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REVIEW OF SECTOR TRANSPORT, INFRASTRUCTURE AND COMMUNICATIONS IN BULGARIA

MAIN REPORT

(D20010456\23021)

Submitted to: Senter InternationaalSubmitted by: NEA Transport research and training

Rijswijk, The Netherlands, May 2001

CONTENTSpage

1 EXECUTIVE SUMMARY..............................................................................5

1.1 Transport, infrastructure and communications..............................................61.2 Donors and financing....................................................................................71.3 Business opportunities for Dutch Enterprises...............................................8

2 GENERAL INTRODUCTION AND BACKGROUND..................................13

2.1 Objectives of the study................................................................................142.2 Purposes of the study.................................................................................142.3 Results of the project..................................................................................142.4 Activities......................................................................................................152.5 Methodology and Approach........................................................................162.5.1 Desk research.............................................................................................162.5.2 Field research.............................................................................................162.6 Organisation of a seminar...........................................................................172.7 Project Team...............................................................................................17

3 GENERAL DATA ON BULGARIA..............................................................19

3.1 General socio-economic situation...............................................................193.2 Privatisation process in Bulgaria.................................................................213.3 Business environment in Bulgaria...............................................................22

4 TRANSPORT, INFRASTRUCTURE AND COMMUNICATIONS................27

4.1 Transport and infrastructure........................................................................274.2 Communications.........................................................................................38

5 PRIORITIES FOR INVESTMENT BY THE BULGARIAN AUTHORITIES.41

5.1 Priority investments in transport infrastructure............................................415.2 Companies offered for privatisation in transport and communications.......44

6 EXISTING DONOR ACTIVITIES IN BULGARIA........................................47

6.1 Bilateral donor activities..............................................................................476.2 Multilateral donor activities..........................................................................476.2.1 European Union..........................................................................................476.2.2 EBRD..........................................................................................................511.1.3 World Bank..................................................................................................59

7 MARKET OPPORTUNITIES PER SUB SECTOR.....................................61

8 DUTCH BUSINESS OPPORTUNITIES IN BULGARIA.............................67

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9 CONCLUSIONS..........................................................................................87

9.1 Transport, infrastructure and communications............................................879.2 Donors and financing..................................................................................899.3 Business opportunities for Dutch Enterprises.............................................90

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1 EXECUTIVE SUMMARY

The Programme for Co-operation with Countries in Central and Eastern Europe (PSO) aims at supporting the transition of Central and Eastern European countries to a market-oriented and sustainable economy. Under this programme, the Netherlands government funds projects, assigned to enterprises in The Netherlands, for the transfer of knowledge and expertise, which should lead to sustainable investment and/or trade relations on a business to business basis.

It was decided to carry out a Transport Sector study for Bulgaria, Romania and Ukraine in order to develop a framework for the development of new transport projects in these countries within the PSO framework.

The main findings for Bulgaria are:

From 1991 to 1996 progress in Bulgaria was slow and erratic. Its most recent history is characterised by the remarkable turnaround that occurred after the change of leadership in 1997. Since then Bulgaria has re-energised long pending structural reforms. The IMF supported currency board had a positive impact on the country’s financial discipline, privatisation has accelerated, and price control has been liberalised.

Fiscal policy was tightened (consolidated budget deficit came in at only 1%), important steps were taken in the area of privatisation, banking sector reforms, agricultural liberalisation, energy pricing and legal reforms, required to improve the prospects for sustainable economic growth and European Union accession.

The Government has prepared a programme for the year 2001 in which the privatisation of SOE’s is defined as a key element of the structural enterprises (over 600) in the sectors of industry, construction, agriculture, tourism and trade. The plan envisages preparatory stage of the privatisation of certain facilities in the sectors of infrastructure and public services – energy, railway transport, water supply and sewerage.

A report published by the Bulgarian International Business Association “BIBA White Paper on Foreign Investment – Issue 2001” reads that substantial scope for improvement remains, which could substantially ameliorate the “business climate” and overall competitiveness of industry. It specifies issues such as: Public-Private partnership / legislation drafting and implementation, quality/productivity culture in industry, public administration performance and education, transport sector technology and infrastructure, law implementation and enforcement, border crossing initiatives.

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1.1 Transport, infrastructure and communications

Government’s main priorities are: Harmonisation of national legislation and transport regulations with those of the EU member states, Development of transport infrastructure and Implementation of structural reform and privatisation in the transport sector.

Major progress has been made in the Harmonisation process for all transport sectors. The report specifies the present status of the laws and regulations envisaged for implementation.

The social and economic difficulties suffered by Bulgaria, coupled with a lack of finance for road infrastructure has brought about a deterioration of the roads in general. Moreover road building in Bulgaria is difficult and costly as some 40% of the country’s territory is mountainous.

The programme ‘Transit Roads” rehabilitated 1400 km of the main road network up to 1999. Financing came from the EIB, EBRD and the Phare programme. Currently “Transit Roads III” is covering the rehabilitation of another 600km, to be completed in 2002.

According to the Inter-departmental programme on the development of transport infrastructure 1,200 million Euro will be needed for rehabilitation and construction of roads of national and international importance. The participation of Bulgaria in the TINA project is a very important component of the development of transport infrastructure.

River transport is still not very significant, with total inland water transport accounting for around 5% of Bulgarian vessel tonnage. There are plans for significant modernisation of ports over the next few years.

The two major sea ports of Bulgaria – Varna and Burgas handle more than 60% of the national foreign trade freight turnover. The drop in traffic and the obsolete equipment are major problems for the Varna Port development. Burgas has benefited in recent years from the increased trade flows to Western Europe and the transport related to the biggest Bulgarian petrol refinery. It is proposed that the ports will be restructured and given under concession, either totally or in part.

A renewed Sofia airport was opened in September 2000. There is a plan to develop and expand the airport with the capacity and modern facilities to deal with demand expected early next century. The US$ 200 million project will be financed by the EIB and the government.

According to new laws and directives it is envisaged that only railway infrastructure will remain under state ownership. The railway industry and other sections of the National Company "Bulgarian State Railways", together with the commercial activities of railway transport, are subject to privatisation. To date 8 out of 13 railway enterprises have been privatised (concerned with rolling stock repairs and construction, etc).

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Telecommunication: Bulgaria inherited relatively high line density from the pre-transition period. Recent investments increased further the fixed line telephone penetration. The quality of the network is less advanced. Although mobile telephone penetration has grown fast there is considerable room for growth.

The adoption of the new Telecommunications Law in 1998 introduced a liberalised regime for activities in the telecommunications sector. All services were liberalised except voice telephony and leased lines, which will be opened to competition on 1 January 2003. This is well in advance of the WTO commitment of 1 January 2005.

1.2 Donors and financing

There are many bilateral projects in all sectors. Particularly, Germany and Italy are very active in Bulgaria.

The EU is an important donor to Bulgaria. The major objectives of the support are the opening of the Bulgarian transport system for EU member states, Restructuring the transport sector in accordance with European standards and market economy principles, Development of infrastructure, technological modernisation and new investments.For the Cross Border Co-operation programme Euro 86 million has been allocated. Bulgaria expects to receive Euro 420 million for the period 2000-2006 for the development of transport infrastructure through the EU ISPA programme. Priority projects have been identified.

EBRD is a major financing institution for Bulgaria. The EBRD will continue to promote privatisation, post-privatisation restructuring and sound corporate governance of selected companies in the enterprise sector, through both debt and equity investments. In the case of large enterprises, the EBRD will continue to work alongside foreign strategic partners as well as with domestic investors. The EBRD will proactively support the rapidly growing interest by private investors in the infrastructure sector, particularly in power generation, in telecommunications and in certain municipal services. The future water concession and the district heating projects with the Sofia Municipality should constitute landmark transactions. Besides, the EBRD will also continue to provide selective sovereign-based support for crucial sectors such as district heating, energy transmission and transport. Lastly, the EBRD will continue to provide guidance on the restructuring of the energy sector.

Since Bulgaria joined the World Bank in 1990, Bank assistance to the country has been aimed at fostering sustainable development and economic growth by investing in physical and social sector infrastructure, and by accelerating structural reforms and rapid development of the private sector. The World Bank is presently not involved in many projects in the fields of transport, infrastructure and communications. The World Bank is implementing transport and

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trade facilitation projects in Bulgaria and projects focussed on improving border crossings and customs facilitation.

1.3 Business opportunities for Dutch Enterprises.

Privatisation progress in Bulgaria offers a wide range of business opportunities for Dutch enterprises. Local financing is one of the main problem areas, due to the high interest rates charged. Cross border financing is increasing.

Investment climate is continuously improving largely due to a consistent economic and financial policy. However, there is uncertainty with regard to the outcome of the next elections. The still widespread poverty and lack of social facilities in Bulgaria may lead to a change towards a less consistent economic policy.

There are and will be many business opportunities in Bulgaria. The project ideas identified implicitly prove the relevance of the current PSO+ programme for Bulgaria. Given the emphasis the authorities put on improving transport and infrastructure an increase of the PSO budget for the theme “Transport” should be considered.

The following table shows an assessment of the business opportunities in the different sub sectors for possible PSO+ projects. Sometimes the expression "no key area" has been used to indicate that the relevant sub sectors do not really qualify for PSO+ projects. This does not necessarily mean that there are no sound business opportunities in the mentioned sub sectors.

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Sector Goods / Freight PassengersRoad transport

Supply industry

Reasonable opportunities in distribution services, conditioned transport and heavy transport

Conditioned transport of perishable products.

Towing services and service stations.

Reasonable opportunities in international road transport, following economic development.

Bonded warehousing, VAL services and regional distribution.

Tank cleaning and chemical waste management.

Leasing facilities for commercial vehicles.

E-commerce and business planning.

Design, manufacturing and marketing of trailers, semi-trailers, tankers and special vehicles.

Manufacturing of tanks for fuels, liquid gas and chemicals for the automotive sector

Manufacturing of cable beams for automotive industry.

Production of on-board computers for commercial vehicles.

Bus operations (city and intercity): no key area.

International bus lines; no key area.

Manufacturing of buses (sub-urban and intercity).

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Transport by rail

Supply Industry

Opportunities for forwarders;no key area

Manufacturing of railway components.

Automation railways and traffic systems.

Government controlled;no key area

Manufacturing railway components


Inland water transport

Supply industry

Not applicable yet.

Navigation communication and safety systems; no key area.

Not relevant

Sea transport and ports

Supply industry

Based on present performance; no key area.

Maritime communication and safety systems.

Air transport

Supply industry

Opportunities in forwarding and storage activities.

Airport maintenance.

.

Public works & water management

Massive investments planned in road construction and maintenance; Opportunities in supply of modern road building machinery and technology.

Water management and distribution in Plovdiv. Design of water distribution systems; no key area.

Production of measuring devices (metres) for water and gas.

Telecommunication and ICT

Manufacturing and application of optical fibre cable technology.

Postal services Development integrated postal services.

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Key areas for PSO projects

Provision of integrated logistics services (bonded warehousing; high-quality physical distribution; tank cleaning. Manufacturing fuel tanks. Production and assembling (semi-)trailers. Manufacturing of buses.

Road construction technologies (equipment and materials).


Development of integrated postal services.

Business opportunities / project ideas identified for Dutch enterprises

In spite of the fact that government influence and interference in the market economy is still present in Bulgaria, the ongoing privatisation of the industrial sectors in combination with the substantial market potential offers increasingly sound business opportunities.

The PSO programme for Bulgaria is and will prove to be very effective in view of the stage of economic and institutional development of the country. The sectors transport, in particular road transport, road infrastructure as well as agricultural production and distribution offer many opportunities to Dutch enterprises, which we have summarised below more specifically.

It should be noted that project ideas as listed below do not necessarily qualify as PSO+ project.

Road transport (freight)

Reasonable opportunities in distribution services, conditioned transport and heavy transport.

Conditioned transport of perishable products. Towing services and service stations. Bonded warehousing, VAL services and regional distribution. Tank cleaning and chemical waste management. Leasing facilities for commercial vehicles. E-commerce and business planning. Design, manufacturing and marketing of trailers, semi-trailers, tankers and special

vehicles. Manufacturing of tanks for fuels, liquid gas and chemicals for the automotive sector. Manufacturing of cable beams for automotive industry.

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Road transport (passengers)

Production of intercity buses and coaches in Omürtag Production of sub urban buses for Sofia.

Ports and maritime transport


Air transport

Airport maintenance services Sofia International Airport.

Public works and water management There are various opportunities for co-operation in the sector maintenance and

construction of roads, especially in the field of supply of road construction machinery and technologies and transport equipment.

Water distribution systems in Plovdiv. Production of measuring devices for water and gas distribution.

Telecommunication

Co-operation and investment in optical fibre connection.

Postal services


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2 GENERAL INTRODUCTION AND BACKGROUND

The Programme for Co-operation with Countries in Central and Eastern Europe (PSO) aims at supporting the transition of Central and Eastern European countries to a market-oriented and sustainable economy. Under this programme, the Netherlands government funds projects, assigned to enterprises in The Netherlands, for the transfer of knowledge and expertise, which should lead to sustainable investment and/or trade relations on a business to business basis.

Transport is one of the sectors within the PSO programme and covers a wide range of activities and encompasses the following sub sectors:

Freight transport. Public transport. Transport by mode; air, water, road, and rail. Public works and water management. Telecommunication and postal services. Information and communication technology.

It was decided to carry out a Transport Sector study for Bulgaria, Romania and Ukraine in order to develop a framework for the development of new transport projects in these countries within the PSO framework. Emphasis should be put on business to business projects, however some institutional projects may be included to assist in the further development of a particular sub sector.

This document reports the main findings of the assignment. The level of development of the different sub sectors in the 3 countries varies, which is likely to have an impact on the opportunities for Dutch enterprises in the particular sectors in the different countries. Therefore, a country by country approach, rather than a (sub) sector approach has been applied in this study.

Our approach has an entrepreneurial character. We have incorporated local expertise into the project by making use of the services of experts and facilitators in the 3 countries. This should give a structural support dimension during and after the execution of this study.

Expertise from private companies already established in the defined countries also have been used to explore complementary or spin-off activities, whilst making use of their assessment of their business environment.

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2.1 Objectives of the study

The 3 main objectives of this study, which should lead to an optimal allocation of the funds for the transport sector within the 2001-2003 PSO programme are:

1. Increasing Dutch investments in CEE countries and in particular in Bulgaria, Romania and Ukraine and develop sustainable bilateral trade relations.

2. Assist in restructuring of the transport sector in Bulgaria, Romania and Ukraine.3. Increasing the business-to-business relations of enterprises from the Netherlands

active in the transport sector with enterprises in Bulgaria, Romania and Ukraine.

2.2 Purposes of the study

In order to achieve the objectives mentioned above the following purposes have been listed:

1. Present a clear survey on the current situation in the transport sector in Bulgaria, Romania and Ukraine.

2. Identify sub sectors with market opportunities, in particular considering Dutch potential.

3. Indicate possible PSO project ideas in these sub sectors, preferably with an indication of potential recipients.

4. Indicate possible web-sites where the studies can be published.5. Organise a seminar in the Netherlands for presenting the results of the study.

