0. Offset Policy in Bulgaria
Julian Nikolov
Director Economic Policy
Ministry of Economy, Energy and Tourism
7th - 8th February, Sheraton Hotel Balkan,
Sofia, Bulgaria
Ministry of Economy, Energy and Tourism

1. Contents Why Offsets Are Important for Bulgaria?
The Legal Framework for Offsets in Bulgaria
EU Policy on Defense Procurement and Offsets
Update on Offset Projects
Prospects for Offset in Bulgaria
Ministry of Economy, Energy and Tourism

2. Why Offsets Are Important for Bulgaria? (1/3)
Bulgaria has a well developed defense industry, which can further develop its capabilities through cooperation with large defense prime contractors
Ministry of Economy, Energy and Tourism

3. Why Offsets Are Important for Bulgaria? (2/3)
Bulgaria has managed to stabilize exports of weapons and ammunition in recent years
EUR m
148
150
145
Others 12
112 3 10 9 21
Small Arms 5
Large Caliber Weapons 21
116 5
104 88
Ammunition 48
2006
2007
2008
2009
Ministry of Economy, Energy and Tourism

4. Why Offsets Are Important for Bulgaria? (3/3)
Help maintain existing capabilities of the Bulgarian defense industry, which are essential for the national security
Assist in the acquisition of new technological capabilities through the integration of Bulgarian suppliers in the supply chain of large prime contractors
Develop the human resource qualifications necessary for the national security
Ministry of Economy, Energy and Tourism

5. Legal Framework for Offsets in Bulgaria (1/3)
Offsets in Bulgaria are regulated under the Ordinance on the Award of Special-Purpose Public Procurements, adopted by the Council of Ministers Decree 233/
The Ordinance was amended in June 2010 to introduce the requirements of the EDA Code of Conduct, which include the ceiling of 100% regarding the value of offsets relative to the value of the procurement contract
Ministry of Economy, Energy and Tourism

6. Legal Framework for Offsets in Bulgaria (2/3)
Offsets are mandatory for procurements related to defense and security amounting to more than EUR 5 million
Offset are required to be 100% of the value of the procurement
The Minister of Economy, Energy and Tourism signs offset agreements and chairs the Interagency Council on Special-Purpose Public Procurements under a Compensatory Arrangement (ICSPPUCA)
Ministry of Economy, Energy and Tourism

7. Legal Framework for Offsets in Bulgaria (3/3)
Offset projects need to be in sectors that are related to the defense and security of Bulgaria
Offset projects can be in the form of:
- investments in Bulgarian enterprises;
- exports of defense related goods and services;
- transfer of technology to Bulgarian enterprises;
Banking of offset credits is allowed
Offset credits are valid for 7 years from the date they were recognized and are freely transferable between obligors
Ministry of Economy, Energy and Tourism

8. EU Policy on Defense Procurement and Offsets (1/2)
In principle defense contracts in the EU are subject to Internal Market rules and the Guidance Note on Offsets issued by the EU Commission states that offsets represent a violation of the Internal Market
Article 346(1)(b) of the EU Treaty, however, provides a basis for derogation from the Internal Market rules as it states:
”any Member State may take such measures as it considers necessary for the protection of the essential interests of its security which are connected with the production of or trade in arms, munitions and war material;”
Ministry of Economy, Energy and Tourism

9. EU Policy on Defense Procurement and Offsets (2/2)
Derogation under Article 346 needs to meet certain strict criteria:
-Article 346(2) refers to a list of defense related products approved with a Council Decision 255/1958
-Even if the procurement is part of the list from 1958 it is necessary for Member States to evaluate on a case by case basis whether the essential security interests of the country are at stake
-The selected offset projects should represent activities that address the essential security interests of the Member State
Ministry of Economy, Energy and Tourism

10. Update on Offset Projects in Bulgaria
Status
Eurocopter - acquisition of new helicopters for Air and Naval Forces.
Direct offset activities are ongoing. Indirect offset is currently being renegotiated
Alenia Aeronautica - acquisition of new transportation planes
Offset activities are being renegotiated
Daimler - re-equipping the Bulgarian army with ground transportation vehicles
Offset has been completed
Textron - delivery of armored wheeled vehicles
Indirect offset has been completed
Ministry of Economy, Energy and Tourism

11. Prospects for Offset in Bulgaria
The expected tender in 2011 for the acquisition of fighter aircraft from the Bulgarian MoD has stimulated significant interest among potential participants in the tender to explore potential offset projects in Bulgaria
A number of Bulgarian companies have already been visited by potential obligors to assess their capabilities
An offset fund for Bulgaria is being set up by Blenheim Capital to reduce the complexity and administrative burden for obligors interested in obtaining offset credits in Bulgaria
Ministry of Economy, Energy and Tourism

12. MINISTRY OF ECONOMY, ENERGY AND TOURISM26
THANK YOU
FOR YOUR ATTENTION!
MINISTRY OF ECONOMY, ENERGY AND TOURISM
Mr. Julian Nikolov - Director
Economic Policy Directorate
Tel:
8, Slavyanska Str.,
1000 Sofia, Bulgaria
Ministry of Economy, Energy and Tourism