JANUARY
Medicines drama
The year started with a medicine prices drama in which several pharmacies countrywide closed their doors, complaining of confusion about the levying of VAT on medicines after January 1 and about an ordinance on trade surcharges and ceilings for medicine prices. Prices of medicines went up by at least 10 per cent.
VAT changes
Long-awaited changes to the Value Added Tax (VAT) law, which allow refunds for foreign legal entities took effect at the start of the year, two years after they were approved. The right to be refunded for paid VAT should be proven by submitting the originals of the tax documentation for the deliveries that are to be refunded, legislators decided. Many concerns however were not resolved, as the unified VAT rate of 20 per cent was seen as too high for some commodities.
Rating upgraded
Fitch IBCA followed other international credit rating agencies in upgrading Bulgaria's ratings. Bulgaria's long-term foreign currency ratings were raised from B+ to BB-, and the long-term local currency and short-term foreign currency ratings were confirmed at BB and B, respectively. The long-term rating outlook was changed from positive to stable. The agency said that in recent months the Bulgarian Government had set prudent fiscal targets and an ambitious structural reform programme after an uncertain start following its election in June.
Debt talks
For the first time in recent years political will was seen as existing in both countries to resolve the problem of Russia's debt to Bulgaria. This was announced by Russian Deputy Prime Minister and Minister of Finance Alexey Kudrin after a meeting with his Bulgarian counterpart and Minister of Economy Nikolai Vassilev. Inherited from the Soviet era, the debt was estimated at close to $100 million. Despite a 1995 intergovernmental agreement on settling the debt, the question was still an open issue in bilateral relations.
FEBRUARY
Bulgartabac plans
In what was expected to be the final step towards selling tobacco monopoly Bulgartabac, the Government adopted a privatisation strategy for the holding and forwarded it to Parliament. Announcing the decision, Economy Minister Nikolai Vassilev said the Government was putting up for sale between 51 and 80 per cent of the capital of the holding company which is made up by 22 partnerships in Bulgaria and another eight abroad. Bulgaria's tobacco monopoly was to be sold at an auction as a whole and not in self-contained parts. The Government pledged to keep a so-called "golden share", which would allow it to control decision-making by the future owner. The remainder of Bulgartabac was to be offered on the Stock Exchange.
Electricity hikes
Household electricity prices would go up by 10 per cent a year until they levelled off with those for industrial consumption, the trade unions and State Energy Regulation Commission (SERC) agreed. Consumers would not be able to cope financially with an annual hike of more than 10 per cent, so electricity would have to appreciate in stages over two to three years, they said.
MARCH
Energy strategy
A concept for a long-term energy strategy for Bulgaria was adopted, envisaging building an energy market in Bulgaria in the next three to four years and preserving the country's potential for exports of energy products through improved efficiency of power generating facilities. The document noted that Bulgaria imported about 70 per cent of its energy resources, which accounted for about 27 per cent of total imports.
Russian debt deal
Bulgaria scored a success by persuading Russia to acknowledge a debt of $132 million.
It was announced that the amount of debt which Russia would repay to Bulgaria had been fixed at $88.5 million.
IMF credit plan
The International Monetary Fund executive board approved a two-year stand-by credit line worth about $299 million to support Bulgaria's comprehensive economic programme. Meanwhile the World Bank announced it is to give Bulgaria a credit line of $450 million to support the Government's reform programme.
BTC sale plan
The Government approved the strategy for the privatisation of the Bulgarian Telecommunication Company (BTC). A 65 per cent share of BTC was about to be offered to investors. Up to 20 per cent of the state telecom was to be sold on the stock exchange.
Inflation woes
Accumulated inflation reached 4.4 per cent in February, seriously exceeding the 3.5 per cent agreed by Bulgaria and the International Monetary Fund for Budget 2002, the National Statistical Institute said. The cumulative figure for the first two months was not unexpected after the Government raised electricity and heating prices at the end of 2001 as part of the reform programme agreed with the IMF.
Bond swop
Bulgaria is to exchange Brady bonds for new Eurobonds, Finance Minister Milen Velchev announced simultaneously in Sofia and London. The Government approved the proposal for the operation and forwarded it to Parliament for its consent. The banks hired to manage the issue were JP Morgan Chase and Salomon Smith Barney, part of Citigroup.
Customs controversy
Finance Minister Milen Velchev was forced by Parliament to submit a report on the state of Bulgarian Customs, following the presentation of Crown Agents' preliminary diagnostic report. Parliament decided this after a closed sitting debating the contract with the British company. But controversy erupted with new force a few days later after a publication by top-circulation daily Trud of what the newspaper said was a classified verbatim record of a closed-door Cabinet meeting held at the end of October 2001, at which the ministers allegedly discussed ways to circumvent the Public Procurement Act when contracting Crown Agents.
Bulgartabac saga
The privatisation procedure for state tobacco monopoly Bulgartabac was launched by the Privatisation Agency. Bidders had to buy tender documents by end-April and place bids by May 3. The holding was to be sold over a two-stage competitive tender. The Privatisation Agency and the Economy Ministry expected 12 to 13 potential buyers.
