by John B. Tieder, Jr., Senior Partner

This is the second part of my article on Learning and Teaching in Bulgaria.  In this part, I write of my observations of the economy, construction opportunities, the legal system and the saga of the printer.

The Economy

Traveling around the country and especially on the outskirts of Sofia, there were dozens of abandoned factories.  Some of them were so old and inefficient that they could serve no purpose in a free economy.  Others were closed as part of the environmental price tag for EU membership.  Thus, unemployment is very high.  What do people do?

As in other former Eastern Block countries, the change to a free economy has fallen hardest on those who were in the middle or latter part of their careers.  I met many older engineers, professors, and bureaucrats who were in quite trivial jobs.  Pensions from socialist times do not go far in the new economy.  The military is no longer a career option and conscription was in its last year.

There was no clear answer to this question of what do people do? The country, with a population of less than 8,000,000, which is decreasing through emigration and a low birth rate, is not creating enough economic activity to produce a significant number of new jobs.  One of the answers may be that Bulgaria is producing software and providing other internet services.  It was difficult, however, to assess the extent of this activity.

Bulgaria does have a large agricultural sector.  Some of the older people told me that even in socialist times, Bulgaria never had food shortages, and food was always plentiful and inexpensive.  Indeed, Bulgarians are very involved in organic farming.  Thus, Bulgaria exports a great deal of produce and other agricultural products, not only to Europe, but also around the world.  Everyday there are plane loads of fresh yogurt shipped to Japan.  Although not a wine drinker, Bulgarian wine is reportedly quite good and relatively inexpensive, and is a growing export.

In the past, Bulgaria was also an exporter of electricity.  It has four nuclear units in the North on the Danube River and a number of fossil plants (primarily coal) throughout the country.  It exported power to Greece, Albania, Romania and Macedonia.  Another one of the costs of entering the EU, however, was to shut down immediately two of the nuclear plants because they were out of date, a promise to close another at the end of 2007, and to upgrade or close down several of the fossil plants.  As of mid-2007, this left the country not only with no power to export, but with the strong possibility of having a power shortage in the winter of 2007/2008.

There is apparently some effort to reverse the promised shut down of the third nuclear facility.  It has been upgraded and was up to EU safety standards.  Also, there was the possibility of obtaining a waiver of emission standards for some of the fossil plants as upgrades are in process.

There seems to be some opportunity in the power sector.  A new nuclear plant is in the advanced stages of design, but it is almost certain to be built with Russian equipment.  Indeed, in Bulgaria and elsewhere in Eastern Europe, there is a belief that Russia will emerge as a major competitor in the commercial nuclear power arena.  A more promising area is the upgrading and emissions controls on the fossil plants.  There is a lot to be done and quite an ambitious schedule.

One last point on the nuclear subject, which also touches on the Bulgarians interest in healthy eating.  Bulgaria was downwind of Chernobyl.  Even after 20 years, there is still considerable anger against the then regime.  The belief and I assume the fact is that the regime knew about the fallout for several days before telling the public.  The regime had protected food resources while allowing the public to eat food contaminated by radiation.  A woman who was pregnant at the time and has a healthy and normal 20 year old son treated the incident as if it had happened last year and resulted in an abnormal birth.  It made me consider the possible role of Chernobyl in ending or speeding up the end of communism in Eastern Europe.

EU Membership, Loans, and Construction Opportunities

EU Membership has brought a great deal of money to Bulgaria to upgrade infrastructure to EU standards.  The Sofia airport is the first example.  Other airports throughout the country are also being upgraded.  There are numerous road and bridge improvement projects, water and sewer upgrades, and smaller “Beautify Bulgaria” projects which include the landscaping and restoration of buildings, e.g., at the University.  In addition to EU money, Japan has made several loans for projects such as an extension of the Sofia subway, but this work is being performed by Japanese contractors.  The intercity rail system in Bulgaria needs to be significantly modernized, but apparently this effort has not yet started.  Most Bulgarians will not take the train, but there is an excellent intercity bus system.

