Addicted to the generous supply of foreign cash, Bulgaria’s economy is already showing withdrawal symptoms, even if the Cabinet has downplayed their severity.

But even Prime Minister Sergei Stanishev, who recently described Bulgaria as "top of the class" in dealing with the fallout from the credit crunch, would find it difficult to find the bright side of prospective investors pulling out of Kremikovtzi and Belene, two of the biggest industrial projects ever undertaken by Bulgaria.

Kremikovtzi, Bulgaria’s own "too big to fail" steel mill, has been quietly sliding out of the glare of public attention as bankruptcy procedures unfold slowly. Already forced to shut down most of its production, its biggest hope to stave off collapse is finding an outside investor willing to supply the raw materials and cash in exchange for the output.

After such a deal with Vorskla Steel, the company controlled by Ukrainian billionaire Konstantin Zhevago, fell through in October 2008, Economy Minister Petar Dimitrov said that several companies were interested to step in and take Vorskla’s place.

Reports claimed that Ukraine’s Smart Holding was most active in following up on its interest, starting talks with Kremikovtzi’s debtors at the end of 2008. But on February 25, the company said it would end the negotiations, because it "received no support from Kremikovtzi’s creditors".

The steel group had offered to invest up to 220 million euro in Kremikovtzi, lend $60 million to the steel mill to boost cash flow and pay debts of 80 million euro, Reuters reported. The rest of the debt, an estimated two billion leva, would have been converted into new shares.

"Considering that the negotiations on choosing a strategic partner for Kremikovtzi are being dragged out indefinitely ... Smart Holding was forced to take the decision of withdrawing from the negotiating process," Smart Holding said in a statement, as quoted by Reuters.

The stumbling block was the unwillingness of the hedge funds, which hold the bulk of Kremikovtzi’s 325 million euro bond issue, to agree to the deal. Bulgaria’s Government, which holds 25 per cent of the steel mills shares, was "co-operative".

Nuclear future
Just a week earlier, Belgium’s Electrabel pulled out of talks to take a minority stake in Bulgaria’s planned Belene nuclear power station, choosing instead to focus on projects in France, the United Kingdom, Romania and Abu Dhabi.

"We are establishing our strategic priorities among the different projects in the pipeline," Reuters quoted an unnamed company spokesperson as saying.
Even though Bulgaria’s power grid operator NEK, which plans to keep a majority of 51 per cent in Belene, picked Germany’s RWE to buy the remaining stake in the future nuclear station, it was thought that getting Electrabel on board would help to secure bank financing for the project.

RWE agreed to pay 1.275 billion euro for the stake, which could rise to two billion euro by the time the power station is scheduled to be finished in 2014. The money will be used to start construction in 2009, while NEK is in charge of securing the bulk of the needed funds from banks.
Neither Kremikovtzi, nor Belene, are finished just yet.

In Belene’s case, RWE said that it had no intention of abandoning the project, despite earlier opposition in Germany that delayed board approval for the deal. Despite the ongoing difficulties of raising money for the construction, RWE has said that it remained optimistic that bank financing could be found. And Kremikovtzi can still hope that Brazilian mining giant CSN would follow up on its interest, reported after Dimitrov’s visit to South America.

But the recent withdrawals by potential investors mark a drastic change from recent years, when investors would queue up for a shot at any major project announced by the Cabinet. With the future murky, Electrabel and Smart Group might not be the last ones to back down.