AmCham Body 51 - American Chamber of Commerce in Bulgaria · conference was co-organized with...

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A m e r i c a n C h a m b e r o f C o m m e r c e i n B u l g a r i a

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Am ChamConference:NATO and thenew trade oppor tunities

IstanbulMeeting

The Next GSMOperator

The GeneralAssembly

Happy End of EU talks

INDEPENDENCE DAYCOMMUNITY CELEBRATION

INDEPENDENCE DAYCOMMUNITY CELEBRATION

Am ChamConference:NATO and thenew trade oppor tunities

IstanbulMeeting

The Next GSMOperator

The GeneralAssembly

Happy End of EU talks

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e d i t o r i a l

I am trying to pick my thoughts and make a niceaddress and I see that it is quite a challenge.C'mon: it is summer; summer time; summer holidays!

However I have to do my job so therefore back to serious business. Though Junewas marked by the remarkable Euro Football Cup Finals where our neighbor Greecegot all the compliments for the superb victory of its team there were lot of interna-tional and local political and business events that kept us alert.

For Bulgaria there were two major issues. The country closed its membership negoti-ations with EU and achieved very preferential financial package for its accession in2007. At the end of the month Bulgaria had its first official participation as fullfledged member of NATO at the Istanbul Summit of head of states and governments.

While within the Alliance the country was participating at the highest political level,AmCham organized the first ever regional conference in Southeast Europe dedicat-ed to NATO enlargement and its implication on trade and investment climate. Theconference was co-organized with Hellenic-American Chamber of Commerce andthis is a remarkable fact also for the region: two Chambers cooperate together andmake the joint event a success story. Many thanks should go to my colleague andfriend Alex Lamnidis for that and we both believe that a lot more may be achievedfor our members and business in general when all the AmChams from the regionjoint their efforts.

However Sofia showed its hospitality as well ability to work with responsible andprofessional approach to both foreign governmental officials and business represen-tatives. We are sure that the tradition has been already established and that theproductive dialogue between the governments, the military and the industry onsecurity, investment and trade will continue for these are common issues for allcountries and all the businesses in the region. The message was quite clear: theOpen Doors policy of NATO in South East Europe will accelerate the regional stabil-ity, economic reforms and cooperation.

And in only a day after the conference we started the AmCham Independence DayCelebration. That was unforgettable party! No need to describe: look only at the pic-tures we have in this issue. But of course one should be there at that very specialday in that exceptional atmosphere and with all these many friends of AmCham.

The two major events took part in a week. And it is only the team that knows whatactually stays behind the facade: lots of efforts and sleepless nights, unexpectedchallenges and almost endless work. But all of them have the firm believe that theywill manage. I have to thank my team for that and extend congratulations for thecourage to go ahead and make the success.

And this is how the things work.

If you believe in something then dream may become reality.

Happy summer holidays!

Best regards,

Executive DirectorValentin Georgiev

Dear Members and Friends, Dear Reader,

As you may already know, a brilliant ad forVolkswagen Polo won recently the GrandPrix at the Golden Lion festival in Cannes.This competition is regarded by many asthe most esteemed advertising forum inthe world, so any idea receiving accoladesat such an event is definitely worth a sec-ond look. Get a glimpse of the winnerbelow:

The ad's slug is: Small but tough. Polo.

As Bulgaria's NATO membership becamereality, the accession talks with EU con-cluded and some other important eventshappened, it suddenly dawned on me thatthis motto is entirely appropriate for ourcountry. I can't explain why I liked it somuch, but it does sound catchy for sure:Small but tough. Bulgaria.

Then, all of us eking a living in Bulgariacan do nothing better but roll our sleevesand work hard to make the advertised"product" as classy as its promo. The mostimportant rule in advertising is to avoidcreating unrealistic expectations withpotential customers. You will learn fromthis issue of the magazine that Bulgariahas already acquired plenty of keenpatrons. Let me just mention that on thefollowing pages we will discuss the busi-ness possibilities stemming from the NATOmembership, analyze the emergence of athird GSM provider, and describe how thepositive outlook among foreign investorsincreases in sync with Bulgaria's GDP.

All told, we have a promising start.

Good luck.

Milen Marchev

Editor-in-Chief

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3M (East) AG . AA KRES EOOD . ABB Bulgaria Ltd. . AbC.R.O. - Bulgaria EAD. Abela Airport Services Ltd. . Abrotea Bulgaria AD . Accor Services Bulgaria .Acsior . ACT Soft Ltd. . Address Bulgaria Holding JSCo.- A real estate company .ADIS Ltd. . AES Corporation . AFA OOD . Ahrend Profesionalni Interiery S.R.O.. AIG Bulgaria . AIG Life Bulgaria . AIMS Human Capital . Alexandrov Ltd. .Allan Collautt Associates, Inc. . Allied Pickfords Bulgaria . American Bar Association- CEELI . American College of Sofia . American Construction Products JSC .American University in Bulgaria (AUBG) . Amylum Bulgaria EAD . Anglo-AmericanSchool of Sofia . Anton Preslavski, Liebert Hiross . APIS - BULGARIA Ltd. . APOLOLtd. . Aries Commerce . Association of Bulgarian Broadcasters - ABBRO . ATEngineering 2000 Ltd. . AUDITING COMPANY VERSI & PARTNERS OOD . AvendiLtd. . AVON Cosmetics Bulgaria Ltd. . BALKAN ES TEAM Ltd. . Balkan NewsCorporation Plc. . Balkan Star . BalkanData / Lefkowitz & Co. . BanqueInternationale pour le Commerce et le Developpement (BICD) . Baxter AG . BayerBulgaria . BearingPoint LLC . BG Radio . Bodyguard-Fire-K Ltd. . BorislavBoyanov & Co. . Bristol-Myers Squibb . BTC-NET Ltd. . Bulgarian AmericanEnterprise Fund . Bulgarian Charities Aid Foundation (BCAF) . Bulgarian Post Bank.Bulgarian Telecommunications Company PLC . Business Links . Business MediaGroup . Business Park Sofia EOOD . Business to Business . CA IB Bulinvest .CableTel . Carlson Wagonlit Travel . Cefin Bulgaria EOOD . Center for the Studyof Democracy . Cilag AG International (Johnson & Johnson) . Cisco SystemsBulgaria . Citibank, N.A.- Sofia Branch . City University . Coca Cola H.B.C BulgariaSA . Coca-Cola Bulgaria EOOD . COLLIERS International . Combi Trans BulgariaLtd. . Compass Translation Services . ConsulTeam Recruitment and Selection Ltd.. Contex Drouzhba Ltd. . Corstjens Worlwide Movers Group . CPM InternationalLtd. . Cresta Marketing S.A. . Curtis / Balkan Ltd. . David Hampson, Grenville .DeConi M&A . Deloitte & Touche . DHL International (Bulgaria) Ltd. . DiageoBulgaria Ltd . DIMON Bulgaria . Djingov, Gouginski, Kyuchukov, & Velichkov .Domaine Boyar AD . Dow Europe GmbH Representation Office . Dr. Emil Benatov& Partners . Effekten Und Finanz - Bulgaria EAD . Electron Progress AD . EliLilly and Company . Elido . Elieff Center for Education and Culture of the AmericanUniversity in Bulgaria . Ellen Ruth Greenberg, Ph.D., Dr. I.S. Greenberg Medical Center. Elta consult AD associated partner of CB Richard Ellis for Bulgaria . EmersonProcess Management AG . Encouragement Bank AD . Engineeringservice Sofia Ltd.. EQUEST EAD . ERATO HOLDING PLC . Ernst & Young Bulgaria . EURO RSCGNew Europe Sofia . Expo Team Ltd. . First Global Health Corporation . FlyingCargo Bulgaria Ltd. - Licensee of FedEx . Force Delta Ltd. . Forem ConsultingBulgaria . General Electric International . Genmark Automation Bulgaria . GEO -CAR Ltd. . Glaxo SmithKline . Goleminov & Goleminov . Group 4 Securitas(Bulgaria) Ltd. . Hayhurst Robinson . HEBROS Bank AD . Hewlett-PackardBulgaria EOOD . Hilton Sofia . Honeywell EOOD . Horizon . IBM Bulgaria .Ideal Standard Bulgaria . In Time Ltd. . Infoguard - Stefan Nedkov . ING BankSofia Branch . Interamerican Bulgaria Ins.Co . Interbrands Marketing & DistributionInc. EOOD . Interpartners Plc . Investbank Plc. . IP Consulting Ltd. . ISI EmergingMarkets (Internet Securities, Inc.) . Junior Achievement Bulgaria . Kaliakra AD .Kamenitza AD . Kamor Auto Ltd. . Kolbis International Transfer Corporation .KPMG Bulgaria . Kraft Foods Bulgaria . Lexim Sofia Ltd. . Lindner Bulgaria OOD. Lirex BG Ltd. . Lowe Swing Communications . M & M Air Cargo Service BG Ltd. M3 Communications Group, Inc. A Hil & Knowlton Associate . Maersk Bulgaria Ltd.. Magnetic Head Technologies . Management Systems International . Maritza EastIII Power Company AD . Marsh EOOD . McDonald's Bulgaria Ltd. . Merck Sharp& Dohme IDEA Inc. . Michael Delia, European Bank for Reconstruction andDevelopment (EBRD) . Microsoft Bulgaria . Miltech Ltd. . MobilTel AD . MonbatPLC . Moto Pfohe Ltd. . Motorola Bulgaria EAD . National DISTRIBUTORS . NDBLtd. . NDT Equipment Supplies LTD . Net Is Ltd. . NET IS SAT Ltd. . NeumannInternational . New Europe Corporate Advisory Ltd . Nexcom Bulgaria EAD . NokiaBulgaria EOOD . Oracle East Central Europe Limited - Branch Bulgaria . Orbit Ltd.. Pain D'or Ltd. . Pfizer H.C.P. Corporation, Representation Office Bulgaria . PioneerSemena Bulgaria EOOD . Popov Legal Office . PricewaterhouseCoopers . PrimaSoft Ltd. . Procter & Gamble Bulgaria . ProSoft . Radisson SAS Grand Hotel .Rising Force Co., Ltd. . Rockwell/Intelpack . RTC Mobikom . S&D ChemicalsBulgaria . S&T Bulgaria . Sante International OOD . Schering - Plough Central East- Bulgaria . SEAF Management Bulgaria EOOD . Sheraton Sofia Hotel Balkan . SheritaM Ltd. . Sienit Ltd. . SigmaBleyzer Investment Group LLC . Smartcom-BulgariaAD . Sofia Echo Media Ltd. . Stefan Dimitrov, Norman Management Co. Ltd. . StudentLabour Office . Sun Spree Holidays . TechnoLogica . The Atlantic Club of Bulgaria. The Executive Centre . Tissue Bank Osteocenter Bulgaria EAD . TM Auto Ltd. .TMF . Tumbleweed Communications EOOD . Unimasters Logistics Group AD .Unisys Bulgaria Branch . Urban 3000 Ltd. . Via Expo Ltd. . Videolux Ltd. . VOCAConsult Ltd. . Westinghouse Energy Systems Bulgaria Branch . WizCom Ltd. .Wrigley Bulgaria EOOD . Wyeth-Whitehall Export . Xerox Bulgaria Ltd. . Zlati DinevStudio .

Board of Directors

of the American Chamber of Commerce in Bulgaria

President Kenneth M. Lefkowitz BalkanData/Lefkowitz & Co.

Vice President Stefan Dimitrov Allied Pickfords

Treasurer Dennis Fiehler Bulgarian American Enterprise Fund

Borislav Boyanov Borislav Boyanov & Co.David Hampson Individual MemberJanet Heckman CITIBANKRoumen Mihailov 3M (East) AGFriedrich Niemann Hilton SofiaGeorgi Randelov IBM BulgariaMaria Shishkova AIMS Human CapitalElitsa Tsaneva Ideal StandardMaria Vranovska Eli Lilly

Ex-Officio Member Reginald Miller US Commercial Attache

Executive Director Valentin Georgiev

Contentsa m c h a m e v e n t s

NATO Membership Offers Trade and Investment Opportunities . . . . . . . . . . . . . . . . . . . . . . . . .By Irina Bacheva

Defence Industry in the Balkans is governed by strategic, politic, economic and technical criteria . .6

Bulgaria's defense reform will stress quality over quantity . . . . . . . . . . . . . . . . . . . .8

a m c h a m a n a l y s i s

NATO: Economic Aspects . . . . . . . . . . . . . . .10By Panayot Angarev

a m c h a m i n t e r v i e w s

Bulgarian And Hellenic Defense Complexes Have a Potential For Dynamic Partnerships . . . . . . . .12

Only a Miracle Can Prevent Macedonia from JoiningNATO by 2007 . . . . . . . . . . . . . . . . . . . . . . .12

a n a l y s i s

NATO at Istanbul: Bulgaria as Part of the Ritual . . .By Boyko Vassilev

e u a c c e s s

Bulgaria-EU: Talks Have Ended, Now the Tough Part . . . . . . . . . . . . . . . . . . . .18By Yuliana Boncheva

e c o n o m y

South Eastern Europe can shedobstacles to investment . . . . .23

a n a l y s i s

Investor Prospects Improve Over High GDP Growth,Debt Buyback And Rating Upgrade . . . . . . . . . .26

By Raya Kanazireva

p r i v a t i z a t i o n

Wired up . . . . . . . . . . . . . .28By Marina Tsvetkova

m e m b e r n e w s

USAID Assists Local Municipalities in Expanding Professionalism . . . . . . . . . . . . . 33

a m c h a m e v e n t s

AmCham's July Fourth:Fun, Fireworks & Rock . . . . . . . . . . . .

Bulgaria slated to create neutral tax environment by 2007 . . . . . . . . . . . .40By Irina Bacheva

AmCham General Assembly

Re-elects Heckman . . . . . . . . . . . . . . . . . . . .40

NECA presents new ownership . . . . . . . . . . . . . . . . .

m e m b e r n e w s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43

IBM: how to create an 'on demand' bank

Cefin Holding started the construction of a new European Truck Center

Hebros Bank's card owners to use ATM-s free of charge

n e w m e m b e r s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44

BTC PLC

BUNGE Ltd

INVESTBANK PLC

MONBAT PLC

m o v i e s & D V D . . . . . . . . . . . . . . . . . . . .45

Spider-man 2

Intolerable cruelty

l e i s u r e

The Zuper Car . . . . . . . . . . . . . . . . . . . . . . .46

h u m o r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48

The Trainee

A Big Dog

Engeneers vs Managers

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AmCham Bulgaria Magazine is a primary

forum for political and economic analyses,

news, viewpoints as well as for the presenta-

tion of new business opportunities. The arti-

cles in the AmCham Bulgaria Magazine

express the opinions of the authors and do

not necessarily reflect the position of the

American Chamber of Commerce in

Bulgaria.

Publisher

American Chamber of Commerce in Bulgaria

Business Park Sofia, Mladost 4 Area

Building 2, Floor 6, Sofia 1715, Bulgaria

e-mail: [email protected]

www.amcham.bg

Editor-in-Chief

Milen Marchev

Deputy Editor-in-Chief:

Christopher Karadjov

Senior Editor:

Irina Bacheva

Layout, Design & Printing:

Milen Marchev

Writers:

Boiko Vasilev, Diana Popova, Kalina

Garelova, Marina Tzvetkova, Petio Tsekov,

Peter Gavrilov, Yuliana Boncheva

Advertising

AmCham Bulgaria:

Nadejda Vakareeva, [email protected]

AmCham Bulgaria Magazine:

Milen Marchev, [email protected]

The AmCham Bulgaria

Magazine reaches a broad audi-

ence of AmCham members,

leading US, Bulgarian and inter-

national companies, US and

Bulgarian decision-makers, all

AmChams around the world.

Subscription is free of charge. If

you would like to subscribe to

AmCham Bulgaria publications,

please contact the AmCham

Bulgaria office.

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The business partnerships in the defense sector between allNATO members, the consolidation in the defense and security,the cooperation on the regional South European level andschemes for offset deals, NATO procurement rules and acqui-sition principles were among the topics that grabbed the par-ticipants' attention during the conference NATO Membership:Trade and Investment opportunities in Southeast Europe, heldJune 30 - July 2 in Boyana Residence, Sofia.

The organizers - AmCham Bulgaria, the Ministry of Defenseand American-Hellenic Chamber of Commerce - attractedsome 300 high-ranking participants, among them governmentrepresentatives from Bulgaria, Greece, Macedonia, Romania,Turkey.

The modernization of Bulgarian army and aligning with NATOstandards is not just a process of acquisition of modern

defense equipment from the leading American and Europeancompanies, Nikolay Svinarov, Minister of Defense, said at theopening of the forum. It will turn to be a challenge for theBulgarian defense industry to compete with the world leadersin providing modern business solutions but at the same timealso an excellent opportunity to create partnerships with them,Minister Svinarov added. "What NATO requires from the newmembers cannot be achieved otherwise but through jointefforts of the governments and businesses and shared expe-rience of the best practices between the countries."

