Category: Bulgaria

Even with elections coming up soon for Bulgaria, there are still plenty of interesting topics to report on, including a vibrant deal market and an active energy sector, according to CMS Partner Elitsa Ivanova.

“Earlier this year, the Central Bank of Bulgaria revised its forecasts of GDP growth downwards,” Ivanova begins. “This aligns with all the other European countries, following rising inflation levels, disrupted supply chains, rising commodities prices, and a looming energy crisis,” she says. Additionally, Ivanova reports “political uncertainties which weigh heavily on the economic outlook.”

With elections set for October and no parliament currently in place, Bulgarian legislative efforts are standing still. “The implementation of the Preventive Restructurings Framework Directive is one of the items on the top of the agenda. We all believe that legislation seeking to harmonize Bulgarian law with the EU in this regard will be prioritized by the new parliament and government alike,” Ivanova reports.

Against this “rather grim backdrop,” as Ivanova puts it, there is yet room for “(cautious) optimism. The deal market has held up impressively well, with the most active sectors being those that stand to develop even further in the future – IT, technology, energy, and renewables,” she reports. Specifically, for the energy sector, Ivanova reports “high levels of interest and activity that only stand to be furthered by the green deal and net-zero-waste targets that companies set for themselves. There is a lot of promise and opportunity in the sector, especially with ESG becoming a more familiar topic for businesses on all levels,” she explains. “Clients of all sizes are starting to consider investing in obtaining the necessary knowledge and expertise when it comes to ESG. On the flip side, however, there has been more talk of greenwashing as well, so caution is advised,” Ivanova adds. 

On the whole, Ivanova reports that “the hesitancy that was present, when it came to making budget predictions at the start of the year, has not dissuaded but, as we enter the final quarter, the pipeline remains strong.” She adds that she feels things will continue to improve as Bulgaria marches onwards on the path toward the Eurozone. “Of course, the current political climate is stalling this progress somewhat, but I believe we are still on track to join the Euro in 2024.”

Finally, Ivanova shares her belief that 2023 will “show a fairly resilient deal market. There will be slowing down, in terms of activity, but the levels will likely remain fairly strong.” She adds that “for financing, the reality is that interest rates will be rising and the cost of financing will increase, but companies with strong balance sheets will be able to soak this and keep on operating in the same way as before.” In conclusion, Ivanova adds that she believes “the trends for the new future will remain ESG, renewables, and the overarching digital transformation – so I expect good things to come.”

CMS has advised Vier Gas Transport on its successful participation in a tender for selecting a consultant for monitoring and control of the implementation of a commercial dispatcher center for the Interconnection Greece-Bulgaria project held by ICGB AD.

According to CMS, “the German holding company Vier Gas Transport was awarded the contract upon the final decision of the contracting authority, ICGB AD, published on August 29, 2022. The IGB project is of key importance for the energy security of Bulgaria and is widely considered a number one priority for the energy development of the country in the coming years. Under the winning proposal, Vier Gas Transport GmbH will lead the execution of the project and will be supported by the Swiss Enerimpulse SA as well as by German e-loops GmbH.”

In 2021, CMS also advised Vier Gas Transport on its successful bid to become a technical consultant on the very same project (as reported by CEE Legal Matters on March 25, 2021).

CMS’ team was led by Managing Partner Kostadin Sirleshtov and included Associate Diyan Georgiev.

Imagine receiving a letter that your real estate located in Bulgaria will, in fact, “change” its location within the neighborhood. This can come up as a shock to any international investor in Bulgaria. Such companies might wish to finance certain entrepreneurial construction activity in Bulgaria, and therefore, acquire one or more plots of land. This sort of legal conundrum is indeed possible in Bulgaria and this article will look into its intricacies.

Thus, the main purpose of this article is to acquaint you with the legal nature of development plans under Art. 16 of the Bulgarian Spatial Development Act, hereinafter referred to as SPA. In order to be able to rationalize this process, it is necessary to familiarize ourselves generally with the historical background of this legal phenomenon.

Collectivization in Bulgaria was a campaign in the years 1944 to 1959, led by the totalitarian communist regime in Bulgaria to seize agricultural property from individuals and hand it over to state-controlled Labor Cooperative Farms. After the fall of the communist regime in Bulgaria, numerous restitution laws were adopted, which regulated the restoration of the property of the successors of these individuals, whose properties were expropriated. In the process of restitution, it became clear that not all properties could be restored within their actual boundaries. Therefore, a need for a legislative solution arose to prevent “overlapping” on properties or other violations of property rights of the owners to whom land properties have been restored. Art. 16 of SPA seeks to provide the solution in question.

