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
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Contents
1. Why Offsets Are Important for Bulgaria?
2. The Legal Framework for Offsets in Bulgaria
3. EU Policy on Defense Procurement and Offsets
4. Update on Offset Projects
5. Prospects for Offset in Bulgaria
Ministry of Economy, Energy and Tourism
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Why Offsets Are Important for
Bulgaria? (1/3)
4.0%
30,000
3.5%
3.0%
23,621
25,000
2.5%
18,988
2.0%
18,879
20,000
16,697
1.5%
14,392
14,792
1.0%
14,133
12,890
15,000
Number of workers
% of manufacturing employment
 Bulgaria has a well developed defense industry,
which can further develop its capabilities
through cooperation with large defense prime
contractors
0.5%
0.0%
10,000
2000
2001
2002
% of employees in Bulgaria
2003
2004
2005
% of employees in EU
Ministry of Economy, Energy and Tourism
2006
2007
Number of Employees Bulgaria
2
Why Offsets Are Important for
Bulgaria? (2/3)
 Bulgaria has managed to stabilize exports of
weapons and ammunition in recent years
EUR m
150
112
100
50
148
150
16
28
3
12
10
9
37
21
5
116
104
145
32
Others
21
5
Small Arms
Large Caliber Weapons
88
Ammunition
48
0
2006
2007
Ministry of Economy, Energy and Tourism
2008
2009
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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
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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
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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
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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
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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
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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
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Update on Offset Projects in
Bulgaria
Project
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
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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
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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
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