Security issues are important condition for stability in theregion, H.E. James Pardew, U.S. Ambassador to Bulgaria saidin his address. He is expecting that military-to-business rela-tionships will develop in the Southeast Europe together withbusiness-to-business ones. NATO anticipates Bulgaria to par-ticipate in future military and peacekeeping operations of the

NATO Membership OffersTrade and InvestmentOppor tunitiesThe alliance's enlargement brought faith in the stability of the region and

created a positive investment climate. Military-to-business relationships will

boost business-to-business ones.

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alliance, the ambassador added. So far, Washington has notmade specific proposals for deploying of US military bases inBulgaria.

It is the Bulgarian government's belief that the United Statesand Western allies will make investments in the 11 priority pro-jects for Bulgaria's military modernization, Plamen Panayotov,Deputy Prime Minister, said in his opening remarks. "AttractingU.S. investments, the development of joint businesses andentering new markets will further develop the Bulgariandefense industry, as a sector of the Bulgarian economy,"Panayotov said.

The modernization and renovation of the combat helicopters isamong the priority projects, said Gen. Nikola Kolev, Chief ofGeneral Staff of the Bulgarian Armed Forces. However, onlyfour out of 42 air force helicopters are in use at the present,he said. Bulgaria has assured NATO that in 2005 two transporthelicopters will be available to participate in alliance missionsas needed.

The most discussed topic at the conference was the offsetagreements. Specifying the conditions for offset deals andcontractors, Vice Premier Lydia Shuleva answered many ques-tions from business representatives. Minister Shuleva pointedout that the main contractors for Bulgarian army would beWestern defense companies. Even so, priority will be given tosubcontractors from Bulgaria.

Pavel Ezekiev of the Foreign Investment Agency said that for-

At the press conference led by Valentin Georgiev, AmCham executive director, the

media was informed in details about the discussed topics by Nathan Gidron,

Motorola, gen. Atanas Zaprianov, Vlado Buchkovski, Minister of Defense,

Macedonia, Ivo Ivanov, Deputy Minister of Defense, Bulgaria

Bulgarian Vice President Angel Marin /right/ exchanged ideas about regional

NATO forums with Alex Lamnidis, executive director of American-Hellenic

Chamber of Commerce

Lidia Shuleva, Vice Premier, answered many questions from defense companies

on the offset schemes

Bulgarian Vice President Angel Marin /left/ had a word with Mr. Vassilis

Mihaloliakos, Deputy Minister of Defense, Greece, before dinner at the Ball

Room, Military Club

eign direct investment in Bulgaria will reach 2 billion Euro thisyear. To a large extent this will be a result of Bulgaria's NATOmembership and the expected offset contracts for the mod-ernization of the Bulgarian army. "It is clear that foreign com-panies are interested in the Bulgarian defense sector, since

major defense companies as Raytheon, Northrop Grummanand Motorola are attending the conference," Deputy FinanceMinister Lyubomir Datsov said at the forum.

The current offset status of Turkey was presented by HuseyinOzeri, Deputy Undersecretary at Turkey's Ministry of Defense.Mr. Ozeri stated that the best offset project should create aneconomic win-win situation for all involved parties. So far, 54offset agreements were signed and 14 out of 54 offset pro-grams were successfully completed. Some 40 offset programsare still effective. The total offset commitments to be receivedas of December 2003 are totaling $4.13 billion and the offsetcommitment and fulfillment as of December 2003 is for $2.36billion. Mr. Ozeri said the general offset rules are stated in anoffset directive that was published in July 2003.

Gen. Ion-Eftime Sandu, Deputy Chief of ArmamentsDepartment with Romania's Ministry of Defense, laid out therules and procedures that Romania has adopted on defenseprocurement and offsets. Information about the approach ofthe government in Bucharest caught the attention of Bulgarianofficials and business representatives alike. o p i n i o n


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Defence industry, as well as most of the

technologies related to the Defence

sector, is part of the state-of-the-art

technologies, because of their particu-

larly high benefit level. For this reason,

they constitute drivers and development

"locomotives" in many advanced coun-

tries where these technologies flourish.

Countries of limited capabilities have

recognized the important economic and

strategic benefits derived from the exis-

tence of technology production organi-

zations in the aforementioned sectors,

and, therefore, they are keen to accept

the high cost of investments in funds

and human resources required for the

construction of infrastructures.

Defense industry's operation can bring

the following economic results:

a. Improvement or aggravation of the

trade balance taking into consideration

that a country's trade balance present,

by inference, a deficit in at least two

cases:

When it imports weapon systems in

their final form

When it imports capital goods or

know-how in order to develop the

domestic defence industry

b. Enhancement of the dialogue

between the military and commercial

industrial infrastructure of the producing

country, and

c. Improvement or worsening of impor-

tant macroeconomic indices such as the

public financial balance, the outside bor-

rowing, the inflation (with substantial

effects on the interest rates and mone-

tary stability) and the employment.

The existence of domestic defence

industry in the Balkans is de facto gov-

erned by strategic, politic, economic

and technical criteria. As a result, and

as long as all these criteria are harmo-

niously combined, it can provide the

best result with the greatest possible

control over the product. What though,

the domestic defence industry cannot

usually provide, is the flexibility in the

implementation time due, on the one

hand, to the general lack of industrial

infrastructure, and on the other hand to

the short-term demand planning. The

combination of these elements acts as

a vicious circle, not allowing the con-

struction of a serious industrial infra-

structure even in some strategically

selected fields and limiting the defence

planning time to the minimum. Given

the advanced technology characterising

the defence products and the technolo-

gy level of the country, the harmonious

combination of the abovementioned

criteria is not and could not be the

object. What is the object is the defini-

tion of:

a. The feasible defense technology level

b. The product types that offer -and will

offer in the future- sufficient demand

c. The manufacturing sectors deemed

critical for the country needs

d. The possibility for harmonious coop-

eration between the demand - of the

government of the country of interest-

and the offer of the national manufac-

turers of defence products.

It is the Armed Forces and the Balkan

countries' national accounts that will

benefit from this harmonized effort, with

direct impact on the national security.

Cooperation between state and produc-

tion means has much more important

and long-term benefits. ■

Defence Industry in the Balkans is governed bystrategic, politic, economic and technical criteriaAnastasios G. Tenekoudis, Director General, Defense Industry and Research General Directorate,

Ministry of National Defense of Greece

NATO forum attracted government officials as well as the media's interest. From

Left: gen. Nikola Kolev, Ilko Dimitrov, Deputy Minister MoD, Rumen Stoilov,

Deputy Minister, Ministry of Internal Affairs, Ivo Ivanov, Deputy Minister MoD


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According to Anastasios G. Tenekoudis, Director General atDefense Industry and Research General Directorate, Ministryof National Defense of Greece, the dramatic reduction ofdefense procurement programs in the EU countries and bud-gets affects directly the defense industry. The sector was flour-ishing during the Cold War-era arms race. Cuts to defensebudgets and the resulting fall in the demand for defense prod-ucts lead to some major changes in the defense industry.During the 1990s the sector underwent an extensive reorgani-zation, restructuring, centralization and internationalization ofproduction, all at the same time.

In his address Jean-Paul Roves of NATO's Defense andSecurity Economic Directorate focused on business develop-ment and defense procurement. Speaking about the nature ofNATO markets, he said that the defense markets are seg-mented with different levels of procurement sophistication andrather low, but growing, degree of openness. Product differen-tiation helps assessing cost-effectiveness in armament con-tracts, so each country gets the best value for its money,Roves said. Pricing is usually not the first competitive factor.High-entry barriers in defense have a negative impact on com-petition.

The presentation of Agata Szydelko of NATO C3 Agency, drew

When talking about building modernArmed Forces, the problem ofrequired financial resources inevitablyemerges. It is inadmissible to spendbillions Euro without achieving therequired military capabilities.

Currently, a reform is being carriedout in the Bulgarian Armed Forces.The implementation of the moderniza-tion and re-armament plan is underway, where a new field for investmentsis being opened, both for Bulgarianand foreign investments.

The process of Bulgarian ArmedForces modernization is impossiblewithout international military techno-logical co-operation. For the purpose,

a new approach was adopted in theMinistry of Defense and the BulgarianArmed Forces General Staff - searchfor strategic partners for the recoveryand upgrading of major types of arma-ment and equipment, such as Mi-17and Mi-24 helicopters, as well as fornew military vehicles. The overall mod-ernization includes not only the arma-ment and equipment, but also the mil-itary infrastructure elements (airfields,training areas, sea ports), the strate-gies and doctrines, and the armedforces structure and organization.

The Strategic Defense Review isaimed at answering the question ofwhat the country's defense needs arein accordance with the new strategic

o p i n i o n

Bulgaria's defense reform will stre Gen. Nikola Kolev, Chief of the General Staff of the Bulgarian Armed Forces:

Security issues are important condition for stability in the region, HE James Pardew, US Ambassador to Bulgaria said in his address

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the attention of government officials and company representa-tives, too. The agency has completed an overview of NATOCIS procurements. Topics such as NC3A acquisition scopeand roles, procurement procedures and principles, internation-al bidding and basic ordering agreements kept the audiencealert. During the discussion recent radar procurements inPoland, Czech Republic and Hungary were invoked as exam-ples how planning, preparation, selection and project manage-ment provided by NC3A may help the countries in making mostcost-effective acquisition of defense equipment with greatestpossible control, ensuring at the same time the highest level ofmilitary capability. Discussion participants agreed that NATOC3 agency programs as well as other NATO projects needspecial attention. The organizers were asked to approachNATO headquarters so that workshops and seminars on thesetopics may follow the conference in near future.

Some 30 multinational companies with defense interest tookpart in the conference as well, among them Raytheon,Motorola, Lockheed Martin, Elbit Systems, Northrop Grumman,Thales, EADS, Unisys, DynCorp, SKE Group, ManTech, Alenia

realities. The review covers allaspects of defense activities and willadapt the Armed Forces parametersand structure under the national andcollective defense requirements.Clearly outlined are the changes,which will basically reshape the sizeand structure of the military in thenext years till 2015.

These dimensions and parameterswill lead to a new balance betweenarmed forces' missions and the avail-able resources. It is evident that adecrease in some of the operationalcapabilities, which are not needed inthe new conditions, will be inevitable,and at the same time, new ones willbe developed. As a result, the armed

forces modernization investmentsshould reach 25 percent of ourdefense budget. Solving the problemwith budget limitations by the year2010, which at best will remain 2.6percent of the GDP, is not the onlyreason for making the changes.

A new balance is also necessary with-in the armed services, the BulgarianArmed Forces as a whole, and theremaining defense and security areas.NATO's clearly stated requirement is togive priority to quality and not to quan-tity. The deployability of the militaryforces and the effectiveness of theweapon systems will be increased by2015, while the army size and majorweapons numbers - tanks, artillery, air-

craft, ships, air-defense systems - willdecrease. The parameters defined bythe Strategic Defense Review will pro-vide and ensure the contribution to thecountry's and collective defense, andthey will be fully fitted into the draftdefense budget by 2010. At the sametime, the country's economy is in astate of transition, so it can hardly pro-vide more defense resources.

I would like to remind you the positionof the Bulgarian General Staff thatour further modernization should beimplemented on the basis of a long-term strategic cooperation with theworld's defense industry leaders, withas large as possible participation ofBulgaria's own industrial potential. ■

ss quality over quantity

Aeronautica and L-3 Communications. Bulgarian companiespresented at the forum included Electron Progress, Optics,Samel-90, Arsenal Trading - Kazanlak, Bitova Electronika AD,Aviotehnika OOD.

The forum would not have been possible without the supportof NATO HQ and the assistance of the main sponsors such asMotorola, Elbit Systems, Citigroup, Raytheon, Lockheed Martin,Northrop Grumman, BNP Paribas, Electron Progress, Soyakand HP. ■

The Greek delegation talks with the representatives of Motorola.

AmCham members Sasha Bezuhanova, HP (left), and Borislav Boyanov (right)

actively participated in the conference

From Left: Brig. Gen. Amnon Katz, Elbit Systems, Agata Szydelko, NATO,

NC3A, Brig. Gen. Boyko Semidchiev, General Staff of Bulgarian Army, Mr. Jean

Francois Redin, Lockheed Martin

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Boosting the security of a state inevitably has multiple positive

effects on various aspects of public life, and that created early

on a passionate impulse toward Bulgaria's NATO membership.

The expectations of the public and political leaders alike could

be sorted in two major trends - joining NATO would bring an

improved security situation and have a positive impact in the

economy.

Bulgaria's accession to NATO's Partnership for Peace initiative,

the beginnings of a comprehensive military reform and participa-

tion in various peacekeeping missions abroad provided tangible

evidence of the impact on all components of the of the national

security sector. However, substantial effects on the economy have

yet to emerge as a corollary of the security boost.

Financial analysts expect that NATO membership will generate its

first positive results for Bulgaria's economy not earlier than 12 to

15 months after the accession date. An year or two from now will

start the first group of millions of dollars large-scale projects for

the modernization of the armed forces, according to the forcasts.

Four months after the official accession ceremony in Brussels the

modernization of the armed forces and the related offset accords

provide the most direct outlook on the

overall impact of membership

on the economy. The latest amendments to the Public

Procurement Act, which will be effective as of October 1, 2004,

interpret an offset agreement as a contract, in which a supplier

assumes an obligation to the assignor to make investments, to

sign and execute contracts for the delivery of products, services

and construction work provided by Bulgarian companies, and to

deliver the related technological equipment and provide the rele-

vant technologies and licenses. The Ministry of Defense has

already approved a methodological instruction for assessing offset

projects. Any contract with a foreign company worth more than 5

million Leva must contain offset-accord provisions.

Bulgaria's government gave the green light on May 26 to 11 pro-

jects for the modernization of the armed forces: the procurement

of new vehicles and aircraft; the modernization of the Mi-17 and

Mi-24 helicopter gunships; the creation of the Ekran (Screen)

shoreline radar system for monitoring ship traffic and protection of

Bulgaria's sea borders; the procurement of second-hand naval

vessels; provisions for the training of military units for participation

in missions abroad; the development of communication and infor-

mation services; the destruction of redundant munitions stockpiles;

the procurement or intelligence, early-warning systems, and

nuclear, chemical and biological monitoring assets.

The government approved spending of 1.5 billion Leva on these

projects by 2007. Colonel Kiril Stoichev, head of Ministry of

Defense's Armaments and Equipment Policy department, recently

told a Sofia daily that he expected some 50 to 60 per cent of

these funds, or more than 700 million Leva,

to come back into the country

as reinvestment in compliance with offset provisions. Accordingto forecasts the benefits of the offset accord may substantially

exceed the nominal financial effect, as defense modernization

schemes will continue until 2015, and that would require billions of

dollars in additional funding. Thus, offset accords related to mili-

tary programs may emerge as a powerful economic boost for

Bulgaria's business and defense during the coming years.

All companies that have already demonstrated their readiness to

participate in the modernization of the armed forces have proposed

various offset schemes. The share of the offset varies from 70 per-

cent to 100 per cent of the contract costs for various projects.

The Ministry of Defense and the Foreign Investments Agency (FIA)

will be in overall charge of the implementation of offset accords.

In line with the latest amendments to the Public Procurement Act,

a detailed and comprehensive regulation on the application of off-

set policies in defense-related procurement must be enacted

before October 1.

The Defense Ministry will be in charge of the so-called direct off-

set accords negotiated in favor of the armed forces. The indirect

effects, manifested in investments and technologies, will be under

the umbrella of the Ministry of Economy and FIA.

The joint ventures

between foreign and Bulgarian companies and the rehabilitation of

the military-industrial complex are two additional areas impacted

positively by Bulgaria's NATO membership. The cooperation

between the Varna-based radio-electronics manufacturer Cherno

More and one of the largest high-tech companies in the world

Northrop-Grumman is a typical example. Petyo Milev, CEO of the

Bulgarian company, announced recently that his enterprise is

about to complete the work on an order from the U.S. partner for

some 1 million Euro. The contract was for the production of a new

generation of a river-navigation radar, Sperry MK 6217. The equip-

ment has been developed by Cherno More and is already suc-

cessfully selling in Holland, Germany, Italy, Central Europe and

Russia. A second contract of a similar nature will be implement-

ed immediately after the current one is completed. The same

company expects confirmation of joint projects with the British

BAE Systems as well.

Representatives of the military-industrial complex said immediate-

ly after Bulgaria's formal accession to NATO that they expect

membership to boost investment in defense-related companies,

that some of the companies will be offered the chance to bounce

back, and that the volume of special-products exports will be dra-

matically increased. Munitions output and defense exports are

expected to rise by $400 million a year. The export of special

products in 2001 stood at $100 million, compared to some $4 bil-

lion, which Bulgaria used to receive in peak years from sales of

arms and military equipment. ■

NATO: Economic AspectsSome 700 million Leva may be re-invested in Bulgaria with offset accords

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-Mr. Mihaloliakos, in the conference address, you said that

Greek defense complex should be included in the list of

Bulgarian Ministry of Defense and increase the number of

shareholders. Can you specify the areas where Bulgarian

and Greek defense complexes could cooperate?