The detailed development plan under Art. 16 of SPA is relevant to territories with unregulated land properties, as well as to territories with unapplied first regulation according to a previous development plan. The plans under Art. 16 SPA are considered implemented in relation to the regulation with the entry into force of the administrative act upon its approval. The legal effect of the plan occurs as of the date of its entry into force – from this date, the ownership is transformed, with the municipality/state acquiring the right of ownership over the parts of properties intended for public ownership and private entities acquiring the right of ownership over the regulated land properties. The plan under Art. 16 excludes the conduct of a special expropriation procedure under SPA, respectively. For the acquisition of ownership of each regulated land plot, the mayor of the municipality issues an order with a precise individualization of the property. The order for the individualization of the newly formed regulated land plot has the legal effect of a title of ownership that is subject to entry into the property register. In the presence of an effective detailed development plan under Art. 16 of SPA, which has an immediate rem-legal alienation effect and transforms the right of ownership, persons cannot legitimize themselves as owners without an individualization order. The area of ​​the newly formed regulated properties, their specific designation, the character, and the method of their development are determined by the detailed development plan itself.

Practically, the municipality determines an “equivalent” regulated property, taking into consideration the location of the properties in the locality but not their exact boundaries. When the property falls into different development zones, the newly formed regulated plot is provided in the zone in which it had its predominant location. The regulated properties have a market value not less than the market value of the properties before their regulation, which is secured by a decision of a specially assigned commission. The decision of the commission is served to the interested persons together with the draft for a detailed development plan and can be appealed in the proceedings for the appeal of the act for approval of the detailed development plan.

Upon explicit request by the owners, landed properties owned by the same persons may be united into one newly formed regulated property, as well as one plot may be divided into two or more newly formed regulated plots. A co-owned regulated property may be formed for two or more landed properties owned by different persons, based on a common application of the owners with notarized signatures, which determines the ideal shares of the co-owners, which are specified in the order. The municipality administration drafts an official detailed development plan for the neighborhood (locality). Property owners are obliged to transfer no more than 25% of the area of ​​their plots to the municipality for the construction of social infrastructure objects – landscaping, streets, and technical infrastructure networks for the benefit of the community. New regulated properties are created. For their acquisition, the mayor of the municipality issues an order with exact individualization of the property. When there is no first regulation applied to the territories, a street regulation plan can be created to appoint the location of streets.

A copy of the effective plan is provided to the Agency for Geodesy, Cartography, and Cadastre – for ex officio entry the cadastre. Practically, the municipalities seldom register the new plots in the Property Register ex officio, mainly due to workload, and thus, it is in the owners’ best interest to do so themselves. Any encumbrances, imposed on the properties before this procedure are completely transferred to the newly created regulated plots ex lege. The approved cadastral map has only a certifying (declarative) and not a constitutive effect. It does not create, amend or terminate rights and obligations.

The advantage of the plans Art. 16 SPA is that the municipality officially brings the plots into regulation and thus increases their market value. There are some disadvantages, however, for example:

• Practical inability to provide the necessary infrastructure using the reduction with 25% of the areas;
• occurrence of a conflict of interest with the neighbors;
• for some territories, more than one applied regulation occurs;
• if the owners object to the plan, as is their administrative right, of course, it may not take effect for years.

In conclusion, we can summarize that the main purpose of ​​Art. 16 of SPA is to legalize the “exchange” of properties between the owners and the municipality, but not in the form of expropriation. Thus, the municipality acquires the necessary area for public benefit by the lawful reduction of the area of ​​private properties, while the owners obtain stability and security regarding undisturbed use of their property.

By Ivelina Atanasova, Head of Real Estate & Construction, and Olga Shopova, Associate, PONTES 

Kinstellar has advised 52 Entertainment on the acquisition of Bulgarian game developer Casualino. Tzvetkova & Partners advised Casualino on the sale.

52 Entertainment is a France-headquartered e-gaming company. 

According to Kinstellar, “the purchase of Causalino, a prolific creator of live games and highly popular brands, will help 52 Entertainment to continue its contribution to shaping the future of mobile and web gaming. HLD-backed 52 Entertainment is scaling its operations to create new genre-defining top-grossing games for millions of new players.”

