Bulgarian Economy and Energy Minister Dobrev in Q&A with the British Bulgarian Chamber of Commerce

Written by on November 5, 2012 in Bulgaria, Business, News - No comments

Bulgaria’s Economy, Energy and Tourism Minister Delyan Dobrev was the guest of the British Bulgarian Chamber of Commerce on October 25 2012, briefing 60 members and guests of the chamber and answering questions. An edited summary:

To boost the economy:

Operational Programme Competitiveness: In April 2012, 9.22 per cent of the funds available were disbursed, 1.7 billion euro reached the companies. We improved the organisation through merging the Agency and the Directorate into one single body to increase the capacity. In the past, for one intermediary programme we had to collect 24 signatures in some specific order starting from the expert and building up. Imagine that signatory No. 10 was on vacation. We have reduced the administration of the process and put a specific deadline. In the past, it used to take from three to nine months. Now, payments are done in 20 to 30 days, 40 days the longest. Payments are speeded as much as possible. We have surpassed the total payments in 2011: 700 million leva. Now we stand at 900 million leva.

Opened the Energy Efficiency Programme: I would like to encourage SME companies to participate in it. There is 150 million leva grant funding and 150 million leva provided by the EBRD. There is no deadline. We are collecting project proposals on a first come, first served basis. The programme targets energy efficiency measures in SMEs and is open to all types of companies. The only group excluded real estate companies. There are limits on agri-businesses and construction companies.

  • Changes in legislation to encourage investment:

The incentive to return social payments on the side of the employer (Investors Class A and Class B). It saves 70 per cent of expenses of labour cost. For IT and outsourcing companies, it amounts to millions of leva. On the administrative burden inBulgaria, we want to reduce procedures. There are specific measures we are implementing: reducing the regulations (business environment) saves 13 million leva. There are 167 measures to be implemented. We are working hard on this, as well as on the business environment.

UK ambassador to Bulgaria, Jonathan Allen, left, and BBCC chairman Bill Drysdale welcomed Economy, Energy and Tourism Minister Delyan Dobrev.

Bill Drysdale: Let me ask you, Sir, in the big picture there are excellent large projects coming in. we would like to see more from the UK. The Bulgarian ambassador in London, Konstantin Dimitrov, together with our ambassador here, Jonathan Allen and the BBCC, are looking to find investors. Do you believe that reducing the administrative burdens and subsidising social security will serve as a trigger?

Yes, I have recently talked to three large companies about the changes in legislation for social security payments. These companies are job creators.Serbiais our competitor. Despite all the benefits we offer, and the low budget deficit, we need something more to convince investors to invest inBulgaria. Telus International, the second biggest telecom operator inCanada, bought shares in a Bulgarian company. They plan to increase the number of people employed by 200 to 300 per cent. There are 700 people employed now. Sutherland Global Services (India) plan to increase the number of people by 200 per cent by employing people in open offices in Rousse,Varna, Bourgas and Plovdiv.

Evelina Stoyanova: Wouldn’t returning social securities create preferential treatment for big investors?

It is not the only benefit. There is also the right to purchase land at lower tender procedures. It is a policy that every government in the EU has. For everyone who invests more than two million euro.

Margarita Vateva: Thank you for the interesting information. We are trying to attract investors. On low electricity prices: what are your expectations for the development of the electricity prices? The big companies cannot sign contracts for periods longer than one year. Do you plan changes in the industry sector?

It started back in 2009 with the renewable energy projects connected to the grid. The government was not smart enough. As a result of the fast developments in technology, costs have been reduced from 700 to 160. Companies with smarter policy have decided not to be very active. They have to reach the 2020 goal. In 2012, it comes to the highest possible price. We need better legislation. In 2008, we said that price will grow. In 2015, the price of renewables will not increase the price of electricity. We do not have pressure to increase the price of electricity. We have decreased the target, solar and wind mainly, and this has cooled off the market. Our grid is congested at the moment.  We are doing everything possible not to increase the price of electricity.

There is a 120 million leva investment programme available for changing the boilers, to increase the efficiency of the pipelines. We would get 104 MW of electricity. More of installed capacity from the same amount of coal. 104 MW equals 80 million leva in one year. All the measures will allow the state-owned power producers to be more competitive.