-In my address, I tried to set up a framework of principles. Idid not talk about market itself. I did point out that the coop-eration can be done in the field of research, rather than hav-ing a separate research projects in the Hellenic industry. Wecould join forces and set up a joint research project. It is pos-sible to cooperate in the co-production too. Of course, theexperts will determine the opportunities and individual sectorsafter the politicians lay down the framework. In my opinion,there is a good possibility to cooperate in the weapons pro-duction. Bulgaria has a very well developed and active indus-try in the updating of ammunitions. It is worth mentioning therecently announced couple of 11 defense projects in Bulgaria.The competition is harsher and, in this sense, the cooperationbetween our countries is even more urgent. Bulgaria alreadyhas a lot of advantages and partnership opportunities as aNATO member. For example, the new military cooperationagreement between our both countries will be signed inNovember. I cannot see any reason that will deter us fromcooperation. From my experience, I would advise you to devel-op transparent defense procurement.

-Do Hellenic military experts and companies have a good

knowledge of Bulgarian potential partners?

-I think we can cooperate based on the forthcoming agree-ment. Greece as a country is open to any proposals comingfrom Bulgarian state, defense sector or private companies.

-How do you assess the possibilities of Bulgarian military

complex?

-I think the Bulgarian defense industry is in a very good posi-tion, it is restructuring armed forces and the exchanges willmean more opportunities. They mean exchange of know-howand very well qualified human resources which are the advan-

tages of Bulgarian industry.

-What is the future of offset deals between Bulgarian and

Hellenic companies?

-The offsets are an opportunity and possibility, which need tobe exploited. Offsets give the advantage both to Bulgarian andGreek side and could create more jobs. The only needed thingis the right negotiation and transparency.

-Do you think AmCham Bulgaria and American-Hellenic

Chamber are in the bottom of creating such partnerships?

-I think the Chambers are very significant institutions. NGO-sin general can be in development of those partnerships andthey can build cooperation in future. ■

Mr. Vasilis Michaloliakos, Deputy Minister of Defense,Greece was born in Mani, Lakonia, on June 20-th, 1952.He graduated Athens University Medical School with spe-ciality in Oncology. In 1974 Mr. Michaloliakos organizedthe Youth Organization of Nea Demokratia (O.N.NE.D). Asa Deputy Mayor in 1988-1989 he was responsible for theEnvironment, the Youth - Athletics Organization, and theSocial Services.

In 1989-1990 he was a member of the board of Directorsof the Mental Health Center. In 1982-1997 Mr.Michaloliakos was elected member of the CentralCommittee of Nea Demokratia, and later became a mem-ber of the Executive committee. On March 9, 2004, hewas appointed as Deputy Minister of National Defenseand is currently occupying this position.

He is married and has one daughter.

Bulgarian And HellenicDefense ComplexesHave a Potential ForDynamic Par tnershipsOffset deals mean right negotiations

and transparency, says Mr. Vassilis

Mihaloliakos, Deputy Minister of

Defense, Greece

By Irina Bacheva


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- Minister Buchkovski, what is your assessment of the

NATO summit in Istanbul? Did it match your expectations?

- We are pleased with the Istanbul summit. Macedoniareceived what it expected - a confirmation of the open-doorspolicy and recognition for the progress we have made with ourreforms. A provision was adopted which would allow the nextsummit to assess fully the progress of reforms achieved byMacedonia, Croatia and Albania. We believe that we will beable to provoke our NATO partners to extend an invitation formembership during the next two years and we hope that by2007 we will become full members of the Alliance.

- Is there anything that could block Macedonia's accession

to NATO within the next three years?

- Only a miracle could prevent Macedonia from becoming aNATO member by 2007. We ourselves could bring about sucha miracle, as it is entirely beyond the Alliance. We must dowhat is necessary at home. Macedonia has its own specificcharacteristics and will have to comply with certain political cri-teria, which have not been requested from other states. Theseare the introduction of the framework accord and the processof decentralization, which - if it is successful - will be point infavor of the efforts made by Macedonia on its way towardNATO.

- What is your assessment of the contribution Macedonia

could make to Europe's defense?

- Macedonia already made its contribution last year to the for-mation of the common European foreign security policy. Weexpect that as of January 1, 2005 the Macedonian contingentwithin the Multinational Peace Forces in Southeast Europe willbe included in the European mission to Bosnia andHerzegovina. This will be our contribution to the establishmentof a European defense and security policy.

- At the summit, Macedonia presented to NATO its strate-

gic overview of defense, which demonstrated the outlook

of the Ministry of Defense on threats, tasks and structure

of the armed forces. What are the objectives set out in this

document?

- Macedonia has made a substantial advance in reforming itsarmed forces. We have already embarked on the last phase ofthe introduction of the strategic overview of defense. The major

Only a Miracle CanPrevent Macedonia fromJoining NATO by 2007 The armed forces will be reduced from 40,000 to 13,000 as a part of an ambi-

tious military reform, said Macedonia's Defense Minister Vlado Buchkovski

By Panayot Angarev

Three Balkan NATO candidates - Macedonia, Croatia andAlbania - received praise at the alliance's summit inIstanbul for the progress of their military reforms. Headsof states and governments attending the forum confirmedtheir commitment to the open-doors policy leading towarda new NATO expansion. A day after the end of the sum-mit, Macedonia's Minister of Defense Vlado Buchkovskiattended the international conference "NATO membership:Opportunities for Trade and Investments in SoutheastEurope," organized by the American Chamber ofCommerce in Bulgaria, the American-Greek Chamber ofCommerce and Bulgaria's Ministry of Defense.

Buchkovski was appointed as Minister of Defense ofMacedonia on November 1, 2002. He had held this postbefore, too, until May 2001. Buchkovski is a graduate ofSkopje University's Law School, where he once was anassociate professor of Roman law.

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conclusions, on which the document is based, refer to the sub-stantial reduction of the country's armed forces. The current40,000-strong armed forces will be reduced to 13,000 soldiersand officers. Of the total, some 5,000 will be relegated to thearmy reserve. We will introduce a system of annual planning,programming and budgeting with the objective to allocate morefunds for the modernization and development of our armedforces. Macedonia's armed forces will be modernized accord-ing to NATO standards. The same requirement applies to mili-tary training and education. That means that we will have topass through all the reforms, required of NATO candidatestates, but also implement changes similar to those continu-ously going on in the member states. Right now not only theBulgarian armed forces, which have joined NATO only recently,but also a powerful army like Germany's is undergoing majorreforms. This is attributed to the ambitions of all armed forcesto become more mobile and build on quality for the sake ofsheer size. We are doing the same. That is why we are assist-ed by a NATO team, working with Macedonia's Ministry ofDefense. In terms of defense reforms, many analysts rateMacedonia as the leader among all NATO candidate states.

- The situation on the Western Balkans was among the

arguments put forward by military experts during the devel-

opment of Bulgaria's strategic overview in favor of pre-

serving the strength of the armed forces. Military experts

have argued that there is still a certain level of instability

in our region. At the same time Macedonia has decided to

reduce its armed forces. Aren't you as concerned as your

Bulgarian colleagues are?

- We maintain contacts with our Bulgarian colleagues. Weknow about the ongoing strategic overview of the armed forcesand there are no secrets among us. According to our assess-ments made in the first phase of the strategic overview, theRepublic of Macedonia is not threatened by conventionalattacks. Eventual terrorist attacks, which should not be exclud-ed, are attempted in a different manner and with a different setof assets. Actually this is the background of the outstandingissues in the Western Balkans and the status of Kosovo. Weexpect that everything will be completed next year. Our atti-tudes are on a converging course and finally the region will beconquered by the ambition of all states to attain one and thesame goal - to join, together and as soon as possible, theEuro-Atlantic and European institutions.

- What is the modernization schedule of the Macedonian

armed forces?

- We spare no efforts on this issue. We have managed toachieve a substantial progress in updating the communicationsystems. We are about to start replacing the equipment andthe transport vehicles of the special forces, so that theseforces can become more mobile and efficient.

- Do you plan to purchase second-hand armaments?

- No, we will buy only new equipment. ■

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"Cabbies were told to avoid cursing and stop the Orientalmusic (habitually blaring from the taxis). Jewelry sellers weredisplaced from their usual spots along downtown streets with-out a word of protest." A Turkish journalist from the press cen-ter for the top-level NATO summit in Istanbul was grinningwidely, relaying this information.

Media representatives covering the event were toiling amid16th-century Ottoman cannons, 20th-century airplanes and avariety of other armament from the ages - the press centerwas situated in a military museum. The organization was per-fect: young men and women in crisp white suites were every-where assisting the guests in perfect English.

No delays, no chaos - one would be hard-pressed to recog-nize traces of the traditional laid-back Orient behind hosts'ruthless efficiency. The whole neighborhood around Taksimsquare was sealed, police squads were moving up and downthe street, and inside the roped area barefoot Turkish womenserved journalists with a local variety of pancakes.

"They planted several thousand trees and rose bushes," thejournalist clearly relished sharing tidbits of inside informationon summit preparation.

All this commotion was hardly a novelty. High-level NATO, EU,G-8 and UN summits long ago turned into a mix of showyefforts from the hosts, anti-globalization strife, tense security

and the semi-tourist variety of pool journalism. It is a ritualfeeding modern world democracy: Leaders are pretending tomake decisions on the spot, and journalists are feigning break-ing the news while winking at the protesters. Outside the secu-rity perimeters you will find demonstrators who have found abrave yet safe way of recreation without actually endangeringthe status quo. The fact that NATO's Istanbul 2004 summit fol-lowed the pattern did not surprise anyone.

However, I was marveling at the event's irony. Because of his-tory's twists, to Bulgaria and nine other countries this routine,hardly groundbreaking meeting, will be memorable forever. TheIstanbul confab became the first NATO occasion where these10 countries participated as full-fledged members of thealliance.

Looking through Western-European eyes, the change washardly noticeable. "Recently you have been our almost-allies,"said John Colston, NATO's assistant-secretary general. "I don'tsee any difference," concurred Jamie Shea, alliance's formerspokesman.

NATO at Istanbul: Bulgaria as Par t of the Ritual

By Boyko Vassilev, Istanbul-Sofia

(From L to R) Iceland Prime Minster David Oddsson, U.S. President George W.

Bush, Norway Prime Minister Kjell Magne Bondevik, French President Jacques

Chirac, Bulgarian Prime Minister Simeon Saxe-Coburg Gotha and NATO

Secretary General Jaap de Hoop Scheffer talk before a NATO leaders dinner at

the Dolmabahce Palace in Istanbul, June 27, 2004. NATO leaders meet in

Istanbul and approve an agreement in principle to help train Iraqi security forces

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Yet to Bulgaria everything was not the same: during the officialdinner Bulgarian President Georgi Parvanov was seatedbetween George Bush and Ahmet Sezer, the "family" photo hadBulgaria's Simeon Saxe-Coburg-Gotha standing by Belgium'sGuy Verhofstadt, close to Germany's Gerhard Schroeder. Inother words, we are in the family, too. Yes, it was a mere ritual,but what would we do without those?

As a part of the ritual, Bulgaria already has a new role. Untilrecently the country was seeking support for its membership (aphrase, which Bulgarian journalists turned into a cliche, and,with any luck, will soon forget). Now among those vying for suchsupport - and a hand from Bulgaria, too - are three other Balkancountries, our close neighbors Macedonia, Albania and Croatia.Bulgarian leaders are promising that "the door will remain open"(yet another shopworn phrase we will remember almost painful-ly). At NATO meetings Bulgaria participates in formats thatinclude these three countries along with the Western allies, play-ing the role of a good neighbor and an intermediary. Thechange is visible, indeed.

If Bulgaria was following carefully the build-up to Istanbul'2004, itcould not have missed some important and very relevant recentdevelopments. NATO is displaying extraordinary interest in theBlack Sea region: Georgia, Turkey, Ukraine, Bulgaria, Romania -countries which border areas of instability, terrorism, fundamen-talism. The alliance has been studying intently the territoriesadjacent to the Middle East. NATO made an effort to build a net-work of partnerships with the countries in the Mediterranean,which led some observers to conclude that NATO is globalizing.

Such trends are opening great new opportunities for Bulgaria toindulge in its newly-adopted and prestigious role as an interme-diary.

Let's not forget something else: after the epic quarrels on theissue of Iraq, NATO took pleasure in remembering that itsAfghanistan mission was the result of a consensus, at the sametime noticing that despite the auspicious beginning it is at theverge of a failure. Allied forces are non-existent outside of Kabul,with the exception of a small garrison in Kunduz. The rest of thecountry is the province of local sheiks, unruly and chaotic.Afghanistan's pro-Western president Hamid Karzai desperatelyneeds an electoral success in the fall. Given this situation, thedecision in Istanbul to increase the allied military presence inAfghanistan was logical and expected. Bulgaria also maintains agarrison in Afghanistan, which, now it seems, will be beefed up.

Of course, Iraq trumped all other issues. The coincidence of theahead-of-the-schedule transfer of power in Baghdad and themeeting in Istanbul charged the press center with genuine emo-tion, so rare in international politics recently. The decisionreached about NATO's role in drilling the new Iraqi army becamea small, yet important step toward restoring the allied consen-sus. It was a feat of consequence, because it managed toestablish the lowest common denominator for the French-German and American interests. At the same time, it was notexactly a tectonic shift, as Chancellor Schroeder and PresidentChirac were quick to stress that under no circumstances wouldtheir countries enter Iraq. This duality cuts to the core of thecurrent Euro-American quarrel, which can be boiled down toarguments like "I told you so."

Bulgaria will stay in Iraq and most likely will express desire totrain the Iraqi army. Bulgarians have the experience, some of itgained recently and painfully.

My main point, however, is different. Bulgaria knows well that it isa hostage, along with the other nine new NATO members, to thefamily feud between Europe and America. These countries arealso the main losers from the squabble.

The current trans-Atlantic contention has puzzled the Bulgariansociety, throwing it into a state of confusion. Serious studies ofpublic opinion in Bulgaria have shown that people who loveAmerica, also love Western Europe, with few exceptions. Thefeud's consequences are hurting the entire pro-West segment ofthe populace, not to mention that in its foreign policy Sofia hasbeen forced to tackle some painful and essentially inane dilem-mas.

The best news from Istanbul were the most fragile, the very factof the first muscle twitch of the first step on the first try to mendthe relationship between Europe and the United States. Bulgariashould keep its fingers crossed for this walk to continue.

"We are a fair-weather alliance," said a German journalist, whohad joined the conversation at the press center. "We are notSchonwetteralianz," he added, using the colorful, but tough totranslate German word, meaning roughly the opposite of fair-weather friends. "We are an alliance of the possible, yet we arealso an alliance where Bulgaria and Luxembourg vote on par withGermany and France."

I could not agree more. In Istanbul, I saw Turks, who were top-notch Europeans, and heard from a German devotee of theAtlantic idea.

What other marvels will NATO's future fetch? ■

Head of states and Prime Ministers on the family photo: First row: U.S. President

George W. Bush is joined by Polish President Aleksander Kwasniewski and

Bulgarian President Georgi Parvanov. Upper row: Netherlands Prime Minister

Jan Peter Balkenende (left) Hungarian Prime Minister Peter Medgyssy (center)

and Denmark Prime Minister Anders Fogh Rasmussen (right)

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Bulgaria celebrated on June 15 the closure of accession nego-tiations with the European Union. Bulgaria reached an accordwith the EU on all conditions for its future membership. Now ithas exactly two and a half years to stabilize its economy,enhance the capacity of the army of administration officialsand to provide guarantees for the application of the commonEU standards, norms and regulations.

The comprehensive financial package, after the final adjust-ments designed to facilitate the country's adaptation to EUrequirements between 2007 and 2009, exceeds some 4.5 bil-lion Euro, European Affairs Minister Meglena Kuneva said.Bulgaria has managed to negotiate an additional 240 millionEuro to be released by the EU within the first three years ofits membership. This amount will be spent on strengtheningthe country's borders and for assisting budget spending.

Bulgaria will receive 2.3 billion Euro for its European regionalpolicy - the funds will be spent on infrastructure and standard-of-living improvements. The amount of aid is substantial andBulgaria will have to perk up dramatically the mechanisms forprogramming, monitoring and control over the European funds,in order to be capable of efficiently absorbing this aid, MinisterKuneva said.

Bulgaria will have to pay a fee for its EU membership. Thearrangements agreed with Brussels stipulate that Sofia's con-tribution to the community budget will amount to about 1.2 per-cent of its GDP. Bulgaria will receive in exchange for this mem-

bership fee a substantially larger amount of funds - the allo-cations will rise and by 2009 should exceed the level of 7 per-cent of Bulgaria's GDP.

Problems and challenges

Bulgaria complies with the political criteria for EU membership.However, the country must dedicate a major effort to improve-ment in other areas. The most important items on its actionplan in the economic sphere are as follows:

● guarantees for transparency of privatization procedures, andstreamlining the post-privatization supervision;

● a more active labour market policy;● further deregulation of prices;● restructuring of the energy sector;● simplification and easing of licensing procedures and of the

administrative procedures for starting or closing a business; ● development of the land market;● stabilization of the banking sector, improvement of the qual-

ity of financial brokerage;● development of the capital markets;● upgrading the infra-structure;● improvement of financial supervision in the state sector of

the economy.