APRIL
Swop results
Finance Minister Milen Velchev announced the final results from the swop deal. Velchev said the foreign debt of Bulgaria had been decreased by $80 million as a result of the exchange of Brady Bonds for Eurobonds. On the other hand $197 million entered directly into the country's foreign exchange reserve, making the overall positive effect of the operation amount to $277 million.
Smoke gathers
Controversy started to dog the privatisation of Bulgartabac, with Russia formally claiming property held by the tobacco monopoly, and a Russian firm alleging an extortion attempt by Bulgartabac's managing director. In a letter to Prime Minister Simeon Saxe-Coburg, Soyuzcontract Tabac president Garedin Gevondyan alleged that Bulgartabac managing director Georgi Popov had demanded $500 000 for the exclusive right to sell Bulgarian brands on the Russian market. Tensions around the deal were deepened by official correspondence from Moscow laying claim to Bulgartabac property.
BTC offers sought
The Privatisation Agency launched the privatisation procedure for a stake of up to 65 per cent in the Bulgarian Telecommunication Company (BTC) by two-stage competitive bidding. Potential buyers had until May 27 to enter tentative offers.
Forex rules
The Finance Ministry released a new ordinance on the terms and conditions for the registration of exchange bureaus and the requirements for their operation. Exchange bureaus were no longer allowed to charge commission fees for the exchange of currencies and to apply different rates for the exchange of different amounts of the same currency. The move followed thousands of complaints by defrauded customers.
MAY
Smoke thickens
A consortium including Michael Chorny, the Russian-born Israeli businessman who was barred from Bulgaria two and a half years ago as a national security risk, declared that it would bid for the privatisation of Bulgartabac Holding Group. Metatabak was registered in Bulgaria and Chorny's Cyprus-registered MCG Holding had a 35 per cent stake in the consortium. By the end of the month, five companies placed indicative offers in the first stage of the privatisation of the tobacco holding. The Privatisation Agency declined to name the bidders, but their names were revealed in media reports. The five companies were Consortium Metatabak, Tobacco Holding, Russian investment bank Regionalna Perspekitva, Tobacco Capital Partners, and Hungary's Vitabac. British American Tobacco (BAT) finally announced it was withdrawing its business from Bulgaria. BAT was present in the country with the major goal to bid for Bulgartabac.
World Bank loan
The World Bank said it would lend Bulgaria up to $750 million over the next three years to help the country carry out market reforms, the Finance Ministry announced. The loans were meant to aid the Government in the privatisation of state-run companies and its fight against poverty.
JUNE
Bank Austria wins
Bank Austria was named the preferred buyer of a more than 99 per cent Government share in Biochim Commercial Bank. Offers for Biochim were submitted by Bank Austria, a consortium of the Bulgarian Roseximbank and the Russian International Industrial Bank, and a consortium of Hebros Bank and Charlemagne Capital. Bank Austria submitted the best offer, with the highest price.
BTC buyers bid
Three buyers submitted indicative bids for the privatisation of up to 65 per cent of the Bulgarian Telecommunication Company (BTC). AIG-CET Capital Management, a consortium led by Advent International from the United States, and Turk Telekom in partnership with Koc Holding submitted indicative, non-binding bids. The third bid was placed by the Polish-based AIG-CET Capital Management. It is owned by the AIG insurance company of the US.
DSK consultancy
Twelve banks and investment companies tendered for consultancy services in the privatisation of the State Savings Bank (DSK Bank).
Popov questioned
Bulgartabac Holding's executive director Georgi Popov was interrogated by prosecutors over bribery allegations made by Garegin Gevondyan, president of Russian company Soyuzcontract Tabak. Popov declined to comment on his interrogation, beyond saying it was in his best interest that the probe was completed as soon as possible. A few days later, Economy Minister Nikolai Vassilev spent an hour at the prosecution office in Sofia to answer questions in a probe initiated after bribery allegations. Media attacks on Bulgartabac executive director Georgi Popov led to his dismissal for making inappropriate statements to the press.
JULY
Bank deal approved
The Board of Directors of the Bank Consolidation Company (BCC) approved the bid entered by Bank Austria for the 99.59 per cent stake in Biochim Bank.
For sale sign
The Government approved a list of the companies that were to be offered for privatisation through non-cash instruments this year. Twenty per cent of the Bulgarian Telecommunication Company (BTC) and as much of the State Insurance Institute (DZI), and 12.38 per cent of Bulgartabac Holding would be sold on the stock exchange for compensatory notes. The list featured 1070 companies.
Energy sale consultant
BNP Paribas was graded first of the candidates to act as consultant on the privatisation of Bulgaria's seven electricity distribution companies. BNP Paribas was the company that won the largest number of points in the competitive bidding for consultants. The project would be financed by the Phare/EBRD Bangkok Facility Programme, the funds being provided by the EBRD.