Kinstellar’s team was led by Partner Antonia Mavrova and Counsel Atanas Mihaylov and included Managing Associate Georgi Kanev and Senior Associates Yasen Nikolov and Anita Borisova.

Tzvetkova & Partners’ team included Partners Elena Dobreva and Stefan Tzvetkov and Senior Associate Martin Dimitrov.

Djingov, Gouginski, Kyutchukov & Velichkov has advised a consortium of investors led by Integral Venture Partners on the acquisition of a 76% stake in Sirma AI, trading as Ontotext. Popov, Arnaudov and Partners reportedly advised Sirma Group Holding, Sirma Solutions, and Ontotext on the sale.

Integral is a private equity and growth fund with a focus on Central and Eastern Europe. The other investors included PortfoLion Capital Partners, the venture capital and private equity arm of OTP Bank, and Carpathian Partners, a London-based technology-centric investment firm.

According to DGKV, “Ontotext is an enterprise software and semantic technology company best known for its GraphDB solution, offering a database engine for big knowledge graphs and a platform for text and data analytics. The acquisition includes growth capital investment and the partial buy-out of existing shareholders. The transaction’s value is over EUR 30 million.”

DGKV’s team included Partner Georgi Tzvetkov and Counsel Valentin Bojilov.

Editor’s Note: After this article was published, Popov, Arnaudov and Partners confirmed it had advised the sellers.

A combination of policy support for and decreasing investment costs in renewables, the nuclear energy revival, and major nearby discoveries of natural gas in the Black Sea leads to the unprecedented interest of investors in Bulgaria.

In the field of renewables, Bulgaria is among the leading destinations attracting investments these days, with a 20 gigawatt-peak pipeline dominated by wind and photovoltaic projects. The combination of the newly adopted EU Recovery and Resilience Plan for Bulgaria and the newly launched REPowerEU plan – to rapidly reduce dependence on Russian fossil fuels and fast forward the green transition – act as further catalysts of these investment plans, combined with the somewhat unique no tender (first come-first served) policy of the recent Bulgarian governments. Renowned foreign investors such as Solarian Holdings and Enery (acquiring operational solar projects), MET (acquiring operational wind projects), and many others have recently closed deals in Bulgaria and continue with their acquisition focus. Furthermore, greenfield wind and solar opportunities are attracting international attention and we are expecting some landmark deals to close in the coming months. Leading producers of equipment such as Chint/Astronergy, Risen, Huawei, and the like are particularly active in Bulgaria. The new amendments to Bulgarian legislation – allowing for up to five-megawatt own-need rooftop projects to be constructed without the necessity of long administrative procedures or construction permits – will allow for both households and industrial investors to undertake the rapid deployment of off-grid projects. Green hydrogen is also on the horizon, and the initial changes to legislation towards its support have entered into force.

In the field of nuclear energy, Bulgaria is well placed to provide a platform for investments in zero-carbon emissions technology providing base-load electricity in a sustainable manner. With ongoing projects for Unit 7 of the Kozloduy NPP and Units 1 and 2 of the Belene NPP, Bulgaria is expected to add three new nuclear units in the years following 2030. Furthermore, Bulgaria is also considered a key market for developers of Small Modular Reactors. Therefore, alongside established producers such as Westinghouse, EDF, and the like, we see a growing interest from SMR companies such as NuScale, Rolls-Royce, and Mitsubishi.

Recent discoveries of and policy support measures for natural gas in the Black Sea have led to an increased interest in energy investments in the upstream oil & gas field. Undoubtedly, the Sakarya field in the Turkish section of the Black Sea, with its over 500 billion cubic meters of proven reserves, led to companies like TotalEnergies and OMV Petrom recently extending their exploration rights to the Han Asparih block with the Bulgarian government. It is expected that, in coordination with the EU Commission, the new Bulgarian government will launch two new tenders offshore Bulgaria, which are expected to attract major investors following the unlocked potential of the Romanian discoveries. Furthermore, the Vratsa East block in Bulgaria is the largest onshore oil & gas block in Europe and provides an additional hope for indigenous production. Bulgaria recently introduced the requirement of licenses for gas traders and these procedures have been streamlined by the independent Energy and Water Regulatory Commission.