2.3 Results of the project

The following products and services are being delivered in order to achieve the purposes of the project:

1. A separate report per country, delivered in hard copy and electronically, covering the transport sector in respectively Bulgaria, Romania and Ukraine.

2. A list of at least two concrete market opportunities in every promising sub sector, per country.

3. A seminar organised for Dutch companies to present and distribute the final reports.

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2.4 Activities

For realising the first result, the following activities have been carried out:

1. Collection and analysis of available information to make a survey of the transport sector in Bulgaria, Romania and Ukraine, with emphasis on opportunities for business-to-business relations.

2. Provision of a description of the activities of multilateral donors in the field of transport in Bulgaria, Romania and Ukraine. Special attention will be paid to the EU/ISPA programme, the World Bank (IBRD and IFC), the EBRD and the EIB. The study must include an analysis of the possibilities to integrate PSO projects into these multilateral activities. PSO projects should, however, always be stand-alone projects with a separate budget.

For realising the second result, a list of at least 2 concrete market opportunities in every promising sub sector per country has been elaborated carrying out the following activities:

1. Provision of an inventory of international Dutch companies active in the transport sector and companies in Bulgaria, Romania and Ukraine. The list also contains companies in Bulgaria, Romania and Ukraine in the transport sector having ties with Dutch enterprises. Also Dutch companies planning or considering activities in the field of transport in (one of) these countries have been mentioned.

2. Survey and detailed description of the sub sectors with market opportunities for Dutch companies.

3. Identification and description of concrete market opportunities in every promising sub sector.

For realising the third result, organising a seminar, the following activities have been carried out:

1) Identification of Dutch companies in the transport sector.2) Organisation of the seminar and presenting the study on the Internet.

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2.5 Methodology and Approach

2.5.1 Desk research

The project team has identified and listed Dutch companies active in the transport sectors per Country (Bulgaria, Romania and Ukraine). This information has been obtained from, among others: The Associations for transport (in the Netherlands and the three countries) and

their publications. The Chambers of Commerce in the Netherlands and the three countries. The Departments of International Co-operation in the three countries, responsible

for the co-ordination of bilateral or multilateral co-operation or investment programmes.

Ministry of Transport, Public Works and Water Management and Ministry of Economic Affairs.

Senter. The Dutch Embassies in the three countries. The Embassies of Bulgaria, Romania and Ukraine in the Netherlands. Individual companies, active in the transport sector. The NCH (Nederlands Centrum voor Handelsbevordering). The EVD. The Association of Dutch Exporters: Fenedex.

Also, an inventory and analysis on the transport sector data available for the 3 countries have been carried out. Information has been drawn from studies performed by NEA as well as from reports produced and published by the Ministries and International Finance Institutions.

Local experts have assisted in obtaining the relevant market data and making it accessible.

2.5.2 Field research

In each country a field research programme has been carried out, assisted by local experts.

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Interviews and discussions with key persons and staff of the Ministry of Transport, identifying relevant transport policy lines and measures per sector, priorities, constraints and opportunities have been carried out. In this context the presence and effectiveness of the institutional framework relevant to the sub sectors has been assessed.

The Dutch Embassy has been an important source of information for identification of possible general opportunities in the transport market, for the assessment of the local transport policies in relation to Dutch interests and the identification/contacting of key persons in the different sub sectors.

Many private and publicly owned enterprises have been interviewed, which are leading in or representative for the sub sector. Foreign owned or subsidiary companies have deliberately been included. The output from these interviews has been used to draw conclusions on segment attractiveness for investments. Opportunities, spin-off and synergies have thus become visible.

2.6 Organisation of a seminar

A seminar has been organised in the Netherlands to present the results of the study to a wider audience of interested Dutch companies active in the studied sub sectors.

2.7 Project Team

The project did consist of four experts:

René Meeuws - Team LeaderHans HoutsmaArthur GleijmJan-Coen van Elburg

Extensive use has been made of local experts, facilitators and interpreters in Ukraine, Romania and Bulgaria.

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3 GENERAL DATA ON BULGARIA

3.1 General socio-economic situation1

Bulgaria is situated in the heart of the Balkan Peninsula with a population of 8.2 million people and a 1999 GNP per capita of US$1,380.

Its most recent history is characterised by the remarkable turnaround that occurred after the change in leadership in 1997, following a decade-long delay in the transition to a market economy. Market reforms in the country began in 1991 in the face of difficult initial conditions, including massive price distortions and almost complete state control over productive resources.

Externally, heavy reliance on trade within the disintegrating former Soviet Union caused a dramatic fall in trade flows and severe shortages of foreign exchange.

From 1991 to 1996 progress was slow and erratic, with periods of tight macroeconomic policies followed by a loosening of those same policies. High inflation and large exchange rate fluctuations undermined credibility of the country's economic management. This, together with the effects of delayed reforms, led to a severe banking and foreign exchange crisis that culminated in hyperinflation in January and February 1997. The depth of this crisis was reflected in the economic outcome: GDP fell by about 10 percent in 1996, and currency reserves shrank to US$446 million (one month of imports). In February 1997, inflation reached a high of 243 percent per month. The devastating effects of the economic crisis on the social conditions of the country placed considerable strain on many vulnerable groups, and poverty became a serious and widespread problem.

Since the 1996 crisis, Bulgaria has re-energised long-pending structural reforms. In July 1997, a currency board supported by the International Monetary Fund (IMF) was introduced and this, in turn, had a positive impact on the country's financial discipline. Central Bank financing of the budget (except against purchases of special drawing rights from the IMF) has been eliminated, the privatisation process has accelerated, and many previously controlled prices have been liberalised.

Real GDP grew by 2.4 percent, and inflation reached 6.2 percent at end-1999. Bulgaria's economy showed its increasing resilience to the adverse external 1 This paragraph is based on information from the World Bank.

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environment-the Kosovo conflict, continuing negative effects from the Russian crisis, and shrinking demand in the Euro area--especially in the first half of 1999.

The stabilisation effects of the currency board and prudent fiscal policies cushioned the negative external influence. In response to the growing current account balance, which in 1999 reached 5.4 percent of GDP, fiscal policy was tightened and the consolidated budget deficit came in at only 1.0 percent. Similarly, whilst the delay in completing some policy commitments, important steps were taken in the areas of privatisation, banking sector reforms, agricultural liberalisation, energy pricing, and legal reforms required to improve the prospects for sustainable economic growth and pave the way for European Union (EU) accession. On December 10, 1999, during the European Council's Helsinki meetings, Bulgaria, together with Latvia, Lithuania, Romania, the Slovak Republic and Malta, was invited to begin accession negotiations on EU membership.

The most important and visible component of the structural reform program, the privatisation of state-owned enterprises (SOEs), has accelerated significantly over the last two-to-three years. Progress in the privatisation of SOEs can be inferred from the share of state-owned long-term assets privatised, which reached about 80 percent of enterprises in the competitive sector by end-1999 (compared to 42 percent at the end of the previous year).

Effective restructuring of utilities started in 2000. The government also instituted a program of isolation and liquidation of those SOEs that are not candidates for privatisation because they are not viable. By mid-1999, the isolation program was completed, which was largely successful in privatising or liquidating some 48 large loss-makers.

Efforts to liberalise the agricultural sector have been consistent with the government's program for structural reform. By end-1999 some 97 percent of agricultural land was restituted to former owners, and the process is practically completed. Consolidation of land is encouraged by the new Land Lease Act, removing all previously existing restrictions, and facilitating the development of an active land market with an increase of the profitability in the sector.

Privatisation in the sector is almost completed with 72 percent of state assets in agriculture and 90 percent of the assets in the food industry in private hands. The trade and pricing policies are fully liberalised, and all government control on prices of agricultural and food-products has been eliminated. A system of licensed warehouse receipts has been introduced to provide options for further development of the grain market.

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The introduction of the currency board brought stability that strongly contributed to the return of confidence in the financial sector. The banking sector is highly capitalised and relatively sound as a result of the strengthening of regulations and improved enforcement. By mid-2000, five of the eight public sector banks have been sold to private strategic investors, and negotiations for the sale of two more are at an advanced stage.

Separately, conforming to the requirements for EU accession, the government's strategy in the energy sector has the dual objective of developing its market-competitiveness, while improving financial discipline. A comprehensive restructuring program, under which the government intends to conduct the privatisation of most of the generation and distribution assets of the National Electric Company, has been developed and is under implementation. The broad framework for restructuring is provided by the new Energy Efficiency Act, which was adopted by parliament in July 1999.

3.2 Privatisation process in Bulgaria

In 1992 the Privatisation Agency was established in Bulgaria as an independent state institution, responsible for the sale of large and strategic state-owned companies. The agency is subordinated to the Ministry of Economy.

The Government has prepared a programme for the year 2001 in which the privatisation of the state-owned enterprises is defined as a key element of the structural reform. The programme plans to finalise in 2001 the privatisation of all state-owned enterprises (more than 600) in the sectors of industry, construction, agriculture, tourism and trade. The plan further states to initiate the preparatory stage of the privatisation of certain facilities within the sectors of infrastructure and public services - energy, railway transport, water supply and sewerage. Examples of privatisation are Balkan Airlines and the shipyards in Rousse and Bourgas.

Between 1993 and 2000 stakes and shares in 4,222 enterprises were sold off. The total financial result of this massive privatisation process amounts US$ 6,820 million, including US$ 2,484 million negotiated payments, US$ 1,008 million in outstanding liabilities and US$ 3,328 million of pledged investments. A major portion of the financial result was generated from deals with foreign investors. By June 30, 2000 the Privatisation Agency has finalised a total of 85 deals with foreign participants with a total amount involved of US$ 2,712 million.

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3.3 Business environment in Bulgaria

The information in this paragraph is from a report published by the Bulgarian International Business Association "BIBA White Paper on Foreign Investment - Issue 2001". According to the 2000 White-Paper substantial improvements to the environment within which Bulgarian industry evolves can be noticed. The full version of this document can be found on the CD-ROM, which accompanies this report. Nonetheless, substantial scope for improvement remains, which could substantially ameliorate the “business climate” and overall competitiveness of industry. Specifically, possible improvement areas are:

Public-Private partnership / legislation drafting & implementation; Quality/Productivity culture in industry; Public Administration performance and education; Transport sector technology and infrastructure; Hastening privatisation/deregulation of the natural monopolies (i.e. utilities and

energy sectors); Law implementation and enforcement; Promoting investment (including FDI) in SME’s, based on a “Strategic Cluster

Strategy”; Border crossing initiatives; Post-privatisation control and facilitation.

1. Public-Private partnership

There remains the need to improve public-private partnership. A means through which such effect could be achieved is through the promotion of government recognised “Industry Chambers – Branchovi Organizatsi”. The latter’s primary objective would be to develop, promote and communicate sector strategy and policy, to the relevant ministries and governmental structures, for approval and harmonisation to EU practice. This approach would imply participation of industry representative organisations in the drafting of legislation, in co-operation with government. Public-Private partnerships should also be extended to seek means by which to stem the “brain-drain”, whilst encouraging the education sector and industry to engage in a dialogue such as to better co-ordinate education and employment policy.

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2. Fostering a “World-Class” level, Quality/Productivity culture

The importance of improving quality and productivity of Bulgarian industry could be “championed” by the ministry of economy through its sponsoring of a “Baldrige -type” Industrial Quality and Productivity award, to “promote” excellence and world-class practice within different sectors of the Bulgarian Industry.

3. Public Administration performance

The government could define a program allocating significant sums of foreign aid received towards improving the quality and customer-orientation culture of the civil service. Also public administration should adopt in general “business-open” instead of “administration- open” approach, i. e. not only to work on a legislative and theoretical level but to be more practical/ linked to the reality and to offer more services to the business itself.

4. Transport Sector Technology and infrastructure improvements

The government could seek additional sources of external financing to improve the technological condition of rail and port infrastructure. At the same time, a dialogue should be engaged between major industrial users of BDG and BDG, to identify ways in which the current state of poor repair and performance of the Bulgarian railways could be addressed. The issue requires immediate attention in order for it to not affect adversely the performance of industry at large. Closely related to railway infrastructure, another issue requiring urgent attention is the state of affairs at Bulgarian ports and harbours. Service, productivity (i.e. Bulk-cargo discharge rates) and overall performance of ports and harbours requires urgent attention and improvement. The lack of transparency as pertains to the process and procedures for tendering/obtaining quay concessions must be addressed promptly.

5. Legislation / Regulation implementation, enforcement and EU harmonisation

In addition to the public-private partnership issues, another point of focus should be the improvement of implementation/control and enforcement measures of legislation protecting consumers and industries from unfair, covert or possibly hazardous practices. Concrete examples, to be addressed on a priority basis are:

EU-harmonised GM control/segregation of cereals and subsequent GM content food/feed labelling.

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Necessary amendments to the Law on Narcotic Substances and Precursors such as to not disturb the production operations and supply chain of large industrial consumers/exports of Hydrochloric Acid and Sulfuric acid whilst still maintaining the necessary level of control to prevent abuse.

Closely monitoring the import of foreign goods and services, to ensure that they are "fairly" introduced into the Bulgarian market. Dumping and heavily subsidised imports should be restricted, but only in those in cases where they will "unfairly compete" against Bulgarian-made products. An illegal import / anti-dumping task force, in constant contact with industry - through the respective associations, should be set-up to investigate possible violations.

Addressing the existing problems related to the current form of pre-market control - i.e. system of pre-market registration of goods of significance for Public health (foods, household chemicals, cosmetics, paper products etc.). The existing process constitutes a barrier to business development and competitiveness because:

(i) The process is time consuming;(ii) The criteria for registration are (in some instances) different from the ones laid

down in the EU regulations.

Registration of products which are freely marketed in the EU, sometimes require long debates at the Ministry of Health (when these products do not comply with the current BG ordinances). Although the government has declared it's willingness to amend Public Health Law i.e. to cancel the old "pre-market registration system", and to replace the latter with a "notification system" adopted in the EU, still the progress does not seem to be fast enough. Some new draft ordinances (example: the one for cosmetics - in line with EU Cosmetics Directive, which was elaborated in 1999) are not promulgated because they are in contradiction with the "pre-market registration system".

6. Hastening the privatisation/deregulation of the natural monopolies

Urgently consider hastening the privatisation and de-regulation processes for electricity and natural gas, allowing large industrial consumers to “shop” for lower energy costs / improved service packages.

7. Promoting investment and FDI in SME’s, based on a “Strategic Cluster Approach”

The strategy could focus on those manufacturing/processing industries capable of adding value to Bulgarian produced commodities, defined as “strategic industries” for future GDP growth.

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Part of the government’s future industrial/economic strategy should be to help Bulgarian industry become less vulnerable to the global cyclical trends in commodity prices whilst adding value-downstream, in Bulgaria. In line with this approach, a program encouraging FDI in SME’s which could become reliable suppliers to “strategic industry clusters” (such as metallurgy, oil/petroleum refining, starch industry, soda ash, etc…). The strategy could further be stimulated should the banking sector develop financial products designed to address the financing needs of entire “industrial clusters”, linked together through their value chains. This strategy could be an excellent tool to reduce collateral risk and avoid the “domino-effect” threatening some industry clusters.

