The parliamentary majority led by GERB has announced plans to change the Constitution and drop the statutes of limitations on launching criminal investigation of suspected wrongdoing in privatization deals concluded during Bulgaria's transition to market economy. These plans can lead to investigation of thousands of privatization contracts signed between 1992 and the present day and practically clog the judicial system. The Association of the Organizations of Bulgarian Employers has voiced its concerns about the planned changes and warned they may be unconstitutional.
Business and media mogul Delyan Peevski, an MP from the Movement for Rights and Freedoms, has introduced a new piece of legislation to stop what he claims is "a second wave of plundering" of assets of bankrupt Corporate Commercial Bank. Following the bank's collapse in 2014 many of its valuable assets changed hands in controversial debt swaps, some of them made by companies with alleged ties to Mr. Peevski. While the offi cially declared aim of the proposed legislation is to restore the bank's improperly acquired assets, experts in law warn it might unleash chaos and lengthy court proceedings. The draft law has already been approved by the Legal Affairs Committee in Parliament with the backing of GERB.
Bulgaria will assume the presidency of the Council of the EU on January 1, 2018. In addition to effectively expediting the EU legislative agenda, Bulgaria's main goal during the upcoming sixmonth presidency is to make a breakthrough on three issues: the country's admission into the EU's frontier-free Schengen area, the ending of the monitoring of its ineffi cient judicial system under the EU's Cooperation and Verifi cation Mechanism (CVM), and the entry of the country into the ERM II, the Eurozone's membership qualifi cation mechanism. During its presidency, Bulgaria will also lend focus to the countries of the Western Balkans: Serbia, Montenegro, Albania, Bosnia and Herzegovina, Macedonia and Kosovo.
Government expenditures are set to reach record heights in next year's budget but distribution of the money is expected to be as inefficient a process as ever. Economic growth and the revival of the labor market have boosted government revenues for several years now. As a result, the government has decided on a record budget of 39.3 billions levs for 2018, more than 4.5 billion levs above this year's expected implementation. A portion of the budget increase will go toward higher wages for teachers, armed forces personnel, police, and other public sector employees. Another portion is reserved for social expenditure and health care. The largest share, however, will be spent on infrastructure projects
under allocations for the new EU programming period, which were planned for 2017 but postponed to 2018.
Strong tourism revenue and a tentative revival in the construction sector boosted the Bulgarian economy during the third quarter of 2017, with gross domestic product (GDP) growing by 3.9% over the third quarter of the previous year, according to flash data from the National Statistical Institute (NSI). The other engines of the economy - domestic consumption and exports were finally supported by the revival of investments. Final consumption in the country expanded by 4.6% year on year in the third quarter of 2017. A long-awaited revival of investments in Bulgaria led to an annual increase of gross capital formation by 3.9% in the second quarter of 2017 and 4.2% in the third quarter, with a large percentage thereof contributed by the construction sector. As a result, analysts now think that economic growth of 4% in 2017 is highly probable.
In the past nine months Bulgaria has not achieved signifi cant progress on any of the recommendations made by the European Commission (EC) in its 10th Cooperation and Verifi cation Mechanism (CVM) report from January 2017. The report measures reform progress in the Bulgarian judicial system. Yet, the state Prosecutor's Offi ce and the Justice Ministry saw progress in the absence of new recommendations compared to the previous monitoring report. Due to the forthcoming Bulgarian Presidency of the Council of the EU the CVM report was published two months earlier
than expected.
News Brief
Army Modernization / After a tender for acquisition of two modular patrol ships for the Bulgarian Navy, which saw all but one of the potential bidders give up before submitting offers, the Ministry of Defense announced it will negotiate with the single candidate left. The Ministry of Defense required the candidates, most of which foreign companies, to study the 400-page terms of reference in Bulgarian and then submit offers within a single month. Most probably, the only company that has submitted an offer is Bulgarian shipbuilder MTG Dolphin. The hulls and part of the equipment of the naval vessels will
cost an estimated 820 mln levs (410 mln euro). The weapons systems will be purchased from abroad, most probably from Thales Nederland, which has a contract with Varna-based MTG Dolphin Shipyard. Other possible partners that may take part in arming the ships are Germany's Diehl Defence and Italy's Leonardo/Finmeccanica Defence Systems Division.
Speaker Resigns / Parliament Speaker Dimitar Glavchev (GERB) resigned in mid-November. The Bulgarian Socialist Party - the main opposition force in parliament, decided to boycott sessions presided by Mr Glavchev after he suspended their leader Kornelia Ninova for one sitting for reading a declaration which, in his opinion, 'defamed' PM Boyko Borissov. Mr Glavchev was quickly replaced by Tsveta Karayancheva, an MP from GERB.
Bank Run Accusa tions / Eighteen people indicted of having caused the collapse of Corporate Commercial Bank in 2014 will have to appear before the Specialized Criminal Court on December 13. Among them are the former bank
owner and CEO Tsvetan Vassilev and several of the senior managers of the bankrupt bank, as well as Tsvetan Gunev, former deputy governor of the Bulgarian National Bank. Tsvetan Vasilev is accused of siphoning over 1.2 billion euro from the bank accounts via companies connected to him.
BREWING / French-owned Malteries Soufflet Bulgaria will invest 30 mn euro in its factory in the city of Pleven to triple its malt production capacity. The company, which has been operating for five years, will increase its output to 50,000 tones of malt. The new production plant will commence operations in September 2019. Twenty workers will take special training to staff the high-tech plant. The investment will also have an impact on agriculture, as the company buys local barley. The new facility will process 63,000 tonnes of grain a year. Malteries Soufflet Bulgaria's main focus will remain the domestic market but it is also considering exports to neighboring countries.
