Bulgaria is sufficiently prepared to meet the political, economic and acquis criteria by January 1 2007, according to the European Commission’s (EC) final report on the country’s readiness to join the European Union.

The report, released on September 26, reviews Bulgaria’s performance in the past six months compared to the findings of the EC’s May report.

“Bulgaria has made good progress in the areas of banking, investment services and securities markets, as well as the information society,” the report says.

The EC continues to consider Bulgaria as a functioning market economy with prudent fiscal and wage policies. A positive sign, according to the EC, is the general Government surplus of 3.6 per cent of the forecasted GDP in the first seven months of the year. Real wages rose by 1.5 per cent, year-on-year, in the first half of 2006, and thus less than productivity, the EC found. Merchandise export growth accelerated to 30 per cent in the first half of 2006 and was higher than import growth. As a result, the trade deficit started to decrease slightly in May and reached 21.0 per cent of GDP by the end of June, the report said. In line with the lower trade deficit, the current account deficit declined in June for the first time in more than a year. Net FDI inflows continued to cover around 75 per cent of the current account deficit.

“The privatisation process has regained momentum,” the EC said.

The sale of the Bulgaria’s river shipping company and the thermal power plant in the Black Sea city of Varna had been completed, which, according to the EC, was a positive move. Sales procedures for the privatisation of some district heating companies had started as well such as the tender procedure for the sale of national carrier Bulgaria Air which was launched in June. The liberalisation of the energy market continued with a lowering of thresholds for direct contracts between larger customers and suppliers.

“Bulgaria has made further progress with macroeconomic stabilisation and economic reform. Its current reform path should enable it to cope with competitive pressure and market forces within the EU.”

In the field of banking, EC noted the Law on the Supplementary Supervision of Financial Conglomerates and the Law on Credit Institutions together with the amended Law on Bank Deposit Guarantee, adopted by Parliament in July, as encouraging signs. In the field of investment services and securities markets, the report mentioned the amendment to the Law on Public Offering of Securities and the Law on Insider Dealing and Manipulation of the Securities Market which had been submitted to the Parliament for adoption.

The EC considers the adopted law on electronic commerce as a positive step in the area of the information society.  Bulgaria has made progress in some areas of agriculture as well. Among these areas are the setting up of the Paying Agency, the awareness and expertise on trade mechanisms and the establishment of the common market organisations on wine and alcohol, beef and milk progressed.

“Likewise, substantial progress has been observed in the veterinary sector, in particular on the aspects of trade in live animals and animal products, common measures including zoonoses and animal welfare.”

For the latter, detailed analysis has been done on enforcement of EU standards. Corresponding projects for Community support have been elaborated as well.

“Bulgaria has made good progress in the above areas,” the report said.

Substantial progress in the area of Value Added Tax (VAT) was registered by the EC. The new Law on VAT adopted in July contained provisions for the transposition of the intra-Community regime. In the field of IT interconnectivity, Bulgaria continued “to be on track and efforts should be sustained with regard to the timely completion of the VAT on E-services system”.

In the area of financial control, progress has been made with regard to the Extended Decentralised Implementation System (EDIS) accreditation process for some of the structures concerned although efforts at capacity building for implementing the Structural Funds in particular need to be reinforced. “However, no accreditation has taken place yet.”

Bulgaria has taken specific measures such as adopting a Government decision on the appointment of additional monitors in the relevant institutions; it has continued its recruitment process and has run intensive training programmes for staff in key relevant areas. A memorandum of understanding was signed between the Ministry of Finance and relevant line ministries, “which should improve co-operation and enable an accelerated Phare and ISPA EDIS accreditation”.

As for employment and social policy “Bulgaria has made good progress in the area of labour law”. The Labour Code amended in May had a view to the acquis, particularly as regards the directives on collective redundancies, transfer of undertakings, part-time work, fixed-term work, employer insolvency, working time, written information on individual employment conditions and protection of young people at work, the report said. Further acts were adopted aiming at the transposition of the Directive on Posting of Workers and the directives supplementing the European Company and European Co-operative Society Statutes, the Directive on Information and Consultation and the European Works Councils Directive. “Therefore, most of the shortcomings have been corrected.” Significant progress has been made on the preparations for managing the European Social Fund (ESF), particularly in relation to the training of civil servants and further recruitment of staff.

In the context of resource and fleet management, substantial progress has been achieved on the satellite-based fishing vessel monitoring system that is expected to be operational for all vessels concerned by accession. With regard to the preparations for Bulgaria’s participation in the EU structural action fisheries fund and the market policy, Bulgaria has taken significant steps to improve the administrative capacity and the relations with the fishing industry. Furthermore, a draft national strategic plan has been presented to the EC.

