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

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

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

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

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

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 233/3.09.2004 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

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

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

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

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

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

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

MINISTRY OF ECONOMY, ENERGY AND TOURISM 26 THANK YOU FOR YOUR ATTENTION! MINISTRY OF ECONOMY, ENERGY AND TOURISM Mr. Julian Nikolov - Director Economic Policy Directorate Tel:+ 359 2 940 7550 Email: j.nikolov@mee.government.bg 8, Slavyanska Str., 1000 Sofia, Bulgaria http://www.mee.government.bg Ministry of Economy, Energy and Tourism