The interconnectivity of both the electricity and natural gas networks between Bulgaria and its neighboring countries will also keep both Transmission System Operators (TSO) from the region and investors busy in the coming years. Particularly in the context of the ongoing war in Ukraine and the deployment of more renewables, the importance of interconnectivity and the security of natural gas and electricity supplies is reaching unprecedented levels. Both through EU funding (Projects of Common interest and similar) and from TSOs’ own funds, these projects will continue with a special focus on the ICGB gas interconnector between Bulgaria and Greece (expecting its commercial start in 2022) and the new major electricity interconnectors with Greece and Romania.

The energy infrastructure will add new types of projects to the investors’ mix, such as battery storage, floating solar, agrivoltaics, SMRs, and geothermal – in parallel with the more traditional biomass, PV, and onshore wind investments. Bulgaria is also testing billion-sized challenging projects, such as offshore wind, following the 2020 EU strategy on the matter. Such projects need special legislative changes and experience within leading jurisdictions, which specialized teams of lawyers are providing for the benefit of both the investors and the host government.

By Kostadin Sirleshtov, Sofia Managing Partner and CEE Head of EPC, CMS

This Article was originally published in Issue 9.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

PPG Lawyers has successfully represented Copa Isi Sistemleri San. ve Tic. in unfair competition proceedings before the Bulgarian Competition Protection Commission and the Supreme Administrative Court of Bulgaria.

Copa is a Turkish steel panel radiator producer and distributor.

“The proceeding started before CPC upon a claim of the Bulgarian producer against several Turkish producers and several Bulgarian distributors of steel panel radiators for selling large quantities of the products in the internal market at prices under their prime cost,” a PPG Lawyers release stated. “CPC concluded that Copa did not infringe the Bulgarian Competition Protection Act. However, the CPC decision was appealed before the court and recently confirmed by the Supreme Administrative Court as a final cassation instance.”

The PPG Lawyers team was led by Partner Mariya Papazova.

Gugushev & Partners has advised Helios Energy Invest on its EUR 65 million acquisition of Helios Projects from H1 Venture Swiss Holding. Djingov Gouginski Kyutchukov & Velichkov advised the seller. Spasov & Bratanov advised China Development Bank as the project finance lender.

The transaction was financed by UniCredit Bulbank and was subject to clearance by the Commission for Protection of Competition and the Energy and Water Regulatory Commission.

Helios Projects is a photovoltaic company in Bulgaria that owns a solar park with a capacity of 50 megawatts-hour.

According to Gugushev & Partners, “the transaction, representing the sale of a foreign asset by a Chinese company in an open bankruptcy proceeding, was supervised by the bankruptcy trustee and the bankruptcy court in China.”

The Gugushev & Partners team was led by Managing Partner Stefan Gugushev and included Senior Partner Dimitrinka Metodieva, Partner Kostadinka Deleva, and Consultant Mihaela Dimitrova.

The DGKV team was led by Partner Milan Pandev and Senior Associate Krassimir Stephanov.

The Spasov & Bratanov team included Partner Vassil Hadjov and Associate Vladimir Tashev.

Tokushev & Partners has advised public listed company Sofia Commerce Pawn Shops on increasing its capital with own funds in the amount of BGN 7.12 million.

According to Tokushev & Partners, the procedure involved the “convening and holding of a general meeting, on which the decision to increase the capital was adopted” and a “subsequent reflection of the new amount of capital [with] the commercial register, Central Depository, Financial Supervision Commission, and the Bulgarian Stock Exchange.”

“As of August 01, 2022, the subsequent share issue of the company, with ticker SCOM, was admitted to trading on the ‘Standard’ segment of the BSE Main Market, and each shareholder received three new shares for each share owned,” the firm announced. 

Tokushev & Partners’ team included Partner Boris Teknedzhiev and Attorney Maria Mitkova.

CMS has successfully advised Shell Energy Europe on obtaining a license for trading natural gas in Bulgaria.

According to CMS, “the licensing procedure started early this year and was completed in due time irrespective of the gas market disruption and obstacles that the Bulgarian regulator was facing.”

Shell Energy Europe specializes in the energy supply business and energy commodities trading, including gas, power, and environmental products.

“Having such a major gas trader on the Bulgarian gas market has caught the attention of the Bulgarian decision-makers and it provides optimism for the upcoming challenging periods as well as the actual potential for diversification of the gas market players,” the firm announced.

The CMS team was led by Managing Partner Kostadin Sirleshtov and included Senior Associates Denitsa Dudevska and Alexander Rangelov.