However, the report noted that there were still many vehicles with invalid registration plates on the roads in Bulgaria. The re-insurance programme of the Guarantee Fund had not yet been carried out. The main challenge remains the signature of the Multilateral Agreement under the aegis of the Council of Bureaux as well as the Agreement between compensation bodies and guarantee funds in order to allow the Bulgarian vehicles to circulate throughout the EU without border checks on motor third party liability (MTPL) policies and to ensure the full applicability of the 4th Motor Insurance Directive. There is consequently a risk that border checks on MTPL policies of Bulgarian vehicles will still be required after accession and that compensation of victims of road accidents by compensation bodies will not or only partly provided as foreseen by Article 6 of that directive.

“As regards the protection of personal data, Bulgaria’s legislation is not yet aligned with the acquis,” the report said.

“In respect of the recently amended Bulgarian patent law, concerns have arisen regarding some amendments that lead to a reduction of the terms of interim protection schemes for pharmaceutical products. This has in some cases curtailed acquired rights.”

In the area of air transport, joint inspections by the European Aviation Safety Agency (EASA) and the Joint Aviation Authorities (JAA) have revealed significant and persistent shortcomings in the administrative capacity of the Bulgarian Civil Aviation Authority to ensure the necessary safety oversight. Bulgaria still lagged behind in implementating the Community requirements on certification, of airworthiness and maintenance of aircraft and “to ensure that the large fleet designed in the Commonwealth of Independent States can meet these requirements”.

In order to comply with the relevant EU aviation safety rules, Bulgaria urgently had to submit a corrective action plan and “implement it within a strict timetable, in close cooperation with, and under guidance from EASA to redress all safety shortcomings,” the report says. EASA will then have to verify the implementation of this plan by means of another inspection before Bulgaria’s accession.

In the areas of direct taxation and mutual assistance, “no progress can be reported, as the relevant legislative acts are still not adopted by Parliament”. Bulgaria still needed to abolish tax free shops for incoming travellers.

With regard to the competitiveness and the internal energy market, “limited progress has been made”. The overall opening of the electricity and gas market was progressing, however, continued efforts were needed in order to complete the restructuring of the electricity and gas companies NEK and Bulgargas. Bulgaria had to abolish the existing import/export monopolies by accession, as foreseen in its Energy Law, the report says.

Little progress has been achieved with regard to the restructuring of the steel industry. Bulgaria has applied for an extension of the restructuring period until 2008. “It has accepted to extend until 2008 the possibility of reclaiming state aid if conditions are not met”.

The imposition of appropriate regulatory measures on mobile wholesale prices and application of effective cost accounting systems has not taken place yet which the report views as a negative trend because “these measures ensure the accuracy and fairness of pricing obligations in interconnection, unbundling, access and retail voice services”.

In addition, the National Regulatory Authority should be given enhanced capacity and full independence to carry out its regulatory tasks. Bulgaria’s preparations remain insufficient to reach compliance with the EU regulatory framework by accession, the report said.

More progress was needed with regard to the establishment of an adequate pipeline of well-prepared projects.

“Bulgaria risks not having prepared enough projects upon accession and may hence not be in a position to fully absorb its financial allocation under the Structural Funds.”
Results with regard to the establishment and functioning of a sound and efficient financial management and control system still had to be proven in particular in respect of internal audit units which carried out limited work and have not achieved adequate standard, EC concludes.

In terms of macroeconomic stability and current account deficit, EC finds that the current account deficit had remained high and widened further from 11.8 per cent at the end of 2005 to 14.3 per cent in the 12 months to June 2006. “This was largely due to lower incomes from tourism, substantially lower current transfers and a lower surplus in the income balance. Tight macroeconomic policies therefore need to be maintained to contain the high external deficit.”

The privatisation process as foreseen by the government had to be completed, the report envisages. The privatisation strategy for the maritime shipping company which is being revised by the Cabinet, the unbundling of the National Electricity Company and Bulgargas and the liberalisation of the gas and electricity markets remained to be completed until accession. This is described by the report as “outstanding issues which remain to be addressed”. Efforts to improve the financial situation of the railway companies needed to continue as well.

The Commercial Register Law had to be fully implemented and the electronic commercial register needed to become fully operational, the EC said.

“Efforts need to continue to ease the regulatory burden and to target in particular those regulations that create the greatest barriers to doing business.”

Regulatory impact assessments had to be implemented more systematically as well as the functioning of the administrative and judicial systems had to be improved further.