Smoke billows
Surprisingly, the former executive director of Bulgartabac Holding Georgi Popov was left on the Board of Directors by decision of a general meeting of the shareholders. The mandate of Popov was retained at the wish of the state in its capacity as a majority owner of the monopoly. Meanwhile, several national newspapers reported that the Administration of the Affairs of the President of the Russian Federation had reminded the four prospective buyers in a letter that Russia had property claims to Bulgartabac Holding. The potential buyers were warned that Moscow would transfer its claims to them if they bought the tobacco holding company. Tobacco Capital Partners submitted the highest final bid for the 80 per cent stake in Bulgartabac Holding. Following second was Metatabak, while Tobacco Holding and RosBulgartabak came in third and fourth place, respectively. The four bidders for Bulgartabac Holding Group offered to pay 64 million to 110 million euro each.
AUGUST
Venturing ahead
The Viva Ventures consortium, led by the US investment fund Advent, placed the highest offer for the Bulgarian Telecommunication Company (BTC). The consortium bid 350 million euro for the 65 per cent stake in Bulgaria's telecom monopoly securing an early lead ahead of the Turkish consortium Turk Telekom/Koc Holding's offer of 220 million euro. By the end of the month it became clear that BTC would retain its monopoly over end users' land-lines until 2005, after the new Telecommunications Bill was approved by the Government.
Bank sale signed
Bank Austria Creditanstalt Group acquired 99.59 per cent of Bulgaria's fourth largest bank, Biochim, for 82.5 million euro. The contract was signed by Bank Austria's Board of Directors Chairman Gerhard Randa and Managing Director for Southeastern Europe Anton Knet and Bank Consolidation Company Board Chairman and Finance Minister Milen Velchev and BCC Executive Director Nelly Kordovska.
Off the tracks
The World Bank proposed "radical measures" for the Bulgarian State Railways (BDZ). In an unofficial report WB recommended making redundant 35 per cent of BDZ staff, raising cargo rates by 5 per cent, reducing discounts for some passengers from 50 to 25 per cent, and closing all loss-making lines. The Government said about 700km of loss-making lines would most probably be closed.
DZI deal done
The privatisation of 80 per cent of the State Insurance Institute (DZI) was finalised.
The new owner was named as Contract Sofia, a company owned by Emil Kyulev, executive director of Rosseximbank. After the sale of DZI, the Bulgarian insurance market became fully private.
Choked off
Metatabak Consortium, whose shareholders include Russian-born Israeli businessman Michael Chorny, announced its withdrawal from the competitive bidding for Bulgartabac. Metatabak said the procedure was flawed and one of the potential buyers, Tobacco Capital Partners, was getting preferential treatment.
Moving money
The Government approved changes to currency legislation to further liberalise capital outflows. Natural persons and companies would be required to declare to the Bulgarian National Bank (BNB) the assets of their overseas bank accounts above a specified threshold, as well as the foreign investments they make and the loans they extend to non-residents. The BNB Managing Board issued an ordinance setting an assets threshold below which private individuals will not have to declare their foreign bank accounts. This threshold is 15 000 euro.
SEPTEMBER
Government revolutionaries
The Government announced it planned "revolutionary" tax changes, a move which sparked widespread concern, mainly from the IMF.
Cigarette burns
All three failed candidate buyers of Bulgartabac Holding - Consortium Metatabac, Tobacco Holding and Rosbulgartabac - filed complaints against the privatisation in the Supreme Administrative Court. Rosbulgartabac and Tobacco Holding were appealing against the selection of Tobacco Capital Partners as exclusive buyer of Bulgartabac. A few weeks later, the court suspended the Bulgartabac deal until the lawsuit was completed. The court found that the administrative file sent by the Privatisation Agency was incomplete, and set it a deadline to submit additional proof.
Second bond swop
A second exchange of Bulgarian Brady bonds for dollar-denominated Eurobonds of up to $800 million was to be executed, the Government announced. The exchange was again to be handled by JP Morgan and Salomon Smith Barney, which were in charge of the first transaction in March. Later in the month, Parliament ratified the contract on the second debt swop.
Bids for BTC
Vienna-based Viva Ventures Holding GmbH, owned by the US fund Advent, bid 250 million euro for the Bulgarian Telecommunication Company, exceeding the bid made by Koc Holding of Turkey. Under the social programme of the Turkish consortium 4470 of all 25 000 current employees of BTC were to be dismissed within three years while Viva Ventures envisioned making 9000 people redundant over the same period.
OCTOBER
Velchev's new deal
A proposal to amend Bulgaria's standby agreement with the International Monetary Fund to a protective one, and a proposal to set up a venture capital state fund using dividends from surpluses in Bulgaria's increased fiscal reserve, were hot issues in talks with the IMF and World Bank that Finance Minister Milen Velchev and Economy Minister Nikolai Vassilev had in Washington. The next agreement with the IMF, if needed at all, would be protective, Velchev said a few days later.
Bond swop sequel
Following the pilot project in March, Bulgaria's second Brady bond swop wrapped up in October. The second replacement reduced Bulgaria's foreign debt by $107 million. A collateral under the deal of $135 million was also issued. As a result of the second swop deal, Bulgarian foreign debt was reduced by $243 million.
S&P positive
Standard & Poor's increased Bulgaria's long-term credit rating. The long-term state-guaranteed credit rating in local currency was hiked from BB to BB+, and in foreign currency, from BB- with positive outlook to BB. The credit rating of the foreign currency-denominated non-guaranteed debt was increased from BB- to BB, while the short-term one kept its current rating of B.
