MAY – JUNE 2003

1
INVESTMENT OPPORTUNITIES IN BULGARIA
PAVEL EZEKIEV CHAIRMAN BULGARIAN FOREIGN
INVESTMENT AGENCY
MAY JUNE 2003
2
BFIAS ROLE WITHIN THE BULGARIAN GOVERNMENT
Parliament
Government
Judiciary
Council of Ministers
Ministry of Economy
Ministry of Finance
Other Ministries
BFIA

• Pavel Ezekiev, Chairman
• 6 regional / sectoral coverage teams
• Zornitza Taleva, Head of North America Coverage

FDI MARKETING AND PROJECT MANAGEMENT
3
OUR FOCUS TODAY

• The investment case for Bulgaria
• Sector reviews and selected opportunities
• IT
• Energy and Infrastructure
• Tourism
• Machine building and metal working
• Defense

4
WHY INVEST IN BULGARIA?

• Strategic location between Europe and Asia
• Highly skilled labor force at competitive cost
• Center of political and economic stability in
  Southeast Europe
• Substantial pre-EU discount for asset
  acquisition
• Among the lowest corporate and personal income
  tax levels
• NATO (2004) and EU (2007) membership

HIGH QUALITY, LOW-COST OUTSOURCING MARKET
5
U.S. INVESTMENTS IN BULGARIA
Entergy sold 69 of its stake in the Maritsa
East 3 project to Enel.
6
FDI in BULGARIA, 1995-2002, USD m
633
GREECE
621
GERMANY
540
ITALY
483
BELGIUM
445
AUSTRIA
305
USA
277
CYPRUS
252
NETHERLANDS
203
UK
201
RUSSIA
162
SWITZERLAND
130
FRANCE
125
TURKEY
115
SPAIN
77
CZECH
7
BULGARIA GETAWAY TO A MARKET OF 550 MILLION
PEOPLE

• FACT SHEET
• BULGARIA centered between Europe, the Middle
  East, Russia and Africa
• POPULATION 8 million
• LANGUAGES Bulgarian, English, Russian
• COLLEGE DEGREE 15
• GDP EUR 16 billion
• ECONOMY 75 private
• Free trade agreements with EU, EFTA, CEFTA,
  Macedonia, Turkey, Estonia, Lithuania, Israel
• SP CREDIT RATING BB
• GDP GROWTH 4.8
• INFLATION 3.8

8
OUTSTANDING HUMAN CAPITAL (1)
PERCENTAGE OF POPULATION HOLDING A HIGHER DEGREE
UK
USA
Turkey
Germany
Ireland
Czech
Portugal
Bulgaria
Greece
Sweden
Poland
Italy
Austria
France
Japan
Hungary
9
OUTSTANDING HUMAN CAPITAL (2)

• Bulgarian secondary education is among the best
  in the world
• ranked 5th in the world in sciences and 11th in
  mathematics
• (Source World Bank and The Economist
  rankings)
• Strong technical education - 41 universities, 45
  colleges, 3600 schools
• Bulgarians rank second in international IQ tests
• (Source MENSA International)
• Bulgarians are among the top university students
  world-wide
• - 2nd in the world in SAT scores
• More than 5,000 students graduating in computer
  science, more than 5,000 graduating in
  engineering sciences, more than 20,000 IT
  professionals employed in the IT sector

No 1 IN IT CERTIFIED PROFESSIONAL PER CAPITA IN
EMEA
10
INVESTMENT INCENTIVES POLICY

• Economic policy driven by business-minded
  professionals
• Business climate reforms 2001-2003
• removal of 20 of licensing, permit and
  registration regimes
• simplification of another 33 of licenses
• capital gains tax 0 interest gains tax 0
• VAT exemption for imports for investment projects
  over 5 m
• among the fastest bankruptcy and liquidation
  procedures
• new private equity fund with government anchor
  capital
• adoption of International Accounting Standards
• Corporate income tax rates
• high unemployment areas 0
• 2003 23.5
• 2004 20.0
• 2005 15.0
• Investment Incentives Law

11
RESULTS ACHIEVED HIGHLIGHTS
BULGARIAN STOCK EXCHANGE - SOFIA (SOFIX Index)
250
248.46
200
155
-29
150
100
50
0
04.23.01
10.23.00
10.23.01
04.23.02
10.23.02
05 20.03
Source CANSTAT, EUROSTAT, Bulgarian Stock
Exchange
12
MACROECONOMIC INDICATORS

• Economic growth 4.8, among the highest in
  Europe
• Inflation 3.8 in 2002, 1.5 between January
  April 2003
• Record gross capital formation 19.7 of GDP
• Budget deficit 0.7 of GDP, the lowest in the
  region
• Record high forex reserves EUR4.6bn
• Near record low external public debt USD8.3bn
• Unemployment 14.9, 3-year record low
• Improving current and trade account deficits to
  GDP

13
STEADY INFLOW OF GREENFIELD INVESTMENT
FDI IN BULGARIA (USD m, 1995-2003E)
1001
819
813
730E
636
620
458
256
211
Source Bulgarian Foreign Investment Agency KPMG
14
RECENT INVESTMENT DEALS
15
PRIVATE EQUITY PLAYERS IN BULGARIA
SEEF invests in 12 southeastern countries