The Administrative Reform

The lack of qualified administrative personnel has been per-sistently quoted in all assessments of Bulgaria's progress. Thegovernment is focusing its efforts over the next several monthson the establishment of an efficient, professional and motivat-ed administration, capable of effectively applying EU law.

Bulgaria has closed the negotiations on all chapters, but it hasassumed a number of explicit financial, technical, administra-tive and legislative commitments that still have to be compliedwith. The examples below illustrate specific issues discussedduring the accession talks:

”Laboratories will have to be restructured and adjusted to EUrequirements in line with the provisions of the chapter titled"Free movement of products". A network of independent certi-

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Bulgaria-EU: Talks Have Ended, Now the Tough Par t

By Yuliana Boncheva

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fication authorities and laboratories will be established. Themechanism for customs inspections at the border over productsafety must be improved. Bulgaria has still to achieve a morecomprehensive application of the EU principles in the sphereof public procurement.

”The "Free provision of services" chapter requires a higherlevel of protection for creditors. The harmonization of insur-ance legislation will continue. It is also necessary to bringabout a substantial revival of the capital market. A number oflegislative amendments will be initiated in the sphere of stockexchange trade and securities.

”Bulgaria will have to place the emphasis on "Competition"chapter, requiring the establishment of a state subsidies regis-ter and a system for notification, which will provide for reliablepreemptive control on the allocation of financial aid by thestate. Tax deductions will also be recorded in the register.

”The "Agriculture" chapter is one of the most difficult areas,as it is allocated huge amount of aid. Successful administra-tion and absorption of this aid requires the establishment ofinstitutions which are quite new for Bulgaria - an interventionand a clearing agency with the State Fund "Agriculture," whichwill be charged with the regulation of the agricultural productsmarket and with the distribution of subsidies to farmers; the"Wine and Alcoholic Beverages" sector requires the establish-ment of a control system compliant with EU requirements. Aregister of vineyard farms and a vineyard cadastre will also beestablished; the "Fisheries" sector expects the introduction oflicenses for commercial fishing and of registration require-ments for the operation of breeding ponds for fish and otheraquatic organisms. The EU requires also the introduction by2005 of a satellite system for the monitoring of fishing vessels.

”The gradual introduction of the toll fee system according toestablished European rules, the further restructuring of the rail-

way sector and the preparation for substantial investments inroad infrastructure have been highlighted as priorities in the"Transport policy" chapter.

”The value-added tax (VAT) legislation is emerging as the mosteffort consuming aspect of "Taxation policy" - in terms of thescope of taxable transactions, the place of transactions, thetax base, the transactions relieved of VAT, exports, VAT deduc-tion, special VAT schemes applicable to second-hand prod-ucts, to works of art, collection articles and antiques.

”The "Energy" chapter implies the introduction and the appli-cation of a legislative framework related aimed at the deregu-lation of the market in compliance with European requirementsin the natural gas and electricity sectors.

”The hot issues within the scope of the "Industrial policy"chapter are as follows: the privatization of "Bulgartabak," ofthe electric utilities and of individual sections of railwaystransport assets; the further optimization of regulatoryregimes, the creation of an official public register of license,authorization and registration regimes at a central and at alocal level, the introduction of "one stop shop" practices and

Prime Minister

SIMEON SAXE-COBURG-GOTHA:

The completion of the EU accessiontalks means that Bulgaria is alreadyliving and performing, to a majorextend, according to the rules and theresponsibilities of the member states.

Accession talks cover much more thanthe diplomatic and administrativeefforts of several governments. Thereal value of these talks is measuredby the results of the reforms, whichhave been implemented in Bulgariaover the last several years. The effectof these reforms and visible and tangi-ble by the rise of the citizens' income,and by the economic security andupheaval, which we all experience.Today's achievement was made possi-

ble by the enormous efforts and dili-gent work of all institutions in Bulgaria.Our negotiation teams and diplomatshave spared no efforts, especially dur-ing the last years, and achieved thebest possible results, which sometimeswere even better than all expectations.I would like to convey my deepest grat-itude to them all. I must recognize withgratitude also the contribution of ourpartners, and especially the support ofthe current Irish chairmanship of theEuropean Union, of the EuropeanCommission and of the memberstates, which supported our efforts anddemonstrated their engagement andpolitical will to complete the negotia-tions.

I announced, a couple of months ago,the ambitions of our government - that

2004 should be THE YEAR OF BUL-GARIA. This government has workeddiligently and without much noise sincethe beginning of its mandate, towardsthis moment. Bulgaria is already a fullmember of NATO, and today Bulgaria'sEU membership has turned from a dis-tant dream into a close reality.

The closure of the accession chaptersdoes not end the negotiations or ourefforts related to the genuine commu-nal life within the EU. These effortshave just lifted off. From now on, theBulgarian society will live according toEuropean law and rules, and thatshould apply to all citizens.

I am convinced that the efforts wereworth making and that our futuredeserves these efforts. ■

c o m m e n t s a n d o p i n i o n s

Meglena Kuneva, Minister of European Affairs - the key player in the accession

negotiations with the European Union

the provision of regular contacts with branch organizations.

”Serious commitments were set out in the "Justice and inter-nal affairs" chapter: the technical upgrading of the border con-trol facilities, and especially of the radio communication sys-tems; improvement of the statistics related to investigatedcases of human trafficking; the establishment of a unifiedinformation system for combat against crime; the developmentof a Unified National Strategy for combat against drugs; stabi-lization of the administrative capacity of the FinancialIntelligence Bureau, and others.

The candidate states are expected, by the time of their acces-sion, to have the common EU law translated into their nation-al languages. This means that Bulgaria shall have to providefor the translation of at least 17,000 pages (in the format ofthe "Official Journal" - the official publication of the EU, whichis similar to the Bulgarian "Official Gazette").

Cheap Products, Low Salaries

Bulgaria is among the states with the lowest prices in Europe.On average prices here are about 33 percent of the prices forsimilar products in the EU member states. These data werereported by Eurostat, the statistics authority of the EU.

One pays in Bulgaria as low as 30.8 Euro for products, whichwould cost some 100 Euro in Germany. The Czechs pay 100Euro for what Bulgarians buy for 64.71 Euro. Bulgarians pay100 Euro, while the Swiss pay as much as 427 Euro for anidentical product basket.

Prices in Bulgaria are much lower than in the EU memberstates, but the difference in income is even larger. Bulgaria is atthe bottom of the list in terms of purchasing power among allEuropean states. With a GDP per capita equal to 27 percent ofthe EU average, this country would be ranked again as an out-sider. The only state below Bulgaria on this list is Turkey, with aGDP per capita equal to 25 percent of the European average.

Offsetting the huge differences in income and economic per-

formance will be one of the most serious challenges forBulgaria. Heating up to EU levels most probably will takedecades.

Away from the Tax Heaven

Bulgaria's government is known to have stated on numerousoccasions that taxes in this country have already been largelysynchronized with European levels and practices, although therates are quite low in comparison with EU member states. Adirect comparison is somewhat misleading, because forinstance corporate taxes in 11 EU member states are lowerthan in Bulgaria.

Tax rates are high in the Czech Republic and Poland, but theavailable tax-relief provisions and preferences substantiallyreduce the tax burden of companies. Most of the new EUmembers apply tax rates that lower and more attractive tobusiness than in Bulgaria. Cyprus and Ireland apply the lowestprofit tax rates - 10 percent and 12.5 percent, respectively.

The tax rate in Estonia is relatively high at 26 percent, but rein-vested profit is tax deductible.

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AUSTIN GORMLY,

Charge d'Affairs, Embassy of Ireland to Bulgaria:

The negotiations phase has come to an end in terms ofcompleted negotiations chapters, but still the official sig-nature is pending, next October, along with a report by theCommission, and then Bulgaria shall start looking towardsits preparation for membership. This phase has its ownchallenges, especially the reform of the judiciary. But youmay be sure that the solidarity on the part of the memberstates shall persist throughout this process on your way tomembership. We are waiting with eagerness Bulgaria'saccession in January 2007. We are waiting for the date ofyour accession to come and we aim eagerly to worktogether with you during the coming months and years ofpreparation for your membership.


DIMITRIS KOURKOULAS, Head

of the Delegation of the

European Commission to

Bulgaria:

Bulgaria filed its application formembership in 1995. Negotiationsstarted in February 2000. We con-firmed in Copenhagen our goal towelcome Bulgaria as an EU mem-ber state in January 2007. A lot ofwork has been done, a lot ofefforts have been spent, and weare very glad that we are ahead ofschedule.

c o m m e n t s a n d o p i n i o n sContinued on page 22

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Hence, the effective tax rate in thatBaltic state is less than 10 percent.

The corporate tax rate in Latvia is 15 percent. Lithuania hasestablished incentives for small companies by levying a lowertax - 13 percent, while agriculture manufacturers are eligible toa zero tax rate. That is why the annual economic growth in theBaltic states runs at some 7 percent to 8 percent, which is anunattainable goal for Bulgaria.

Bulgaria's government must try to make this country moreattractive by employing more daring and unique solutions.Many experts advise that profit tax rates should be lowered tothe lowest European levels, while at the same time a zero taxrate must be applied to reinvested profit. This would giveBulgaria the chance to copy the success of Ireland, whichjoined the EU 15 years ago as a very poor country, while todayit is among the richest within the Union and has won for itselfthe title of the "Celtic tiger."

Corporate tax rates in some of the European states

State Tax rate, percent

Estonia 26 percentIreland 12.5 percentCyprus 10 percentSerbia 14 percentLatvia 15 percentLithuania 15 percentMacedonia 15 percentHungary 16 percentSlovak Republic 19 percentPoland 19 percentBulgaria 19.5 percentMoldova 20 percentCroatia 20.32 percentSlovenia 25 percent*Czech Republic 28 percent*

* There are a number of tax relief provisions, which reduce theeffective tax rate

The Nuclear Issue

Toward the end of negotiations with Bulgaria the EuropeanCommission decided to add another 62 million Euro to thefund dedicated to the early closure of the older reactors at theKozlodui Nuclear Power Plant. Brussels and Sofia havereached an agreement for the decommissioning of some of thegenerating capacities at Kozlodui. The EU will release, accord-ing to the provisions of this agreement, a 340-million-Eurogrant to Bulgaria.

Many here consider this amount as a gross understatement.

The most conservative Bulgarian assessment have set the costof decommissioning of the four small nuclear reactors atKozlodui NPP at 900 million Euro. A survey drafted by an inter-ministerial committee chaired by the Minister of Energyassessed that Bulgaria will have to receive at least 1.6 billionEuro in compensations for direct and indirect losses caused by

the early closure of the nuclear generating facilities. MostKozlodui experts agree that the cost for the decommissioningof the four 440 MW reactors will be some 3 billion Euro to 4billion Euro (the differences account mostly for the differentapproach to calculating indirect losses). Some Bulgarian politi-cians have claimed even higher losses, setting the bar at 7 bil-lion Euro to 9 billion Euro.

The first European positions

Bulgaria will have its first European officials later this summer.Six experts will become full-time employees with the EuropeanCommission in Brussels. They will be charged with the trans-lation of the Accession Agreement between Bulgaria and theEuropean Union. These positions of responsibility came as aresult of the successful completion of the talks on the 31accession chapters.

The first Bulgarian European officials will be appointed byEuropean Commission experts after a competition. The candi-dates must be qualified lawyers and linguists and must havegained experience in the sphere of European integration.

All administrative officials in Sofia, who will be engaged in pro-ceedings related to the Accession Agreement, shall be entitledto a leave of absence only after they finish all work on thedocument. ■

HENRIETTE VAN LINDEN,

Ambassador of the Kingdom of the Netherlands to

Bulgaria:

The negotiation chapters were closed during the IrishChairmanship, while the final report and the official com-pletion of the talks were left for Holland. We are here toassist Bulgaria in the serious efforts you shall have tomake. To quote the words of the Prime Minister, this is therealization of a dream. Besides, there is something elsewhich is very important - to explain to the people what itis all about.


Continued from page 20

Prime Minister of the Republic of Bulgaria Simeon Saxe-Coburg Gotha accepts

congratulations for the closure of EU-Bulgaria negotiations

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Further development and reform of basic market institutions inthe eight countries of South Eastern Europe (SEE-8) are essen-tial to increasing investment and thus to speeding economicgrowth and reducing poverty, according to the authors of a bookreleased June 16 by the World Bank and the European Bank forReconstruction and Development.

Building Market Institutions in South Eastern Europe studiesimpediments to investment and private sector development inAlbania, Bosnia and Herzegovina, Bulgaria, Croatia, the formerYugoslav Republic of Macedonia, Moldova, Romania, and Serbiaand Montenegro.

"South Eastern Europe has recovered from the recession of the1990s, and, as a whole real GDP growth in the region grew by3.5 percent in 2003, faster than the 2.6 percent rate of theworld economy. This rebound has been mainly fueled by privateactivity, but it will stall unless greater progress is made in theinstitutional environment for investment," notes Harry Broadman,lead author of the book and Lead Economist in the Europe andCentral Asia Region of the World Bank. Bulgaria has maintaineda stable rate of GDP growth since 1998 ranging from 4.0 to 5.4percent annually, except for a decrease in 1999 to 2.3 percent.

The book examines business competition and barriers to entryand exit; access to regulated utility services; corporate owner-ship, transparency of business accounts and access to finance;and commercial dispute resolution mechanisms. The book'scross-country, integrated approach addresses in systematicfashion the interactions of the underlying institutions that affectincentives for enterprise development. Its findings are based on

40 original business case studies carried out in the eight coun-tries; results from the two EBRD-World Bank BusinessEnvironment and Enterprise Performance Surveys (BEEPS1 and

BEEPS2) of 1,600 SEE firms; and official country data.

European integration provides

window of opportunity

The key factors hindering a more robust, sustainable rebound ofoutput and economic growth in SEE is the slow pace of restruc-turing and new business creation-which is in turn caused inlarge part by the absence of effective market-based institutionsto reduce firms' market power, protect property rights, andensure financial accountability and discipline, the authors find.

According to the book, the costs of doing business over the pastfive years were excessively high and discouraged private invest-ment. Recognizing this, the countries of SEE and their develop-ment partners have begun efforts to improve the investmentframework in the region.

Those efforts are urgent. The European Union has greatlyexpanded trade access to the single European market for thesecountries. Simultaneously, intra-regional trade liberalization hasfound new momentum with the signing of the SEE Memorandumof Understanding on Trade Liberalization and Facilitation.

"The opportunities created by those developments will be real-ized only if investment increases substantially and counteractsthe region's chronic unemployment and stubborn poverty,"

South Eastern Europecan shed obstacles toinvestmentWorld Bank Report on building market institutions compares prospects for

Bulgaria and seven other countries

World Bank Chief Economist Francois Bourguignon Shengman Zhang, Managing Director of the World Bank

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explains Broadman. "Moreover, once reforms of basic marketinstitutions entice greater investment from domestic firms,enduring commitments by foreign investors are more likely."

Improving the investment environment is also essential to theintegration of the South Eastern European countries intoEuropean structures. Integrating with Europe, along with accel-erating growth and reducing poverty, is critical to achieving long-lasting peace and prosperity for all people in the region, thebook notes.

Better business environment,

but obstacles remain

The snapshot of the business environment in South EasternEurope developed in the book suggests that today's investmentclimate in the region has improved overall in comparison withthe climate in the late 1990s. However, there is great diversityamong the eight countries in the progress made in implement-ing the various institutional reforms. Economic barriers to entryare, in general, a major obstacle to business development acrossthe region, owing to anti-competitive conduct and market struc-tures.

Bulgaria is among the few of the countries that have made sig-nificant progress in competition policy reform since 1999. Whilewage and tax arrears as well as indirect and direct subsidies tofirms have, in the aggregate, declined since the late 1990s,tighter financial discipline and further improvements in theenforcement of bankruptcy laws increase the pressure onmoney-losing firms to exit the market and create the 'econom-ic space' for new entrants. Access to regulated utilities has gen-erally improved in most of the countries.

Nonetheless, remnants from the old system, such as inefficientpricing, cross-subsidies, and lack of competition among utilityproviders, have discouraged needed investment to modernizethese infrastructure services. In turn, this has caused bottle-necks for the development of private sector industries.

In the area of corporate governance, implementation of interna-tional accounting standards and external financial audits hasbeen the weak in much of the region, except among the largest

firms (who have the desire to access international capital mar-kets). While there is heterogeneity among the eight countries,SEE enterprises face appreciable obstacles in obtaining accessto credit as a source of finance.

Mechanisms for commercial dispute resolution have only slight-ly improved since 1999 due to the region's weak institutionalcapacity to implement effectively laws and regulations.

The book finds impediments in lengthy, costly, and cumbersomelegal procedures that undermine the sanctity of property rightsand contracts. At the same time, the limited number of qualifiedand independent judges undermines the effectiveness ofenforcement mechanisms.

Policy Recommendations

To be sure, Bulgaria and the other seven SEE countries havemade solid progress in institutional reforms since the 1990s.However, substantial challenges remain. To meet these, the bookdetails several policy recommendations.

