales figures do not include the business of locally-owned beer makers like
Ledenika and MM which are not UBB members. Despite the wet summer and the excise
duty hike enforced since the beginning of the year, beer consumption this year
is on track to record yet another peak. Bulgarians drank 61 litres of beer per
capita in 2004, up from 56 litres in 2003 and 51 litres in 2002. In September,
beer sales fell to 365,163 hectolitres from 563,226 hectolitres in the previous
month. Kamenitza AD, part of the world's biggest brewer by volume InBev, leads
the year-to-date sales. The company added recently 151,735 hectolitres to its
year-to-date sales which now stand at 1.219m hectolitres.
Cablenet, Trans Telecom win Class A wireless net
Bulgaria's Trans Telecom and Cable Net on October 12th won the tender for a
10-year wireless network licence with a bid of 5m levs, Bulgaria's
telecommunications regulator recently told Sofia News Agency.
Bulgarian leading mobile phone operator Mobiltel and the largest fixed-line
telecom BTC withdrew their offers when the bidding price reached 4.444m levs.
Bulgarian telecoms Nexcom and Carrier BG also took part in the bidding, with a
starting price set at 1.344m levs for each licence. The point-to-multipoint
telecommunication networks are used for transfer of voice and data, Internet
access, fax, telex, video information and multimedia applications. The main
advantage of such networks is that although wireless, they provide high quality
connection comparable to a cable connection. Winners Trans Telecom and Cablenet
will build a point-to-multipoint telecommunication network, enabling wireless
connection to telephone, broadband Internet and other multimedia services.
Thousands opt for Bulgaria's Vivatel operator
According to executive director, Richard Shearer, Vivatel already has thousands
of clients. Vivatel activated its network on November 5 that also saw the sale
of 5000 pre-paid call packages. Vivatel kicked in with an offer for 0.37 lev per
minute for prepaid calls which is more than MTel's 0.33 levs and less than the
Globul rate of 0.39. The initial purchase of Vivatel costs 20 levs. The call
tariff is 0.444 leva a minute, tax included, and is valid for all phone networks
in Bulgaria. An initial promotion provides that Vivatel will recover the
expenses for all calls and messages on January 7 when subscribers will receive
free call minutes for the value of the calls already made, Sofia News Agency
Vivatel already presented its pre-paid and business plans. Subscription for
regular clients will be available soon, Shearer said. Vivatel will offer, for
the first time in Bulgaria, pre-paid roaming with 346 operators in 138
Trakia motorway construction to start soon
Bulgarian Regional Development and Public Works Minister Asen Gagaouzov said
that construction of the Trakia motorway will commence soon. "It is hardly
like that construction of the Trakia Motorway will come to a start with this
concessionaire and under this contract," Gagaouzov said before the Cabinet
meeting on October 13th, reported Sofia News Agency.
On December 16th, 2004, the government awarded a 35-year concession for Trakia
Motorway to a 51-49 Portuguese-Bulgarian consortium between three Portuguese
companies (MSF-Moniz da Maia, Serra & Fortunato-Empreiteiros, S.A. of
Lisbon; Lena Engenharia e Contrucoes, S.A. of Fatima; and Somague Concessoers e
Servicos, S.A. of Sintra) and 2 Bulgarian companies (Avtomagistrali EAD and
Technoexportstroy EAD) without an auction or competitive bidding.
This year on October 11th, the Supreme Administrative Court adjourned
pronouncement on a protest by deputy prosecutor general and head of the Supreme
Cassation Prosecution office Mityo Markov, who argued that the Council of
Ministers decision awarding the concession clashes with provisions of
substantive law and was rendered at variance with the purpose of the law, so it
must be invalid.
Gagaouzov stressed that he wants the construction of the Trakia motorway to
start soon and the decision is in the hands of the council of ministers to
decide the type of contract for this project, whether it should be a new
concession or national financing. On being asked about the amount of damages on
the contract with the Portuguese consortium, Gagaouzov said that if it comes to
paying any damages then the decision will be taken by the court.
At the upcoming meeting, the council of ministers will probably decide which key
road sections are to be completed, in what way and within what timescale. The
prime minister has been sent a report with a brief description of each section.
Gagaouzov added that the cabinet will decided whether all the projects proposed
by him or part of them will be financed.