8. Border crossing initiatives

The need to facilitate physical cross-border crossings remains a priority. In this aspect mutual recognition (EU/Turkey, etc.) of certificates of quality / content remains a priority, as well as reduction in border-crossing time. Bulgarian industry needs improved “physical” access to export markets for its industrial products (food and Agro-industry in particular).

9. Post-privatisation follow-up

The need remains for improving on the post-privatisation follow-up and facilitation. The privatisation agreement commitments of several key companies in the manufacturing/processing sectors are no longer “pertinent” within the current economic context, 2-3 years post-privatisation, thus requiring restructuring in some cases. In view of the expected forthcoming changes at the Privatisation Agency, it is important to not omit from the “revamped” scope of the PA, the critical activity of post-privatisation facilitation, including as a key activity within this scope, the restructuring of existing privatisation contracts.

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4 TRANSPORT, INFRASTRUCTURE AND COMMUNICATIONS

This chapter is mainly based on the "National Strategy Transport Sector" from the Ministry of Transport and Communications dated June 2000. The full version of this document can be found on the CD-ROM, which accompanies this report. Some information has been updated. Other information comes from "2000 Country Investment Profile Bulgaria" from the EBRD. The section on communications is based on this document.

4.1 Transport and infrastructure

The transport policy of Bulgaria is governed by the principles for the development of the country, adopted by the Government and achieved as a result of a national consensus. These policy directions are primarily geared towards membership of the European Union and NATO, development of free market relations, democratisation of the processes in the political, economical, cultural and social life of the people.

There are three main priorities in the transport sector: Harmonisation of national legislation and transport regulations with those of the

European Union Member States; Development of transport infrastructure; Implementation of structural reform and privatisation in the transport sector.

A Harmonisation of the national legislation and transport regulations with those of the European Union Member States

The following laws have been passed or will be passed in the near future: Civil aviation law – approved and in force since 1.01.1999; Law on maritime spaces, inland waterways and ports of the Republic of

Bulgaria - approved and in force since 14.02.2000; Road traffic law – approved and in force since 01.09.1999; Road transport law – approved and in force since 17.09.1999; Railway transport law – draft submitted for approval to the National Assembly; Law for amendment of the Merchant Shipping Code - draft submitted for

approval to the National Assembly.

In the air transport sector the following Regulations are due to be passed: Regulation for certification of aviation personnel, Regulation for certification and licensing of aviation operators, Regulation for flight permissions, etc.

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The negotiations between Bulgaria and the European Commission for signing a multilateral agreement for establishing European Common Aviation Area and for a Protocol on the transitory measures to it have been finalised and signing is due in the third quarter of 2000. The procedure for joining the revised Convention for EUROCONTROL is in progress.

In the road transport sector a considerable number of Regulations complying with the International rules and standards in this field will be passed. A draft Law for ratification of the "International agreement on adoption of equal technical specifications for road vehicles, equipment and components, permitted for installation and/or usage of road vehicles", and "Conditions for mutual acknowledgement of formal approvals, issued on the grounds of these specifications" (Geneva 1958) is under preparation.

Drafting of the following Regulations is in progress: Regulation on the type approval of motor vehicles, Regulation on dangerous goods transportation, Regulation on extra-dimension and heavy road vehicles, etc.

The European agreement on occasional international transport of passengers by bus (INTERBUS) has already been signed. In addition the Agreement between the Republic of Bulgaria and the European Union on the conditions for road transport of goods and for stimulation of combined transport has also been signed.

In the maritime transport sector a number of important European and International Agreements have been ratified, for example the European Agreement on Inland waterways and the International Convention on Sea Search and Rescue. The introduction of a system for traffic control and management in navigation – VTMIS (Vessel Traffic Management Information System) has already started. A number of important Regulations are expected to come into force by the end of the year 2000. These include the Regulation on transportation of dangerous goods, the Regulation on the rules and conditions for issuing vessel documents, the Regulation on the regime of navigation in inland sea waterways and in territorial sea waters etc. A Memorandum on Port State Control between the Black Sea countries, similar to that in use in the Mediterranean, will soon be ready for signature.

B Development of transport infrastructure

Road network

The total length of the national road network is 37,288 Km. and the average density is 0.33 Km per square Kilometre (somewhat below the EU average). Approximately 90% of the roads are with asphalt surface.

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Bulgaria has 324 Km of motorways, 3,011 Km of first grade roads, 3,818 Km second grade roads, and 29,937 Km third and fourth grade roads. The most common are two lane roads with overall width between 6.00 and 7.50 m.

Road building in Bulgaria is generally difficult and costly as some 40% of the country’s territory is mountainous.

The social and economic difficulties suffered by Bulgaria coupled with a lack of finance for road infrastructure has brought about a deterioration of the roads in general. More than 28% of main roads are in very poor condition and these, together with the lower grade roads, pose serious problems. The Implementing Agency "Roads", the national department responsible for the planning, design, construction and maintenance of the national road network, in co-operation with the Bulgarian Government, are working vigorously to correct this situation.

The programme "Transit Roads" was started in 1992 with the financial help of the European Investment Bank, the European Bank for Reconstruction and Development and the PHARE programme. More than 600 km of first grade roads with intensive traffic were rehabilitated under the programme "Transit Roads I". The reconstruction of approximately 800 km of the main road network was catered for under the programme "Transit Roads II", carried out between 1997 and 1999. This programme was directed to the most heavily loaded sections in worst operational condition on the route of the international roads and the Pan-European corridors.

The former General Road Directorate has already started the realisation of the programme "Transit Roads III", which will cover the period 1999 – 2002 and cater for more than 600 km of the main road network.

In addition to the rehabilitation of road surfacing, marking and signage, this Programme envisages an increase in the load capacity of the road construction up to 11.5 tons per axle for the sections with the greatest traffic density. After the completion of the third part of the programme about 85% of the main sections of the road network will comply with the European norms for quality, safety and loading.

At present the national road network is developing and modernising in line with current policy of the Bulgarian Government for the development of trade and economic relations with the neighbouring countries – Greece, former Yugoslavia, Romania and Turkey. The process of improving the road transport connections with neighbouring countries includes the following main activities:

opening new border crossings; construction of new access roads or optimisation of the existing roads to the

standards corresponding to current and expected traffic;

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increasing category and capacity of existing border crossings.

The breakdown of the roads on the routes of the Pan-European corridors is as follows:

Pan-European corridor IV:

Section Vidin – Sofia - Kulata (Greek border)Total length 446 Km, Including: two lane roads 352 km four lane roads 22 km motorway 72 km

Section Vidin – Sofia – Kapitan Andreevo (Turkish border) Total length 558 Km, including: two lane roads 299 km four lane roads 17 km motorway 220 km motorway with one completed lane 22 km Forthcoming rehabilitation measures and construction of new sections:Rehabilitation 110 kmConstruction of motorway sections 70 km

Pan-European corridor VIII (Gjuesevo-Sofia-Plovdiv-Burgas-Varna):

Total length 639 km, including; two lane roads 461 km four lane roads 35 km motorway 143 km

Forthcoming rehabilitation measures and construction of new sections:Rehabilitation 76 kmConstruction of motorway sections 285 km

Pan-European corridor IX (Ruse-Stara Zagora-Makaza/Svilengrad):

Total length 598 km, including: two lane roads 399 km four lane roads 56 km motorway 143 km

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Forthcoming construction works:Rehabilitation 82 km New construction 20 km Construction of a tunnel under Shipka 2 km

Rail network

The railway network of Bulgaria consists of about 4,300 km railway lines, 4,055 km of which is standard gauge (1,435 mm), the rest being narrow-gauge (960 mm). About 960 km (22% of the whole network) is double track and 2,640 km, about 61.4% is electrified. The system includes around 400 full stations and 300 station halts. Freight depots, container terminals and passenger stations would not be capable of dealing with significant increase in traffic.

The major part of the railroad network is designed for speeds of 80 – 100 km per hour, with only 150 km of the lines designed for speeds up to 130 km per hour. The maximum speed allowed over the station switches is 100 km per hour, which in turn limits traffic speed through the stations.

Weight of trains does not present any limiting condition. The overall weight of a train at a speed of 80 km per hour is designated for each line between 560 and 1,900 tons. In practice, the speeds are reduced by 10 – 20% because of poor traction rolling stock.

The signalling system in general conforms to European standards. The signalling equipment used for the various lines is appropriate for the type of traffic, line capacity and speed applying. Trains are fitted with radio and Automatic Train Protection is provided on the primary routes.

Inland waterway transport

The River Danube is both a Bulgarian and an international waterway, regulated by a number of agreements and conventions, preceding the many changes that have taken place in Central and Eastern Europe. These regulations and conventions have had to be revised and amended to deal with the changing circumstances, most notably that relating to the Rhine – Main – Danube canal.

River transport is still not very significant, with total inland water transport accounting for around 5 per cent of Bulgarian vessel tonnage. Goods loaded and unloaded in 1997 totalled 3.2 million tonnes at river ports, compared to 20.7 million at sea ports. There are plans for significant modernisation of ports over the next few years.

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The two major ports on this water route are Ruse and Lom. The harbour of Ruse comprises an intermodal terminal, serving the traffic to Germany and Ukraine, while in the harbour of Lom there is a terminal of SOMAT (International Road Transport) for catamarans travelling to Western Europe.

The Port of Vidin is the first large port along the Bulgarian section of the Danube River. The port area and territory is between km 785+000 and km 795+000. The harbour has three specialised quays for loading and unloading and 8 cranes, as well as direct railway and road connections to the national transport network. The existence of a Duty Free Zone beside the North harbour complex, gives an opportunity for development of a harbour with the following types of combined transport: Ro–Ro Vidin–Passau, Ro–La, train ferryboat Vidin–Calafat and automobile ferryboat Vidin– Calafat, together with ferry transport between Vidin and Western Europe.

The Port complex of Lom has 13 berths, 26 electric gantry cranes with capacity of 5 to 20 tons, as well as other high performance back-up equipment. The port has vast open and covered warehouses and handles domestic and international freight forwarding, together with bulk, general and container cargoes.

The Port complex of RuseThe Port of Ruse–East: The total length is 1,440 m with 10 separate berths and 16 gantry cranes. The open warehouse area is 27,270 sq. m and the covered warehouse area is 4,042 sq. m. The Port has a Ro-Ro ramp, a ferryboat pontoon with a mobile bridge, high capacity gantry and auxiliary equipment. It handles bulk cargo, containers, automobiles, coal, etc. There is a connection with Ruse-North railway station.

The Port of Ruse–West: The quay front totals to 1,200 m, separated into 11 berths, served by 12 cranes. This port handles mainly general cargo, chemicals, metals and timber. It has 9,800 sq. m covered warehouse area and 26,140 sq. m open warehouse. There is a connection with Ruse– west railway station.

The Port complex of Ruse includes also the ports of Svishtov, Somovit and, Tutrakan.

Sea transport

The two major seaports of Bulgaria – Varna and Burgas handle more than 60% of the national foreign trade freight turnover. These ports have container terminals, Ro-Ro equipment and many berths for different types of bulk and liquid freight. They are spread over a substantial area and are connected with the railway and road networks.

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The Port of Varna

Ten years ago Varna was a major seaport, servicing trade with the former Soviet republics, and its turnover was around 10 million tonnes a year. At present, the amount of cargo is half as much. The drop in traffic and the obsolete equipment are major problems for the port’s development. There are hopes that the involvement of big foreign investors will help its revitalisation. Recent examples are the joint ventures of the company Port Varna with the Belgian company Union Miniere and the ItalianItalcementi, both signed at the end of 1999.

The foreign companies have purchased manufacturing facilities in Bulgaria andconsider Varna as a suitable outlet for export of their production. Under the terms of the joint ventures Union Miniere, together with the German company Oiltanking GmbH Hamburg, and Devnya-based soda ash maker Solvay Sodi will build up terminals. In return, Port Varna will give the two companies a quay on concession. The terminal will cost DM 80 million. Italcementi’s project involves construction of a 7.5-kilometre belt conveyor for transporting and loading cement, which will connect their plant with the port. This investment is expected to total US$ 13 million.

The Port of Varna – East: Total length of the wharf is 2,072 m. The maximum depth is 36 feet. This port, with 13 berths, specialises in handling general freight, machines, technical equipment, grain, and containers. The covered warehouse area is 24,000 sq. m, the sites for open warehouses total 115,000 sq. m.

The Port of Varna – West: Total length of the wharf is 3,432 m.. The maximum depth is 33 feet. Specialising in handling bulk freight, general cargo, cars, timber, containers, liquid fertilisers, clinker, etc. The total number of berths is 19 and 17 of these are for loading purposes.

The Port of Burgas

Burgas is the other major Bulgarian port on the Black Sea. It has benefited in recent years from increased trade flows to Western Europe. The location of the biggest Bulgarian petrol refinery near the port has made Burgas the main oil delivery and transit point as well. Lukoil is expanding its activities in the Port of Bourgas very fast. Major investment projects are currently being implemented to build four new terminals at the port, at a total cost of US$ 380 million. US$ 120 million of the funding is being provided by Japanese finance.

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East Port: The length of the wharf is 1,965m and the maximum depth is between 24 and 33 feet. Total number of berths – 14, 10 of them are in operation. Covered warehouse areas – 44,500 sq. m., open warehouse areas – 50,000sq. m. Vessels up to 25,000 tons can be handled and there is direct connection with the road and railway networks.

Bulk freight Port: Total length of the wharf – 750 m. with 5 berths. The maximum depth at berths is 36 feet. Covered warehouse areas – 5 000 sq. m, open warehouse areas – 49 000 sq. m. It handles ships up to 60,000 tons and there is direct connection to the road and railway networks.

West Port: The length of the wharf is 890 m and there are 6 berths. The maximum depth at the berths is 36 feet. Covered warehouse areas – 11 000 sq. m, open warehouse areas – 191 000 sq. m. It can handle vessels up to 40,000 tons with direct connection to the road and railway networks.

Oil terminal: The length of the wharf is 300 m with 3 berths. The maximum depth at berths is 24 – 25 feet. Capable of handling vessels up to 100,000 tons with direct connection to the road network.

Lozovo: Covered warehouse-areas – 14,000 sq. m., open warehouse areas – 21,600 sq. m. No connection to the road and railway networks.

The ports of Varna and Burgas could attract substantial oil transit from the central Asian republics, which see Bulgaria as a convenient shipping route to west European oil markets. Recent meetings of Bulgarian officials with counterparts from Kazakhstan, Uzbekistan and Azerbaijan have given shape to such projects.

Air transport

Bulgaria has 10 civil airports, four of which have international status. The other six serve agricultural aviation. Air transport activity at the moment is concentrated in Sofia, Burgas and Varna, which serve mostly international destinations.

Sofia Airport

The main Bulgarian airport is in the capital, Sofia. Some experts see “hub” potential inSofia due to its central location in the Balkans. There is a plan to develop and expand Sofia International Airport with the capacity and modern facilities to deal with the demand expected early next century. The project is expected to cost up to US$ 200 million and will involve the European Investment Bank and the government of Bulgaria.

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A renewed airport of Sofia was opened on September 4, 2000 after 9 months of construction works. The International Departure terminal covers at present a total of 1260 sq. m with 19 check-in desks thus allowing 720 passengers per hour. The enlargement of the transit and before boarding space allows the servicing of 1,400 passengers per hour, meeting the IATA criteria. The zones for security checks, customs and passport control have been doubled in space. Two new luggage-handling systems have been delivered by the German company Mannesmann.

