Bulgaria: The big switch
28 November 2011 | By Dale McEwan
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New energy legislation and diversification into previously stagnant areas of practice are keeping a home grown dominated Bulgarian legal sector active, says Dale McEwan
As Bulgaria’s green energy sector contributes the lion’s share of the work for the country’s law firms, new legislation looks set to put a dampener on the hive of activity and discourage investors. With further amendments planned before the end of the year, are firms feeling the impact?
“Our energy practice is booming,” says CMS Cameron McKenna Bulgaria managing partner Reneta Petkova. “It is for other law firms in Bulgaria too - the targets for renewable energy have to be achieved by 2020.”
Bulgaria has committed itself to sourcing 16 per cent of its energy from renewables by 2020. Camerons recently advised the largest Korean investor in Bulgaria on the due diligence and acquisition of five solar projects with an installed capacity of a 58MW peak - the largest solar project in South East Europe.
In addition, the firm advised a Japanese company on the due diligence of 14 renewable energy projects and the acquisition of four solar projects in Bulgaria.
“It’s certainly one of the more interesting areas of practice, with quite a few projects going on and more in the pipeline,” says Djingov Gouginski Kyutchukov & Velichkov partner Nikolai Gouginski. “As far as we’re concerned this area keeps us busy, both on the sponsorship of energy projects and financing.”
Over at Penkov Markov & Partners, managing partner Vladimir Penkov says his firm has seen a “tremendous increase” in work from the renewable energy field. The sector accounted for approximately 8 per cent of Penkov Markov’s work last year. This figure now stands at 15 per cent, and Penkov expects it to jump to 25 per cent next year. The firm is working on seven renewable energy projects at the moment.
Both Petkova and Schoenherr Bulgaria managing partner Alexandra Doytchinova mention the interest in biomass energy, which is still in its infancy in the country. Camerons is advising a consortium of Bulgarian companies on a proposed development of two biomass power plants in partnership with a foreign investor.
The country’s new renewable energy law, which was approved in April this year, was expected to provide predictability in the financing of advanced renewable energy projects.
“It’s meant to motivate those developers who are seriously pursuing projects and restrict those who see renewable energy
as a short-term opportunity,” explains Doytchinova. “We believe it will restrict the more unprofessional investors. Although this was seen as unattractive at first for foreign investors, we didn’t see a decrease in renewable energy work.”
For example, the law requires that investors pay a connection fee of Lev50,000 (£21,900) per planned megawatt when signing a preliminary contract. The surge in solar and wind projects is putting added pressure on Bulgaria’s aging power grid.
“The law was a little bit of a surprise for potential investors,” reveals Gouginski. “Some of them have become a little bit more hesitant. At the same time, workflow in this area hasn’t been affected. It’s probably one area of the economy where we’ve seen growth and expansion.”
Wolf Theiss Bulgaria managing partner Richard Clegg highlights that, from a regional perspective, the country still offers the best options for renewable energy.
The legislation has tweaked some of the pricing elements of renewable energy projects. A lot of clients are trying to fit into the regulation within a specific timeframe, says Dessislava Fessenko, senior attorney at Pavlov and Partners Law Firm, which explains the increased volume of work.
“In the past we dealt a lot with wind farms, but now it’s probably more efficient and beneficial for investors to invest in solar,” says Dimitrov Petrov & Co partner George Dimitrov. “It’s very difficult to say whether this is due to the changed law, but it’s possible. We don’t face any more projects from wind.”
Under the new law the feed-in tariff is fixed only after the renewable energy project has been completed. A wind farm usually takes between 18 and 24 months to build, meaning tariffs could decrease before completion of the project.
Amendments to the legislation are due to be enacted by the end of the year, which has led to further feelings of uncertainty among foreign investors, according to Petkova.
“This is one of the disadvantages of the act, that investors can’t plan their projects with the certainty they’d like to,” he says.
On the take
As Dimitrov Petrov partner Metodi Baykushev points out, the recently adopted amendments to the State Property Act concern the procedure of compulsory expropriation of private properties for constructing projects of national importance, including infrastructure projects and technical networks and facilities. These amendments are aimed at facilitating and accelerating the expropriation procedures.