GROWTH / Fertilizer producer and distributor Agricola Bulgaria has doubled its domestic market share to some 20% after it was acquired by Sweden-based EuroChem Group in March 2017. The buyer company, which is owned by Russian commodities tycoon Andrey Melnichenko, paid $320,000 for 100% of the Bulgarian firm. Agricola's sales last year amounted to some 100,000 tones, while this year they have reached 200,000 tones. In November, the Bulgarian company was renamed to EuroChem Agro Bulgaria to reflect the name of the new owner.
WAGE DI SPUTE / Workers at Pirin Tex Production, the largest sewing factory in southwestern Bulgaria, are considering strike action over pay. The German-owned company is one of the top 10 clothing producers with a turnover of 36 mn levs and more than 2,500 employees. Monthly wages at Pirin Tex Production range between 540 and
900 levs and trade unions are pushing for a hike. Owner Bertram Rollmann however says that a pay rise not linked to increased productivity may force him to shut down the factory. This is one of the rare examples of industrial action ina private company in Bulgaria.
RATING UPGRADE /S&P and Fitch upgraded Bulgaria's credit rating. S&P raised the sovereign credit rating of Bulgaria to BBB- from BB+, which is now an investment grade rating. Fitch upgraded Bulgaria's long-term foreign and local-currency issuer default ratings to BBB from BBB-. The upgrade reflects Bulgaria's improving external metrics,
underpinned by a multiyear expansion of exports, amid a rise in domestic savings. The improvements in the bankingsector with increasing the capital buffers and adopting new set of regulations and crisis management tools also contributed for the positive action. The rating agencies pointed the high level of nonperforming loans as a hurdle that could weight on for potential downgrades. The ratio of NPLs to total loans (excluding exposure to banks) was 16.6% at end-3Q17 and is likely to remain the highest in the region. Authorities have begun to address regulatory gaps and improve bank supervision, Fitch said.
DEPO SIT EXODU S / Bulgarian banks withdrew 10.1% of their deposits at the central bank in October alone following its decision to charge negative interest rates. The Bulgarian National Bank has charged -0.4% since
the beginning of 2017, but decided in October to change the rate to -0.6%. As a result, local banks shifted 4.5 billion levs,mainly towards their foreign parents.
MYSTERIOU S BUYER / Liechtensteinregistered Novito Opportunities is the only candidate to acquire Bulgaria's Municipal Bank. The bidder is part of investment company CAIAC Fund Management AG, but there is scant information
about it. The Sofia municipality is selling its 67.65% stake in the bank (15th in assets among 27 banks) and expectsthe general assembly, is Hristo Kovachki, a Bulgarian businessman and politician. The bank has 18 mln. levs credit exposure to companies under his control.
TRANSPERACY/Electricity producers with installed capacity of more than 5MW (including renewable energy and cogeneration plants) will be obliged to sell their output on the energy exchange only. The amendment to the energy law was adopted by the Energy Committee of the Bulgarian parliament and is yet to be voted on by the full chamber. If made into law, the proposal will put an end to the bilateral contracts between power plants, energy traders and big industrial consumers which have often been criticized as non-transparent.
TOO AMBITIOU S / Future Energy, part of a consortium that had reportedly come in with the best offer to acquire the assets of CEZ Bulgaria, declared in early December that it can't fulfill its contracts with its clients. The reason
for the unexpected move, according to Future Energy, were the unpredictable fluctuations on the energy exchange. Justa month earlier, a tie-up of Future Energy and India Power Corporation Ltd (IPCL) began negotiations with the Czech energy group CEZ to buy its Bulgarian subsidiaries, a deal valued at around 300 million euro.
GAS FREEDOM / The first tenders for supply of equipment for the construction of the Interconnector Greece-Bulgaria (IGB) will be opened in January 2018, the project company ICBG has announced. The timing will allow the construction of the gas pipeline to commence in the middle of 2018. IGB needs to be operational by 2020 to ship the first volumes of gas to Bulgaria from Azerbaijan.
NO GAZPROM / The European Commission has proposed a new law that will require all gas pipelines entering the EU territory to apply the EU antimonopoly rules, i.e. the new pipelines should have reserved capacity for third party suppliers, ownership unbundling (separation between the supplier and the owner of the infrastructure) and etc. The
new rules, which need to be approved by the member states and the European Parliament, will affect Nord Stream II, the
planned pipeline that will run from Russia to Germany across the Baltic Sea. The Nord Stream consortium claimed that it is exempted from the EU rules, because the pipeline is in international waters.
The parliamentary majority led by GERB has announced plans to change the Constitution and drop the statutes of limitations on launching criminal investigation of suspected wrongdoing in privatization deals concluded during Bulgaria's transition to market economy. These plans can lead to investigation of thousands of privatization contracts signed between 1992 and the present day and practically clog the judicial system. The Association of the Organizations of Bulgarian Employers has voiced its concerns about the planned changes and warned they may be unconstitutional.
Business and media mogul Delyan Peevski, an MP from the Movement for Rights and Freedoms, has introduced a new piece of legislation to stop what he claims is "a second wave of plundering" of assets of bankrupt Corporate Commercial Bank. Following the bank's collapse in 2014 many of its valuable assets changed hands in controversial debt swaps, some of them made by companies with alleged ties to Mr. Peevski. While the offi cially declared aim of the proposed legislation is to restore the bank's improperly acquired assets, experts in law warn it might unleash chaos and lengthy court proceedings. The draft law has already been approved by the Legal Affairs Committee in Parliament with the backing of GERB.
