Bulgaria has less than three months before it joins the European Union in January to restructure several of its state-owned firms that dominate key sectors like energy, gas and tobacco, in order to allow free competition and comply with market rules in the bloc. The government says the restructuring seeks to secure prerequisites for regional and European expansion of the healthy state-owned firms without corruption and with better care from the state.

Following are key facts about the major firms that Bulgaria is restructuring:

NETC

The Bulgarian power grid operator NETC, 100% owned by the government, should split into two companies by the end of 2006 in order to secure non-discriminatory access to the electricity network and avoid conflicts of interests in the country's liberalised energy market. NETC is restructured under directive 2003/54 of the European Commission. The company will set up a 100%-owned subsidiary, called Electro-Energy System Operator (EESO), which will be independent in terms of management and accounting. EESO will operate the country's electrical system, manage the balance market, exploit and maintain the transmission network, which will remain owned by NETC.

NETC will remain in charge of public supplies, hydro power plants generation and electricity trader. It will also buy out the electricity of coal-fired Maritsa East I, II and III plants with combined capacity of about 2,800 megawatts plus all electricity generated by renewables under long-term contracts.

NETC is currently developing the financial models for accounting and forecasts for the separate firms. About ten private electricity traders have received electricity trading permits since Bulgaria opened its electricity sector for domestic competition in September 2004, but few of them operate, awaiting EU market rules in the country as of January 1. Corporate clients in Bulgaria are eligible to negotiate their power supplies directly with suppliers if they consume at least 20,000 megawatthours a year. The 13 eligible customers bought little more than two million MWh between September 2004 and September 2005, according to data of NETC.

NETC is expected to play a major role in the electricity sales to eligible customers next year. The power company had a pre-tax profit of some 60 million levs ($36.2 million/30.6 million euro) for 2005, up from 35 million levs the previous last year.

CHALLENGES

The state energy regulator SEWRC has yet to adopt rules for management of the electricity system and for measuring the used electricity. The Council of Ministers has to adopt a law regulating the electricity prices by the end of November in order to enable the regulator to set prices as of January 1, 2007.

By the end of November, NETC should also submit to SEWRC regulations for priority supply of the domestic market and new contracts for access to the energy system, for buyout, transmission and maintenance, cold reserves, trade of electricity and data exchange between EESO and NETC.

BULGARGAZ

Bulgaria is trying to separate the transmission unit of its vertically integrated gas company Bulgargaz at least by legal statute and administration under directive 2003/55 of the EC. The Bulgarian gas distribution and gas storage sectors have been opened for domestic competition since 2004.

Bulgargaz will create a holding structure comprising:

- Bulgartransgaz - combined operator, which controls transmission, transit and storage of gas, as well as operator of the gas distribution system;

- Bulgargaz EAD - public services, continues to serve existing contracts for delivery and transit of gas, contracting deliveries to gas distribution firms, marketing analyses of the market, pricing policy;

- Bulgartel - optic cable network, telecommunication services,

The holding company aims at four major directions:

- to secure that the state policy is implemented in all the units;

- collecting data and analysing tendencies, new resources, capacities;

- analytical unit - control over the financial performance of all units without interfering in their management;

- big international projects for which no unit alone has capacity to undertake.

Bulgargaz claims its has completed the technical aspects of its restructuring and highlighted that its nine-month financial reports would be divided for each of the units. However, the new structure has to be ultimately approved by the Economy Ministry and legalised with a decision by Bulgarian court to complete the restructuring.

Bulgaria now imports 85% of the gas it consumes from Russia. The rest comes from an offshore field in the Black Sea.

One of the key advantages of Bulgargaz's restructuring is that it will be able to diversify its gas supplies to avoid dependency on Russian gas, experts say.

Gas consumption in Bulgaria rose by 11.08% to 3.228 billion cubic metres in 2005 as Bulgaria's economic growth gained momentum. Bulgargaz had a 128-million lev pre-tax profit in 2005, down by 32 million levs from the previous year, mainly due to the rise in international gas prices and caps on domestic retail prices.

BULGARTABAK

Bulgaria's tobacco group Bulgartabak, which controls 95% of the local cigarette market, comprises 18 subsidiaries in Bulgaria and several inoperative units abroad. Its restructuring plan calls for the sale of most of its unattractive tobacco processing companies, keeping the profit making cigarette makers Sofia BT, Blagoevgrad BT, Plovdiv BT and Slantse Stara Zagora BT and tobacco processing company Pleven BT. Bulgaria has made several unsuccessful attempts to sell Bulgartabak since 2001, either as a whole group or in parts. Earlier this month the group sold its majority stake in packaging company Yuri Gagarin BT on the Bulgarian Stock Exchange to Sofia-based trade firm Baranko EOOD. Bulgartabak is about to decide on the sale of other two subsidiaries, Pazardzhik BT and Dupnitsa-BT, on the bourse by the end of 2006.

However, government-appointed consultants are expected to advise the cabinet by March 2007 how to proceed with Bulgartabak's privatisation and in the final analysis on the way the it could be sold. Bulgartabak is preparing for the liberalisation of the market through the development of own distribution network. It also seeks to cut costs to remain competitive. A pack of Bulgartabak's most popular cigarettes Victory is currently sold at 2.6 levs, compared to 4.5 levs for Marlboro, but the prices of international brands are expected to decrease as soon as Bulgaria joins the EU, because tobacco majors will launch direct sales in the country.

Bulgartabak also plans mass lay-offs in a move to boost efficiency and competitiveness of its products, which will help it keep its market share. Job cuts will affect the biggest local cigarette factory, Blagoevgrad BT. Blagoevgrad BT employs 1,250 out of the group's total workforce of around 2,700. The holding company, Bulgartabak Holding, whose revenue comes mainly from royalties and fees for cigarette brands, raised its unconsolidated net-profit for the nine months by 30% to 17.3 million levs. The four biggest cigarette factories of Bulgartabak nearly halved their profits in the first nine months of this year due to falling sales volumes and a rise in excise duty.