16
OUR FOCUS TODAY

• The investment case for Bulgaria
• Sector reviews and selected opportunities
• IT
• Energy and Infrastructure
• Tourism
• Machine building and metal working
• Defense

17
IT SECTOR OVERVIEW

• The Silicon Valley of Eastern Europe - 35 years
  of IT experience
• Traditions in software, hardware,
  microelectronics and automation
• Highly qualified specialists with a combination
  of hardware and software skills
• Number one in IT certified specialists per capita
  in EMEA
• Number three in Europe in number of ICT
  specialists
• Strong growth of the Bulgarian IT sector
• 1,100 companies operating in the sphere of IT
• Rapidly growing number of Internet users (600,000
  in 2002)
• Excellent labor quality / labor cost ratio
• 0 VAT for software exports
• Quality Management Systems applied quality
  certificates ISO widely held

18
IT SECTOR GROWTH
1997-2002 Compounded Average Growth Rate - 17
(Source Brainbench, 2001)
19
IT MARKET VALUE AND PLAYERS
ICT MARKET VALUE (EURO m 1992-2003E)
1599
1478
1300
1055
805
Source CBN Pannoff Stoytcheff
20
IT SECTOR COMPETITIVE ADVANTAGES

• Quality personnel with software, hardware and
  foreign language skills
• Mature software development From low-cost
  development to high-quality complex solutions
• Excellent labor quality/labor cost ratio (average
  monthly salary of BGN 784/ or EUR 400)
• Long traditions in IT development
• Flexibility and adaptability of Bulgarian IT
  companies to market and client requirements

SALARY LEVELS FOR SOME IT JOBS (USD)
Source CBN Pannoff Stoytcheff
21
MOBILE PHONE MARKET
MOBILE SERVICES
22
ENERGY SECTOR OVERVIEW (1)

• Positioning of Bulgaria as a reliable base for
  the transit of oil, natural gas and electric
  power and as a regional dispatching cent?r
• Biggest exporter of electricity on the Balkans
  6 790 GWh
• Available electricity generation capacity - 10
  234 ?W
• Trend toward greater energy independence through
  development of local energy resources
• Investment in energy efficient technologies at
  generation and distribution level
• - cogeneration (Horizon Energy/ Sofia,
  Mitsubishi Heavy/ Sofia)
• - infrastructure and control systems (Energy 2 -
  EBRD/EIB, EUR 153m)

23
ENERGY SECTOR OVERVIEW (2)
ELECTRICITY PRODUCTION ON THE BALKANS
STRUCTURE OF ELECTRICITY GENERATION
Source Bulgarian Foreign Investment Agency
24
ENERGY SECTOR TRENDS

• Environmental protection (DeSOx systems, clean
  energy)
• Nuclear safety and a tender for a new NPP
• Phase-out of old NPP units 1-4 new investment in
  units 5-6
• Gradual opening and liberalization of the market
  free access to the transmission and
  distribution networks
• Power generation and distribution companies
  offered for sale
• Development of natural gas distribution networks
  concessions for 8 gas distribution regions

25
ENERGY MARKET PLANNED INVESTMENT US 2.5 5.8
BILLION
Electricity 1.7 3.4 Bn
Gas Supply 0.3 1.5 Bn
Heat Supply 220 M
Coal Mining 300 700 M

• Rehabilitation
• New capacities
• Transmission
• Distribution

• Current monopoly
• 2004 liberalization
• Distribution network

• CHP construction
• Transmission
• Distribution

• Modernization
• Stable supply

26
ENERGY INVESTMENT PROJECTS

• TPP Maritsa East 1 - EUR 1.056m
• NPP Belene USD 2bn
• Rehabilitation of TPP Rousse
• Flue-gas Desulphurization Plants to TPPs
• Hydro-Power Project Gorna Arda USD 220m
• Hydro Project Tsankov Kamak USD 80m
• Rehabilitation of HPP Orfei USD 16m
• Yadenitsa Dam and Hydrocomplex Construction
  Project
• USD 72m
• Development of Natural Gas Distribution Networks
• USD 0.3 1.5bn
• Development of Crude Oil and Natural Gas Transit
  Pipelines

27
INFRASTRUCTURE SECTOR OVERVIEW

• Bulgaria strategic geographic location at the
  center between the EU, Middle East, Russia, Minor
  Asia and Africa
• Crossed by transport corridors No 4, 7, 8 ,9 and
  10
• Infrastructure comprising more than 37,000 km
  road, including 416 km highways
• 6,500 km railways, more than 64 electrified
• Two main ports, servicing over 60 of foreign
  trade
• Five international airports

28
INVESTMENT IN INFRASTRUCTURE PROJECTS

• Sofia Airport Modernization Project EUR 111m
  for Lot B
• Danube Bridge II Construction Project EUR 190m
• Shipka Tunnel Construction Project USD 120m
• Plovdiv Svilengrad Railway Rehabilitation EUR
  350m
• Plovdiv Svilengrad Highway Construction Project
• Ljulin Highway Construction Project EUR 148m
• Sofia Nis Highway Construction Project
• Concessions for ports Burgas, Varna, Lom,
  Russe, Vidin
• Concessions for airports