The airport has one runway with artificial coating (asphalt/concrete) which is 2,800 m long and 45 m wide. The Southern section of the airport comprises a main terminal, government VIP terminal and technical stands with a total area of 288 144 sq. m. The Northern section comprises a main terminal and front shed sites with a total area of 43,860 sq. m.

Runway and apron conditions at the airport are sub-standard. The present runway length (2800 metres), surfacing and apron capacity are all limitations to future growth. The shape, area and surfacing of the present aprons also prevent effective grouping of operating, long-term parking and technical/maintenance stands.

Burgas Airport

The airport, with modern navigation equipment, has a runway 3,200 m. long.

Varna Airport

The airport has a 55-m wide runway, which is 2,500 m long and modern navigation equipment.

C Implementation of structural reform and privatisation in transport

The policy of the Ministry of Transport and Communications in the field of privatisation is to keep the current share of state capital for a few companies only, depending on their specific functions and obligations to the state, and according to the Constitution of the Republic of Bulgaria and the relevant international agreements.

Road transport

All companies dealing with vehicle repairs and taxi transportation have already been restructured and privatised, as have 89% of the companies for freight and mixed transport.

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The Directorate General "Road Administration" has been established under the Ministry of Transport and Communications. This directorate will be responsible for road policy matters including licensing, relations with other countries, etc.

With the entering into force of the new Road transport law – on 17.09.1999 - the former GRD (General Road Directorate) under the Ministry of Regional Development and Public Works was transformed into the Implementing Agency "Roads" under the Minister of Regional Development and Public Works. It will have responsibility for the implementation of road infrastructure, including ISPA-financed projects. Its statute and responsibilities are covered by the same law.

Railway transport

In accordance with the Law for the Bulgarian State Railways and Council Directive 91/440/EEC of 29 July 1991 on the development of the Community’s railways, it is envisaged that only railway infrastructure (railway lines, electric network, stations, etc.) will remain under State ownership.

The railway industry and other sections of the National Company "Bulgarian State Railways", together with the commercial activities of railway transport, are subject to privatisation. The transportation of passengers and freight is expected to be given under concession after the new Law on railway transport has come into force. A draft law, which has already been approved by the Council of Ministers, will set up the Implementing Agency "Railway Administration".

The draft of the new Railway transport law has been submitted for approval to the National Assembly. The law is a part of the reform undertaken for clear definition and separation of the roles of the State and the railway enterprises and has incorporated the key requirements of EU legislation in the field of railway transport. The entering into force of the law on the 1 January 2002 will allow the complete separation of infrastructure and transport operations, as well as the creation of all prerequisites for allowing open access to the railway network.

To date 8 out of 13 railway enterprises have been privatised (concerned with rolling stock repairs and construction, etc).

Air transport

The Implementing Agency "Civil Aviation Administration" has been established under the Minister of Transport and Communications.

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To date 87% of the aviation companies have been restructured. The national carrier, Balkan Airlines, was sold to Israel’s Zeevi Group in July 1999. Zeevi paid US$ 150,000 for 75 per cent of the company’s shares and pledged to invest US$ 100 million in the company in the next five years. US$ 20 million is to be invested in the first year, mainly for the renewal of Balkan’s ancient fleet. After the purchase Zeevi Group selected management consultant Speedwing, a British Airways subsidiary, to advise on the restructuring and management of the newly acquired company. Balkan Airlines handled most of Bulgaria’s international flights. Some have been suspended in recent years due to a lack of suitable aircraft. Zeevi Group intended to restore many regular flights, after hiring new planes. Domestic aviation is relatively unimportant. The Zeevi Group apparently purchased Balkan Airlines to operate in Arab countries. This was, however, only possible for a very short period of time. Now, Balkan Airlines is bankrupt and its future is most uncertain.

The EU has assessed that the legislative harmonisation process in the field of aviation has progressed satisfactorily. The new Civil Aviation Act entered into force in January 1999.

A number of smaller aviation companies are due to be privatised and the process of privatising agricultural aviation has been fully accomplished. A procedure for a privatisation of the company Hemus Air is already opened. Some assets of the civil airports as well as some activities related to land servicing will be given under concession.

Maritime transport

A step by step privatisation after restructuring is envisaged for non-core activities of the shipping companies and ports. The separation of the qualification centre from the "Navigation Maritime Bulgaria", plus separation and subsequent privatisation of the tug fleet and the Bulgarian Register of Shipping are being progressed. It is proposed that the ports will be re-structured and given under concession, either totally or in part, which is provided for in the draft Law on marine areas, inland waterways and ports.

The Implementation Agency "Maritime Administration" has been established under the Ministry of Transport and Communications as well as General Directorate "Port Administration".

At present only 12% of the long-term assets scheduled for privatisation before end of 2000 are still left within the Ministry of Transport and Communications.

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4.2 Communications

Bulgaria inherited relatively high line density from the pre-transition period. Recentinvestments increased further the fixed line telephone penetration from 31.8 lines per 100 inhabitants in 1997 to about 33.6 lines per 100 inhabitants in 1998. The quality of the network is less advanced. The level of digitalisation of local lines was quite lowin 1998, at only 8 per cent. Digitalisation is more advanced for the international andlong distance networks, at 100 and 80 per cent respectively. Although mobiletelephone penetration has trebled during 1998, the level is still low at 1.6 per 100 inhabitants, leaving considerable room for growth.

A long-term programme of digitalisation has begun, primarily aimed at improving business services. Its first phase, Project DON (Digital Overlay Network), was completed in 1998, with assistance from the EBRD. This put in place a new international exchange, 11 trunk exchanges and a number of local exchanges (alldigital), two optical rings, digital relay links and more than 100,000 new subscriber lines with access to digital exchanges. A second phase of the programme is currently being implemented, with the aim of broadening local line digitalisation.


One major facet of the reconstruction remains - the privatisation of the national telecommunications provider, BTC, which will finally remove the conflicts of interest which are bound to exist in a mixed market environment with the State as policy maker and regulator, and the State as telecommunications operator. Subsidiary to this, but none the less essential to telecom development, is the award of a second GSM license.

The Bulgarian Telecommunications Company (BTC) is in the process of privatisation.The government is negotiating a deal with a consortium of OTE (Greece) and KPN (theNetherlands). Under the deal, OTE-KPN would obtain 51 per cent in BTC, which hasa monopoly on fixed-line communications. The final outcome after long and many discussions, however, has been the termination of the negotiations and the collapse of the deal. The consortium would also receive 51 per cent of analogue cellular operator Mobikom and a licence to establish the country’s second cellular GSM operator.

The launch of a second GSM service will mean that there will be two directly comparable and directly competing service providers in the same market sector.

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The contest between the second licensee and MobilTel bids fair to be a significant event in the development of the Bulgarian market economy. Examples from other parts of Europe have shown that in general such competition provides a win-win situation for all; the size of the telecom market increases, spurring on development elsewhere in the economy, and market forces drive the introduction of the latest products and services.

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5 PRIORITIES FOR INVESTMENT BY THE BULGARIAN AUTHORITIES

5.1 Priority investments in transport infrastructure

The development of transport and transport infrastructure is one of the priorities set out in the Programme of the Bulgarian Government. The implementation of Bulgaria’s main objective – the accession to the European Union, NATO and the other Euro-Atlantic structures - highlights the necessity for a national transport system comparable to a European one.

According to an interdepartmental programme on the development of transport infrastructure drawn up by the Ministries of Transport and Communications and of Regional Development and Public Works 1,200 million Euro will be needed for rehabilitation and construction of roads of national and international importance; 250 million for local roads; and 3,800 million Euro for other transport infrastructure projects.

This programme will create 15,000 jobs in the road construction industry. Projects relating to the international transport corridors will be financed through loans (28%); grants (21%); national budget (27%); concessions and BOT (build-operate-transfer) ventures (13%); and own resources (11%).

The combination of an advantageous geographic location and Bulgaria’s determination to achieve its objectives in joining the EU have committed the Government to completing a number of projects along the routes of five of the ten Pan-European Transport Corridors, as determined by the Pan European Conferences of Transport Ministers in Crete (1994) and Helsinki (1997).

The participation of Bulgaria in the TINA project is a very important component of the development of transport infrastructure. The starting point of the TINA process is the so called TINA backbone network based upon the 10 Pan-European Transport Corridors approved with some adjustments at the third Pan-European Transport Conference in Helsinki in 1997. For this backbone network, construction costs have been estimated on a common base using existing information and input from the TINA countries.

For the Republic of Bulgaria the TINA backbone network is defined and adjusted by sections and transport modes on the base of the 5 Pan-European Transport corridors, passing though the territory of the country (see the TINA network map). The cost of aligning the backbone network in Bulgaria to EU standards has been estimated in the TINA report at Euro 4,095 million, of which the road network accounts for Euro 2,165 million and the railway network Euro 1,930 million.

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To this has to be added the cost of aligning the "additional network components" for both road and rail, as well as the estimated costs of developing to EU standards of Bulgarian airports, seaports, inland waterways and combined transport terminals.

The following describes the main alignment of the five corridors crossing Bulgaria:

Trans-European Transport Corridor IVDresden / Nuremberg – Prague – Vienna / Bratislava – Budapest – Arad – Bucharest - Constanta / Craiova – Sofia – Thessaloniki / Plovdiv – Istanbul

Trans-European Transport Corridor VIIThe River Danube

Trans-European Transport Corridor VIIIDurres – Tirana – Skopje – Sofia – Plovdiv – Bourgas - Varna

Trans-European Transport Corridor IXHelsinki – Saint Petersburg – Moscow / Pskov – Kiev – Ljubasevka – Chisinau – Bucharest – Dimitrovgrad – Alexandroupolis+ Kiev – Minsk – Vilnus – Caunas – Klaipeda / Kaliningrad + Ljubasevka – Odessa;

Trans-European Transport Corridor XSalzburg – Ljubljana – Zagreb – Belgrade – Nis – Skopje – Veles – ThessalonikiBranch A Gratz – Maribor – Zagreb Branch B Budapest – Novi Sad – Belgrade Branch C Nis – Sofia (Dimitrovgrad – Istanbul through corridor IV) Branch D Veles – Prilep – Bitolja – Florina – Via Ignatia – Igoumenitsa

The Programme of Transport Sector Development also includes the construction and development of:

Construction of a second bridge over the Danube linking Vidin with Calafat. Sofia National Airport. Restructuring, rehabilitation and modernisation of rail transport, including

reconstruction and electrification of railway Plovdiv - Svilengrad - Greek/Turkish border.

Rehabilitation, modernisation and development of the national road network. The construction of a grain terminal, a silos storage facility and the construction of

railway and road transport loading/unloading facilities in the port of Varna. The construction of a roll on/roll off and container terminal on the island beneath

the Asparuh Bridge in Varna.

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The construction of five terminals in the port of Bourgas: liquid cargo; bulk cargo; general cargo; ferry boat and Ro-Ro; containers as well as new breakwaters.

The building and re-construction of the following terminals and facilities in Port Rousse: zone for bulk cargo; container terminal; zone for general cargo handling; repair complex for port machinery; container repair facility; grain terminal; zone for custom bonded cargo handling; Ro-Ro terminal; DAEWOO terminal; transit river-sea cargo zone; avant-port area; administrative and storage zone; storage zones.

Building and reconstruction of infrastructure and equipment in the port of Lom. Construction of a container and combined transport terminal in the port of Vidin.

As a result of the adopted national transport policy for priority development of the transport corridors and the already established fruitful co-operation between the European Union and Bulgaria in the field of the strategic planning of the Trans-European transport networks, significant experience was gained when determining the national transport priorities in relation to the Pan-European corridors. Business and master plans, pre-investment and feasibility studies, financial schemes for construction, etc. for all major infrastructure projects in the country (including rail infrastructure, roads, sea and river ports, Sofia and Bourgas airports) were prepared between 1992 and 1999. Projects for the rehabilitation of the Bulgarian State Railways and the national road network were also prepared.

In this context, a large-scale study was financed under the PHARE programme and with the participation of European consulting companies. The summing up document for the planned development of the transport infrastructure of Bulgaria was produced under the title "Forecasts and Investment Programs for the Development of the Transport Infrastructure of Bulgaria for the period till years 2000 and 2010."

In accordance with the described priorities and principles for planning and construction of infrastructure projects, the Government of Bulgaria has developed and adopted a four-year Middle-term National Investment Programme for the period 1998 – 2001. This Programme clearly determines the obligations of the State Budget for development of the country’s overall infrastructure requirements, including the transport sector. There are 25 Ministry of Transport and Communications projects approved in the National Investment Programme. These have been allocated a total State budget contribution of approximately Euro 480 million for the period 1998 to 2001 (this figure excludes other possible sources of financing).

The transport part of the Programme consists of projects with multinational importance situated along the Pan-European Corridors. The projects in the Programme and in the Strategy of the Ministry of Transport and Communications for development of the transport infrastructure are listed with an indicated ranking, according to their priority.

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In addition to the Middle-term Investment Programme, the Ministry of Transport and Communications has elaborated an Investment Programme for Development of the Transport Infrastructure of the country, with 36 national investment transport projects and the investments necessary for their construction till year 2015 (estimated total cost of approximately Euro 4,890 million).

This programme includes the 25 projects covered by the Middle-term National Investment Programme of the Government. The projects are in the field of railway, combined, road, maritime (sea and inland waterways) and air transport. They are primarily situated along the five Pan-European Transport Corridors passing through the territory of Bulgaria. The funding for these projects will include investments by the State budget and other financial sources such as taxes on liquid fuels, credits by the international financial institutions, public-private and private concessions, and EU financial instruments.

Included as well are the cross-border co-operation programmes with Turkey and FYROM, to be launched in 2001. They involve 80 projects worth 408 million Euro in total. By 2005 the Regional Development Ministry is planning to build sections of the Trakia, Maritsa, Lyulin, Strouma and Hemus highways in order to complete the national motorway ring, and to construct the Sofia-Nis transit road.

5.2 Companies offered for privatisation in transport and communications

Five projects for privatisation in the field of transport and communications in their brochure "Privatisation in Bulgaria - Investment Opportunities"2:

Telekomplekt SP JSCActivities: cable installation, radio and TV installation and internal installation of communication equipment, services in the field of building mechanisation and transport.Location: Sofia.

2 This brochure is published by the Foreign Investment Agency; Privatisation Agency; Ministry of Economy; Ministry of Regional Development and Public Works; Ministry of Transport and Communications; and State Agency of Energy and Energy Resources.

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Bulgarian River Shipping SP JSCActivity: cargo shipping.Location: Rousse.Bulgarian Sea Shipping SP JSCActivity: cargo and passenger sea transportation.Location: Varna.

Hemus Air SP Ltd.Activity: air transportation.Location: Sofia.

Zhelezopaten Complex SP JSCActivities: commercial and forwarding services; passenger transportation; wholesale commercial activity in industrial raw materials.Location: Devnya.

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6 EXISTING DONOR ACTIVITIES IN BULGARIA

6.1 Bilateral donor activities


6.2 Multilateral donor activities

6.2.1 European Union

The major objectives of the support of the European Union to the Bulgarian transport system are:

Opening of the Bulgarian transport system for EU member states and the neighbouring countries.

