Bulgaria will be paying EUR 1 M per month to settle the debt for the Siemens Desiro electric trains it bought in 2005, it emerged after a meeting between Prime Minister Boyko Borisov and German Chancellor Angela Merkel.

The issue was on the agenda of a Bulgarian delegation that arrived Tuesday on a two-day visit in Berlin.

On Tuesday, Transport Minister Ivaylo Moskovski listed the three options for settling the debt to German bank KfW, among which were using the proceeds from the upcoming privatization of BDZ's Freight Services department, using the money BDZ would obtain under a loan agreement with the World Bank and a debt/equity swap, which he said was the least likely and yet most profitable scenario.

It became clear on Wednesday that Germany had not accepted the proposal for a debt-to-equity swap.

It was reported that by end-2012, when the government will have wrapped up the privatization of BDZ' Freight Services department, Bulgaria will be prepared to settle its entire debt of EUR 156 M to the KfW bank.

According to estimations of Bulgaria's Privatization Agency, as cited by Darik radio, BDZ's freight arm has tangible assets worth over BGN 300 M.

"I am sorry that the previous government did not pay the debt when it had a surplus of BGN 3 B but chose to take out a loan instead," Borisov said, commenting on BDZ' liabilities to the German bank.

"Now the time has come for us to pay back the debt and we shall pay it. We have no way of not paying it because the unlimited trust of Germany in Bulgaria would be marred. We cannot allow this to happen," Borisov declared.

"After the beginning of the structural changes at BDZ in end-2011, the company managed to pay EUR 1 M in overdue debts to KfW," Transport Minister Ivaylo Moskovski said after Wednesday's talks.

He explained that the money transfer had indicated Bulgaria's strong commitment and will to tackle the delayed payments.

Moskovski assured German Chancellor Angela Merkel and the East German economy committee that BDZ had developed a debt settlement program under which it would pay EUR 10 M by end-2012.

"The company very much relies on the revenues from the forthcoming privatization of its freight arm and much of it will go to paying the debt to KfW Bank Group," Moskovski stated.

He added that the decision on the loan from the World Bank was also due soon and the money would go to BDZ' rehabilitation.

BDZ risks losing the Siemens Desiro electric trains, or half of the fleet of modern passenger trains, unless it moves to settle the debt it owes to KfW for their purchase.

The loan, which was taken out in 2005 and has not been serviced since 2010, is partly guaranteed by the German government.