Energy efficiency on the production side gives huge results. The CO2 quota: we need to be able to offset the shocks. From 2012, average voltage companies are on the free market for electricity. No more regulated market for electricity inBulgaria. We had a tender in June 2012: 40 MW offering for two years. We sold only 13 MW. On the regulated market: what would be the quota for the different producers.

Konstantin Stamenov: When do we expect the energy exchange?

It is a testing period. Balancing groups are a prerequisite. We started the tender for the clearing house. At the end of 2012, the energy exchange market will start working officially.

Pola Naydenova: On the Russe-Giurgiu interconnector, has construction begun? The quality of Romanian gas is an issue. There is no gas metering station to certify the quality of the gas.

The interconnector project is ongoing. We have constructed two km of the total of 13km on the Bulgarian side. The tender for the delivery of pipes has been challenged in the Supreme Court. However, the company has guaranteed to deliver the pipes before November 20 2012. The deadline is May 2013. Despite the delay in the delivery of the pipes, I am confident that we can finish with the construction by March 2013 and have gas. Without a compressor station on the Romanian side, we will get 0.5 bcm/year.

The interconnector will guarantee additional quantities fromRomania. How can we expect alternative quantities? Romania has 50 per cent domestic production and storage capacities. The interconnector will not create diversification. It will add security of supply, despite the small quantities. Romania is three years ahead with its Black Sea projects. Deep Black Sea exploration is already being done in Romania.

We will build the compressor on our side. Although the quality of this gas is lower compared to the Gazprom gas, it is still gas we are burning.

UK ambassador Jonathan Allen:  To cut short the gas war, I was interested by the regulatory burden. You were kind to say some words about the UK. In the last years, we have addressed this with companies. Could you say a bit more about what you are doing? There are 20 measures on local as well as national level.

Let me give you an example: if a company participates in a tender procedure, it will be checked whether it is on the electronic register. We cut out the legislative requirements for papers to be provided. In tourism: if you apply for categorisation, in order to reduce the number of visits to administration as much as possible, documents are submitted electronically. You have to come once, to collect your certificate. Time is crucial for companies.

In the bigger picture, it is the e-government issue. You get services provided by administration by your ID. The first phase is expected to start in March-April 2013. There will be 5.000 electronic cards available to use the electronic services. It is a project of the Ministry of Transport, Information Technology and Communications and they plan to distribute them randomly. We want 80 per cent of these cards to be provided to the business sector in Bulgaria: the one which uses the services of the government more often.

Olga Stoichkova: How are you going to decide which companies will use the electronic cards?

They will be randomly distributed to SMEs. There will not be enough. We should have guidelines and clear selection criteria. If they are pilot cards, we need procedures for them.

Wayne Diamond: I have a question about policy-making. The way Governments can be business-friendly. Red tape, the challenge to reduce bureaucracy. The policy-making process in terms of the regulatory business assessment. What is the cost on enterprises? A question not on implementation, but what steps you are taking to improve the policy-making process?

We have a cost-benefit analysis. During my term as an MP, MEET submitted new legislation on Renewable energy, which says “All the companies will have preliminary contracts for grid access, feed-in tariff”.  Then, I would ask: “How many projects with preliminary contracts do you have, and how many final contracts do you have?” We should investigate the question before we make decisions.

Another example is the social security project. It was prepared and published for public hearing without analysis. It is a large stimulus. What is the impact on budget? A company of 500 people, 200 leva salary, on the side of taxes and social security = 2.4 million leva for two years. During the first year, we would save the compensation for unemployment. It will have a positive impact for the next three years. The overall effect on the social security side is positive. On the tax side, we would get additionally five million leva in corporate tax.

Svetoslav Dimitrov: 1. Incentives for big investors, but in Bulgaria they are SMEs. 2. Changes in legislation: proactive effect on the law side. 3. Renewables: if we change the system of feed-in tariffs?

On SMEs, we cannot say that they will not be paying social security. They have 20 to 30 people employed. They do not need the incentive. Instead, we are trying to lower the administrative burden.

OP Competitiveness, 500 million leva contracts. Get them implemented as fast as we could. Increasing pensions will stimulate consumption. SMEs are dependent on local consumption.