The case is made for a two-pronged approach to facilitate theentry of new businesses and foster restructuring of anticompet-

Progress in the Transition of the SEE8: Small-ScalePrivatization, Large-Scale Privatization, and PrivateSector Share in Output

No matter what the usual protests want in front of it's build-

ing in Washington, the World Bank is still the most respect-

ed global financial institution

Cumulative

FDI inflows

(US$ millions)

Cumulative FDI

inflows per

capita (US$)

FDI inflows

per capita

(US$)

FDI

inflows

(% of GDP)

Country 1989-2002 1989-2002 2001 2002 2001 2002

Albania 936 303 66 44 4.8 2.8

Bosnia andHerzegovina

753 198 34 61 2.7 4.4

Bulgaria 4,390 560 79 55 4.7 2.8

Croatia 6,296 1,419 316 86 7.2 1.7

Macedonia, FYR 935 476 221 50 12.9 2.7

Moldova 849 199 37 25 10 6.6

Romania 9,008 415 52 50 2.9 2.4

Serbia andMontenegro

1,717 206 20 67 1.4 3.6

Foreign Direct Investment in the SEE-8, 1989-2002

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itive or loss-making incumbent firms. The book recommendsdirecting attention and resources at preventing further concen-tration through mergers and acquisitions in markets in whichstructural dominance is already excessive, and at facilitatingmergers and acquisitions that are pro-competitive.

The book also calls for terminating subsidies to loss-makingbusinesses over time, promoting market-reinforcing developmentof small and medium size enterprises, enhancing "behind-the-border" competition to facilitate international trade in goods andservices, and continuing to bring policy regimes governing FDIin line with international best practice.

Fixing the bottlenecks in telecommunications, transport, electri-cal power, water and other utilities will require the de-monopo-lization and eventual privatization of existing infrastructure net-works. But the book emphasizes that sound institutional safe-guards to protect the public interest must be judiciously estab-lished before privatization of monopolies occurs. It also suggeststhat in light of the small size of the countries' markets, a region-wide, harmonized economic regulatory regime may prove advis-able. The countries have begun to complete their state ownedenterprise divestiture programs.

But to transform the successful changes in business ownershipto effective changes in business performance, systematic intro-duction of international accounting standards and independentaudits, supplemented with the proper interpretation and use ofimproved financial information is needed. In addition, the bookrecommends stronger enforcement of legislation to protect

minority shareholders so as to mitigate problems of 'insider con-trol'.

Finally, reforms are called for to both improve the proceduresaccording to which courts work and better align the incentivesof all interested parties for fast and predictable disposition ofcases. At the same time, further efforts are needed to estab-lish specialized or small claims courts as well as out-of-courtmechanisms, which could help alleviate the burden of the judi-ciary and provide simpler and cheaper options for dispute res-olution. ■

Inflows of Foreign Direct Investment in the SEE-8, 1991-2003

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A series of good economic news have improved the businesssentiment by the end of June, bringing an immediate upwardshift on the stock market. The composite stock index SOFIXclosed at a new historical high of 501.46pts on June 28, mark-ing a 2% growth w/w and 79% y/y. Investors in both govern-ment and corporate securities remain bullish, pricing in prelim-inary statistical reports for accelerated GDP growth in Q1, fol-lowed by a government announcement for early retirement ofdiscount Brady bonds and a sovereign rating upgrade of S&P,which placed the country's foreign currency credit rating intothe group of investment grades. All these events have takenplace shortly after two other major achievements -- the end ofthe EU negotiations in the middle of June and the privatizationof the Bulgarian Telecommunications Company (BTC). Thecountry's economic prospects are further supported by theopening of the final bids for 7 power distributors on July 2 andthe forthcoming tender announcements for profit-making unitsof Bulgartabac tobacco holding. We also expect near-term rat-ing upgrades from Fitch and Moody's to strengthen the coun-try's business profile. On the other hand, while we remain onthe bullish side of the economic expectations, statements fromthe left-wing BSP make us more cautious of political riskslinked to the general elections in the middle of next year.Officials of BSP have expressed concerns about the exchangerate sustainability, prompting that the party might reconsider itsview in support of the currency board. BSP is generally deter-mined to follow the EU integration goals that should secure afairly good level of continuity in almost all major policy issues.Nevertheless, we are concerned that deviations from the nom-inal currency anchor could have devastating consequences forthe economy and BSP might be unlucky to pick up probablythe only possible tool for reversing the bright economic trends.

GDP growth accelerates to 5.3% y/y in Q1

Quarterly GDP indices (%, y/y)

In line with our expectations based on the strong industrial per-formance, the GDP growth accelerated to 5.3% y/y in Q1 from4.9% y/y in Q4 last year, according to preliminary data fromthe Statistical Institute. The gross value added in the industri-al sector picked up by 6.4% y/y in Q1 along with a similarexpansion rate of 6.2% in the service sector. Private entities,accounting for 72.7% of the gross value added in Q1, markeda steep increase by 8.8% y/y while the state sector slid by 1%y/y. On the demand side, the index of fixed capital formationrose by 21.4% y/y outpacing all other components of GDP.Adjusting the growth rates with the weights of each compo-nent, the contributions to the overall economic growth arealmost equally spread among consumption, investment andexports. However, the steep import growth has boosted theexternal gap to 13.3% of GDP in Q1 relative to 9.5% a yearago.

GDP components, real changes (%, y/y)

Source: National Statistical Institute

2001 2002Q1/

03

Q2/

03

Q3/

03

Q4/

042003

Q1/

04

Agriculture 0.3 5.5 -0.3 -0.3 -1.5 -2.2 -1.3 1.2

Industry 4.1 4.6 5.7 5.9 6.6 10.1 7.1 6.4

Services 4.7 5.1 2.6 3.8 4.6 3.0 3.5 6.2

GDP 4.1 4.9 3.5 4.2 4.4 4.9 4.3 5.3

Consumption 4.4 3.6 5.9 8.0 5.4 7.0 6.6 5.2

Investment (excl. Inventories)

23.3 8.5 11.6 21.2 13.3 10.0 13.8 21.4

Exports of goodsand services

10.0 7.0 13.2 11.7 4.0 5.3 8.0 8.0

Imports of goodsand services

14.8 4.9 13.8 18.3 13.3 14.0 14.8 17.7

Investor Prospects Improve OverAnd Rating Upgrade By Raya Kanazireva

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The growth rate of 5.3% in Q1 is consistent with the initialfull-year estimates of the government and slightly betterthan its revised forecast for a 5% growth. The NationalStatistical Institute comments that adverse external shocksrelated to the oil prices will slow down the economic growthin Q2 and would thus move the full-year figure close to therevised government forecast. Looking at the April reports inthe industry, we see some improvement in the sale statisticsand a small slowdown in the output growth. On the otherhand, the expectations for a steady growth in the tourist sec-tor and a rebound in the agricultural production, which hasa large weight in Q3, show that the full-year GDP growth ratecould be sustained above 5% this year. We also see signif-icant investment inflows in the telecom and energy industriesthat would further support the economic growth rate thisyear.

Government buys back USD 679.3mn

discount Brady bonds

A press release of the finance ministry reads that the gov-ernment will buy back USD 679.3mn discount Brady bondsmaturing in 2024. The principal repayment will account for6.3% of the total public debt reported as of end-April. Thestock of public debt will thus drop to some 43% of GDP. Thebuyback will be operated on the regular service day of July28 and the government will use the call option for earlyretirement of the bonds at face value. The operation willclear the whole stock of outstanding DISC bonds and willcost the government some USD 400mn, calculated as thedifference between the face value of the bonds and relievedcollateral after the operation. The operation will be fullyfinanced by the fiscal reserve, which is currently standing atBGN 5.1bn (EUR 2.3bn) or roughly two times higher than thefloor requirement set in the budget law for this year. Afterthe debt buyback, the government will still have excessreserves for around EUR 1bn that could be used for buy-backs or other discretionary spending.

We fully support the debt buyback operation and haverepeatedly recommended it as a tool for avoiding the higherinterest rate clause on the DISC bonds. We even considerthe debt buyback as coming too late, given that the govern-ment has encountered legal disputes on the timing of thehigher interest trigger. Some of the bondholders claim thatthe trigger should be enforced when the GDP in US dollarsreaches 125% of the level in 1993. The government and itslegal advisor White&Case claim that the change should becalculated in constant prices for the local currency thatwould bring higher interest pays in 2005 or 2006.

S&P raises Bulgaria's foreign currency

credit rating to investment grade

The international agency S&P raised the long-term foreigncurrency credit rating of Bulgaria by one notch to BBB- onJune 24 pointing out growth potential, prudent fiscal policiesand progress in EU integration as major contributors to theupgrade. The rating agency evaluates the fiscal policyresponse to the widening CA deficit as adequate andexpects prudent fiscal policies to continue after the generalelections next year, irrespective of the composition of thenext government. The general government debt is seen asfurther declining to 33% of GDP in 2007. The country's eco-nomic position is additionally supported by the clear per-spective for EU membership in January 2007 and the fol-lowing membership in EMU (which S&P foresees in 2010).

Regarding the rating restraints, S&P emphasizes relativelylow level of development and weak external liquidity asmajor concerns. Adjusting the foreign reserves for the cur-rency board commitments for covering local currency issues,the rating agency estimates the 2004 gross external financ-ing requirements (including CA deficit, short-debt, andmaturing long-term debt) at 183% of uncommitted reserves.The ratio compares unfavourably to a median of 103% forBBB ratings of S&P.

Currency board may face political attacks

Despite the risks in the external balance, we support theview of S&P that adequate fiscal measures would sustainthe CA sustainability in medium and long terms. However, wenote that the likely shift of the political power to the left-wing BSP could lead to fiscal loosening and changes to theexchange rate peg. Officials of the left-wing BSP has stat-ed for the local press that the real exchange rate apprecia-tion is among the main factors for the CA deterioration. BSPhas also advocated wage adjustments with the nominal GDPgrowth and differentiated VAT rates that would pursue socialtargets and protect local industries.

BSP is currently the best-ranked party in the opinion pollswith strong chances to form the next government in coalitionwith the ethnic movement MRF or individually. The fixedexchange rate is seen by many as a barrier for the coun-try's competitiveness in the near future. Moreover, the movesfor differentiated VAT rates coupled with import protectionideas call for further market economy liberalism, replacingthe passive policy of fiscal and monetary tightening withmore active policies. ■

High GDP Growth, Debt Buyback

This article is based on extracts from ISI Emerging MarketsIntelliNews publications Bulgaria This Week and BulgariaCountry Report. For more detailed information please contactISI Emerging Markets office in Sofia at +359 2 8160404 [email protected].


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If the privatization of the Bulgarian TelecommunicationsCompany (BTC) had a mathematical equivalent, it would golike this: 14 (years of transition to market economy) + 5(changes of governments) = 8 (years of negotiations untilthe deal was finalized).

This seemingly illogical summation has prompted (and willcontinue to prompt) a diverse host of commentaries andanalyses. One thing is certain: conditions have been creat-ed for the faster and competitive development of theBulgarian communications market. The transfer of the BTCinto private hands means liberalization of the market, elimi-nation of the monopoly over fixed-line telephony andremoval of the barriers to the emergence of other providersof telephone and Internet services. Now that the telecomhas become private, a new era begins for communicationsin Bulgaria.

The future opportunities of the market

Bulgaria's market of communications services has potentialbut consumers expect lower prices and better service qual-ity, according to a national-wide survey conducted by AlfaResearch in March 2004. The number of people using cell-phones among adult Bulgarians has grown some 50 per-cent in a year. While in the beginning of 2003 only 28 per-cent of Bulgarians used the wireless services, today thisshare is 38 percent. There is also another group of people(about 5 percent of the population) who have mobile tele-phones but do not use them at all, because they still findthe price per call too steep.

Alfa Research's poll also showed that one in three activesubscribers have changed their provider at least once. Inhalf of the cases that has been done in search of a betterprice (of calls, fees or cell phones). This fluidity underscoresa level of dissatisfaction with the market situation.

Some 87 percent among people with high incomes use cellphones, but even in the lowest-income group (below 100Leva per household member, which is half of all Bulgarianfamilies), one in four is already subscribing to a wireless ser-vice.

At the same time another 7 percent of adults in Bulgaria willbecome active subscribers to a mobile operator by thisyear's end, which means a market increase to at least 45percent of adults. The potential of the market, however, iseven higher, because less than 40 percent of polledBulgarians say they are not interested in mobile communi-

cations. That means that the market has a potential to growat least another 15 percent.

Yet any future consumers can be attracted only by a newmobile operator offering competitive pricing. It can hard topredict how many users will switch from the currentproviders, Alfa Research concluded. The survey found thata total of 37 percent of Bulgarians are interested in a thirdGSM operator, with two-thirds of those currently using anoth-er provider. This results can be interpreted so that only 40percent of the clients of the existing mobile networks arecertain they will stay with them in case a third GSM opera-tor appears, offering better terms.

All these data show one thing: the Bulgarian communica-tions market has a huge potential for development and onlycompetition can ensure new subscribers, new services and

Wired up The recent privatization of Bulgarian Telecommunications Company stirred up

the wireless market. A third GSM provider should benefit consumers, even its

license is still contested in court By Marina Tsvetkova

Joanna James, Advent International Managing Director Central and Eastern

Europe and Minister of Transport and Communications Nikolay Vassilev dur-

ing the official closing of the BTC privatization deal.

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a higher turnover. Despite the otherwise irrefutable marketarguments, there have been dozens of attempts to preservethe status quo. The problems BTC faced in receiving thethird GSM license were even more numerous than the prob-lems Globul had to overcome four years ago, when itstepped in Bulgaria and disturbed the market comfort of thethen sole operator, Mobiltel.

To come up with a final decision on the issue of the GSMlicense to BTC, the Commission for Regulation ofCommunications asked for input from the Ministry ofTransportation, the Commission for Protection of Competitionand the Council of Ministers. Thus the state regulator cov-ered all the bases, receiving blessings from all related insti-tutions.

The Transportation Ministry was the first to reply BTC couldtake the license. The opinion of the ministry was required,since BTC was already a shareholder in Mobikom, the ana-logue mobile operator, which could have been related to theban on the development of activities on one and the samemarket by connected business entities. In early April a spe-cial cabinet decision was voted on, supporting the grantingof the GSM license to BTC.

The award of the license on a non-competitive basis wassecured by a government edict that specified the price of230 million Euro for 65 percent of BTC which included a 54million Leva fee for the mobile license. The PrivatizationAgency backed up that ruling. In the end the Commission forProtection of Competition had to say that the payment of thelicense as part of the company's price did not constitutestate aid and did not violate the Protection of CompetitionAct.

With all obstacles removed, the Commission for Regulationof Communications issued a GSM license to BTC almostsimultaneously with the transfer of the government telecominto private hands. The buyer, Viva Ventures, paid theremainder of the privatization price and the state officiallyrelinquished a 65-percent share in the company on June 11,2004. Besides the 230 million Euro paid for the package, thesubsidiary of US Advent raised BTC's capital by 50 millionEuro.

It turned out that it was still premature for Viva Ventures touncork the champagne since

legal disputes started

almost immediately, trying to halt the entry of a third GSMoperator on Bulgarian market. Just 10 days after the final-ization of the BTC deal six contestations were filed by withthe Supreme Administrative Court. The magistrates startedlegal proceedings on two of them, essentially allowing for thelitigation of the sale.

First hearings will be held behind closed doors on December7, 2004, that is six months after the protest was submittedby Netplus and the Supreme Administrative Prosecutor'sOffice. They challenge an earlier legal opinion by theCommission for Protection of Competition, maintaining that

the transfer of 65 percent of BTC into the hands of a sin-gle owner will indeed create dangerous concentration ofresources and therefore endanger free competition.

Yet another case emerged in the days following the closureof the deal, after it turned out that the anti-trust commissionwas to make an independent expert assessment of the price(including the GSM prices) to see if the privatization involveda state aid.

By the June 23 deadline a total of four protests were filedwith the Supreme Administrative Court against the GSMlicense of BTC. The Supreme Administrative Prosecutor'sOffice, Mobiltel, Globul and Tafeta Limited, an unknown untillthen U.S. company, directly challenged the issuance of a

Parameters of BTC privatization contractThe total financial effect of the BTC deal with VivaVentures, wholly-owned by U.S. investment fund Advent, is1.1 billion Euro. The price for 51 percent of the telecom'sshares is 230 million Euro, the capital of the company wasraised by another 50 million Euro and thus the buyeracquired 65 percent of BTC.

Viva Ventures will invest 700 million Euro in the telecomover the next five years. As much as 300 million Euro ofthe amount will be invested at the buyer's discretion.

Over the same period of time, 4,500 employees of BTCwill be laid off gradually; simultaneously, a 45-million Eurosocial program will be implemented. The new owner willrefinance state guarantees on BTC loans, amounting to 70million Euro.

The state remains owner of 35 percent of the telecomshares and will have representatives on the company'smanagement bodies. According to the privatization con-tract, within a six-month period starting on June 11, 20percent of BTC will be listed for trade on the stockexchange for non-cash means of payment.