DSK contract
US bank JP Morgan signed a contract to carry out the privatisation of the Bulgarian State Savings Bank (DSK) in March 2003. JP Morgan won the contract in August, out-bidding four other candidates - ABN Amro, Kreditanstalt, Salomon Smith Barney and Diva Securities.
VAT rules change
Deputy Finance Minister Gati al-Jeburi announced that the threshold for obligatory VAT registration will be lowered from
75 000 leva annual turnover to
50 000 leva. For voluntary registration it will drop from 50 000 leva to 25 000 leva annual turnover, according to proposed amendments to the VAT Act.
Viva the winner
VIVA Ventures Holding GmbH was chosen as the preferred buyer of a 65 per cent stake in the Bulgarian Telecommunication Company (BTC). The Polish-based AIG-CET, which placed an indicative (non-binding) bid, withdrew from the competition on the grounds that it could not put up a bank guarantee of three million euro.
Vassilev's nine-pack
Economy Minister Nikolai Vassilev presented to Parliament a package of nine measures aimed at improving the business environment and invigorating the economy by mid-2003. The Cabinet planned to set up a 100 million leva investment fund for the purchase of stakes in promising local companies as an alternative to banking crediting.
NOVEMBER
Bulgartabac turbulence
The Bulgartabac deal was in limbo as the Supreme Administrative Court annulled the decision of the Privatisation Agency to choose Tobacco Capital Partners and Clar Innis B.V. as the successful bidder in the privatisation of Bulgartabac Holding. The court instructed the Privatisation Agency (PA) to proceed with the privatisation procedure, which meant that the PA should require a one-off review of the offers for Bulgartabac. Later in the month, the PA filed an appeal against the court's decision.
Fitch's view
Fitch IBCA upgraded Bulgaria's long-term foreign currency rating to BB from BB-, the Finance Ministry announced on Tuesday. The long-term local currency rating was upgraded to BB+ from BB. The short-term rating is affirmed at B. The outlook on the long-term ratings was changed to positive from stable.
Social security
The Government approved a new Social Security Code, which provides for fixing minimum insurance thresholds every year upon the passage of the social security budget.
Budget tabled
Finance Minister Milen Velchev handed the draft budget for 2003 to the Speaker of Parliament Ognian Gerdjikov. A day earlier it was approved by the Council of Ministers.
Social expenditure was slated to grow at the fastest pace. Next year the drop in direct taxes was expected to be compensated to some degree by non-tax budget revenue. The IMF strongly criticised the budget and said it should be based on conservative assessments rather than on expectations, which according to them is the actual state. The IMF mission that was in Sofia for a second review under the two-year, $300-million standby arrangement for Bulgaria went back home disappointed, having failed to achieve an agreement with the Government.
Customs busts
British company Crown Agents released its second three-month report on the state of Bulgarian Customs. Until the end of October, the so-called "mobile units" set up by the British firm, uncovered 39 cases of under-declared value and wrongly described goods were detected that would have defrauded the Exchequer of more than three million leva.
Plans for BTC
Representatives of Advent International, owner of Viva Ventures, preferred buyer of the BTC revealed its plans for the telecom's future. They promised investment higher than the one pledged in the privatisation bid.
Going, going...
The first auctions of state-owned stakes on the Bulgarian Stock Exchange started with the launch of part of the capital of Albena Inc. and nine residual packages united in the Golden Sands pool. This set the beginning of the public offering of state-owned packages of shares in different companies, which aim to reimburse nearly 123 000 holders of compensatory instruments aimed at stimulating the development of the capital market in Bulgaria.
In fuel agreement
Under an agreement signed at the Finance Ministry, LUKoil Bulgaria and Petrol AD pledged not to increase fuel prices in 2003 to offset the introduction of higher excise duties next year.
DECEMBER
Foul play file
United Democratic Forces (UtDF) MPs sent Prosecutor-General Nikola Filchev a file alleging breaches of the law in the privatisation of the Bulgarian Telecommunication Company (BTC). As a result the BTC privatisation deal was suspended by the Supreme Cassation Prosecutor's Office "in order to prevent the perpetration of a crime pursuant to article 220 of the Penal Code - the signing of an unfavourable deal - and a crime under article 283a of the same - abuse of office to the benefit of oneself or another person".
Sniffing the smoke
RJ Reynolds Tobacco Company said it is interested in acquiring a stake in Bulgartabac Holding Group if the Bulgarian company is purchased by the Tobacco Holding Consortium of Austria.
Merger approved
Parliament approved an act, which will merge the State Securities Commission, the Insurance Supervision Agency and the State Social Security Supervision Agency, into a State Financial Supervision Commission from March 1 next year.
DSK progress
The privatisation procedure for DSK Bank, the last state-owned Bulgarian bank, effectively started with an invitation to investors, which should present non-binding bids by January 27. According to the timetable that the Government had prepared for the sale, bidders, short-listed on the basis of the indicative bids, would enter the bank for due diligence in February-March and the final bid should come in before end-March.