Restructuring the transport sector in accordance with European standards and market economy principles.

Development of infrastructure, technological modernisation, new investments.

This support is financed by different programmes:

Phare National Programme for the Bulgarian transport sector. Phare Multi-country Transport Programme. EU Cross-Border Co-operation Programme (CBC).

Through the Phare National Programme the European Union has supported mainly investments in the overall development of transport in Bulgaria and infrastructure.The Phare Multi-country Programme has funded above all pre-investment studies, staff training, as well as some specific projects of upgrading border crossing facilities.The CBC programme in its transport components aims towards the development ofcommunications with Greece currently the only EU member country neighbouring Bulgaria, and Romania. The railway section from the town of Doupnitza to the southern border is in the course of modernisation and new road links to Greece are being constructed and rehabilitated.

In the period 1992-1999 Bulgaria has received under the Phare National Programme about ECU 94 million. For the CBC Bulgaria Euro 86 million have been allocated.Some of projects financed under the above mentioned programmes are:

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Reconstruction of the carriageway of Danube Bridge currently the only road link of Bulgaria to Central Europe.

Modernisation of management of Bulgarian Railways Company and enhancing safety (Euro 17 million).

Another large project of the Bulgarian railway infrastructure, which has been completed, is the renovation of 64 km of railroad (Euro 20 million).

The upgrading of Doupnitza -Koulata railway under CBC programme (Euro 33 million).

Rehabilitation of part of the “Hemus” highway.

Transit Roads 1 Project (1995 -98) for the improvement of 750 km of roads with a total amount of Euro 97.4 million. Of this, Euro 10.4 million has come from the Phare Programme; Euro 35 million from EBRD; and Euro 31 million from the state budget of Bulgaria.

Development of Sofia Airport (Euro 7.8 million).

Bulgaria expects to receive for the period 2000 -2006 up to Euro 420 million for the development of transport infrastructure to be financed by the ISPA programme.

Six priority projects have been defined by the Bulgarian authorities for potential ISPA funding:

1. Reconstruction, development and extension of Sofia Airport.2. Rehabilitation of road sections along the route of the Pan-European Transport

Corridors - "Transit Roads III".3. Reconstruction, electrification and upgrading of the railway line Plovdiv -

Dimitrovgrad - Svilengrad - Kapitan Andreevo for speed up to 160 km/h.4. Construction of Danube bridge Vidin - Kalafat.5. Construction of Ljulin Motorway.6. Construction of Strouma Motorway.

Also the bilateral Phare programme in the sectors transport, infrastructure and communications continues to exist. The following projects are planned in these fields:

Facilitation of Danube Border Crossing

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Short-term assistance in the fields of assessment of the current situation of the border crossing, harmonising of procedures and working practices, information exchange and technical facilities.Budget 300,000 Euro

Supervision of construction of the new border crossing road Makaza Supervision services on the construction works of a new road 18 km from Podkova to the Bulgarian-Greek borderBudget 2,000,000 Euro

Supervision of construction of a cut and cover tunnel between the check points Ilinden and ExohiSupervision of the construction works of a "cut and cover" tunnel on Bulgarian-Greek border along the direction Goce Delchev - Drama. The border crossing and the checkpoint from the Bulgarian side are currently under construction.Budget 500,000 Euro

Railway Organisation Restructuring – management development of the railway infrastructure company The Project shall provide assistance to the Bulgarian administration in the process of separation of BDZ, the Bulgarian State Railways, and in the establishment of the new Railway Infrastructure Company. The Project includes study and appraisal of the current status of the Bulgarian railway restructuring, training of the administration staff and also the development of the inter-organisational legislative framework. Budget 2,000,000 Euro

Transit Roads Rehabilitation Project III (TRRP III); Sections on Pan-European Transport Corridors; Northwest and Central Region, Republic of BulgariaTransit Roads Rehabilitation Project III (TRRP III) is oriented to the most trafficked and in bad operational condition sections along the main Pan-European Transport Corridors.The proposed under ISPA co-financed Project incorporates rehabilitation and supervision of works to the I-5, A-2, I-6, and I-1 highways along the Pan-European Transport Corridors No IV, No VIII and No IX. With the completion of the TRRP III, in addition to the already completed TRRP I and II, it is expected that approximately 85 % of the primary road network of the country will be brought to an internationally accepted standards of service.

Erection of a Winter Camp For Winter Pass of 39 River Vessels, Navigating on the Danube River within the Territory of Bulgaria

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The first stage of the erection of the site includes a partial building of a vertical quay gravitational wall with the relevant infrastructure: water supply and drainage system, kiosk switch gear and a local site lighting system. The second stage includes finalisation of the vertical gravitational wall (558 m) with the relevant infrastructure to it: water supply and drainage system, local site lighting system, telephony and vertical planning.

Construction of Waste Water Treatment Plants in the Maritsa river basin - Stara Zagora, Dimitrovgrad and HaskovoA. Stara Zagora:A.1. New Stara Zagora wastewater treatment plant with secondary treatment

provided by extended aeration activated sludge process, capacity 60 200 m3 /d (ADF) or 268 000 p.e. and facilities for mechanical sludge dewatering;

A.2 Intercepting collectors: 1.3 km (DN 800 – 2000);B. Dimitrovgrad;B.1. New Dimitrovgrad wastewater treatment plant with secondary treatment

provided by extended aeration activated sludge process, capacity 16 520 m3 /d ( ADF) or 62 300 p.e. and facilities for mechanical sludge dewatering;

B.2 The new pumping stations (Tchernoconovo and Marino), capacities 100 and 500 m3 /h respectively;

B.3 Intercepting collectors and pressure mains for pumping stations, 5.5 km (DN 200 – 600);

B.4 Secondary collectors for some 10 000 people of the left bank of Maritsa river, 31 km ( DN 400), (Tchernoconevo 18 km, Vulkan 4 km, Marino 9 km). This infrastructure will provide for the connection of the left Bank residential areas to the new wastewater treatment plant;

C. Haskovo :C.1. New Haskovo wastewater treatment plant with secondary treatment

provided by extended aeration activated sludge process, capacity 25 740 m3 /d (ADF) or 101 000 p.e. and facilities for mechanical sludge dewatering;

C.2 Intercepting collectors: 3.45 km ( DN 1500 – 2000)

Budget:Total amount – EURO 61 413 182 for Stara Zagora, Dimitrovgrad & Haskovo ISPA contribution – EURO 32 549 766 for Stara Zagora &DimitrovgradEIB contribution – EURO 18 013 494 for Haskovo

Supervision of Waste Water Treatment Plants for 3 cities – Stara Zagora Dimitrovgrad & Haskovo

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The Employer’s Representative will observe and control the implementation and completion of the construction work under FIDIC– Orange book, Design Build and Turn Key.Budget <4.3 million Euro; 7% of construction amount

Development of telecommunication infrastructure of the Bulgarian and Romanian electricity companies for improvement of data exchanges between their Dispatching Centres and UCTEIdentification of the best technical and financial solution for the improved telecommunication infrastructure, the total investment cost and the technical specifications of the necessary equipment to be procured for interconnection of the power networks. Investigation on the data interface of both National Dispatching Centres with the UCTE Accounting Centre and the technical and financial solution for data communication with the Accounting Centre. Budget 300,000 Euro

Strengthening the Regulatory Framework for Telecommunications Technical assistance to the State Telecommunications Commission for their

institutional review and development of strategic plan for institutional strengthening;

Support for the implementation of the adopted strategic plan.Budget 1.7 million Euro

6.2.2 EBRD

The EBRD is pursuing the following objectives:

1. Enterprise sector

The EBRD will continue to promote privatisation, post-privatisation restructuring and sound corporate governance of selected companies in the enterprise sector, through both debt and equity investments. In the case of large enterprises, the EBRD will continue to work alongside foreign strategic partners as well as with domestic investors. Project selection will be oriented towards transactions that have clear demonstration effects in order to promote the transition process to the largest degree possible.

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The EBRD intends to support the development of small and medium-sized enterprises in particular. Where possible, this will be achieved through further work with local financial institutions, an increased focus on private equity funding and the provision of term funding through general and sectoral credit lines to local banks. In addition, the EBRD will also make use of the availability of funds under the joint EBRD-EU SME Programme for Accession Countries.

2. Infrastructure

The EBRD will proactively support the rapidly growing interest by private investors in the infrastructure sector, particularly in power generation, in telecommunications and in certain municipal services. The future water concession and the district heating projects with the Sofia Municipality should constitute landmark transactions. Besides, the EBRD will also continue to provide selective sovereign-based support for crucial sectors such as district heating, energy transmission and transport. Lastly, the EBRD will continue to provide guidance on the restructuring of the energy sector.

3. Financial sector

The EBRD will assist in the completion of the restructuring of the financial sector by taking a leading role in the privatisation of several of the remaining state-owned banks responding to the needs of strategic investors. The EBRD’s involvement will be aimed at improving regional networks in Bulgaria and will help attract strategic investors and strengthen corporate governance. At the same time, the EBRD will actively manage its current portfolio of equity investments to increase shareholder value. The EBRD will also support pension reform efforts by strengthening institutional capabilities in managing voluntary private pension funds and will consider targeted measures to promote the still non-existent local capital market.

List of projects as per December 31, 2000

Private industrial sector

Danone-SerdikaIn March 1994, the EBRD made an equity investment of €1.2 million in Danone-Serdika, a joint venture between Danone and Serdika-Sofia. Danone-Serdika is Bulgaria's leading yoghurt manufacturer and is the country's first privatised dairy company. The Bank's investment has contributed to the upgrading and modernisation of the existing product line and equipment, with a view to improved quality and a longer shelf-life for existing products, as well as the launch of new products. Two subsequent capital increases for a total of €2.7 million were subscribed by the EBRD.

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Delta DairyIn December 1994 the EBRD made an equity investment of USD 3.4 million in Delvi-P, an ice-cream production joint venture sponsored by Delta Dairy SA, a leading Greek dairy products manufacturer. Delvi-P is a joint venture between Delta, Vitalact (former state-owned dairy recently privatised by Delta) and Lb Bulgaricum (a Bulgarian yoghurt research and production company). The proceeds of the EBRD investment were used to expand Delvi-P's existing ice-cream production capability and install new production lines. Delvi-P is EBRD's first successfully completed and repaid private sector operation in Bulgaria.

AsteraInOctober 1996 the EBRD made a loan of USD 10 million to Astera AD, a leading Bulgarian personal care products company, which acquired Aroma AD in a privatisation transaction, a long-standing Bulgarian producer of cosmetics and personal hygiene products. The proceeds of the loan have supported the privatisation and modernisation of Aroma. This was EBRD's first private sector industrial transaction with a 100 per cent Bulgarian owned company.

StorcoIn October 1996 the EBRD extended a USD 8.25 million loan and made an equity investment of USD 1.75 million in Storco AD, one of Bulgaria's largest fruit and vegetable processing companies. The funding was provided to finance Storco's post-privatisation investment programme, including the upgrading of its food-processing facilities, restructuring of its operations and the improvement of its raw material supplies. Storco was privatised in November 1995 through the sale of 80 per cent of its share capital to Luxcraft Trading Ltd, a holding company owned by the Geller Group (Israel).

Solvay-Sodi DevnyaADIn June 1997, the EBRD made an equity investment of USD 40 million to facilitate the privatisation and modernisation of Varna based Sodi Devnya AD, a world-wide leader in the production of soda ash. The privatisation transaction was one of the largest ever signed by the Bulgarian Government. The project sponsor is Solvay SA, a Brussels-based international chemical and pharmaceutical group. Solvay-Sodi's management is implementing a USD 66.5 million five-year investment programme, including follow-up privatisation of three major suppliers in the Devnya region - Thermo-Electric Power Plant Devnya, the Lisitchevo Limestone Quarry and the Geosol salt mine.

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Domaine BoyarIn June 1998 the EBRD approved a €25.9 million syndicated loan for Domaine Boyar AD to fund the modernisation and expansion of the production facilities of two existing wineries and the construction of a third greenfield winery in the town of Sliven. This was EBRD's first commercial co-financing transaction in Bulgaria. The financing consists of an € 18.6 million loan from the EBRD and an € 9 million loan from ING Bank. The EBRD has also committed a € 2.2 million equity investment in the company.

CelhartIn November 1998 the EBRD approved a USD 13.9 million loan and USD 1.5 million equity investment for Celhart AD to fund the modernisation and expansion of the pulp and kraft paper production facilities at the plant in Stamboliiski. The project sponsor is the Isiklar Group from Turkey, a major player in the paper sack industry. To enlarge the factory capacity, a follow-up investment of USD 10 million was approved in May 2000 (adding up to a total cost of the project of USD 75 million). The financing of the project has been undertaken jointly and on equal terms with the IFC.

Foodstores (Ramstore) BulgariaA loan of USD 12.8 million to Ramstore Bulgaria A.D., a wholly owned subsidiary of the Turkish retailer Migros Turk T.A.S in June 2000. The EBRD's loan will finance the construction of a chain of hypermarkets and supermarkets across the country, improving the efficiency of the local food distribution sector. The total project cost will be USD 36.5 million. Migros Turk T.A.S is the largest retailer in Turkey.

Sofia Water ConcessionEBRD extended a €31 million loan to Sofijska Voda AD, the country's first privately managed water and wastewater company, under a project to improve the water system of Bulgaria's 1.2 million people capital. The water and wastewater concessionaire company is majority owned by International Water UU (Sofia), whose ultimate parent companies are Bechtel Enterprises Holdings, Inc., Edison SpA and United Utilities plc. The loan supports the utility company's capital expenditure programme for the first five years of the concession, as well as various financing and start-up costs. Initial investments concentrate on the rehabilitation of the water and sewerage networks to reduce leakage and infiltration and improve continuity of supply.

Rila SolutionsIn December 2000 the EBRD participated in the second round of financing of Rila Solutions, an internet and wireless solutions company founded by George Soros and BTC in 1998, through a USD 3 million equity investment providing the rapidly growing company with essential early-stage capital.

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As a result of EBRD's assistance and participation, Rila Solutions raised a total of USD 9 million from the EBRD and other investors, including ARGUS Capital Partners, a private equity fund, in this round of financing. The proceeds from this investment will be used to support the growth of the Company by attracting top engagement managers in the key West European and US markets. Rila Solutions is the first EBRD investment supporting the development of the high-tech sector in Bulgaria.

Financial sector

International Commercial Bank (formerly Bulgarian Investment Bank)The recently renamed International Commercial Bank (Bulgaria) is a private sector investment bank established to provide corporate finance services and medium to long-term loans to small and medium-sized private sector companies.The Bank was founded in 1994, with EBRD holding 46% of the shares. The other shareholders were five Bulgarian commercial banks and BNP. In 1995, the Commercial Bank of Greece was attracted as a strategic sponsor and assumed management responsibilities for BIB in 1996. Currently the EBRD owns 8% of the share capital.

BNP-Dresdner (Bulgaria) BankIn September 1995 BNP-Dresdner (Bulgaria) Bank was opened in Sofia, a joint venture between France's Banque Nationale de Paris and Germany's Dresdner Bank, each of which holds 40 per cent of the capital. The remaining 20 per cent is held by the EBRD. The bank specialises in trade and corporate finance, offering financial services to international and Bulgarian companies. A total of € 4.9 million was invested by the EBRD.