The housing market is difficult to understand.  In Sofia, and the other cities, most people live in socialist era apartments - large, ugly, poorly maintained buildings although they are owned by the inhabitants.  In Sofia, there were many new apartment (condo) buildings under construction, but it was difficult to determine who would buy them.  Those of a conspiratorial bent felt that they were being built with and would be owned by “dirty money;” others just did not know.  In the countryside and on the Black Sea coast, there are both apartments and single family houses.  By U.S. standards, the prices are very cheap.  In the mountains, it was possible to buy a 3-4 bedroom house on over two acres of land for USD 35,000-40,000.  A 2-3 bedroom apartment on the Black Sea coast would be USD 150,000-200,000.  This property is apparently being bought by foreigners, especially the English.

There does not appear to be a system of mortgages for average home owners.  The concept of borrowing to own a home is not a part of national thinking.  There would seem to be a tremendous market here for both home builders and lenders.

In summary, there will be a lot of public infrastructure funded for the next several years by the EU.  These procurements will, however, be reviewed by “Brussels” for compliance with EU standards which may affect the speed of which they are awarded.  Power projects, especially upgrades and emissions controls, should also be a meaningful source of business.  Rail system upgrades seem to be in the future.

Legal System

Bulgaria has a comprehensive constitution with detailed guarantees of individual rights.  These include a right to social security and welfare (Art. 51), medical insurance and care (Art. 52), education (Art. 53) and a healthy environment (Art. 55). There is a separate parliament, executive and judiciary.

As a member of the EU, Bulgaria must also conform to all EU regulations and laws relating to personal rights as well as commercial activities.

The Bulgarian law of obligations (contracts) and commercial law are consistent with the laws of other European civil law countries and should present no extraordinary impediment to the negotiation or execution of construction contracts.  One area that is of some concern is the rapidly changing law due both to the changes required by the EU and Bulgaria’s own legislative efforts to change and modernize its building codes, environmental standards, and other parameters for construction.  For example, the Spatial Planning Act which was promulgated in July 2001 had been amended more than two dozen times by the end of 2006.  Each amendment had the potential to affect a contractor’s work.  Thus, it is essential that a contract allocate the risk of changes in law or regulation or changes in the application of a law or regulation to the Bulgarian owner.

Bulgaria, both on its own and through its membership in the EU, is a signatory to all the major conventions governing international commerce.  For example, Bulgaria signed the U.N. Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (New York Convention), the Convention on the International Sale of Goods of 1980 and the U.N. Convention Against Corruption.  Bulgaria has entered into 34 Bilateral Investment Treaties, including one with the United States which gives investors access to the International Center for the Settlement of Investment Disputes (“ICSID”) in case of a dispute.  In this regard, a construction contract is an investment dispute. It is bound by all the major conventions on the protection of intellectual property.

The Court system, on paper, is independent and the rules of court comfortable to any civil law lawyer.  Putting aside what appears to be at least partially justifiable concerns about its corruptibility, no foreigner should become enmeshed in a local court proceeding if there is an alternative.  Foreign contractors should avail themselves of international arbitration, preferably in an arbitration friendly venue like the United Kingdom, Switzerland, or France.

In summary, Bulgaria has the legislative, legal.  and judicial infrastructure to support foreign.  investment.  It will, however, take some time.  before the system functions at a level that will.  give reasonable confidence to foreign investors.

The Saga of the Printer – Bureaucracy and Corruption

As mentioned above, a constant theme during my stay was the pervasiveness of corruption – students, faculty, business people, even government officials.  Every new project or public improvement was regarded as, “the result of corruption.”  I had no real way of assessing the degree of corruption or the state of respect for the rule of law, but I did have one experience which gave me some insight – The Saga of the Printer.

When I was in Russia in 2006, I found it difficult to print out documents from my lap top.  I decided to solve this problem in Bulgaria by bringing my own printer.  We purchased a printer that would work in Bulgaria and shipped it to Boris, my contact in the University’s law department, approximately a week before I left for Sofia.  The printer cost about USD 400 and another USD 100+ to ship.  Since I work in Europe somewhat regularly and had a fair amount to do while I was in Sofia, both the purchase price and the shipping cost seemed appropriate.

After I had been in Sofia for a few days, my, by now friend, Boris, received word that the printer was in the customs department at the airport and he should go collect it.  Unfortunately he was out–of-town and since it was addressed to him, neither I nor anyone else could pick it up.  About ten (10) days into a three-week plus stay, he, another professor, Jivko, my wife and I arrived at the Customs office at the airport one afternoon around 1:00 P.M.

