The Supreme Administrative Court has ruled in favor of the Bulgarian government with respect to state aid recognition claims for the country's formerly largest steel plant, the now bankrupt Kremikovtzi.

Bulgaria’s Ministry of Economy, Energy, and Tourism is demanding a total of BGN 700 M from the steel factory. The sum in total was provided to Kremikovtzi in the form of canceling debts to state-owned companies as part of a program for the restructuring and recovery of the mill.

As the management of Kremikovtzi failed to execute the recovery plant, the Bulgarian government is claiming back the BGN 700 M in question.

The ruling of the Supreme Administrative Court has in fact returned the case to the Sofia City Court, which had ruled against the claims of the state.

“The Bulgarian state now has once again the chance to become the largest creditor of the metallurgical plant Kremikovtzi,” said the Economy Ministry in its statement Wednesday.

If the BGN 700 M in question are not recognized as state aid as part of the plan for the restructuring and recovery of the Kremikovtzi steel mill, the Bulgarian government risks being fined by the European Commission for illegal state aid to a private company.

The Supreme Administrative Court has taken into account a letter of the European Commission from December 2009 which says that the money allocated by the government to what once was the largest Bulgarian steel plant, must be returned to the state because the plan for the reconstruction of the factory had not been implemented.

The judges from the Sofia City Court are now obliged to take into account the obligatory directions issued by the Supreme Administrative Court which say that the Bulgarian government has the right to claim back the aid it provided to Kremikovtzi.

Upon the privatization of Kremikovtzi back in 1999, the Bulgarian state canceled its debts to the state budget, and the state-owned companies – NEK (National Electric Company), railway carrier BDZ, and gas monopoly Bulgargaz – amounting to a total of BGN 700 M (BGN 431 M of principal debt, and a total interest of BGN 267 M). The major condition for the debt cancellation was the implementation of a recovery and restructuring plan.

If the Bulgarian court recognizes the claims of the government, Bulgaria will evade an infringement procedure of the European Commission for illegal state aid to a private company.

The largest recognized creditor of the former metallurgical giant are its debenture holders which claim a total of EUR 325 M. Their votes were the decisive factor in rejecting the recovery plan for Kremikovtzi and going for the sale and liquidation of its assets.

An auction for the sale of the assets of Kremikovtzi is scheduled for September 13, 2010, with a starting price of BGN 565.5 M.

The money raised through the auction will be used to first satisfy the claims of the recognized creditors – the debenture holders and the Indian company ArcelorMittal – to which Kremikovtzi owes a total of BGN 660 M.

Next in line are the expenditures for the declaration of bankruptcy of the plant (BGN 45 M), and the workers (BGN 2 M). The claims by public entities dating back to the period before the plant was declared bankrupt are to be satisfied next which is where the claims of the Bulgarian government for BGN 700 M will come in if they are recognized.

Kremikovtzi was declared unable to meet its debts in August 2008, with a starting date of December 31, 2005. In May 2010, it was declared insolvent and was slated for liquidation and sale of its assets.

Finmetals Group of Bulgarian tycoon Valentin Zahariev bought 71% of Kremikovtzi from the Bulgarian government in 1999 for a token USD 1 along with debts to the state and suppliers standing at USD 420 M. In mid-2005, Zahariev sold Finmetals Group to Pramod Mittal's Global Steel Holding Ltd.

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