Brussels: Bulgarian Steel-maker Restructuring Failed

Business » INDUSTRY | December 16, 2009, Wednesday // 15:13
Bulgaria: Brussels: Bulgarian Steel-maker Restructuring Failed The European Commission says that Kremikovtzi has failed to carry out essential modernization and environmental investments originally foreseen. Photo by BGNES

The European Commission has found that the Bulgarian steel producer Kremikovtzi did not implement the business plan established for its restructuring, its spokesman announced.

The business plan was agreed by the Commission in 2006 on the basis of a special steel protocol to the Europe Agreement applicable to EU/Bulgaria relations prior to the country's accession in 2007.

According to the European Commission the company received about EUR 222 M restructuring aid between 1998 and 2005, but failed to modernise its infrastructure and to reduce its production costs.

The company went bankrupt in August 2008 and Bulgaria initiated the recovery of the aid plus interest in the context of the ongoing liquidation proceedings, spokesman Jonathan Tod said.

According to the European Commission restructuring aid for ailing steel producers is strictly prohibited within the EU.

However, in the context of pre-accession, candidate countries may be given the opportunity to grant aid in order to restructure their steel industries once, before having to comply with the EU's regime for state aid to steelmakers.

The European Commission points out that it accepted to prolong the restructuring period until 2008.

To ensure that the Protocol 2 to the Europe Agreement is respected, the EU and Bulgaria agreed on specific rules for the monitoring of the implementation progress. In this context, Bulgaria committed to recover the aid from Kremikovtzi if needed.

In line with its monitoring obligations under this agreement, the Commission has now concluded that Kremikovtzi failed to implement the business plan in a satisfactory way

"Essential modernisation and environmental investments originally foreseen were not carried out," says the commission. "In addition, the company failed to reduce production costs and continuously suffered from a lack of working capital for endogenous reasons that heavily affected its operational business. As a result, the company went bankrupt in August 2008."

According to the Commission statement Bulgaria has already initiated the recovery of the aid of EUR 222 M plus interests, in the context of the current liquidation proceedings.

The sprawling communist-era behemoth near Sofia was declared insolvent in August last year and has suffered huge loss of production.

Workers have yet to receive BGN 56 M in unpaid salaries. Some 3 000 employees have been dismissed or have left the company, with some 3 170 staff still on the books.

In their latest protests last month hundreds of workers called on state-owned gas provider Bulgargaz and state power utility NEK, two of the major creditors in the plant, to become majority owners, but the proposal met vehement opposition from the government.

Key Bulgarian ministers have made it clear that bankrupt steel-making giant Kremikovtzi would most likely be liquidated, since 80% of Kremikovtzi’s creditors have disapproved the action plan to save the steel-maker, presented by the administrator.

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Tags: Kremikovtzi, steel-maker, steel mill, European Commission, EC

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