The first thing I noticed at the Customs Department were several large signs and small stickers stating that, “Bribery is Against the.  Law.”  This, of course, led to the conclusion that for USD 20-30, I could have had my printer in ten minutes – a conclusion I later learned was correct.  Having just lectured on the U.N. Convention Against Corruption to which Bulgaria is a signatory and pontificated on the pernicious effects of corruption on an emerging economy, I decided, probably to the disgust of my friends, to do things in accordance with the law.

As mentioned above, the printer was addressed to my colleague and friend, Boris, at the University.  He was told that since it was addressed to him as a representative of the University, he needed a resolution from the Board of Trustees of the University to pick it up.  After fruitless arguing with the clerk, he finally got an audience with the head of Customs at the Airport and disappeared into his office for 30-40 minutes.  He returned triumphant – he had convinced the Customs Chief that the printer was addressed to him personally at the University not to him as a representative of the University.  It is now around 2:00 P.M.

It was then necessary to determine the make and model number of the printer for the properduty assessment.  Fortunately all this information was readily available.  We met with the Customs official responsible for appliances.  I obviously could not follow the whole of the conversation, but as reported, how could the Customs department know that the contents of the shipping box was in fact the make and model printer we claimed? Let’s open the box I suggested.  No, the box cannot be released from customs until the duty is paid.  How do we ascertain the contents to calculate the duty? Cannot be done.  It is now approximately 3:00 P.M.

Customs does not calculate the duty.  That is done by independents near the Customs office. The first independent agency’s, “computers were down.” The second agency was in operation and I paid USD 25 to have the duty computed.

Back to the Customs office.  The duty was USD 225 (for a USD 400 printer).  I found an ATM (duty payments are cash only) and got a signed and stamped receipt from the Bank which takes all payments for the Customs office.

We walked ten feet from the Bank window to get the necessary documents for the release of the printer.  Cannot be done until the duty payment is reflected in the Customs’ bank account, and, by the way, “our computers are down.” But the bank is right there; didn’t I just give you USD 225 I asked the bank clerk who was still standing at the adjacent window and here is my stamped receipt.  No, said the Customs official, it must show up in the Bank Account.  It is approximately 4:00 P.M., and my class starts at 5:00 P.M., and finally the “computers are back up” and the money is in the account.

Into the car and drive to the shipper’s depot.  A payment of another USD 25 for storage and the printer is mine.  (See photo and notice the triumphant smiles).  A little late for my class, but I have my printer.

It is now time to leave Bulgaria and I want to take my printer.  But, it is not your printer; it belongs to Boris because he was the importer.  To take it home, he must transfer title to me.  What does that take? You and he must go to a notary; have a transfer of title document prepared and notarized; take the printer and the title document to Customs.  (No, never again to Customs!) The notary will cost about USD 500 and the export fee will have to be calculated.  Stop – the printer will be our law firm’s donation to the law department of the University.

As I was leaving for the airport, a slight problem. The University keeps a careful inventory of all equipment and furnishings and there is no system to log in donated equipment.  I do not care what happens to the printer – throw it away!

I did learn, however, that the printer finally has a happy home in the law department where the entire faculty daily thanks our firm.

There is at least one lesson here, but what is it: pay a reasonable amount and save hundreds of dollars and hours of time; it takes some time to develop a functioning system with sufficient checks to assure there is no bribery; customs duties on small items are not worth the infrastructure to collect it, but the lesson I learned – buy a printer when you arrive and throw it away when you leave!

Conclusion

My wife and I loved Bulgaria.  Next year we are going on a hiking vacation with several other couples.  I will have no need for a printer!


The information or opinion provided in this article is the author's own and not necessarily that of Watt, Tieder, Hoffar & Fitzgerald, LLP. The author is solely responsible for the information and opinion that he or she has provided. The information contained herein does not replace seeking specific legal counsel to directly address individual client needs.
 
Watt, Tieder, Hoffar & Fitzgerald is one of the largest construction law firms in the world, with a practice that encompasses all aspects of construction contracting, claims and disputes resolution, and transactional legal services. WTHF principally represents large general contractors, design firms, and sureties throughout the country and internationally.