Medicines drama
The year started with a medicine prices drama in which several pharmacies countrywide closed their doors, complaining of confusion about the levying of VAT on medicines after January 1 and about an ordinance on trade surcharges and ceilings for medicine prices. Prices of medicines went up by at least 10 per cent.
VAT changes
Long-awaited changes to the Value Added Tax (VAT) law, which allow refunds for foreign legal entities took effect at the start of the year, two years after they were approved. The right to be refunded for paid VAT should be proven by submitting the originals of the tax documentation for the deliveries that are to be refunded, legislators decided. Many concerns however were not resolved, as the unified VAT rate of 20 per cent was seen as too high for some commodities.
Rating upgraded
Fitch IBCA followed other international credit rating agencies in upgrading Bulgaria's ratings. Bulgaria's long-term foreign currency ratings were raised from B+ to BB-, and the long-term local currency and short-term foreign currency ratings were confirmed at BB and B, respectively. The long-term rating outlook was changed from positive to stable. The agency said that in recent months the Bulgarian Government had set prudent fiscal targets and an ambitious structural reform programme after an uncertain start following its election in June.
Debt talks
For the first time in recent years political will was seen as existing in both countries to resolve the problem of Russia's debt to Bulgaria. This was announced by Russian Deputy Prime Minister and Minister of Finance Alexey Kudrin after a meeting with his Bulgarian counterpart and Minister of Economy Nikolai Vassilev. Inherited from the Soviet era, the debt was estimated at close to $100 million. Despite a 1995 intergovernmental agreement on settling the debt, the question was still an open issue in bilateral relations.
FEBRUARY
Bulgartabac plans
In what was expected to be the final step towards selling tobacco monopoly Bulgartabac, the Government adopted a privatisation strategy for the holding and forwarded it to Parliament. Announcing the decision, Economy Minister Nikolai Vassilev said the Government was putting up for sale between 51 and 80 per cent of the capital of the holding company which is made up by 22 partnerships in Bulgaria and another eight abroad. Bulgaria's tobacco monopoly was to be sold at an auction as a whole and not in self-contained parts. The Government pledged to keep a so-called "golden share", which would allow it to control decision-making by the future owner. The remainder of Bulgartabac was to be offered on the Stock Exchange.
Electricity hikes
Household electricity prices would go up by 10 per cent a year until they levelled off with those for industrial consumption, the trade unions and State Energy Regulation Commission (SERC) agreed. Consumers would not be able to cope financially with an annual hike of more than 10 per cent, so electricity would have to appreciate in stages over two to three years, they said.
MARCH
Energy strategy
A concept for a long-term energy strategy for Bulgaria was adopted, envisaging building an energy market in Bulgaria in the next three to four years and preserving the country's potential for exports of energy products through improved efficiency of power generating facilities. The document noted that Bulgaria imported about 70 per cent of its energy resources, which accounted for about 27 per cent of total imports.
Russian debt deal
Bulgaria scored a success by persuading Russia to acknowledge a debt of $132 million.
It was announced that the amount of debt which Russia would repay to Bulgaria had been fixed at $88.5 million.
IMF credit plan
The International Monetary Fund executive board approved a two-year stand-by credit line worth about $299 million to support Bulgaria's comprehensive economic programme. Meanwhile the World Bank announced it is to give Bulgaria a credit line of $450 million to support the Government's reform programme.
BTC sale plan
The Government approved the strategy for the privatisation of the Bulgarian Telecommunication Company (BTC). A 65 per cent share of BTC was about to be offered to investors. Up to 20 per cent of the state telecom was to be sold on the stock exchange.
Inflation woes
Accumulated inflation reached 4.4 per cent in February, seriously exceeding the 3.5 per cent agreed by Bulgaria and the International Monetary Fund for Budget 2002, the National Statistical Institute said. The cumulative figure for the first two months was not unexpected after the Government raised electricity and heating prices at the end of 2001 as part of the reform programme agreed with the IMF.
Bond swop
Bulgaria is to exchange Brady bonds for new Eurobonds, Finance Minister Milen Velchev announced simultaneously in Sofia and London. The Government approved the proposal for the operation and forwarded it to Parliament for its consent. The banks hired to manage the issue were JP Morgan Chase and Salomon Smith Barney, part of Citigroup.
Customs controversy
Finance Minister Milen Velchev was forced by Parliament to submit a report on the state of Bulgarian Customs, following the presentation of Crown Agents' preliminary diagnostic report. Parliament decided this after a closed sitting debating the contract with the British company. But controversy erupted with new force a few days later after a publication by top-circulation daily Trud of what the newspaper said was a classified verbatim record of a closed-door Cabinet meeting held at the end of October 2001, at which the ministers allegedly discussed ways to circumvent the Public Procurement Act when contracting Crown Agents.
Bulgartabac saga
The privatisation procedure for state tobacco monopoly Bulgartabac was launched by the Privatisation Agency. Bidders had to buy tender documents by end-April and place bids by May 3. The holding was to be sold over a two-stage competitive tender. The Privatisation Agency and the Economy Ministry expected 12 to 13 potential buyers.