CaresbacIn October 1994 the EBRD signed a USD 4 million equity investment agreement with the investment company CARESBAC-Bulgaria. The company is owned by Small Enterprises Assistance Funds (SEAF), at 65.8% and EBRD (34.2%). CARESBAC-Bulgaria focuses on supporting SMEs through equity investments, mainly in agriculture, food processing and light manufacturing, with an emphasis on the export sector. The Fund is targeting the low end of the investment spectrum with investments of USD 50,000 - 250,000. The Fund has a portfolio of 23 investments at a cost of USD 6 million.

Euromerchant Balkan FundEuromerchant Fund is a venture capital fund established to invest primarily in small and medium-sized Bulgarian and Romanian joint ventures with foreign companies and promising medium-sized local companies. With a participation of USD 8.3 million, the EBRD is a lead investor in the USD 27.3 million fund. Global Finance SA, the fund manager, is a Greek financial services company.

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The Project Sponsor is the Athens-based EFG - €O Bank. IFC is also an investor in the fund. The fund is fully invested and has committed USD 23 million in 11 investments, 5 of which are in Bulgaria.

First Investment BankIn October 1996 the EBRD signed an agreement with First Investment Bank (FIB), a private Bulgarian bank for a credit line of USD 6.5 million (since fully repaid) for on-lending to small and medium-sized enterprises. In the first quarter of 1997 the EBRD acquired a 20 per cent equity stake of FIB in the form of a capital increase to facilitate the availability of financing to SMEs. Additionally, in August 1999, the EBRD arranged a €13 million syndicated loan for FIB, comprising an A-Loan portion of €5.0 million for the EBRD's own account and a B-Loan portion of €8.0 million for the account of commercial banks. The transaction represented the first financial sector operation in the region following the end of the Kosovo crisis.

United Bulgarian BankUBB was established in 1993 through the consolidation of 22 local banks, largely spin-offs from the Bulgarian National Bank. UBB is a full service universal commercial bank. It was the first large Bulgarian bank to be fully privatised in mid 1997. EBRD took a 35% participation along other institutional shareholders. The privatisation deal was concluded together with Bulbank (acquiring 35% of UBB) and AIG New Europe Fund (30%). In June 2000 the majority stake of 90% of UBB was sold to the National Bank of Greece, EBRD has kept a 10% stake.

Black Sea FundThe EBRD invested USD 20 million in the Black Sea Fund (BSF), which closed in August 1998 with total capital commitments of USD 62 million. BSF is a follow-on fund to the Euromerchant Balkan Fund, which is fully invested. The core countries in which BSF will invest are Bulgaria, Romania, Ukraine and southern Russia (with a possibility to consider opportunities elsewhere in the Balkan and Caucasus regions). BSF will provide much needed equity capital to local small and medium sized enterprises and will promote the formation of joint ventures thereby facilitating foreign direct investment in the Black Sea region.

Post Privatisation FundA joint project between the EBRD and the European Commission, signed in December 1997. The EBRD committed €30 million for direct equity investment in medium size private or privatised enterprises with good growth perspectives across the entire industrial sector. The size of individual investments is in the range of € 1 to 3 million. Additional equity of €10 million is provided by the Fund Manager, Europa Capital Management AS (Czech Republic).

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The BPPF is complemented by a technical assistance grant of €15 million provided by EU Phare, mainly for pre-investment due diligence and post-investment support. As of 31 December 2000, the Fund had made six investments for €14 million, of which EBRD invested €10.3 million. Investee companies are active in food manufacturing, medical supplies, IT, micro-electronics, packaging and wine.

Grain Receipt Programme - SG ExpressbankTogether with other institutions, the EBRD has worked closely together with the Bulgarian Ministry of Agriculture in developing and enabling lending agricultural producers against warehouse grain receipts. On the 26 of July 1999 the EBRD signed a Memorandum of Understanding with the Ministry of Agriculture, through which the Bank makes available up to DEM 50 million to Bulgarian commercial banks for a period of up to 4 years, to be on-lent yearly to agricultural producers against warehouse grain receipts. On the same day, the Bank signed the first loan agreement under this framework with SG Expressbank for an amount of DEM 10 million, which was renewed on 30 June 2000. Warehouse receipts will enable farmers to borrow against their grain, using warehouse receipts as collateral. This will provide commercial banks with a safe and easily enforceable mechanism for financing the agricultural sector.

IØ Fund: B&C BulgariaThe IØ Fund is a Danish Government Sponsored Developing Financial Institution which co-finance JV projects in the CEE countries with Danish JV sponsors. EBRD is to co-finance the projects put together by the IØ Fund, mainly of SME's. Under the co-financing facility, EBRD has made one investment in Bulgaria, which is in B&C Bulgaria - a company that produces women's knit clothing. It is a joint venture with GERA, a Bulgarian company and BC, a Danish private company.

Trade Facilitation ProgrammeThe Trade Facilitation Programme includes a range of products aimed at facilitating intra-regional and international trade of the countries of operations, consisting of (i) EBRD guarantee facility, allowing confirmation of trade finance instruments issued by client banks without cash collateral, and (ii) possibly, short-term pre-export advances to client banks. International Commercial Bank (Bulgaria) was the first beneficiary of this facility in Bulgaria. EBRD has signed agreements for Trade Facilitation Financing with International Commercial Bank and United Bulgarian Bank.

Bulgarian Insurance GroupIn December 1999, the EBRD signed a US$ 5.15 million equity investment in TBI Holding, a joint venture between Kardan Ltd of Israel and Deutsche Bank private equity. The company will invest in and actively manage insurance and pension fund management companies and health insurance funds in Bulgaria. It holds controlling stakes in Pension Fund Doverie and Bulstrad Insurance and Reinsurance Plc.

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The project promotes the development of capital markets in Bulgaria, contributing to the implementation of comprehensive pension reform. In December 2000 a new investment with the same sponsor was made to fund similar initiatives at a regional level, expanding the funding available to the Bulgarian project to US$ 9 million.

Small and Medium-sized Enterprises FacilityUnion Commercial Bank (Unionbank) was the first bank in Bulgaria to benefit from a dedicated SME finance facility launched in 2000 by the EBRD and the European Commission. The signed €3 million credit line aims to promote the growth of Bulgaria's small and medium-sized enterprises (SMEs). Unionbank has also received a substantial technical co-operation package aimed at developing its SME lending programme, as well as a grant to help cover the costs of building this business, both funded by the European Commission's Phare programme.

Bulgarian Tourism/SME Credit LineIn July 2000 EBRD signed USD 5 million credit line with the Bulgarian-American Credit Bank. The Line will facilitate investments in the Tourism and SME sector. The credit line was extended at a very crucial moment of the Bulgarian tourism sector development, when almost all the industry has been privatised and financing is needed to improve the quality of the service offered, thereby making Bulgaria a preferred place for tourism.

Public infrastructure sector

Maritza East II Power StationIn June 1992 the EBRD provided credit of €39.5 million for construction work at the Maritza East II power plant. The loan was to help finance the completion of a lignite-fired generation unit and the retrofitting of sulphur dioxide removal equipment to comply with environmental legislation. The total cost of the operation was €114.0 million, including the project components financed by the European Investment Bank and the National Electricity Company of Bulgaria.

EurovisionBulgaria was one of 15 central and east European countries to benefit from the extension of the Eurovision network. In July 1992 the EBRD granted credit of €12.0 million to help finance the design, supply and installation of earth stations in the countries, thus enabling them to be linked to the Eurovision network by satellite. Each country borrowed €0.9 million for the partial financing of one transmit-and-receive earth station.

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Bulgarian Telecommunications CompanyIn September 1992 the EBRD approved a loan of €32.0 million to Bulgarian Telecommunications Company (BTC), the national telecommunications operator. The loan was designed to finance the modernisation of Bulgaria's telecommunications facilities, including the installation of nearly 100,000 line units of switching capacity in large cities throughout the country, a transit network inter-linking them, and new earth station and international gateway facilities. The total project cost was €187 million, co-financed by the European Investment Bank, BTC and other sources.

Bulgarian Transit RoadsThis major road construction project involved completion of a 32 kilometre section of the Trans-European Motorway between Plovdiv and Orizovo as well as improvements to some 800 kilometres of primary roads serving regional and long-distance transit traffic. The EBRD loan totalled €38.9 million, with an in-kind contribution from the Government of Bulgaria and a further loan from the European Investment Bank making up the total project cost of €95.7 million.

Bulgarian Railways RestructuringWith co-financing from the World Bank, export credit agencies (ECAs) and EU Phare, the EBRD has contributed USD 45 million to a major railway restructuring project. The ECA financing (USD 12.0 million) was organised by the EBRD, and is for track renewal machines, with the Bank financing 40 per cent of the corresponding contracts. The EBRD is also financing a turnkey project for coach rehabilitation, equipment for workshops and locomotive parts. This was the first loan under the EBRD's export credit loan arrangement programme (ECLAT).

Bulgarian Wholesale MarketsIn December 1995 a loan agreement was signed to finance the construction and rehabilitation of modern agricultural wholesale market facilities designed to provide competitive outlets for private sector suppliers and traders of fresh agricultural products. In order to facilitate implementation, this project was redesigned in 1999 and reduced in scope. A new loan agreement (replacing the existing one) was signed on the 5th August 1999 for USD 10 million. The new project will cover the construction of up to four markets in Bulgaria.

6.2.3 World Bank

Since Bulgaria joined the World Bank in 1990, Bank assistance to the country has been aimed at fostering sustainable development and economic growth by investing in physical and social sector infrastructure, and by accelerating structural reforms and rapid development of the private sector.

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In parallel, Bank-financed activities have been addressing poverty through improvements of the social safety net and other social sector programs. The most recent addition to the social sector portfolio is the Health Sector Reform Loan (US$63.3 million) designed to stop deterioration of the population's health.

World Bank lending to Bulgaria to date comprises 23 operations for a total original commitment of US$1.44 billion, including 9 adjustment operations (US$850.8 million), 13 investment loans (US$580 million), and a Bank-managed Global Environmental Facility (GEF) grant for US$9.9 million. The infrastructure projects continue to hold the biggest share of the active portfolio (excluding adjustment operations)--almost 78 percent--all approved before 1996. Portfolio development in recent years indicates a shift in priorities toward the social sector, now amounting to 17 percent of commitments in active operations. Support for the agricultural sector and in the field of environmental remediation and protection accounts for some 5 percent of the total active loan portfolio.

The World Bank is presently not involved in many projects in the fields of transport, infrastructure and communications. The World Bank is implementing transport and trade facilitation projects in Bulgaria and projects focussed on improving border crossings and customs facilitation. The total budget of the project is US$ 12.5 million (US$ 7.4 million IBRD loan; US$ 1.5 million grant from US Government; US$ 3.6 million contribution Bulgarian Government). The project will cover: (i) elements of Customs Administration Institutional Reform (US$0.9 million); (ii) support to theprivate sector via training and provision of information (US$0.5 million); (iii) participation in a regional experience sharing program on integrated systems for border agencies (US$0.1 million); (iv) improvement of border crossing facilities (US$10.5 million); and (v) services to implement the project and the program (US$0.5 million). This is part of a wider programme for the whole Balkan area in Southeast Europe.

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7 MARKET OPPORTUNITIES PER SUB SECTOR

For the identification of market opportunities following sub sectors have been covered: Freight transport. Public passenger transport. Transport by mode; air, water, road, and rail. Public works and water management. Telecommunication, postal services, information and communication technology.

Criteria for the assessment of market opportunities for Dutch enterprises:

There is a need for (additional) technology and know how, which the Dutch industry can supply.

The Netherlands should have an international competitive advantage (Competitive edge) in this technology or market.

Investments from the Dutch enterprise are likely and most probably effective. There should like to be a promising spin-off for other enterprises. There is likely to be a growing market (potential), not or hardly depending on

Government budgets or spending. Projects in this sector should be able fit within the PSO+ framework and meet the

PSO+ criteria and requirements.

Identification and assessment of market opportunities in Bulgaria

Based on the criteria mentioned above an assessment has been made of the different sub sectors for possible PSO+ projects.

This does not necessarily mean there are no sound business opportunities in the sub sectors indicated as “no key area” for PSO+. In some sectors the level of investment required is very high, whereas it appears difficult to develop a pilot project. In some sectors Dutch supply or interest is inadequate or not available (e.g. public transport operations). In other sectors the supply will have a one-off character (tender system), and durable business relations will be unlikely.

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Sector Goods / Freight PassengersRoad transport

Supply industry

Reasonable opportunities in distribution services, conditioned transport and heavy transport


Towing services and service stations.

Reasonable opportunities in international transport, following economic development.

Bonded warehousing, VAL services and regional distribution.

Tank cleaning and chemical waste management.

Leasing facilities for commercial vehicles.

E-commerce and business planning.

Design, manufacturing and marketing of trailers, semi-trailers, tankers and special vehicles.

Manufacturing of tanks for fuels, liquid gas and chemicals for the automotive sector

Manufacturing of cable beams for automotive industry.


Bus operations city and intercity: no key area.

International bus lines; no key area.

Manufacturing of buses (sub-urban and intercity).

Transport by rail Opportunities for forwarders; Government controlled;

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Supply Industry

no key area

Manufacturing of railway components.


no key area

Manufacturing railway components


Inland water transport

Supply industry

Not applicable yet.

Navigation communication and safety systems; no key area.

Not relevant

Sea transport and ports

Supply industry

Based on present performance; no key area.


Air transport

Supply industry

Opportunities in forwarding and storage activities.

Airport maintenance.

.

Public works & water management

Massive investments planned in road construction and maintenance; Opportunities in supply of modern road building machinery and technology.

Water management and distribution in Plovdiv. Design of water distribution systems; no key area.

Production of measuring devices (metres) for water and gas.

Telecommunication and ICT

Manufacturing and application of optical fibre cable technology.

Postal services Development integrated postal services.

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Key areas for PSO projects

Provision of integrated logistics services (bonded warehousing; high-quality physical distribution; tank cleaning). Manufacturing fuel tanks. Production and assembling (semi-) trailers. Manufacturing of buses.

Road construction technologies (equipment and materials).


Business opportunities / project ideas identified for Dutch enterprises

In spite of the fact that government influence and interference in the market economy is still present in Bulgaria, the ongoing privatisation of the industrial sectors in combination with the huge market potential offers increasingly sound business opportunities.

The PSO programme for Bulgaria is and will prove to be very effective in view of the stage of economic and institutional development of the country. The sectors transport, in particular road transport, road infrastructure as well as agricultural production and distribution offer many opportunities to Dutch enterprises, which we have summarised below more specifically.

It should be noted that project ideas as listed below do not necessarily qualify as PSO+ project.

Road transport (freight)

Reasonable opportunities in distribution services, conditioned transport and heavy transport.