“The possibility for easier and quicker expropriation of properties for projects of national importance should allow the National Electricity Company to upgrade and expand quicker its transmission grid, the cable lines being objects of national importance,” says Baykushev. “This particular effect should boost the development of the energy sector, and especially the production of electricity of renewable sources, where currently many projects are put on hold due to the lack of capacity for connection to the grid.”
In line with the global trend, Bulgarian firms are also rediscovering litigation.
This year Camerons established a dispute resolution practice through the appointment of Antov & Partners Law Firm managing partner Assen Georgiev. He joined the Sofia office as head of dispute resolution along with his team.
At Penkov Markov litigation accounted for less than 5 per cent of work five years ago - now the figure is closer to 20 per cent and the firm has hired five advocates in the past year. Penkov explains that litigation accounts for 80 per cent of the work passing through the firm’s local offices outside Sofia.
Dimitrov says his litigation department has doubled in size over the past year in terms of staff numbers. The firm is currently advising on around 70 pending lawsuits and is planning two further hires in the near future.
“We prefer hiring junior staff so that they can easily adapt to the philosophy and the way our firm works. We’re happier to have young people just freshly graduated from university,” Dimitrov explains.
The increased activity in litigation illustrates the ways in which Bulgarian firms are diversifying their expertise in order to survive.
Three months ago firms were invited to apply for advisory spots on a public procurement process. Fourteen firms submitted applications, including at least two top-tier outfits.
“The number of firms that applied was massive considering the low levels of fees that could be charged,” says Dinova Rusev & Partners managing partner Anelia Dinova. “When the announcement came out we spent three weeks pondering it. When we saw all of the applications and the effort they’d put in I was really taken aback.
I wouldn’t have expected top-tier firms to apply.”
Dinova adds that Dinova Rusev has been able to break into the financial sector over the past year. Activity by the firm in this sector was virtually unheard of two years ago.
In further diversification, Anelia Tatarova joined Camerons earlier this month to head a new tax practice. She previously worked for Borislav Boyanov & Co and PricewaterhouseCoopers, and her hire enables Camerons to become a true full-service firm in Bulgaria after six years in the country.
Another area predicted to grow is white-collar crime. Until August this year bribes and other unlawful means of influencing the course or outcome of sport competitions were not punishable under Bulgarian law. The passing of sport-fixing legislation is expected to provide work for firms in the near future.
“We have colleagues who are increasingly getting specialised in white-collar crime,” confirms Doytchinova.
With regards to foreign investment, Clegg at Wolf Theiss highlights a significant amount of inbound and outbound investments related to Asia. From China this is mainly energy- and telecommunications-led, while from India it is related to steel and R&D, such as medical devices.
Petkova expects to see Asian interest in the privatisation of Bulgaria’s electricity distribution companies, but says the country is still seen by investors as risky due its proximity to Greece.
Gouginski at Djingov Gouginski notes that there have been a number of small-scale business departures from the market in recent times.
“And, of course, the problems in the eurozone don’t help, although Bulgaria as a whole is quite stable,” he adds.
The Bulgarian government has just passed its 2012 budget, which targets a deficit of 1.3 per cent of GDP. Bulgaria is one of the least indebted members of the EU.
Local law firms continue to dominate the market in Bulgaria. Since DLA Piper’s departure at the beginning of 2011 there have been no notable shifts in the market, says Doytchinova.
“This year’s message is that, although last year the prospects weren’t very positive, the players can’t complain. I still can’t assess whether we’re positive because we’re lucky this year or because it’s a general trend,” she admits.
Doytchinova has good reason to be happy. Schoenherr Sofia advised on six of the top 10 deals of 2011 in Bulgaria, according to local newspaper Capital Weekly. This includes advising VTB Capital, the investment arm of VTB, Russia’s second-largest bank, on its e100m (£85.68m) acquisition of a controlling stake in independent cigarette manufacturer Bulgartabac.
“There’s still enough work, even though the volume and transaction values are lower,” Doytchinova says. “Looking at the market, I don’t think the good firms in Bulgaria are experiencing any difficulties. If you ask me for an outlook in 2012, we’re actually positive.”