APRIL
Swop results
Finance Minister Milen Velchev announced the final results from the swop deal. Velchev said the foreign debt of Bulgaria had been decreased by $80 million as a result of the exchange of Brady Bonds for Eurobonds. On the other hand $197 million entered directly into the country's foreign exchange reserve, making the overall positive effect of the operation amount to $277 million.
Smoke gathers
Controversy started to dog the privatisation of Bulgartabac, with Russia formally claiming property held by the tobacco monopoly, and a Russian firm alleging an extortion attempt by Bulgartabac's managing director. In a letter to Prime Minister Simeon Saxe-Coburg, Soyuzcontract Tabac president Garedin Gevondyan alleged that Bulgartabac managing director Georgi Popov had demanded $500 000 for the exclusive right to sell Bulgarian brands on the Russian market. Tensions around the deal were deepened by official correspondence from Moscow laying claim to Bulgartabac property.
BTC offers sought
The Privatisation Agency launched the privatisation procedure for a stake of up to 65 per cent in the Bulgarian Telecommunication Company (BTC) by two-stage competitive bidding. Potential buyers had until May 27 to enter tentative offers.
Forex rules
The Finance Ministry released a new ordinance on the terms and conditions for the registration of exchange bureaus and the requirements for their operation. Exchange bureaus were no longer allowed to charge commission fees for the exchange of currencies and to apply different rates for the exchange of different amounts of the same currency. The move followed thousands of complaints by defrauded customers.
MAY
Smoke thickens
A consortium including Michael Chorny, the Russian-born Israeli businessman who was barred from Bulgaria two and a half years ago as a national security risk, declared that it would bid for the privatisation of Bulgartabac Holding Group. Metatabak was registered in Bulgaria and Chorny's Cyprus-registered MCG Holding had a 35 per cent stake in the consortium. By the end of the month, five companies placed indicative offers in the first stage of the privatisation of the tobacco holding. The Privatisation Agency declined to name the bidders, but their names were revealed in media reports. The five companies were Consortium Metatabak, Tobacco Holding, Russian investment bank Regionalna Perspekitva, Tobacco Capital Partners, and Hungary's Vitabac. British American Tobacco (BAT) finally announced it was withdrawing its business from Bulgaria. BAT was present in the country with the major goal to bid for Bulgartabac.
World Bank loan
The World Bank said it would lend Bulgaria up to $750 million over the next three years to help the country carry out market reforms, the Finance Ministry announced. The loans were meant to aid the Government in the privatisation of state-run companies and its fight against poverty.
JUNE
Bank Austria wins
Bank Austria was named the preferred buyer of a more than 99 per cent Government share in Biochim Commercial Bank. Offers for Biochim were submitted by Bank Austria, a consortium of the Bulgarian Roseximbank and the Russian International Industrial Bank, and a consortium of Hebros Bank and Charlemagne Capital. Bank Austria submitted the best offer, with the highest price.
BTC buyers bid
Three buyers submitted indicative bids for the privatisation of up to 65 per cent of the Bulgarian Telecommunication Company (BTC). AIG-CET Capital Management, a consortium led by Advent International from the United States, and Turk Telekom in partnership with Koc Holding submitted indicative, non-binding bids. The third bid was placed by the Polish-based AIG-CET Capital Management. It is owned by the AIG insurance company of the US.
DSK consultancy
Twelve banks and investment companies tendered for consultancy services in the privatisation of the State Savings Bank (DSK Bank).
Popov questioned
Bulgartabac Holding's executive director Georgi Popov was interrogated by prosecutors over bribery allegations made by Garegin Gevondyan, president of Russian company Soyuzcontract Tabak. Popov declined to comment on his interrogation, beyond saying it was in his best interest that the probe was completed as soon as possible. A few days later, Economy Minister Nikolai Vassilev spent an hour at the prosecution office in Sofia to answer questions in a probe initiated after bribery allegations. Media attacks on Bulgartabac executive director Georgi Popov led to his dismissal for making inappropriate statements to the press.
JULY
Bank deal approved
The Board of Directors of the Bank Consolidation Company (BCC) approved the bid entered by Bank Austria for the 99.59 per cent stake in Biochim Bank.
For sale sign
The Government approved a list of the companies that were to be offered for privatisation through non-cash instruments this year. Twenty per cent of the Bulgarian Telecommunication Company (BTC) and as much of the State Insurance Institute (DZI), and 12.38 per cent of Bulgartabac Holding would be sold on the stock exchange for compensatory notes. The list featured 1070 companies.
Energy sale consultant
BNP Paribas was graded first of the candidates to act as consultant on the privatisation of Bulgaria's seven electricity distribution companies. BNP Paribas was the company that won the largest number of points in the competitive bidding for consultants. The project would be financed by the Phare/EBRD Bangkok Facility Programme, the funds being provided by the EBRD.