Conditioned transport of perishable products. Towing services and service stations. Bonded warehousing, VAL services and regional distribution. Tank cleaning and chemical waste management. Leasing facilities for commercial vehicles. E-commerce and business planning. Design, manufacturing and marketing of trailers, semi-trailers, tankers and special

vehicles. Manufacturing of tanks for fuels, liquid gas and chemicals for the automotive sector. Manufacturing of cable beams for automotive industry. Production of on-board computers for commercial vehicles.Road transport (passengers)

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Production of intercity buses and coaches in Omürtag. Production of sub urban buses for Sofia.

Ports and maritime transport


Air transport

Airport maintenance services Sofia International Airport.

Public works and water management

There are various opportunities for co-operation in the sector maintenance and construction of roads, especially in the field of supply of road construction machinery and technologies and transport equipment.

Water distribution systems in Plovdiv. Production of measuring devices for water and gas.

Telecommunication

Co-operation and investment in optical fibre connection.

Postal services


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8 DUTCH BUSINESS OPPORTUNITIES IN BULGARIA

1. Co-operation in the design, manufacturing and marketing of trailers, semi-trailers, tankers and special vehicles

Recipient: “PRK” S.A.9300 Dobritch, 66, rue KaliakraTel: +359 58 25466

Business activities: Bulgarian company producing trailers, semi-trailers, containers and some specialised vehicles such as garbage collectors. PRK is the only trailer producer in Bulgaria supplying homologated trailers. Their capacity is 10 (semi-) trailers per month, 400 employees and staff.

Purpose of the project: Explore and define technical and economical feasibility of joint production and marketing of semi-trailers, tankers and/or special vehicles for Bulgarian and export markets.

Possible Dutch partners: Trailer manufacturer, component suppliers, manufacturer

of special vehicles.

Hardware: Transport equipment (pilot), manufacturing equipment.

Technical assistance: Technical training, Organisation, Marketing.

Possible results: Assessment of manufacturing capabilities and technologies applied, assessment of (future) market potential and opportunities, exploring areas of co-operation (design, manufacturing, marketing, components, etc.), feasibility, business plan. Spin-off: financial participation. Co-operation with truck distributors (sales, service).

Business environment: Competition from imported high quality, but relatively expensive products. Financing can be problematic on the short-term (high interest rates). Dobritch is in Free zone area.

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2. PRK to co-operate with Dutch specialist in renting / leasing / trading in special vehicles for municipality services

Recipient: “PRK” S.A.9300 Dobritch, 66, rue KaliakraTel +359 58 25466

Business activities: Bulgarian company producing trailers, semi-trailers, containers and some specialised vehicles such as garbage collectors road sweepers, firefighters.

Purpose of the project: Define feasibility of sustainable co-operation with Dutch specialist company through marketing and supply of equipment and services to the private and public companies active in municipality services in Bulgaria.

Possible Dutch partners: Specialist supplier of municipality servicing equipment like Street sweepers, compactors, fire-fighters, etc. or:Supplier of municipality services.

Hardware: Pilot equipment (special superstructures or dedicated trucks), maintenance equipment.

Technical assistance: Repair and maintenance of special equipment, Marketing, improving organisation. Training in waste handling. Environmental aspects.

Possible results: Production and supply of Bulgarian built (assembled) special vehicles and equipment for municipality services. Marketing organisation for such services, feasibility study, business plan, leasing options.

Business environment: Municipality services companies/departments are in the process of being privatised. Procurement of specialist equipment is often problematic due to lack of financing possibilities. Leasing based on municipality contracts is an option. Full operational lease when the market is mature. Bulgaria has an adequate legislation for leasing or rental operations.

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3. Co-operation in the field of high quality tanks for fuels, liquid gas and chemicals for the automotive sector and fuel/gas distributors

Recipient: Termotechnika - JSC 4004 Plovdiv, 136 Bratia Bakton strTel: +359 32 766 135Fax: +359 32 767 153

Business activities The company has almost 30 years of experience in the production of thermo-technical equipment.Main products: Tanks for fuels and liquid gases up to 50 m3 capacity

for underground and ground storage of liquid fuel according DIN 6608.

Complete local heating installations. Combustible systems for boiler installations. Water preparing equipment for boiler installations. Water-pump and compressor stations. Heat exchangers and tanks working under pressure. Equipment for boiler installations.

Purpose of the project Co-operation in the production, marketing and supply of high quality tanks for fuels, liquid gas and chemicals.

Possible Dutch partners Especially the production of tanks for fuel and liquid gases for petrol and gas stations could be of interest for Dutch investors.Oil industry, constructors of petrol and gas stations, LPG equipment suppliers, tanker producers, etc.

Hardware: Supply of production equipment, tools and testing equipment

Technical Assistance : Training production systems and methods

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Possible results: Assessment of output quality level. Assessment of market potential. Production of high quality tanks. Component supply. Business plan. Technical and financial feasibility studies.

Business environment: The growing use and storage of liquid fuels and chemicals requires high quality equipment according to European standards.

4. Quality improvement of agricultural products through implementation of new technologies and conditioned transport

Recipient: Subsidiary company of Pro Business (Ruse region).

Business activity: Production and selling of mushrooms for the national market. They presently have a national market share of 30-40%. The mushrooms are being grown in 10 natural caves. The company uses its own transport means. They also produce 50% of the national market for compost.

Purpose of the project: Improving quality of production, products and distribution. Higher revenues and development of export potential.

Possible Dutch partners: Mushroom growers, retailers and agri-transport specialists.

Hardware: Production and distribution equipment (conditioned transport).

Technical Assistance: Training in new production technology, research, marketing and physical distribution (conditioned transport).

Possible results: Higher production and higher quality. Better quality products in the distribution chain including export, through improved transport technologies. Higher revenues through better selling prices and marketing.

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Business environment: Good existing base for quality improvement and expansion of activities. Selling price in Bulgaria 2.53 DM / kilo. In FYROM the price is 5 DM / kilo.

5. E-commerce business planning for transport companies

Recipient: Advisors and dealers of transport / production equipment

Business activities: Advisory services for the industries, which are in need of financing for their planned investments. Identification of financing opportunities, development of bankable business plans through the use of special programs.

Purpose of the project: Development of dedicated programs for the transport sector.

Possible Dutch partners: Companies active in business planning services and/or automation services for the transport sector.

Hardware: Computers and dedicated software.

Technical assistance: Training in applications, marketing of services.

Possible results: Better quality advisory services for the transport (related) industry, improved financing possibilities, advanced assistance in business planning.

Business environment: The application of e-commerce and computer related advisory services have been relatively well advanced in Bulgaria. Identifying financing possibilities for private enterprises is still a major constraint.

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6. Manufacturing of buses in Omürtag

Recipient: KENTA Bus manufacturing plant, Omürtag.

Business activities: Production of Intercity buses and coaches. Capacity is approx. 10 per month.

Purpose of the project: Production of buses based on Dutch automotive technology for launching customer Kometa Bus, the public transport operator in the town of Sevlievo.

Possible Dutch partners: Bus manufacturer, chassis manufacturer, engineering company.

Hardware: Design and technical drawings, production equipment, prototype in CKD (in parts and components) for local assembly.

Technical Assistance: Prototype building and production know how. Production of manufacturing equipment (jigs, moulds, etc). Marketing, export, component procurement, etc.

Possible results: Prototype based on modern Dutch automotive technology for launching customer. Production start of first 20 units. Development of supply in quality components for the bus sector.

Business environment: There is a bus factory in Botevgrad, which used to produce licensed Setra buses. Presently, this factory is not working. Sevlievo is a booming town with 100,000 inhabitants due to new investments of two American companies American Standard (sanitary products; 95% exports) and ABB. They are in need of labour force from the whole region. A transport plan to get the labour force living in the region to Sevlievo for work indicated the need for 20 buses.

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7. Production of buses for sub urban Sofia

Recipient: Kenta Bus production plant in Omürtag (see pt 6).

Business Activity: Production of Intercity buses and coaches. Capacity is approx. 10 per month.

Purpose of the project: Development and supply of sub urban type of buses for the private bus operators in greater Sofia.

Possible Dutch partners: Bus manufacturer, chassis manufacturer, engineering company,Leasing company.

Hardware: Design and technical drawings, production equipment, prototype in CKD (in parts and components) for local assembly.

Technical Assistance: Prototype building and production know how. Production of manufacturing equipment (jigs, moulds, etc). Business plan, marketing, export, component procurement, etc.

Possible results: Prototype based on modern Dutch automotive technology for private bus operators in greater Sofia. Investment advising for private operators (financing). Development of supply in quality components for the bus sector.

Business environment: There is a bus factory in Botevgrad, which used to produce licensed Setra buses. Presently, this factory is not working.

The market for city buses in Sofia and Plovdiv is extremely difficult to penetrate. Sofia is favouring Mercedes and MAN buses, while Plovdiv has made a deal with Volvo. Negotiations for delivering of new city buses start normally after the election of the new mayor. Currently imports of used buses.Renting of city buses could be profitable alternative for current practices.

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Price of a city bus body is DEM 68,000 ex VAT incl. (better quality) imported components (e.g. from Turkey). Total price of the city bus could be just below DEM 200,000 if imported chassis are used.

With regard to the financing or funding of the city buses the municipalities are no longer independent; they need permission from the Ministry of Finance. If approval is there the payments will be guaranteed.

8. Supply of modern road building machinery and technology

Recipient: Contractors in the road building sector

Business activities: Road construction, road maintenance.

Purpose of the project: Given the enormous backlog and the planned investments in road infrastructure through the ISPA funds, there will be a growing need for high quality road building machinery.Introduction of Dutch road building technologies should improve efficiency in road building as well as road quality (durability).

Possible Dutch partners: Manufacturers or suppliers of road construction material, contractors in road building, engineering firms.

Hardware: Supply of (used) road construction equipment.

Technical assistance: Transfer of technology as well as repair and maintenance know how.

Possible results: Construction of better quality roads, efficiency improvements, better competitive position of joint Bulgarian – Dutch contractors in road construction.

Business environment: Currently there is a regular import of road building machines (especially rollers) from e.g. BBL Equipment BV in the Netherlands. Competition is mainly from German and French suppliers.

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Given the investments in road infrastructure through the ISPA funds, there will be a growing need for high quality road building machinery. The approved road construction plans have been listed in this report.

Unlike the situation in Ukraine and Romania, the bitumen in Bulgaria is of high quality. The raw material is coming from the Lukoil refinery in Bourgas.

9. Bonded warehousing, VAL services and regional distribution

Recipient: Forwarding and Transport enterprises.

Business activities: International forwarding, import and export, haulage services.

Purpose of the project: Through pilot project determine feasibility and potential of bonded warehouses, Value added services and regional distribution.

Possible Dutch partners: Forwarders, carriers, trading firms.

Hardware: Construction of warehouses. Equipment for internal transport.

Technical assistance: Training in logistics, organisation, marketing. Development of a feasibility study and business plan.

Possible results: After proven feasibility investments in warehouses, handling and distribution equipment, resulting in modern DC.

Business environment: Favourable circumstances for investments in the transport and distribution sector. VAL services will benefit from availability (skilled) labour, low investment costs (site, premises) and little competition. There is a need for quality distribution services in spite of the high number of transport operators active in Bulgaria (obsolete equipment, unreliable deliveries).

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10. Modernising REI production facilities. Improve infrastructure and logistics in the plants, increase efficiency, application of new, modern technologies

Recipient: REI HOLDING – Financial and Industrial Group.

Business activities: Financial Industrial Group REI Holding is a privately owned international company active in manufacturing, trade and consultancy to the electrical, railway transport, machine building and financial management industries. Is said to be market leader in national electro-technical and railways sectors. It owns 47 companies and employs 3000 people. Turnover is over US$ 250 million.

Purpose of the project: Improve infrastructure and logistics in the plants, increase efficiency, application of new, modern technologies.

Possible Dutch partners: Manufacturers of railway components, electrical equipment, special machinery for railways and automotive sector. Advisors in logistics and engineering firms.

Hardware: Manufacturing equipment, transport material.

Technical assistance: Training in new production technologies, repair and maintenance, logistics, organisation and management.

Possible results: Feasibility, business plan, co-operation and joint venture.

Business environment: REI holding companies compete with the state owned companies in Bulgaria. It has developed relations with some Dutch companies, also in the framework of PSO project preparation.

The privatisation law for the railway sector adopted at the end of 2000 offers good opportunities to the REI companies. Maintenance of railway network and rolling stock will be taken over by private companies through tenders. Railways operations (use of the railway network) will be open for private carriers in 2002. The network remains state owned.

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11. Automation of the railways; traffic systems and ATB (Automatic Rail Track Monitoring)

Recipient: EAZ PLC Plovdiv (established In 1949), subsidiary of REI.

Business activities: EAZ PLC is a leading national producer of low voltage apparatus and a complete range of professional electrical equipment. Approx. 55% of EAZ’s production is being exported. Computerised design process, ISO-9001, accredited laboratory, IEC standards.

Purpose of the project: Improvement of Rail infrastructure and rail transport safety through the application of up-to-date traffic systems, including automatic safety devices.

Possible Dutch partners: Railways operators, suppliers to railway industry, rail engineering companies.

Hardware: Equipment and devises related to traffic systems

Technical Assistance: Transfer of technology and know how. Repair and maintenance training, etc.

Possible results: Local production of traffic system, implementation (test) on rail track. Feasibility study and business plan. Sustainable co-operation. Supply of components to REI subsidiaries.

Business environment: Supply to the state owned “railways infrastructure company”, also after the privatisation of the railways operations in 2002. Best opportunities are likely to occur in a co-operation with Bulgarian manufacturers.

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12. Production and assembly of cable beams for the automotive industry (buses, trucks and cars)

Recipient: EAZ PLC Plovdiv (established In 1949), subsidiary of REI.

Business Activities: EAZ PLC is a leading national producer of low voltage apparatus and a complete range of professional electrical equipment. Approx. 55% of EAZ’s production is being exported. Computerised design process, ISO-9001, accredited laboratory, IEC standards.

Purpose of the project: Pilot project to determine the economical and technical feasibility of producing cable beams for the automotive sector.

Possible Dutch partners: Manufacturers of trucks, buses or cars. Cable producers. Supply industry to automotive sector.

Hardware: Production and testing equipment.

Technical assistance: Transfer of manufacturing know how, testing and quality control.

Possible results: Cost effective manufacturing facility for complicated cable beams. Feasibility study and Business plan.

Business environment: At EAZ in Plovdiv there is 60,000 square meter available for new activities. There is a skilled and qualified workforce available (unemployed). Possibly co-operation with following REI subsidiaries:

ENERGOCABEL PLC (Established in 1919) is the sole Bulgarian manufacturer of aluminium and copper wire rod, ACRS and a wide range of aluminium and hard drawn copper conductors and cables. Approx. 45% of production is exported. Energocable’s accredited laboratory and ISO-9001 guarantee quality compliant to international standards.

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GAMAKABEL PLC (established in 1968), is a major Bulgarian cable and conductor manufacturer. Production includes household connection cables, telecommunication and radio frequency, control and power cables. Exports 42%. (Europe, Africa, Asia).

13. Co-operation in the field of production of high quality measuring devices (metres), including distance reading option for distribution companies. (gas and water distribution)

Recipient: REI Holding (subsidiary to be selected).

Business activity: Financial Industrial Group REI Holding is a privately owned international company active in manufacturing, trade and consultancy to the electrical, railway transport, machine building and financial management industries. Is said to be market leader in national electro-technical and railways sectors. It owns 47 companies and employs 3000 people. Turnover is over US$ 250 million.