29
OVERVIEW OF THE TOURISM SECTOR

• Well-positioned international tourist destination
• Rare combination of natural environment and
  climatic conditions for year-round tourism
• Established holiday destination for Germans,
  Scandinavians, British and East Europeans
• One of the few European destinations with strong
  2002 growth 2.992m tourists for 2002, an 8.6
  increase as compared to 2001
• Record revenues of USD 1.2bn in 2001 and USD
  1.3bn in 2002, accounting for 12-13 of GDP
• Wide range of products Beach/Recreation, Winter
  Sports, Spa/Health, Culture/Museum/Monasteries,
  Nature/Activity, Touring, Conference

30
TOURISM REVENUES 2001-2005E (USD m)
2001-2005 CAGR 11
31
INVESTMENT PROJECTS IN THE TOURISM SECTOR

• WINTER SKI RESORT PROJECTS
• Velingrad - USD 100m for the construction of a
  tourist complex - 60 km of ski run with average
  capacity for 8,000-9,000 skiers
• Bansko - new projects for USD 25m
• Pamporovo - USD 11m investments in
  infrastructure
• SEASIDE RESORT PROJECTS
• Pomorie resort USD 60m - Holland vacation
  village type condominium with a golf course
• Arapya Vacation Village - construction of
  Arapya vacation village in the southern part of
  the Black Sea coast
• Carevo Vacation Village- construction of a hotel
  complex
• CULTURAL AND BALNEOLOGICAL TOURISM
• Petrich - two projects for USD 100 - cultural
  tourism in Rupite and balneological and spa
  tourism in Marikostino

32
MACHINE BUILDING METAL WORKING INDUSTRY
OVERVIEW

• One of the oldest and traditional industrial
  branches
• Quality assurance systems of the series ISO 9000
  introduced in more than half of the main
  machine-building companies
• CE sign on the majority of the machines
  produced exported to the EU countries
• Over 90 of the production of the sector
  manufactured in some 250 main machine-building
  companies

33
Automotive Suppliers
Fasteners
Pistons,piston rings
Wheel covers,non-ferrous metalcastings
Castings,wheel covers
Car tyres
Car radiators,filtersand batteries
Forgings,chassis
Steeringmechanisms
Batteries, caraccessories
Driving axles,forgings,cogged wheels
Cogged wheels,castings
Steeringmechanisms
Engines
Generators,starters,auto bulbs
Steel, tires,rubber products,electronics,
coggedwheels
Castings
Cast-ironcastings
Bearings
Section steel
Section steel
Fasteners, electronics
Forgings
Batteries
34
KEY AUTO SUPPLIERS (1)
35
KEY AUTO SUPPLIERS (2)
36
DEFENSE INDUSTRY OVERVIEW

• Over 110 years of traditions in defense-related
  armament and equipment manufacturing
• 25 defense manufacturers and 125 subcontracting
  companies
• Privatization of 18 out of 25 state defense
  companies
• Ongoing conversion towards civil production
• Re-engineering of the production capacities in
  compliance with NATO requirements and
  standardization documents
• Projected spending in excess of USD 1.5 bn
  through 2008, mainly with offset programs

37
SELECTED DEFENSE COMPANY CAPABILITIES
38
BULGARIAN FOREIGN INVESTMENT AGENCYAN AGENT OF
CHANGE IN TREATEMENT OF INVESTORS

• One-stop-shop institution for assisting large
  investors
• Spearheading marketing for Bulgaria
• One-on-one approach to investors
• Database for major investment projects
• Intermediary
• Bridge between government, foreign and domestic
  businesses
• Assist in contacts with the Bulgarian
  authorities, state institutions and business
  organizations
• Facilitate business partnerships

BULGARIAN FOREIGN INVES?MENT AGENCY 1000 SOFIA,
BULGARIA 31, AKSAKOV STR. TEL (359 2)
985-5500 FAX [phone] E-MAIL
FIA_at_BFIA.ORG WWW.BFIA.ORG
39
BFIA SECTOR COVERAGE AND CONTACTS

• Chairman
• Pavel Ezekiev 359 2 985-5505
  p.ezekiev_at_bfia.org
• Head of Financial Institutions Sector
• Zornitza Taleva 359 2 985-5537
  z.taleva_at_bfia.org
• Head of Energy Sector and CFO
• Atanas Traykov 359 2 985-5529
  a.traykov_at_bfia.org
• Head of Manufacturing Sector
• Ludmil Michailov 359 2 985-5551
  l.michailov_at_bfia.org
• Head of Consumer Sector
• Valentina Alexandrova 359 2 985-5531
  valentina_at_bfia.org
• Head of IT Sector and COO
• Vesselin Lalev 359 2
  985-5560 v.lalev_at_bfia.org
• Head of Tourism Real Estate Sector
• Philip Pashov 359 2 985-5552
  p.pashov_at_bfia.org