Smoke billows
Surprisingly, the former executive director of Bulgartabac Holding Georgi Popov was left on the Board of Directors by decision of a general meeting of the shareholders. The mandate of Popov was retained at the wish of the state in its capacity as a majority owner of the monopoly. Meanwhile, several national newspapers reported that the Administration of the Affairs of the President of the Russian Federation had reminded the four prospective buyers in a letter that Russia had property claims to Bulgartabac Holding. The potential buyers were warned that Moscow would transfer its claims to them if they bought the tobacco holding company. Tobacco Capital Partners submitted the highest final bid for the 80 per cent stake in Bulgartabac Holding. Following second was Metatabak, while Tobacco Holding and RosBulgartabak came in third and fourth place, respectively. The four bidders for Bulgartabac Holding Group offered to pay 64 million to 110 million euro each.
AUGUST
Venturing ahead
The Viva Ventures consortium, led by the US investment fund Advent, placed the highest offer for the Bulgarian Telecommunication Company (BTC). The consortium bid 350 million euro for the 65 per cent stake in Bulgaria's telecom monopoly securing an early lead ahead of the Turkish consortium Turk Telekom/Koc Holding's offer of 220 million euro. By the end of the month it became clear that BTC would retain its monopoly over end users' land-lines until 2005, after the new Telecommunications Bill was approved by the Government.
Bank sale signed
Bank Austria Creditanstalt Group acquired 99.59 per cent of Bulgaria's fourth largest bank, Biochim, for 82.5 million euro. The contract was signed by Bank Austria's Board of Directors Chairman Gerhard Randa and Managing Director for Southeastern Europe Anton Knet and Bank Consolidation Company Board Chairman and Finance Minister Milen Velchev and BCC Executive Director Nelly Kordovska.
Off the tracks
The World Bank proposed "radical measures" for the Bulgarian State Railways (BDZ). In an unofficial report WB recommended making redundant 35 per cent of BDZ staff, raising cargo rates by 5 per cent, reducing discounts for some passengers from 50 to 25 per cent, and closing all loss-making lines. The Government said about 700km of loss-making lines would most probably be closed.
DZI deal done
The privatisation of 80 per cent of the State Insurance Institute (DZI) was finalised.
The new owner was named as Contract Sofia, a company owned by Emil Kyulev, executive director of Rosseximbank. After the sale of DZI, the Bulgarian insurance market became fully private.
Choked off
Metatabak Consortium, whose shareholders include Russian-born Israeli businessman Michael Chorny, announced its withdrawal from the competitive bidding for Bulgartabac. Metatabak said the procedure was flawed and one of the potential buyers, Tobacco Capital Partners, was getting preferential treatment.
Moving money
The Government approved changes to currency legislation to further liberalise capital outflows. Natural persons and companies would be required to declare to the Bulgarian National Bank (BNB) the assets of their overseas bank accounts above a specified threshold, as well as the foreign investments they make and the loans they extend to non-residents. The BNB Managing Board issued an ordinance setting an assets threshold below which private individuals will not have to declare their foreign bank accounts. This threshold is 15 000 euro.
SEPTEMBER
Government revolutionaries
The Government announced it planned "revolutionary" tax changes, a move which sparked widespread concern, mainly from the IMF.
Cigarette burns
All three failed candidate buyers of Bulgartabac Holding - Consortium Metatabac, Tobacco Holding and Rosbulgartabac - filed complaints against the privatisation in the Supreme Administrative Court. Rosbulgartabac and Tobacco Holding were appealing against the selection of Tobacco Capital Partners as exclusive buyer of Bulgartabac. A few weeks later, the court suspended the Bulgartabac deal until the lawsuit was completed. The court found that the administrative file sent by the Privatisation Agency was incomplete, and set it a deadline to submit additional proof.
Second bond swop
A second exchange of Bulgarian Brady bonds for dollar-denominated Eurobonds of up to $800 million was to be executed, the Government announced. The exchange was again to be handled by JP Morgan and Salomon Smith Barney, which were in charge of the first transaction in March. Later in the month, Parliament ratified the contract on the second debt swop.
Bids for BTC
Vienna-based Viva Ventures Holding GmbH, owned by the US fund Advent, bid 250 million euro for the Bulgarian Telecommunication Company, exceeding the bid made by Koc Holding of Turkey. Under the social programme of the Turkish consortium 4470 of all 25 000 current employees of BTC were to be dismissed within three years while Viva Ventures envisioned making 9000 people redundant over the same period.
OCTOBER
Velchev's new deal
A proposal to amend Bulgaria's standby agreement with the International Monetary Fund to a protective one, and a proposal to set up a venture capital state fund using dividends from surpluses in Bulgaria's increased fiscal reserve, were hot issues in talks with the IMF and World Bank that Finance Minister Milen Velchev and Economy Minister Nikolai Vassilev had in Washington. The next agreement with the IMF, if needed at all, would be protective, Velchev said a few days later.
Bond swop sequel
Following the pilot project in March, Bulgaria's second Brady bond swop wrapped up in October. The second replacement reduced Bulgaria's foreign debt by $107 million. A collateral under the deal of $135 million was also issued. As a result of the second swop deal, Bulgarian foreign debt was reduced by $243 million.
S&P positive
Standard & Poor's increased Bulgaria's long-term credit rating. The long-term state-guaranteed credit rating in local currency was hiked from BB to BB+, and in foreign currency, from BB- with positive outlook to BB. The credit rating of the foreign currency-denominated non-guaranteed debt was increased from BB- to BB, while the short-term one kept its current rating of B.
