Bulgaria's Port Varna CEO Defends Giving Up Crucial Japanese Loan
Bulgaria's Cabinet has been right to seek to turn down a large-scale Japanese low-interest loan for the expansion of the largest Bulgarian sea port Varna, according to the port CEO Danail Papazov.
"The loan for Port Varna from the Japan International Cooperation Agency was rejected because it is hard to implement," Papazov said speaking on private channel TV7.
At the end of February 2011, Bulgaria's Cabinet decided to start talks with Japan to annual a low-interest loan previously deemed to be of crucial importance for the development of Bulgarian Black Sea ports Varna and Burgas.
The loan of a total of JPY 37 B, or BGN 640 M, from the Japan Bank for International Cooperation/Japan International Cooperation Agency negotiated in 2008 was supposed to be used for building two new container terminals at Port Varna and Port Burgas on the Black Sea.
Papazov refuted criticism by Borislav Gutsanov, head of the Bulgarian Socialist Party in Varna and former head of the Varna City Council, who resigned in 2010 after he was arrested on corruption charges, that the government had frozen a vastly beneficial investment by deciding to give up the loan.
"This would have been an investment that is very hard to repay, and it could not have been done with the funds of Port Varna," Papazov declared.
Both he and Gutsanov, however, agreed that the location of Port Varna needs to be changed.
According to reports, Gutsanov is the most likely candidate for Mayor of Varna of the Bulgarian Socialist Party in the local elections in the fall of 2011, while Papazov stands chances of being selected by the ruling center-right party GERB as its candidate for mayor of the largest Bulgarian Black Sea city.
"The question about Port Varna is not whether it should be moved but where," Varna Mayor Kiril Yordanov in turn said on TV7.
Pavel Dimitrov, Varna MP from the ruling GERB party, announced that by the end of 2011 the government will start a procedure to grant Port Varna on concession.
Bulgaria's Borisov Cabinet has made it clear it decided to go for a termination of the Japanese loan for Port Varna because of the great hardship currently experienced by state company "Port Infrastructure" and Port Burgas Jsc with the repayment of a previous loan that Bulgaria got from Japan for the construction of a bulk cargo terminal.
The brand new terminal at Port Burgas there was constructed with a USD 188 M (BGN 250 M) loan from the Japan Bank for International Cooperation, signed in 1998.
The terminal, however, was completed only in 2009 at a time when the formerly largest Bulgarian steel-maker Kremikovtzi located near Sofia, which previously accounted for over 50% of the turnover of the Burgas port, went bankrupt and is now set for liquidation. This left the new Burgas terminal almost empty and unused, while the state and the port authority are paying off the loan, a situation that even led to protests on part of the port employees.
The situation is exacerbated by the fact that the new Port Burgas terminal was built for bulk cargoes and is not fit for containers and container trade of goods.
Bulgaria negotiated the second low-interest development loan from Japan in the last moment in 2008 as it is no longer eligible for Japanese development aid after becoming an EU member. The loan has a seven-year grace period, and will go into repayment in 2015; its interest rate is 1.4%.
Most of the BGN 640 M loan – or about BGN 330 M (USD 226 M) were supposed to be invested in the expansion of Port Varna with a new container terminal.
However, the construction of the new terminals in Varna and Burgas never started, and the generous BGN 640 M loan from Japan at present remains unused.
The dire situation with the repayment of the first loan for the ill-conceived bulk cargo terminal built with Japanese money at Port Burgas is the major justification of the Bulgarian government to want to opt out of the second more massive loan from JBIC/JICA.
An analysis of the Transport Ministry adopted by the Borisov Cabinet in March has shown that Port Burgas and the Port Infrastructure company have hardly any way of repaying the already existing loan. Port Burgas has negative financial results, and has borrowed heavily in order to pay its dues to JBIC/JICA, while the Port Infrastructure company is projected to have negative annual balances until 2020 when the first loan will be repaid.
The state Port Infrastructure company is supposed to cover BGN 191 M of the loan, while Port Burgas will repay BGN 55.9 M.
Thus, back in March the Borisov Cabinet assigned the Ministers of Finance, Foreign Affairs, and Transport with the task to handle the talks with the Japanese for the termination of the otherwise favorable second loan.
In a desperate attempt to find some kind of use for the ill-fated bulk cargoes terminal in Port Burgas, in early February 2011, the government started a procedure to grant it on a concession, with the major requirement for the candidates being that the future operator cover the installments under the 1998 loan. It is still unclear how many bidders the procedure will attract even though the Transport Ministry claims that there is a huge interest on part of foreign investors.
In June 2010, Bulgaria's then Transport Minister Alexander Tsvetkov and Deputy Transport Minister Ivaylo Mosovski (who succeeded Tsvetkov in May 2011) suggested that the project for the new port container terminal in Varna has to be reconsidered because of the fate of the project in the other major Bulgarian Black Sea Port of Burgas.
Back then, Tsvetkov announced that the present Bulgarian government also approached the Japan Bank for International Cooperation with a request to consider funding with a loan the rehabilitation and the expansion of the railway line between the Black Sea Port of Varna and the Danube River Port of Ruse; the Japanese, however, were "lukewarm" to this idea.
Tsvetkov did point out that the Bulgarian state budget could not afford to fund the improvement of the Varna-Ruse rail line, and it was also not eligible for funding from the EU funds under the current financial framework expiring in 2013.
Port Varna consists of two parts - Port Varna-East, which is on the Black Sea coast very close to the city downtown and the central Varna railway station, and Port Varna-West, located in the Beloslav Lake some 22 km inside the land, near the industrial town of Devnya. Statements by Varna officials such as ex City Council head Gutsanov have indicated that Port Varna-East should be moved to open up the area for business and hotel developments, a proposal highly criticized by some Bulgarian scholars.
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