On Renewables, I should not discuss the decision of the Regulator to impose access fees. As a policy: having thousands of RES projects connected to the grid, created additional expenses. This year this cannot happen. Someone has to pay the bill: the consumer, SMEs or the RES projects who created the expense. The bill has to be paid by those who created the expenses. We have to make sure, see what is the exact cost these projects create and adjust taxes next year. I had a meeting with 12 ambassadors on this topic. It hurts the investment climate because many other countries are experiencing the same problem (Spain,Czech,Germany. Having thought about it,Greeceis introducing changes).

Bill Drysdale: May I ask a different question: running big businesses and getting more big businesses to join the existing foreign investment companies. Part of the problem with Bulgaria is reputational image, and the perception of organised crime. Macedonia, Azerbaijan, Kazakhstan have moved CNN in and are getting extraordinary coverage. Most of the emphasis is on the things you are responsible for. Is there a budget for raising perception?

It is a historical matter of perception still exists inBulgaria. There are countries investing in image-making. We have a budget of six million leva for advertising. Financial Times will start working on such a project forBulgaria. FT conference inLondonon December 5 and 6 2012, BBCC has been invited to speak, as has Ambassador Allen.

Dan Berg: the Minister said many positive things, the desire to come and talk to us. You made a real example of two main topics of the day: energy and consultation. Too much RES, coming too fast. A good dialogue and we have to continue it. To get the right answer. Somebody has to cover the cost. Taxes generation to be spread over the system and create the dialogue.

George Ganchev: 2013 tourism and the Black Sea resorts increasing the worst possible image of Bulgaria.

Creating a different image for the country. The Black Sea with its 250 000 beds is becoming the major tourist attraction. We are not having the best commercial. There is a project for the creation and adoption of a quality sign of Bulgaria. It could be put to restaurants and hotels.Sunny Beach, if it continues to have night bars and cannot control what is happening; it will not receive the quality sign.

Bill Drysdale: It is small pockets of visiting tourists who get out of control and create a negative image. The quality standard is important.

It is a problem of communication with the media. It could be just one case throughout the night. Not a general problem, but isolated cases. We should keep the Bulgarian tourism industry protected. The terrorist attack in Bourgas was not reported very objectively.

Pola Naydenova: Buying Russian gas from intermediaries?

We are negotiating with Gazprom Export. Next contract will be with them only. We will give access to all companies. It will have a negative impact on Bulgargas. Companies will be given full access to end clients.

Bill Drysdale: we are proud to have Melrose as one of the biggest investors.

We are grateful toMelrosefor doing their investment for the benefit ofBulgaria. We support their participation. We cancelled the Silistar project because that independent company did not have the capacity and the financial resources to do the exploration.

Ivan Stancioff: I have an impression that there is rough competition on the subject of concessions.

The selection criteria for Khan Asparuh Block: it was the first time Melrose did not get the tender. In every criterion, the other offers were better.

Garry Levesley: NEC is insolvent. How is the government going to address the issue?

I will make a political statement: if it was not for Belene, NEC would not have had credits and there would be a billion leva in their bank accounts. We are experiencing financial problems. We are trying to deal with the problem of additional liquidity. BEH to decrease the severity of the problem. We would not solve it completely.

Alex Milanov: we have a clear picture of the grey economy, but which sectors is it coming from?

The grey economy is shrinking because of the policy of the Ministry of Finance for cash registers. The National Revenue Agency now keeps a better control over VAT reports. I am not sure what the largest area is. It used to be small retailers and stores. Cash registers monitor turnover in real time.

Evelina Stoyanova: To expand on the image problem of Bulgaria: Six million leva is petty cash for solving the image problem. Promoters of new projects will need to hear the opinion of investors in Bulgaria. Bureaucracy, corruption, inefficient judicial system. Will advertisement solve the issue? Are there other measures to introduce a level playing field for everybody?

Apart from the advertisement in the next six months, we will do a number of international investment forums in Moscow, Paris, San Francisco; international conferences and we are happy to have foreign investors in Bulgaria speak about the investment climate in the country; and three roundtables in Paris, New York and London until the end of 2012. Investors talking about their experience. For example, Sutherland Global Services talked about their experience in Bulgaria and it made a huge difference to the perception. It was a lot more convincing.

Evelina Stoyanova: Do you have specific stimuli for export-oriented investors? Get them to invest and secure export opportunities. We have big neighbours.

A large topic: OP Competitiveness to support any company, even the smallest investor oriented towards export. Some of the sectors are smart specialisation, energy efficiency and innovation, metal processing.

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