DSK contract
US bank JP Morgan signed a contract to carry out the privatisation of the Bulgarian State Savings Bank (DSK) in March 2003. JP Morgan won the contract in August, out-bidding four other candidates - ABN Amro, Kreditanstalt, Salomon Smith Barney and Diva Securities.
VAT rules change
Deputy Finance Minister Gati al-Jeburi announced that the threshold for obligatory VAT registration will be lowered from
75 000 leva annual turnover to
50 000 leva. For voluntary registration it will drop from 50 000 leva to 25 000 leva annual turnover, according to proposed amendments to the VAT Act.
Viva the winner
VIVA Ventures Holding GmbH was chosen as the preferred buyer of a 65 per cent stake in the Bulgarian Telecommunication Company (BTC). The Polish-based AIG-CET, which placed an indicative (non-binding) bid, withdrew from the competition on the grounds that it could not put up a bank guarantee of three million euro.
Vassilev's nine-pack
Economy Minister Nikolai Vassilev presented to Parliament a package of nine measures aimed at improving the business environment and invigorating the economy by mid-2003. The Cabinet planned to set up a 100 million leva investment fund for the purchase of stakes in promising local companies as an alternative to banking crediting.
NOVEMBER
Bulgartabac turbulence
The Bulgartabac deal was in limbo as the Supreme Administrative Court annulled the decision of the Privatisation Agency to choose Tobacco Capital Partners and Clar Innis B.V. as the successful bidder in the privatisation of Bulgartabac Holding. The court instructed the Privatisation Agency (PA) to proceed with the privatisation procedure, which meant that the PA should require a one-off review of the offers for Bulgartabac. Later in the month, the PA filed an appeal against the court's decision.
Fitch's view
Fitch IBCA upgraded Bulgaria's long-term foreign currency rating to BB from BB-, the Finance Ministry announced on Tuesday. The long-term local currency rating was upgraded to BB+ from BB. The short-term rating is affirmed at B. The outlook on the long-term ratings was changed to positive from stable.
Social security
The Government approved a new Social Security Code, which provides for fixing minimum insurance thresholds every year upon the passage of the social security budget.
Budget tabled
Finance Minister Milen Velchev handed the draft budget for 2003 to the Speaker of Parliament Ognian Gerdjikov. A day earlier it was approved by the Council of Ministers.
Social expenditure was slated to grow at the fastest pace. Next year the drop in direct taxes was expected to be compensated to some degree by non-tax budget revenue. The IMF strongly criticised the budget and said it should be based on conservative assessments rather than on expectations, which according to them is the actual state. The IMF mission that was in Sofia for a second review under the two-year, $300-million standby arrangement for Bulgaria went back home disappointed, having failed to achieve an agreement with the Government.
Customs busts
British company Crown Agents released its second three-month report on the state of Bulgarian Customs. Until the end of October, the so-called "mobile units" set up by the British firm, uncovered 39 cases of under-declared value and wrongly described goods were detected that would have defrauded the Exchequer of more than three million leva.
Plans for BTC
Representatives of Advent International, owner of Viva Ventures, preferred buyer of the BTC revealed its plans for the telecom's future. They promised investment higher than the one pledged in the privatisation bid.
Going, going...
The first auctions of state-owned stakes on the Bulgarian Stock Exchange started with the launch of part of the capital of Albena Inc. and nine residual packages united in the Golden Sands pool. This set the beginning of the public offering of state-owned packages of shares in different companies, which aim to reimburse nearly 123 000 holders of compensatory instruments aimed at stimulating the development of the capital market in Bulgaria.
In fuel agreement
Under an agreement signed at the Finance Ministry, LUKoil Bulgaria and Petrol AD pledged not to increase fuel prices in 2003 to offset the introduction of higher excise duties next year.
DECEMBER
Foul play file
United Democratic Forces (UtDF) MPs sent Prosecutor-General Nikola Filchev a file alleging breaches of the law in the privatisation of the Bulgarian Telecommunication Company (BTC). As a result the BTC privatisation deal was suspended by the Supreme Cassation Prosecutor's Office "in order to prevent the perpetration of a crime pursuant to article 220 of the Penal Code - the signing of an unfavourable deal - and a crime under article 283a of the same - abuse of office to the benefit of oneself or another person".
Sniffing the smoke
RJ Reynolds Tobacco Company said it is interested in acquiring a stake in Bulgartabac Holding Group if the Bulgarian company is purchased by the Tobacco Holding Consortium of Austria.
Merger approved
Parliament approved an act, which will merge the State Securities Commission, the Insurance Supervision Agency and the State Social Security Supervision Agency, into a State Financial Supervision Commission from March 1 next year.
DSK progress
The privatisation procedure for DSK Bank, the last state-owned Bulgarian bank, effectively started with an invitation to investors, which should present non-binding bids by January 27. According to the timetable that the Government had prepared for the sale, bidders, short-listed on the basis of the indicative bids, would enter the bank for due diligence in February-March and the final bid should come in before end-March.
