Банкеръ Weekly

Briefs

WORLD BANK FINANCES BULGARIAN FERROUS METALLURGY

The Greek company Viohalko has signed this week an agreement with the International Finance Corporation (IFC) - a structure within the World Bank - for the release of an EUR18.5MN credit. The company will get the same amount from Biochim Commercial Bank. The funds are earmarked for implementation of Viohalko's investment programme for its main enterprises in Bulgaria - Stomana Industry, Sofia Med and Steelmet. The programme projects investments of EUR88MN in Sofia Med alone. Two thirds of them have already been made. As a result a new production line will be launched in the beginning of 2004. It will increase the capacity of the metallurgy enterprise more than four times and the annual output will reach some 130,000-140,000 tons. Despite the increased production, only 5-6% of it will be sold on the domestic market. With the new line Sofia Med will launch the manufacture of copper foil, which is produced in just a few countries. Sofia Med was founded in 2000 by Viohalko's subsidiary Halkor, which purchased some of the assets of the Gara Iskar-based Non-ferrous Metals Processing Plant. According to Viohalko's representative for Bulgaria Anton Petrov, the investment has been delayed due to legal arguments about the initial date of the insolvency of the enterprise of Gara Iskar. Had the magistrates ruled that the plant went bankrupt before some of its assets were bought by the Greek company, the deal would be nullified (as its managerial bodies would had been deprived of their rights). Finally, the legal dispute was solved on January 21, 2003. This cleared the way for the Greek company, which began to fulfill its investment progarmme, though with a one-year delay. Viohalko projects to launch a new production in Steelmet (near Sofia) as well. BGN30MN has been invested in it so far and another EUR18MN is to be invested within a year and a half. The new line will raise the annual output of shaped aluminium to 15,000 tons. The production cycle will be closed by the line for continuous molding of aluminium. Presently, the ownership of the enterprise is evenly distributed between: Euromerchant Balkan Fund (managed by Global Finance), Etem and Steelmet. The latter two companies are part of Viohalko's structures. Etem will buy out the fund's share next year when the term elapses, in which the Greek company may use that right, stipulated in the firm's articles of association. Euromerchant Balkan Fund has a fixed term of existence, expriring in 2004. Steelmet exports 70% of its output and the company's Bulgarian clients buy 30% of it. In spite of that the company's market share in Bulgaria is about 50 per cent. Our aim is to gain 60-70% of the domestic market, Mr. Petrov noted. The Shoumen-based Alkomet is the only Bulgarian competitor of Steelmet. We may achieve even better performance if illegal imports are limited, Viohalko's representative told the BANKER weekly. According to him, no VAT is paid for a large part of the import. Moreover, the Bulgarian market is very small and when it doesn't get the necessary protection from the State it repulses foreign investors. The entire domestic market demand is around 6,000-7,000 tons of aluminium window and door frames, while Steelmet's output alone will reach 15,000 tons. Turkish companies are its main competitors.Another source of unfair competition is non-payment of insurance contributions on the part of employers. Thus, by reducing the expenses they cut down the product's prime cost and its price, respectively. According to Mr. Petrov, this is most frequently done by trade companies. They often move their locations while producers cannot afford that, Mr. Petrov points out. Data about grey economy on the metals market are fluctuating. They vary from 20% to 50-60 per cent. Its real share according to participants in the market is around 30 per cent.

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