Purpose of the project: Feasibility of the manufacturing and maintenance of water and gas meters. Development of business plan. (Privatisation of the sector: Gas and water distribution companies will own the measuring equipment and are responsible correct and safe functioning).

Possible Dutch partners: Manufacturers of gas and water meters, distributors of gas and water.

Hardware: Equipment for production and testing.

Technical assistance: Transfer of manufacturing, testing and maintenance know how.Feasibility study, business plan including approach privatised utility sector.

Possible results: Production, distribution and servicing of high quality water and gas meters.Business plan. Positive impact on energy and water consumption, and a positive effect on environment.

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Business environment: Likely to be an excellent business opportunity, since the privatised energy and water sector will have to install many reliable, durable and safe meters, which are currently not produced in Bulgaria.

14. Co-operation in the field of manufacturing and application of optical fibre cable technology

Recipient: REI Holding (subsidiary to be selected).

Business activities: Financial Industrial Group REI Holding is a privately owned international company active in manufacturing, trade and consultancy to the electrical, railway transport, machine building and financial management industries. Is said to be market leader in national electro-technical and railways sectors. It owns 47 companies and employs 3000 people. Turnover is over US$ 250 million.

Purpose of the project: Joint development and production of optical fibre cable. This would be an entirely new activity for the company, but essential in view of their presence in the cable industry including supply to the telecom sector.

Possible Dutch partners: Producers of optical fibre cables. Cable distribution companies.

Hardware: Production and test equipment.

Technical assistance: Transfer of manufacturing, testing and application know- how.

Possible results: Manufacturing of optical fibre cables, business plan, export potential.

Business environment: Since there is already a wide application of electronic data transfer in Bulgaria, the need for a modern cable network will become urgent. REI has no experience in producing these high tech cables.

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15. Mobile repair and maintenance services for trucks and buses

Recipient: AEBTRI – Service Ltd.

Business activities: AEBTRI - Service Ltd. is founded and wholly owned by AEBTRI to develop commercial services for the members of AEBTRI and third parties.

AEBTRI is the association of road transport companies in Bulgaria.

Purpose of the project: Improve the repair and maintenance service for Bulgarian and foreign trucks and Buses in Bulgaria.

Possible Dutch partners: Companies specialised in international truck and bus service. Truck dealers. Association of transport companies.

Hardware: Repair and maintenance equipment, mobile workshops.Safety equipment.

Technical assistance: Training on repair and maintenance for trucks and buses, marketing of services.

Possible results: Co-operation and establishing of professional mobile repair and maintenance service for the transport sector. Self-sustaining based on business plan.

Business environment: As long there is not a dense network of truck dealers and service points the mobile service is indispensable.It should be recognised however that truck manufacturers have their own international service network for their customers.

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16. On-board computers for trucks and buses including digital tachograph devise and navigation systems for vehicles

Recipient: AEBTRI – Service.

Business activities: AEBTRI - Service Ltd. is founded and wholly owned by AEBTRI to develop commercial services for the members of AEBTRI and third parties.

Purpose of the project: Improve transport operations, harmonise with international practises and standards, increase safety.

Improve tracing and tracking of trucks for better planning, discourage truck jacking, safety improvement.

Possible Dutch partners: Suppliers of on board computers and navigation systems, service providers.

Hardware: Onboard computers and navigation systems.

Technical assistance: Training in Maintenance and repair of the equipment, training in effective application.

Possible results: Pilot and later wider use of the systems by the professional road hauliers. Improvement of route planning and road safety.

Business environment: In Bulgaria there is a good basis for the use of modern

telecommunication. Computer applications and EDP are more advanced than in many other CEE markets.

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17. Establishing a leasing company for the commercial vehicle sector

Recipient: AEBTRI – Service.

Business activities: AEBTRI - Service Ltd. is founded and wholly owned by AEBTRI to develop commercial services for the members of AEBTRI and third parties.AEBTRI is the association of road transport companies in Bulgaria.

Purpose of the project: Pilot to set up a leasing operation. Feasibility study. Business plan. Stimulate new investments.

Possible Dutch partners: Leasing companies, Banks.

Hardware: Equipment for leasing company; office equipment.

Technical assistance: Transfer of expertise how to set up a leasing company, how to organise and operate it. Feasibility study, business plan. Management training. Marketing training. Training on modern leasing concepts.

Possible results: Facilitate the modernising of the Bulgarian truck fleet through offering competitive financing to hauliers by an AEBTRI leasing company. Better quality trucks and buses on the road for enhancing road safety and reducing pollution.

Business environment: According to the figures provided by AEBTRI more than 17% of the international truck fleet is older than 15 years and 60% older than 10 years.

The number of new trucks sold in 2000 lies between 100-200, which is a very small amount considering the total fleet of trucks for international transport of 13033.

Domestic transport is currently not attractive due to fierce competition from driver-owners, operating obsolete vehicles under difficult economic conditions. Moreover transport is increasingly being carried out by own account operators.

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18. Co-operation in the field of (Sofia) airport maintenance

Recipient: Company specialised in (airport) technical maintenance

services.

Business activities: Airport maintenance services, maintenance of equipment.

Purpose of the project: To introduce modern, well-managed airport maintenance services.

Possible Dutch partners: Companies specialised in technical maintenance.

Hardware: Maintenance equipment. Safety equipment.

Technical assistance: Management training, technical training. Business plan.

Possible result: Co-operation with Bulgarian partner company. Better position for Dutch companies to offer services for the new Sofia Airport.

(For Dutch suppliers there are possibilities for passenger bridges, conveyor belts, airfield lighting, cables, airport interior (seats, stairs, counters, FIDS, illumination and auxiliary equipment, sun blinds, etc.))

Business environment: Tender market, co-operation with Bulgarian partner is prerequisite.

The development of Airfreight is modest, there are no storage problems. The development of the regional Airports will be difficult due to the limited number of passengers. Best chances are for Varna, since it also handles tourist charters.

The bankruptcy of the Bulgarian Airline Balkan Air will have a positive impact on the revenues of the Sofia Airport, since foreign airlines pay their airport charges.

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The following list contains merely project ideas, which still needs further elaboration:

19. Water management and distribution project in Plovdiv. Design of a water distribution system and assistance in setting up management and operations

20. Maritime communication and safety systems

21. Management training at Ministry of Transport emphasising Public Private Partnership implementation (PSO Pre-Accession)

22. Tank cleaning and chemical waste management

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9 CONCLUSIONS

From 1991 to 1996 progress in Bulgaria was slow and erratic. Its most recent history is characterised by the remarkable turnaround that occurred after the change of leadership in 1997. Since then Bulgaria has re-energised long pending structural reforms. The IMF supported currency board had a positive impact on the country’s financial discipline, privatisation has accelerated, and price control has been liberalised.

Bulgaria’s economy showed its increasing resilience to adverse external environment – the Kosovo conflict, continuing effects from the Russian crisis and shrinking demand in the Euro area – especially in the first half of 1999.

Fiscal policy was tightened (consolidated budget deficit came in at only 1%), important steps were taken in the area of privatisation, banking sector reforms, agricultural liberalisation, energy pricing and legal reforms, required to improve the prospects for sustainable economic growth and European Union accession.

The Government has prepared a programme for the year 2001 in which the privatisation of SOE’s is defined as a key element of the structural enterprises (over 600) in the sectors of industry, construction, agriculture, tourism and trade. The plan envisages preparatory stage of the privatisation of certain facilities in the sectors of infrastructure and public services – energy, railway transport, water supply and sewerage.

A report published by the Bulgarian International Business Association “BIBA White Paper on Foreign Investment – Issue 2001” reads that substantial scope for improvement remains, which could substantially ameliorate the “business climate” and overall competitiveness of industry. It specifies issues such as: Public-Private partnership / legislation drafting and implementation, quality/productivity culture in industry, public administration performance and education, transport sector technology and infrastructure, law implementation and enforcement, border crossing initiatives.

9.1 Transport, infrastructure and communications

Government Transport policy directions are the result of national consensus and primarily geared towards membership of EU and NATO, development of free market relations as well as democratisation of political, economical and social processes.

Main priorities are: Harmonisation of national legislation and transport regulations with those of the EU member states, Development of transport infrastructure and Implementation of structural reform and privatisation in the transport sector.

Harmonisation includes regulations on the type approval of motor vehicles, Regulation on dangerous goods, regulations on extra-dimension and heavy road

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vehicles. The agreement on occasional international transport of passengers by bus has been signed. In the maritime sector a number of important European and International agreements have been signed, for example the European Agreement on Inland waterways and the International Convention on Sea Search and Rescue.

The social and economic difficulties suffered by Bulgaria, coupled with a lack of finance for road infrastructure has brought about a deterioration of the roads in general. Moreover road building in Bulgaria is difficult and costly as some 40% of the country’s territory is mountainous.

The programme ‘Transit Roads” rehabilitated 1400 km of the main road network up to 1999. Financing came from the EIB, EBRD and the Phare programme. Currently “Transit Roads III” is covering the rehabilitation of another 600 km, to be completed in 2002.

According to the Inter-departmental programme on the development of transport infrastructure drawn up by the Ministry of Transport and Communications and of Regional development and Public Works 1,200 million Euro will be needed for rehabilitation and construction of roads of national and international importance. The programme will create 15,000 jobs and financing will come from national and international sources. The participation of Bulgaria in the TINA project is a very important component of the development of transport infrastructure.

River transport is still not very significant, with total inland water transport accounting for around 5% of Bulgarian vessel tonnage. There are plans for significant modernisation of ports over the next few years.

The two major seaports of Bulgaria – Varna and Burgas handle more than 60% of the national foreign trade freight turnover. These ports have container terminals, Ro-Ro equipment and many berths for different type of bulk and liquid freight. The drop in traffic and the obsolete equipment are major problems for the Varna Port development. The port authorities hope for foreign investments. First joint ventures have been realised with a Belgian and Italian enterprise.Burgas has benefited in recent years from the increased trade flows to Western Europe and the transport related to the biggest Bulgarian petrol refinery, owned by LUKOIL a rapidly expanding Russian owned oil company. It is proposed that the ports will be restructured and given under concession, either totally or in part.

A renewed Sofia airport was opened in September 2000. There is a plan to develop and expand the airport with the capacity and modern facilities to deal with demand expected early next century. The US$200 million project will be financed by the EIB and the government.

According to new laws and directives it is envisaged that only railway infrastructure will remain under state ownership.

The railway industry and other sections of the National Company "Bulgarian State Railways", together with the commercial activities of railway transport, are subject

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to privatisation. To date 8 out of 13 railway enterprises have been privatised (concerned with rolling stock repairs and construction, etc).

Telecommunication: Bulgaria inherited relatively high line density from the pre-transition period. Recent investments increased further the fixed line telephone penetration. The quality of the network is less advanced. Although mobile telephone penetration has grown fast there is considerable room for growth.


9.2 Donors and financing


The EU is an important donor to Bulgaria. The major objectives of the support are the opening of the Bulgarian transport system for EU member states, Restructuring the transport sector in accordance with European standards and market economy principles, Development of infrastructure, technological modernisation and new investments.

In the period 1992-1999 Bulgaria has received ECU 94 million from the Phare National Programme. For the Cross Border Co-operation programme Euro 86 million has been allocated. Bulgaria expects to receive Euro 420 million for the period 2000-2006 for the development of transport infrastructure through the EU ISPA programme. Priority projects have been identified.

EBRD is a major financing institution for Bulgaria. The EBRD will continue to promote privatisation, post-privatisation restructuring and sound corporate governance of selected companies in the enterprise sector, through both debt and equity investments. In the case of large enterprises, the EBRD will continue to work alongside foreign strategic partners as well as with domestic investors. Project selection will be oriented towards transactions that have clear demonstration effects in order to promote the transition process to the largest degree possible.

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The EBRD will proactively support the rapidly growing interest by private investors in the infrastructure sector, particularly in power generation, in telecommunications and in certain municipal services. The future water concession and the district heating projects with the Sofia Municipality should constitute landmark transactions. Besides, the EBRD will also continue to provide selective sovereign-based support for crucial sectors such as district heating, energy transmission and transport. Lastly, the EBRD will continue to provide guidance on the restructuring of the energy sector.

Since Bulgaria joined the World Bank in 1990, Bank assistance to the country has been aimed at fostering sustainable development and economic growth by investing in physical and social sector infrastructure, and by accelerating structural reforms and rapid development of the private sector. In parallel, Bank-financed activities have been addressing poverty through improvements of the social safety net and other social sector programs. The World Bank is presently not involved in many projects in the fields of transport, infrastructure and communications. The World Bank is implementing transport and trade facilitation projects in Bulgaria and projects focussed on improving border crossings and customs facilitation.

9.3 Business opportunities for Dutch Enterprises.

The implementation of the massive road construction and rehabilitation plans offers opportunities in the field of road building technology and machinery.

Automation of the railways including traffic and safety systems. Co-operation in the design, manufacturing and marketing of trailers, semi-trailers,

tankers and special vehicles. Co-operation in renting/leasing/trading in special vehicles for municipality services. Co-operation in the field of high quality tanks for fuels, liquid gas and chemicals for

the automotive sector and fuel/gas distributors. Quality improvement of agricultural products by conditioned transport. E-commerce business planning for transport companies. Co-operation in the manufacturing of buses in Omürtag Co-operation in the production of buses for suburban Sofia. Development of Bonded Warehouses, Value Added Logistics services and

regional distribution. Modernising REI production facilities. Improve plant infrastructure and logistics,

increase efficiency through application of new technologies. Production and assembly of cable beams for the Automotive industry. Co-operation in the field of production of high quality measuring devises (meters),

including distance reading option for distribution companies (gas, water). Co-operation in manufacturing and application of optical fibre cable technology.

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Application of On-board computers for trucks and buses including digital tachograph devise and navigation systems for vehicles.

Establishing a leasing company for the commercial vehicle sector. Co-operation in the field of Sofia airport technical maintenance. Co-operation in water management and distribution project in Plovdiv. Design of a

water distribution system and assistance in setting up management and operations. Application of maritime communication and safety systems. Co-operation in tank cleaning and chemical waste management. Management training at Ministry of Transport emphasising Public-private

partnership implementation. Development of integrated postal service.

Privatisation progress in Bulgaria offers a wide range of business opportunities for Dutch enterprises. Local financing is one of the main problem areas, due to the high interest rates charged. Cross border financing is increasing.

Investment climate is continuously improving largely due to a consistent economic and financial policy. There is uncertainty with regard to the outcome of the next elections. The still widespread poverty and lack of social facilities in Bulgaria may lead to a change towards a less consistent economic policy.

D20010456.doc4 May 2001 92

REFERENCE MATERIAL BULGARIA (AVAILABLE ON CD-ROM)

1. White Paper on Foreign Investment in Bulgaria - 2000; Bulgarian International Business Association.

2. National Strategy Transport Sector; Ministry of Transport and Communications; June 2000.

3. 2000 Country Investment Profile Bulgaria; EBRD.4. Pre-Accession Status Bulgaria - November 2000; Transport policy and

Telecommunications and Information Technologies.5. Useful addresses.

D20010456.doc4 May 200193

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