The contract of management services stipulates the buyerwill receive 2.25 percent of the company's revenues(which totaled 1.1 billion Leva in 2003). The state and thebuyer signed a clawback agreement, according to whichin the event of future sale of shares the state will receive10 percent of the difference above 300 million Euro. Forreasons of national security, the amount needed for theseparation of the facilities of the Interior Ministry and theDefense Ministry has not been announced.

The parties also agreed that BTC would remit 60 millionEuro as dividend to the state. The state will hold the so-called golden share in the company, which will give it rightto veto major decisions of the shareholders' meeting.Thus the control over the development of the company willbe exerted not only through the privatization contract, butalso through the meeting of shareholders.


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wireless license on a non-competitive basis.

Legal experts said that the first three protests had been filedby interested persons, so the supreme magistrates will hearthem in court, but then will likely decide to lump them intoa single case.

The plaintiffs insisted that by awarding a mobile license toBTC the regulatory commission has violated the Constitutionand the Telecommunications Act, because it has not creat-ed conditions for objectivity, equality and transparency.Besides, Deputy Prosecutor General Tsoni Tsonev said thatBTC's privatization contract does not stipulate a price for theGSM license.

Globul contested CRC's decision to issue a mobile licenseto BTC as illegal, since the no-bid award of the documentcreates conditions for inequality among candidates.

Mobiltel, which filed its protest on the last possible day, saidit was against decisions contradicting the European practiceand law.

It has not yet become clear what the reasons of TafetaLimited were. Back in February, the U.S. company asked thecommission for a GSM license effective on the territory of

Bulgaria. The documents were presented by Dimcho Neshev,a local lawyer, but due to some paperwork lapses therequest was never considered. Neshev later said that TafetaLimited had never filed documents for a GSM license, buthas only made an inquiry to the Commission for Regulationof Communications whether the issuance of such a licensewould be feasible technically.

All lawsuits would like to have Supreme AdministrativeCourt's overrule the decision of the Commission forRegulation of Communications granting a GSM license toBTC. If that objective is reached, BTC will get its license feeback and then a tender will have to be organized. If, how-ever, the opponents to BTC's privatization prove that theinclusion of the licensing fee (54 million Leva) in the priceof the privatization deal is in fact a form of state aid, BTCowners will have to forget about a refund, as it makes up forthe difference to the 216 million Leva market value of thecompany.

The protests, however, cannot stop BTC from using its wire-less license before the court ruling is announced. For thetime being BTC is officially the third GSM operator inBulgaria. If the company is delaying the launch of its net-work, it is because it does not want to invest in a project socontingent upon a court ruling. Continued on page 32

Vice Premier Lidia Shouleva and Bulgarian Minister of Finance Milen Velchev at the beginning of a press conference about the privatization of BTC


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All these legal protests prove is that intense

competition on the

telecommunications market

is already a fact. BTC is in private hands and a substantialstir-up can be expected in the sector, where the other play-ers cannot remain passive any longer. Mobiltel and Globul,although seemingly in keen rivalry, have actually preservedthe status quo of high prices of mobile services. GSM callsin Bulgaria are still expensive as compared to other coun-tries in Eastern Europe. When a third player joins the mar-ket, the long-awaited actual decrease in prices will becomeinevitable.

Besides, the ownership in Mobiltel is being restructured atpresent and there are rumors that this may bring to Bulgariayet another serious international player in the sector.

Surveys showed that this year the turnover of mobile com-munications will rise by another 400 million Euro, comparedto 2003, to reach 1.5 billion Euro. The trend toward increas-es in wireless services and fixed-line data transmission willbe preserved.

Given the current situation, the forecasts are that BTC willaim to keep its existing corporate clients and the maintainthe flow of revenue from international calls. On the otherhand, the recently licensed for ground telecommunicationservices Orbitel, Cabletel, Netplus, Nexcom and EastTelecommunications Company will try to attract the big cor-porate clients of BTC. The keenest competition could beexpected in international calls, in trunk calls and then inlocal calls, Orbitel representatives recently said. The timewhen consumers will be able to choose their stationarytelephone provider will come as soon as the relevant insti-tutions manage to prepare all statutory documents.

For BTC customers, the fact that the company is already inprivate hands should mean better quality of services andmore flexible prices of calls. BTC will offer discounted pack-

ages to different consumer groups, the company's consul-tant, Tony Robinson, said. The packages may also includeInternet access. He added that BTC will keep its leadingpositions in fixed-line telephony and Internet services.

Price expectations

BTC's new owner is expected to sign contracts for mutualconnectivity of networks with the other telecom companiesin the country. This will allow all new subscribers to callBTC's customers. The price at which the telecom will offerthe service is a matter of negotiations. On the other hand,BTC has already reduced the prices of international calls,bringing them almost on par with prices in other Europeancountries.

BTC's new owner will follow an aggressive pricing policy andthe main area of competition will be international connectiv-ity, as is the practice in Europe, TelecommunicationsAssociation Chairman Antoni Slavinski said. He projectedthat slow but steady changes would begin in the distributionof the market by mobile operators in Bulgaria. The currentstatus quo of "peaceful co-existence" of Globul and Mobiltelwill include the third operator, which will acquire 10 percentto 20 percent of the market.

Similar projections were made some time ago by the ana-lysts of Economist Intelligence Union. According to them, theactual result of the BTC deal and the revocation of the com-pany's monopoly will only be felt in 2005.

The emergence of a third operator can be expected in ninemonths at the earliest and Viva Ventures' representatives didnot rule out the possibility for mobile services to be offeredin package with fixed-line services. For the time being a pos-sible platform of the new operator is that of Mobikom, a jointventure of BTC and Cable & Wireless.

According to the license granted by the communications reg-ulator to BTC, within a year the new operator has to cover20 percent of the country's population. The ambitions ofBTC's new owner, however, are well beyond that. ■

f a c t a n d f i g u r e s

Currently Mobiltel has 2.4 million sub-scribers, Globul, 1.14 million. A recentsurvey by IDG showed that mobileoperators are competing for a limitednumber of customers, who also havelimited possibilities for monthly billpayments, on average between 10Leva and 30 Leva. Thus wirelessproviders seem to be destined for fur-ther price reduction. Statements tothis effect recently came fromGlobul's Executive Director NicholaosTsolas, who announced the operatorwas going to abate its fees. Globul'sstrategy has it that pre-paid services

will preserve their development poten-tial, because at present they are pre-ferred by some 65 percent of the sub-scribers.

In anticipation of the third GSM provider,Mobiltel has already cut its prices forvarious groups of clients, albeit undercertain conditions. "We will try to keepour market share," Mobiltel's PR direc-tor Konstantin Kamenarov said. Heunderscored the company had ambi-tions to remain the most powerful oper-ator and its behavior would depend onthe competitors. However, Kamenarov

pointed out that Mobiltel could hardlypredict its behavior before the launch ofthe new operator.

The markets of wireless voice servicesand fixed-line data casting services inBulgaria this year will reach volumes of734 million Euro and 125 million Euro,respectively, IDG of Bulgaria said. Thedata showed that the four largetelecommunications companies - BTC,Mobiltel, Globul and Mobikom - lastyear posted total revenues of 2.118 bil-lion Leva (1.083 billion Euro), or 8.9percent more than in 2002.

Continued from page 30

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m e m b e r n e w s

Twelve Bulgarian municipalities were awarded the "Municipality

Ready for Business" certificate at the best-practices symposium

"Expanding Professionalism in Bulgarian Municipalities" in Sunny Day,

Varna in the end of June. This was recognition of their achieve-

ments in the better management of Bulgarian cities during the past

couple of years. The efforts of the municipalities were assisted by

U.S. experts under the City Links twinning program funded by the

United States Agency for International Development (USAID) and

administered by the International City/Country Management

Association (ICMA) and the Foundation for Local Government

Reform (FLGR). The American city managers from ICMA work with

Bulgarian municipalities for their economic development and mar-

keting domestically and abroad since 1997.

The US Resource Group includes Auburn, Alabama, Kettering, Ohio,

and West Carrollton, Ohio, West Bend, Wisconsin, Abington,

Pennsylvania and Golden, Colorado, Ontario, California, Winchester,

Virginia, and Charlottesville, Virginia. The participating Bulgarian

municipalities are: Razgrad, Triavna, Silistra, Panagiurishte, Haskovo,

Dobrich, Gabrovo, Pazardjik, Blagoevgrad, Sliven, Stara Zagora,

Montana, Karlovo and Pleven. During the fifth phase of the project

40 new Bulgarian municipalities will be involved in the beneficial

partnerships.

Local economic development (LED) and marketing proved to be

Bulgarian local governments' priorities today. Bulgarian municipali-

ties feel the strong need to increase their local development capac-

ities, apply a professional approach in business retention and recruit-

ment; lead active economic development programs, and get pre-

pared to meet the needs of the national and international business

community. Fourteen Bulgarian local governments have already cre-

ated professional LED positions aimed at building capacities within

their municipalities, and enabling them to lead proactive economic

development programs. The U.S. city managers not only shared

experience and expertise with the Bulgarian municipalities but

worked with them for identifying priorities, solving concrete issues

and drafting strategies for future development.

Two of the U.S. city managers speak about the partnerships with

Bulgarian municipalities:

Gary B. O'Connel, City Manager, City of Charlottesville, Virginia

What does professional local government management mean?

Many of the cities in the U. S. have what is called "a city manager".

The person is a chief administrator that has built a career around

running cities and has public management responsibilities. All the

city managers and most of the staff that are coming to Bulgaria

under the partnerships funded by the United States Agency for

International Development (USAID) are what I call "professional man-

agers" for their education, experience and background.

The good side of this program is that we are taking the American

experiences and trying to match them with the experiences of our

Bulgarian counterparts, try to see what partnerships we can build,

what projects we can work on. I think we were quite successful as

we achieved all the goals in the action plan, which we developed,

our work has been done - something that we are feeling really good

about.

With Pleven we developed an action plan with three major focuses.

The first one was working on an economic development project,

library, business and information center as well, and trying to track a

hotel investor. The second was assisting Pleven in attracting foreign

investment and the third one was developing the city as a tourism

location. There are a number of history and tourist sites and we are

trying to help to package them together.

As I mentioned the first component of our action plan was economic

development. We completed a financial feasibility plan for a busi-

ness and information center including a library, hotel, business incu-

bator and a convention center. This project was for the redevelop-

ment of an existing building which was in downtown Pleven. There

was a private sector component - seeking a hotel investor for con-

struction on municipality-owned land. So we worked with Pleven for

the completion of a plan for public financing of the library and busi-

ness information center. Phase one was done last fall, the funding

is available, and - hopefully - they will have phase two completed by

the end of this year. The new Business Information and Conference

Center will be opened in the summer of 2005.

And the major part of the project will be to attract an investor to build

the hotel, which will be privately funded on municipal land. We have

assisted in trying to find some investors.

We went through a feasibility analysis much like any business would

do to try to understand the economic side of the hotel project. So

we scaled back the original concept bearing in mind the hotel mar-

ket in Pleven and the examples around Bulgaria that had been pret-

ty successful.

The tourism component involved a couple of different ideas. We

tried to look what the tourism market place will be for Pleven. They

have history there as the city had been a center for the liberation of

the country back in 1878 during the Russian-Turkish War. There is

a historic site - called "Panorama", there are a number of other his-

toric sites that tourists might be interested in if they are packaged

together. I think the idea is to pick up on tour groups that might be

going to Veliko Tarnovo or heading to the Black Sea coast to stop

and spend either a day or a night in Pleven. Identifying the historic

sites we developed a marketing plan and hosted a conference of

over 50 tourism-related business people trying to pull them together

around this plan.

The final component was attracting foreign investment for economic

40 new places in Bulgaria will be

included in the twinning program with

U.S. Cities

USAID Assists Local Municipalities inExpanding Professionalism

Participants in the symposium received Municipality Ready for Business

Certificate.

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development projects. And looking at the action plan again we tried

to build on the strengths of Pleven economy and the hotel is an

example of a business investment that we are working on. We also

tried to see what they need to do to create a program for econom-

ic development and particularly for the creation of jobs.

There were a series of strategies that we went through that started

from developing data. It has been almost a year-long process to try

to look at the economic development program, to try to do research,

to have follow-up. Pleven Municipality conducted a survey of exist-

ing businesses and banks, prepared an economic profile of the com-

munity as well as marketing information necessary for foreign

investors.

Part of the economic development program and the certification pro-

gram is to ready Pleven and a number of other Bulgarian cities to

be able to attract and bring in foreign capital for the creation of jobs

and the development of industrial businesses within the community.

So we hope we got them ready for that. I think they had a couple

of opportunities to try the lessons they have learned and hopefully

one of those will result in an actual investment in the city.

Philip Dunlap,

Economic Development Director, City of Auburn, Alabama

What is recruiting businesses? As an economic developer for the

City of Auburn I must say that this is the basic question. From the

American perspective, our goal is to recruit business - i.e. recruit jobs

because you do recruit the jobs that a business provides. And actu-

ally you are recruiting tax base and that is why we are involved in this

in the U. S. Bulgaria is a smaller country and the tax base is a lit-

tle bit different and your cities are not quite organized as ours are but

still it makes sense to have professional people involved in the com-

munities they can help and facilitate the location of business within

the community.

In a market economy businesses can make a decision where they

want to go. In a competitive environment when you are competing

for, say, a location in Eastern Europe you need to have a plan, to

make a decision. If you do not have a plan you are not going to

get looked at.

That is what we do: to a certain extent we have a joint venture with

a company which is coming in the country, organize the meetings,

make sure that the state people are there for training, etc. The local

developer coordinates all this work and the company feels they have

a partner. This is the way to recruit business and the goal is to

improve the everyday life of the citizens.

Traditionally the government had the leading role and traditional func-

tions- making sure the trash was picked up, having public safety, hav-

ing schools, health care. But today particularly in the U.S. in the

past years people already have the view that economic development

is also becoming a traditional role of the government. The local gov-

ernment takes a more direct role at the local level. National gov-

ernments consider issues at the national macroeconomic level.

Local governments deal with the same issues but on the micro level

within the community.

In a competitive environment if you want your community to get a

share of investment you need someone who will make the investor

feel at home in the community. The economic developer knows how

to organize, how to facilitate the location, how to get the plan start-

ed, etc. That is the essence of recruiting businesses.

We applied this approach in Blagoevgrad and did a Strategic Plan

for the city. The Strategic Plan for economic development had three

components: urbanization; infrastructure and transportation, and

environment and solid waste management.

From a strategic planning standpoint we discussed things that need

to be done. We talked about enhancing marketing capability, con-

solidating statistical information in one location, training of staff and

identifying some key projects for the city. One of the most impor-

tant issues was creating a professional entity within the local gov-

ernment.

That was back in 1998 when we started our partnership with the

Municipality of Blagoevgrad under the Bulgarian Technical

Twinning/Resource Cities Program which was recently renamed to

City Links, and which is funded by the United States Agency for

International Development (USAID).

In the early eighties we developed a document called "Auburn 2020",

which was a citizens-based consensus-building document involving

citizens, NGOs, different groups in the city. In 2000 we already

achieved our goals and developed a new "Auburn 2020". So we

offered our expertise and experience to Blagoevgrad.

Adopting Auburn's organizational model, Blagoevgrad established a

steering committee and three working groups and appointed citizen

representatives to them and all meetings were open to the public.

With assistance from our experts, the steering committee created a

final summary report based on an examination of key issues, work-

ing group reports, and community opinions. The final document was

the "Strategic Plan for the Development of the Municipality of

Blagoevgrad through 2015". Later we added education and social

care to the plan. The Municipal Council approved the Strategic Plan

and it was incorporated in the Regional Development Plan, which

made possible appropriation of funds for implementation of priority

projects.

Blagoevgrad succeeded to get very quickly organized and had all

the appropriate information put together, which was very important

as businessmen are busy people and they do not have the time to

contact many different state entities. There is already a profes-

sional entity within the local government who is the economic

developer. He was trained under our Local Economic Development

Training Program. We recently went through a certification pro-

gram, which was done by our colleagues from Chrlottesville,

Virginia.

Blagoevgrad did really a good job and I want to mention some of the

results: the development and successful launching of an electronic

marketing profile for the city, the publication of hard copies of this

profile in English and German, and the creation of a video promot-

ing Blagoevgrad's strengths and business opportunities, the model for

a public-private partnership to operate a city commercial center,

which is an indoor market.

And in the end of April we took a group to a major trade show in

Hanover. Five Bulgarian economic development officers for the first

time represented all Bulgarian municipalities at one of the biggest

trade fairs in the world. The Bulgarian representatives came from

Montana, Pazardjik, Pleven, Silistra, and Dobrich. We had a badge

"InvestBG", Bulgarian flags, nice posters, catalogues, a presentation,

a booth, and municipal experts presented the investment opportuni-

ties of Bulgaria municipalities. At the show we helped them to cre-

ate prospects for their future activities, establish contacts, and the

feedback was satisfactory as the Hanover Fair generated 48

inquiries by potential investors. A new web site - www.invest.bg -

was launched during the event. So - as we say - we showed the

flag and told our story. ■

AmCham's July Fourth:Fun, Fireworks & Rock

Some 1,450 guests arrived for AmCham's 10th traditional Independence Day Party

in Lozenetz Residence, Sofia. The event sported fun, music, delicious meals and

beer, in an attractive surrounding.

