Банкеръ Weekly

Briefs

KREMIKOVTSI IS UNDER SIEGE

The programme for restructuring of the steel-making industry, which is an important part of the Competition chapter in Bulgaria's pre-accession negotiations with the Euroepan Union (EU), projects a considerable limitation of Kremikovtsi's production. The programme is still under draft by experts, after which it will be moved to the Government for approval.The programme includes a plan for the iron and steel works' viability. It is necessary as Kremikovtsi has received financial assistance of about BGN320MN from the State. A little after its privatisation in 1999 the State allocated it a certain amount for repayment of a part of its debt and has also written off some of its ZUNK liabilities. Such subsizing is admissible under Protocol 2 of the European Agreement for Association that will be valid till the year 2006. Under it, however, an enterprise that has received financial assistance from the State, should cut down its production capacities through an individual plan for viability. With technical and financial aid from the European Commission (EC) such a plan for Kremikovtsi was worked out and approved by Brussels on September 24, 2003. The EC chose EuroStrategy Consultants Ltd. to assist in working out the plan. It projects decommissioning of one of the three blast furnaces of the enterprise in 2005, and of three facilities for the production of in end-2007, which means that Kremikovtsi will reduce its output by 33 per cent. The iron ans steel works will start implementing its indvidual plan when an overall programme for restructuring of the entire branch is approved. According to inofficial sources, Bulgaria is being forced to project in its programme for the development of steelmaking a reduction of domestic annual output of steel to 1.3 million tons. By 1997 this country was producing about 2.5 million tons of steel a year, and the volume of annual output has already dropped below 2 million tons. The above-mentioned limitation concerns the three enterprises in the sector - Stomana Industry (restructured with the help of Greek investments), the Debelt-based enterprise Promet Steel, and Kremikovtsi. People in the branch believe that this limitations will be lamost entirely born by Kremikovtsi and won't influence the othe two enterprises. The experience of the ten countries that will become full-fledged members of the EU in May 2004 shows that persistance may help to win over some compromise for this industry. Slovakia succeeded to agree financial aid for one of its producers, and the Czech Republic persuaded the EC not to impose restrictions on two companies. The conflict between the National State Railways (BDZ) and Kremikovtsi, which had calmed down after they signed a contract in August 2003, burst out again. As of September BDZ has stopped fulfilling its obligations, Kremikovtsi's Executive Director Valentin Zahariev claims. The state-owned railroad carrier has not given Kramikovtsi 1,100 wagons, by which the iron and steel works delayed transportation of 60,000 tons of output, and the enterprise has consequently lost BGN10MN. Kremikovtsi's attempt to get a licence for transportation and become independent of BDZ has failed. Mr. Zahariev admitted that the positive results, reported by Kremikovtsi in the first half of 2003 (partly due to the price increase of steel by more than 20%) have alerady begun to melt down. Bulgarian producers who export 68% of their output were affected by the increase of customs duties on the part of the EU and USA especially. Moreover, the illegal import of cheap metals on the background of the constantly shrinking domestic market is striking severe blows on the companies in teh branch. Just a week ago the Ministry of Economy refused to introduce protective duties for its output. But dumping imports are only one side of the unfair competition in teh sector. Other sides of it are non-issuance of invoices and differences in the ways sales are effected (e.g. sale in pieces and not by weight, which could make teh customet confused as to teh real price of the commodity he buys). Statistics are also indicative about the state of the branch. In 1998 steelmaking companies accounted for 20% of the total production in Bulgaria, while it was just 9.20% in the first nine months of 2003.

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