Bulgaria shapes up for PPPs

Legislative changes later this year could make the country an interesting infrastructure investment proposition.

As infrastructure investors scour the globe for the next big opportunity, Bulgaria could be cropping up on their radars with increasing frequency.

Bulgaria is currently revising its legal framework with a view to, among other aims, enabling PPPs to take place in the country by early next year.

Renewables are flourishing in the country.

Richard Clegg

Once this takes place, a potentially fruitful pipeline of deals looks set to follow, spearheaded by a series of public buildings schemes. The first of these will likely be a prison PPP scheme with a capital value north of €100 million.

Following this, a number of road PPPs have been earmarked to take place further down the line, too.

Bulgaria’s rail network could also open up to private investment in the not-too-distant future. Rail infrastructure and rolling stock, both controlled by state-owned company BDZ, have not been modernised since Bulgaria’s independence from the Soviet Union in 1989. But German rail operator Deutsche Bahn, which last year acquired the freight company of neighbouring Romania, has recently shown an interest in the company.

“Bulgaria is shaping up to be a potentially attractive market for PPPs and private investment in infrastructure,” according to Richard Clegg, a partner at law firm Wolf Theiss who is based in Bulgarian capital Sofia and specialises in M&A, banking and project finance.

Since Bulgaria’s entry to the European Union in 2007, foreign investment has flowed increasingly into the country, allowing investors to sign contracts safe in the knowledge that they are covered by EU-wide investment treaties.

The fact that Bulgaria’s currency, the lev (BGN), is tied to the dollar adds to this stability.

In the energy sector, Bulgaria received a blow in October when German power group RWE pulled out of a project to develop a new nuclear power plant at Belene over funding issues. However, an anticipated government energy review could see the launch of a new tender to upgrade the country’s existing nuclear stations, if not build a brand new facility.

Furthermore, Bulgaria’s strategic location in south-eastern Europe, the junction between Greece and Turkey to the south and Western Europe to the North-West, means opportunities for the transmission of Russian oil and gas as well as storage facilities – perhaps with significant private sector participation – are numerous.

A number of renewables projects have sprung up in the country, too, which the Bulgarian government has supported with feed-in tariffs, although these are not guaranteed. The country has committed itself to produce 16 percent of its energy from renewable sources by 2020.

For example, German firm N-Vision Energy is planning on developing a €140 million, 100-megawatt wind farm in Bulgaria which should be operational by the end of 2011. This facility will be the second-largest wind farm in the country, behind the 156-megawatt farm built by US company AES earlier this year.

“Renewable projects are flourishing in the country, partly based on government tariffs and also on Bulgaria’s natural suitability for wind and solar schemes,” said Clegg.

If this flourishing continues, and if the launch of the PPP legislation goes to plan, investors would do well to keep a close eye on Bulgaria in the future.