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AmCham members and families, U.S.embassy employees, U.S. citizens inBulgaria and numerous other guestsenjoyed one of the largest festivities inthe AmCham's history. The celebrationwould not have been possible withoutthe kind support of AmCham diamondsponsor Orbit Ltd. and sponsors such

as Fender, Motorola, Microsoft, 3M, ATEngineering, Allied Domeq.

AmCham thanks the AmericanEmbassy and H.E. Ambassador JamesPardew, who opened the celebrationtogether with Kenneth Lefkowitz,AmCham's president, and Valentin

Georgiev, the executive director.

After the U.S. and Bulgarian nationalanthems the entertainment was takenover by David Hampson, of Grenville.The guests were fascinated by hisunique sense of humor and particularattitude when he announced winners ofdifferent competitions.

Fender's surprise:D2 and

Gwyn Ashton

The opening ceremony included livemusic from the popular Bulgarian bandD2 and legendary Gwyn Ashton Bandfrom the United Kingdom. The excite-ment was high with the special compe-tition for the best guitar player spon-sored by Rising Force Co. As the exclu-sive distributor of Fender for Bulgaria,Rising Force Co. shared its strong will,passion and experience with the audi-ence and brought wonderful music pro-gram and extraordinary atmosphereduring the contest, which as for non-professional guitarists only. After atough battle, Christopher Thomson ofBearing Point won a professional guitar.

Bulgaria's extremely popular band D-2to performed their original music. The

HE US Ambassador James Pardew, AmCham president Ken Lefkowitz, executive director Valentin Georgiev and

board member David Hampson opened the 4-th of July celebration.


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band was nominated in June 2004 asFender European band. It's particularbrand of entertainment was appreciatedhighly by the guests.

Another surprise of Rising Force Cowas the invitation of Gwyn AshtonBand, with Paul Wetton on bass andPaul King on drums. From the rain-forests and gold-mining towns ofAustralia's outback to the arenas UnitedStates and Europe, Gwyn Ashton has

been taking its brand of high-energyblues-rock on the road as one of thebest current representatives of the style.

The band has opened for MickFleetwood, Canned Heat and HubertSumlin and played festivals and clubswith BB King, Buddy Guy, Peter Green,Johnny Winter, Rory Gallagher, RayCharles, Junior Wells, Mick Taylor,Albert Lee, Steve Morse, Wishbone Ashand Status Quo.

BBQ Winners

Jack Daniel's BBQ contest turned into aheated battle of amateur masters of finecuisine. Petar Bachvarov-Uti, the famousBulgarian chef, enthusiastically led thecompetition. The BBQ contest is an oldtradition, run annually in many countriesall around the world. Its purpose is togive the opportunity to the best non-pro-fessional chefs to show their abilities anddeliver entertainment to the audience.

Food for the guests was provided by Hilton, McDonald's. The guests kept cool with lots of beer from Zagorka, Amstel, Kamenitza, Stella Artois, Shumensko

HE US Ambassador James Pardew enjoed the party together with his son and grand children

After a hard battle, Christopher Thomson from

Bearing Point won the Rising Force contest for the

best guitar player

Famous Bulgarian guitar payer Ivan Letchev and Australian guest-

star Gwyn Ashton /right/ enjoyed the party

Hilton’s barbeque is already a tradition at the AmCham Independence Day community cele-

bration

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BBQ contest rules stipulated that theparticipants should prepare the recipein front of the public, using either pork,beef or chicken for the main course.The time for preparation was limited to30 minutes and participants could haveone other amateur chef for assistant.Garnishing was optional and was leftentirely to the competitor's choice. JackDaniel's and the Hilton Hotel providedall groceries, utensils, kitchen appli-

ances and other assistance. After onehour of tasting the delicious meals aprofessional jury, headed by Uti, pre-sented awards for the best looking dish,most attractive mixture, excellence inpreparation, best taste, an audienceaward and a prize for the most attrac-tive chef.

Motorola won the best-looking dish con-test. The jury was fascinated by the

combination of cooked cutlets mixedwith aubergine puree and yogurt. MilkoKovachev, Bulgaria's energy minister,and his wife won the prize in for themost attractive mixture. The team madeFrench toast, parmesan and skewerswatered with Jack Daniel's. Excellencein preparation was granted to MerckSharp & Dohme IDEA Inc. team andpersonally to Eva Tomova. Best taste(by type of meat) went to Mr. Carl

The guests were fascinated by Mr. David Hampson's unique sense of humor and witty

approach to winners of different competitions

The small children were the happiest guests at the partyFrontman Ditcho and guitarist Mitko from D-2 in action during their life performance. The

Bulgarian rock band kicked at 4-th of July stage

Mr. Philip Bay, Colliers International, enjoyed the party together with

his son Noa

Milko Kovachev, the Energy Minister and his wife during the hard battle in the

Jack Daniel's BBQ contest. In the end they won a prize for their cooking.

Uti Bachvarov - the famous Bulgarian cook, enthusiastically guided

Jack Daniel's BBQ contest


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Hammerdorfer, Peace Corps, for anoriginal family recipe. The audienceaward was granted to Citigroup for itsnon-standard mixture of various foods.Mr. Brendan Quinn, CableTel, turned tobe the most attractive chef in the con-test. Hilton BBQ supplied the food forthe party and McDonald's ferried in

enough cheeseburgers, French friesand McPies. The guests were kept coolwith beer from Kamenitza, Stella Artois,Shumensko, Amstel and Zagorka.

Wine admirers enjoyed DomaineBoyar's selection and Allied Domecqprovided still more high-quality alco-

holic beverages. Coca-Cola suppliedthe soft drinks and Pain D'or brought inplenty of croissants and muffins. A tadbefore 10 p.m., as the EURO'2004 finalgame was starting, spectacular fire-works lighted the sky above the partyto the enjoyment of the delighted crowdbelow.

Right before 10 o'clock the fire works went off and the guests were entirely attracted to the picturesque scene

All the stars together: AmCham team and the musicians from Gwyn Ashton Band and D2


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The parliament adopted on June 9 amendments to the CorporateIncome Taxation Act, which had been proposed by the govern-ment in a bid to restrict the remission of corporate tax.

The urgently introduced changes will become effective in 2005.They stemmed from Bulgaria's recent closure of the Policy andCompetition Chapter of the E.U. Acquis. The bill suggests elimi-nation of fiscal measures of state support, including tax reliefs,because they are deemed to be incompatible with the principlesof free competition. Other necessary amendments to the law -concerning rates and procedures - will be made in the fall.

THE AMENDMENTS

● The reduced/remitted corporate tax shall be invested in tangi-ble assets, know-how, licenses and patents. The value of theintangible assets shall be up to 25 percent of the fixed assetstotal and 25 percent of the investment shall be provided asown funds;

● When the total amount of a reduction for an investment pro-ject exceeds 75 million Leva, permission shall be asked fromthe Commission for the Protection of Competition (CPC);

● A 200,000 Leva ceiling to the total amount of the preference,which shall be put in the initial investment;

● The deduction of the mandatory social security contributionsfor new jobs from the pre-tax financial result shall not apply ifother state aids have been used during the current year;

● The possibility for banks to carry over losses over a ten-yearperiod is eliminated;

● Criteria for the application of a special scheme for chargingVAT on imports for large investment projects.

Katsarchev, aide to Finance Minister Milen Velchev, said that if agiven company has normal business activities, the amendmentsto the Corporate Income Taxation Act should not present a diffi-culty, because the ceiling of state aid intensity, which is 50 per-cent of the initial investment, is reached. If the company receivesother types of state aid, it could reach the intensity level, but inmost cases there should be no problems, the Katsarchev said.He added that such problems could be expected in sectors likecoal mining, the steel industry and shipbuilding, which are exclud-ed from the state aid schemes.

The European Commission does not object to state aid in gen-

eral, but insists that it should be provided in line with the princi-ples of the State Aid Act. Such support cannot be extended inthe form of tax reliefs. In addition, it may not apply only to someentities and regions and be inaccessible to others.

The amendments to the Corporate Income Taxation Act allow forinvestment projects exceeding 100 million Leva that are backedup with state aid in the form of tax refunding to receive permis-

AmCham Bulgaria GeneralAssembly re-elected Ms.Janet Heckman, Citibank,to the Board of Directorsduring its meeting on June15.

As a guest speaker Mr.Atanas Katsarchev, Advisorto the Minister of Finance,addressed the AmChammembers on the amend-ments to the CorporateIncome Tax Act. Mr.Katsarchev discussed new tax relief provided by the lat-est amendments in the tax legislation. He moderated awide discussion among AmCham members on the taxreliefs.

Most of the company representatives inquired about reliefin cases when sponsorship is provided. The Ministry ofFinance has not discussed such cases because there isa lack of proposals from the businesses, Mr. Katsarchevexplained.

The issue of preferential VAT for specific medical importproducts was raised from the representatives of pharma-ceutical companies. Again, Mr. Katsarchev said the min-istry is not planning preferential VAT levels because thereare firm previous arrangements with Brussels regardingBulgaria's EU membership. The Assembly also heardAmCham's status report and approved the chamber's2003 financial statements and E&Y audit report.

AmCham GeneralAssembly Re-elects Heckman

Bulgaria slated to create neutral tax environment by 2007 Amendments to the Corporate Income

Taxation Act are aimed at curbing

unfair competition, says Finance

Ministry's Atanas Katsarchev

By Irina Bacheva

Ms. Janet Heckman

sion for admissibility of aid from the Commission for Protectionof Competition (CPC). The Finance Ministry representativeexplained that the procedure had been already specified. It willbe regulated by the State Aid Act and any rescheduling must besanctioned by the CPC.

The commission should also check up whether a given state aidis admissible. The CPC has two months to decide. If no decisionis reached within this period, the adjudication becomes automat-ically favorable, Katsarchev said.

He also said that the EU requirement for clarifying the principlesof state aid has been a part of the Bulgarian law since 1995.Bulgaria signed a EU association agreement in 1993 and thiscondition was included in Article 64 of the document. In 1995the provision became part of the country's legislation, and theCPC was established as a result.

During the recent negotiations EU made it apparent that Brusselswould like for the CPC to decide faster which cases constitutestate aid and which not, Katsarchev said. This will allow the bodyor institution providing the aid to agree its decision with CPC's.Katsarchev added that it is very important to eliminate the sub-jectivity in decision-making and retain Finance Ministry's right toappeal.

The Finance Ministry is also likely to confront the problem of howexactly to satisfy the foreign investors who have been granted a50-percent preference for a 10-year period and who will nowhave only 30 percent of their tax refunded. The government hasproposed two options to such companies: to use tax remissionof 58 percent in 2006 to make up for the amounts they will notreceive in 2007 and 2008, when the preferences expire but willnot apply; or they can use tax remission of 64 percent but com-

ply with the new conditions introduced with the amendments tothe Corporate Income Taxation Act.

Taking up a question whether VAT abatement was envisaged forsponsorship, Katsarchev said the business had not yetapproached the Finance Ministry with such a proposal, adding itwas the business that had to be the active party.

On preferential tax rate on certain medicines, Katsarchev said thebest option would be a neutral tax environment, where taxes areequal for everybody. He added that there should be no differencebetween economic agents and any subjectivity should be elimi-nated. If two agents operate on one and the same market andmanufacture the same commodity, but are located in differentplaces, a tax preference would make the products of one ofthem cheaper, which would create unfair competition, Katsarchevsaid. Neutral tax environment is also an important EU requirementthat had to be fulfilled by the time Bulgaria joins the Union in2007. ■

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Before the AmCham General Assembly

Mr. Atanas Katzarchev, Advisor to the

Minister of Finance (left) was welcomed

at Hilton from Mr. Georgiev, Mr.

Niemann and Mr. Lefkowitz.

Most of the company representatives as Mr. Georgi Randelov from IBM, inquired

about preferential VAT levels.


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The activities and services of NewEurope Corporate Advisory were pre-sented during AmCham's business-after-hours cocktail party on June 10.NECA, formerly known as EPIC BulgariaLtd provides consultancy services in thefield of corporate finances.

Before distinguished guests andAmCham members, Mr. PeterGoldscheider, Managing Partner of theEuropean Privatization & InvestmentCorporation (EPIC) together with Mr.Kenneth Lefkowitz presented the mainactivities of NECA and EPIC. As a mem-ber of the EPIC network, NECA providesprivatization and investment advisory tointernational corporations; advisory onlicensing and concessions; finance rais-ing and partner search for local firms.

EPIC Bulgaria Ltd., so far a Bulgariansubsidiary of EPIC, changed name toNew Europe Corporate Advisory Ltd.

(NECA). The new name represents theshift of the ownership in the companyafter the managing shareholder KennethLefkowitz bought out EPIC's shares.

"After four years of successful co-oper-ation we came to an agreement that itwould be of mutual advantage if I take

over the whole company," Lefkowitzsaid.

NECA successfully consulted AMGA(Italy) and its Bulgarian subsidiary BlackSea Technology Company (BSTC) onacquiring a gas distribution license forMoesia and Dobrudja regions. In addi-

tion, NECA successfully consultedNeterra on finance raising for building across-border terrestrial network.

Mr. Lefkowitz explained that at present,NECA is finalizing three studies. Thefirst is a market study on the localelectricity sector for a European ener-gy trader. The second is a businessdevelopment project for the Bulgarianwindows producer Castel. NECA is alsoadvising a major European construc-tion company on its expansion inBulgaria. ■

NECA presents new ownership Privatization and investment

advisory to international cor-

porations are among compa-

ny's activities

Mr. Peter Goldscheider,

Managing Partner, EPIC (right)

presented together with

Mr. Lefkowitz (left) the main

activities of NECA and EPIC.

Over 200 guests enjoed the presentation of NECA company at the Ball Room of the Military Club

Saxophonist

Michail

Grozdanov plays

some cool jazz

tunes at the

NECA party.

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m e m b e r n e w s

Banks are frequently criticized that they do not have unifieddatabases; that they can not assure equally high quality ofcustomer service at all of their departments and branches;and that they can not serve as fast as their clients would liketo. A solution of this problem was found by IBM and BancaPopolare di Milano.

Experts from both IBM and the financial institution identified,divided into separate components and analyzed all of theoperations which the bank performs - opening of an account,management of customer relations, risk management, dataproviding on the market, etc. Further, IBM integrated the sep-arate components in a system, in order to eliminate any

duplication of operations and to assure a unified and com-plete access to data from every department and branch.

Before IBM started working on the project, data for everyoperation and service were stored and processes separatelyby different software applications. Due to the middleware ofthe computer giant, employees of Banca Popolare di Milanohave access at all levels and channels to the complete infor-mation about a certain customer in a unified consolidatedview. Thus, the client receives faster and easier services,according to their personal requirements, while the bankfacilitates the work of its employees and saves time andexpenses.

Cefin Holding, the biggest Iveco dealer in Central andEastern Europe, started the construction of a new truck cen-ter in Sofia. The new premises will be located onDragomansko Chaussee Blvd., after Liulin district, beforeTechno market and METRO 2.

The BOD of Cefin Holding and Cefin Bulgaria attended theofficial ceremony of laying the first stone. BOD of NaftexEngineering AD - the main contractor, the Managing Directorof IP Tectonica - the consultancy company on the project;IVECO Representative Office in Bulgaria, Afin Bulgaria - theleasing company of Iveco in Bulgaria, as well as by strate-

gic customers and partners of Cefin.

The event was honored by the presence of official repre-sentatives from Sofia Municipality, Architecture andUrbanization Office, Ministry of Transport, Italian Embassy inBulgaria and other institutions.

The center is expected to be fully complete in 10 months.The new investment will result in opening of at least 20 newworking places, as well as business developing in its sur-roundings.

On June 6, Sofia University conferred the honorary title "Doctor Honoris

Causa" to Mr. Stanley Fischer who delivered a lecture on "Economic

Lessons from the Transition Countries". Mr. Stanley Fischer, President of

Citigroup International, Vice Chairman of Citigroup and Economic

Advisor to the Bulgarian Prime Minister Saxe Cobug-Gotha, visited

Bulgaria, June 5-6, on the occasion of 125 anniversary of the Bulgarian

National Bank.

IBM: how to create an 'on demand' bank

Cefin Holding started the construction ofa new European Truck Center

Hebros Bank's clients who own debit cards will continue touse the Bank's ATMs free of charge, although the decisionof the Committee of the Borika users decided on anincrease of the trans-bank fees. Card owners of Hebrosbank will pay BGN 0,40 when drawing money from otherbanks' ATM devices since July 1. So far the charge for thisservice was BGN 0,22. Following the implemented central-ized management of debit cards of the Bank since March22, Hebros Bank relieved from fees its clients, when they areusing Hebros bank's ATMs.

Hebros Bank's ATMs will reach the number of 100 until theend of July. Thirty four new ATMs will be installed for theneeds of the increasing number of customers using debitcards in Bulgaria. So far at clients' availability were sixty sixATM devices. Among them 13 are in Sofia, 8 are in Plovdiv,4 are in Varna and in Veliko Turnovo and in Assenovgrad are2 ATMs. The rest 41 machines are operating in the otherlocations where Hebros Bank has sales centers.

Hebros Bank's card owners to use ATM-sfree of charge

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BTC. Established in 1992, the Bulgarian TelecommunicationsCompany is the dominant telecommunications operator inBulgaria. As the largest telecommunications company inBulgaria, our goal is to serve as an engine of innovation in theindustry and offer to our customers access to state-of-the-artsolutions from qualitative voice services to broadband data andInternet. The key to our success is the quality of the servicesprovided and in the confidence of our customers. Business:Conventional telephone service, Мetropolitan Area Network,Leased Lines, Data and Internet, Voice telephone service.Currently BTC has 2,9 million customers. The digitalizationdegree will exceed 42% before the end of 2004.

Contact info:

Mr. William Aylsword, CEOBoyko Dimitrachkov, Executive Director

Tel: 9494 601, 951 60 09, 949 46 01; Fax: 952 58668, Totleben Blvd., Sofia 1606

BUNGE Ltd. is an integrated globalagribusiness and food company operating

in the farm-to-consumer foodchain with worldwide distribu-tion capabilities. BUNGE is the

world's leading oilseed processor and seller of edible oils toconsumers and the largest producer and supplier of fertilizersin South America. Established in 1818 in Amsterdam as graintrading company, today BUNGE successfully operates 400 sitesat 4 continents with 24 000 employees. Headquartered in WhitePlains, New York, BUNGE is NYSE listed since 2001.The company entered Bulgarian market in December 2002 withthe acquisition of the most reputable bottled oil producer -Kaliakra AD. In Bulgaria BUNGE will be focused on strengthen-ing its leading position on the bottled oil market, but will alsoparticipate actively in Bulgarian agribusiness with grains andoilseeds, soybean and sunflower meal.

Contact info:

BUNGE Kaliakra ADMr. Tsvetan Iliev

Executive Director67, 25th Septemvri Blvd.

9300 DobrichTel. 058 601 032Fax. 058 601 031

[email protected]

INVESTBANK PLC is a privately owned, notlisted joint-stock company established onDecember 16, 1994. The Bank has a fulllicense by the Bulgarian National Bank for all

types of domestic and international banking operations. Thebank is also a licensed investment intermediary, exclusive pri-mary-market dealer of government securities, and registeredcustodian bank under the Law for Social and RetirementSecurity. The Bank is operating as a universal commercial bank provid-ing complete line of products and services to corporations, pri-

vate individuals and institutions. INVESTBANK PLC is special-ized in commercial and mortgage lending for agricultural andfood processing industries, building and construction projects,tourism and trade. INVESTBANK PLC operates with more than 30 branches andsub-branches located in the major Bulgarian cities. The branchnetwork is efficiently allocated and the bank could quicklyopen offices in random districts for providing extra service cov-erage. Our mission is to provide innovative, competitive, and individu-ally designed customer services through what we call "Person-to-Person" banking relationship. We aim to better understandour clients' business so we could offer not just the standardservice, but the best solutions and financial security.

Contact info:

HEAD OFFICE 155, Rakovski St.

1000 Sofia, Bulgaria POB 1138

T +359 2 930 51 44, 930 51 55 F +359 2 980 77 22

[email protected] www.ibank.bg

MONBAT PLC is a leading produc-er of lead-acid starter batteries forcivil and military applications with

more than 40-years experience and traditional high quality.It is certified under EN ISO 9001:2000 by "BVQI" for designing,manufacturing, sale, distribution and recycling of starter andstationary batteries for civil and special purposes, as well asunder ISO 14001:1996; OHSAS 18001:1999 and AQAP 2110.Product ranges:

1) A complete range of 12V starter batteries for cars, trucksand agricultural vehicles, with capacity varying from 35 to230 Ah, batteries JIS standard.2) Semi-traction batteries.3) Special batteries - series ARMYPOWER for armoredvehicles and aircraft.

To the factory works Recycling plant, approved from theMinistry of Environment of Bulgaria for the recycling of used-up batteries.MONBAT manufactures high-tech stationary valve-regulatedlead-acid batteries -type MVR with capacity from 60Ah till600Ah, corresponding completely with the standards, relatingto stationary batteries, hermetically sealed type: IEC 896,part2; EN 60896, part2; BS6290, part4; IEC 707FVO; UL 94VO, as well as the directions of EUROBAT, categorizing thebattery as Long Life-over 12 years exploitation life.

Contact info:

MONBAT PLCMr. Ivan Karageorgiev

General Manager4, Golo Bardo St.

1407 Sofia, BULGARIATel.: +359 2 962 11 50Fax: +359 2 962 11 46

e-mail: [email protected]

Directed by Sam RaimiWith: Tobey Maguire (Spider-Man/Peter Parker), Kirsten Dunst(Mary Jane Watson), Alfred Molina (Doc Ock/Dr. OttoOctavius), Rosemary Harris

Despite its huge success, Spider-Man 1 required childlike sen-sitivity and simplicity to be experienced with enthusiasm. Thesecond movie asks for no more than be in the theater. It is amoving experience, diverse and overwhelming to a degree thatwrings uncontrollable exclamations from adults, and the thrilllasts for much longer than the final titles. In the evening youmay even feel the urge to have one more beer or suck yourthumb away in thought.

This time the credit is obviously to director Sam Raimi, whohas evolved from a cult filmmaker with a quasi-polished styleto being a master storyteller with his style intact. He sprinkleshumor everywhere, even in most unbelievable places (whenlaundered, Spidie's costume dyes his pants in pink); he cre-ates horror in the right places (the chain-saw slaughterhousein the operating theater); he balances feelings and characterswith an explosive action which makes you feel weak in theknees.

To be a superhero would be difficult enough for a rich guy likeBatman or a middle-class guy like Superman, while in his lifeSpider-Man /Peter Parker is a poor student, a left-handed

looser. His feats remain unrecognized; he is constantly troubledby a feeling of guilt; he is threatened with losing his miserablejob, his miserable room and with failing his most importantexam at Columbia University. While his love Mary Jane(Kirsten Dunst) is dating someone else. Besides, his websdon't hold any longer, so he often falls.

From this state of deep depression he is saved by the appear-ance of the new villain, Dr Otto Octavius (Alfred Molina). DrOck (as nicknamed by the press) is much more interesting andcomplex than Willem Dafoe's Green Goblin. Molina is a high-class theater actor with an intriguing look and Carlson-likegigantic build; he tends to play his character small and cen-tered letting the tentacles overact brutally for him.

The movie, of course, has weaknesses: Spidie's small digitalfigure is still somehow different from Tobey Maguire's body andthe preaching how much children need their hero is somewhatsuperfluous. But children and adults alike will remember forlong Tobey Maguire's particular timbre and the fatal words:"Spider-Man no more!"

Alexandra Films

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m o v i e s & D V D

DVD Reviews

IntolerableCrueltyDirected by Joel CoenWith: George Clooney (Miles),Catherine Zeta-Jones (Marylin),Geoffrey Rush (Donovan Donaly),Cedric the EntertainerDVD/VHS

Chief among the pleasures of this Coenbrothers' anti-romantic comedy is thevanity fair played in pingpongexchanges by a two of self-infatuatedbrunets: Clooney and Zeta-Jones. Inthe part of divorce lawyer MilesMassey, Clooney scores with his will-ingness to mock his above-averagecharisma level, chiseled chin andpearly teeth, which, as the New YorkTimes notes, look like paint samples forrefrigerator surfaces. He is so self-pos-sessed a winner that his larynx is on

autopilot. "Struggle, challenge and theultimate destruction of your opponent -that's life," Miles sighs contentedly. Butthen appears the dazzling Marylin(Catherine Zeta-Jones). She will flutterhis heart, addle his head, empty hiswallet and take him down a peg, prov-ing that a beautiful woman has moretools at hand than even the best lawyer.And Catherine Zeta-Jones's beauty is

irresistible: it is the perfidious eleganceof silken curves and mouthwateringcleavage. In the end the movie isalmost relentlessly severe: towards themarriage customs of Americans andtowards our unconditioned reflex toexpect a bit of sentimental comedyabout the fight between sexes.

Sunny Video,

Release date: July 19, 2004

by Kalina Garelova

Movie review

Spider-Man 2

That is what door handles should look like! Heavy, snuggly fittinginto hand, and exuding the unique cool touch typical for bulk alu-minum… One gets used to seeing those things on conceptualvehicles only, where the gloss of similar components merges withthe atmosphere of uniqueness projecting a hypnotic effect to theviewer.

The new Nissan 350Z looks as if it has just driven down fromthe exhibition stand and in a magical way has mixed with com-mon folk - it is impudent and electrifying with every single mil-limeter of its 4.31-meter long body. This car, even when parkedand resting, radiates the feeling of speed, it actually insists to beseen - whatever the cost, and imperatively draws the attentionupon itself.

The memory of the 240Z, created by the famous Germandesigner Count Albrecht Goertz as the top-selling sports car inthe history of mankind, is revived. The spirit of the icon, whichhas won the hearts of 1.4 million believers since 1969, is recalled,and a dream of a racer which does not compromise on dynam-ics for the sake of a misjudged comfort, has come true. A vehi-cle was born to match form and substance in a perfect harmo-ny.

The exterior could hardly be refined to express more subtly thehomage paid by the creators of the new car to the classical ideal- an elongated torpedo, a compact deck, a low roof arc, mas-sive wheels and compact body aprons. The attractive "packag-ing", characterized with a perfection of the details, is smoothlyconverging into the interior, which eliminates the last traces ofsuspicion that the objective of the whole endevour was anythingelse but to breed a 24-carat sports car. The seats are an impres-sive and unique proof of the resolute intentions of the Japaneseengineers and designers to create a sports car, whose every sin-gle component has been subjected to a comprehensive analysis.The rpm meter occupies the center of the space behind the mul-tipurpose steering wheel, while the three circular auxiliary instru-ments on the upper section of the central instrument panelimpart a professional touch to the cockpit, providing the driverwith information about the voltage of the electric system, the

engine oil level and with a large set of additional data generat-ed by the various functions of the on-board computer, selectedby pressing the handy button on the steering wheel. The selec-tion and the quality of the materials used in the interior designwould hardly require additional comments after mentioning thefact that the 350Z pedals are made of perforated aluminum…

But let us concentrate on the engine, which is the heart and thesoul of any self-respecting sports car. The exceptionally inter-esting, albeit barely popular in Europe, high-tech engine of the

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The Zuper Car The 280 HP boost the slim body of the new NISSAN 350Z from 0 to 100 km/h for 5,9s

The Nissan sports cars with the Z index are linked inthe automobile world to an almost 40-year history,which has seen more than a couple of records retired.There is no doubt that the most famous of theserecords is that it was neither Porsche 911 nor ChevroletCorvette but Nissan Z is the most widely sold sports carof all times with a total of 1.4 million cars sold.

The start was made back in the distant 1969 with thelaunch of Datsun 240Z - the Japanese response to theestablished competition among popular names andemblems. The body of the sports car was designed byCount Albrecht Goertz, while its classical featuresemerged as a perfect addition to the racing sports cars.The front hood hides a linear 6-cylinder engine with adisplacement of 2.4 l and output power of 140 HP,which is sufficient for an acceleration from 0 to 100km/h for less than ten seconds - which was at that timean amazing achievement for a serial-production vehicle.The second generation was launched in 1978, known as280ZX and offered in two-door and four-door versions,closed-body and cabrio. 280 ZX scored during its pro-duction life the unbelievable 410,000 sales, which madethis generation of the model the most successfulthroughout the Z-model history. Until now…

c h r o n o l o g y o f a l e g e n d

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so-called VQ series developed by Nissan occupies the spacebelow the aluminum engine compartment hood and above thefront axle. The V-type engine block is cast out of aluminum, thefour suspended camshafts are hollow and are driven by chains,and the intake assembly employs the CVTCS (ContinuouslyVariable Valve Timing Control System) design.

Although the maximum output torque of 363 is generated at arelatively high engine speed (4800 rpm), the engine seems to beaiming at high-output modes and imparts its power in a harmo-nious manner, matching strictly the commands delivered throughthe accelerator pedal.

It is normal to expect that the 280 HP will not be impeded in pro-ducing a whirlwind dynamics of the car, whose total weightexceeds by a notch the limit of 1,5 t. The acceleration measuredduring tests from 0 to 100 km/h locked the stopwatch pointer at5,9 s, while the surge to 240 km/h is not less impressive by itssmoothness and perfect harmony achieved by the arrangementof the six-speed manual overdrive gearbox. According to manu-facturer's data, the maximum speed for the car body is set at250 km/h, which is limited electronically, of course, and this couldbe experienced sensing the potential engine resource while dri-ving with the markedly extended sixth gear engaged… The pricefor all this is a fuel consumption within the acceptable frameworkof 12.8 l per 100 km.

Four gilded aluminum Brembo brake assemblies, engaging hugeinternally ventilated disks at the four wheels, are used to tame totwo-seat fireball. The logical result of the next uncompromising

solution is a braking distance of a mere 36 m from a speed of100 km/h.

At the bottom line, the 350Z may be described as a perfectlyarmed sports weapon, which prefers abandon the softness of themajority of modern "sports" cars and provide to its owner theclassical and unique experience of driving an aggressive,provocative car. It is possible, of course that such an experiencemight not fit the common taste, but isn't it the same with mostof the real things in life? And while the reasoning and debateson the benefits and the pleasures derived from driving anuncompromising sports car must be relegated to the realm ofsubjective assessments, any differenced in the opinions aboutthe price of 350Z are definitely excluded by objective facts. ■

Bulgarian automotive journalists posing with the new 350Z during test drive

organized by NISSAN SOFIA.

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The Trainee

A man joins a big corporate empire as a trainee.

On his very first day of work, he dials the pantry and shouts

into the phone - "Get me a coffee, quickly!"

The voice from the other side responded, "You fool you've

dialed the wrong extension! Do you know who you're talking to,

dumbo?"

"No," replied the trainee.

" It's the CEO of the company, you fool!"

The trainee shouts back, "And do YOU know who YOU are

talking to, you fool?!"

" No." replied the CEO indignantly.

"Good!" replied the trainee, and puts down the phone

A Big dog

A highly timid little man, ventured into a biker bar in the Bronx

and clearing his throat asked, "Um, err, which of you gentle-

men owns the Doberman tied outside to the parking meter?"

A giant of a man, wearing biker leathers, his body hair grow-

ing out through the seams, turned slowly on his stool, looked

down at the quivering little man and said, "It's my dog. Why?"

"Well," squeaked the little man, obviously very nervous, "I

believe my dog just killed it, sir."

"What?" roared the big man in disbelief. "What in the hell kind

of dog do you have?"

"Sir," answered the little man, "It's a four week old puppy."

"Bull!" roared the biker, "How could your puppy kill my

Doberman?"

"It appears that he choked on it, sir."

Engineers Vs Managers

A man is flying in a hot air balloon and realizes he is lost. He

reduces height and spots a man down below. He lowers the

balloon further and shouts: "Excuse me, can you tell me where

I am?"

The man below says: "Yes, you're in a hot air balloon, hover-

ing 30 feet above this field."

"You must be an engineer " says the balloonist.

"I am" replies the man. "How did you know."

"Well," says the balloonist, "everything you have told me is

technically correct, but it's no use to anyone."

The man below says "you must be in management."

"I am" replies the balloonist, "but how did you know?"

"Well," says the man, "you don't know where you are, or where

you're going, but you expect me to be able to help. You're in

the same position you were before we met, but now it's my

fault."

The KFC Account

After watching sales falling off for three straight months atKentucky Fried Chicken, the Colonel calls up the Pope andasks for a favor.

The Pope says, "What can I do?"

The Colonel says, "I need you to change the daily prayerfrom, 'Give us this day our daily bread' to 'Give us this dayour daily chicken". If you do it, I will donate 10 Million Dollarsto the Vatican."

The Pope replies, "I am sorry. That is the Lord"s prayer andI can not change the words." So the Colonel hangs up.

After another month of dismal sales, the Colonel panics, andcalls again. "Listen your Excellency. I really need your help.I will give you $50 million dollars if you change the words ofthe daily prayer from "Give us this day our daily bread" to"Give us this day our daily chicken."

And the Pope responds, "It is very tempting, ColonelSanders. The church could do a lot of good with that muchmoney. It would help us support many charities. But, again,I must decline. It is the Lord's prayer, and I can't change thewords."

After two more months of terrible sales, the Colonel getsdesperate. "This is my final offer, your Excellency. If youchange the words of the daily prayer from, "Give us this dayour daily bread" to "Give us this day our daily chicken" I willdonate $100 million to the Vatican."

The Pope replies, "Let me get back to you."

So the next day, the Pope calls together all of his bishopsand says, "I have some good news and I have some badnews. The good news is that KFC is going to donate $100million to the Vatican."

The bishops rejoice at the news. Then one asks about thebad news.

The Pope replies, "The bad news is that we lost the PainD'or Bread account."

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