Black Sea Jewel Sale Stalled

Economic News

22 Jul 2010
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The Bulgarian administrative court's decision this week to begin examining legal challenges against the award of operating concessions at the country's two main
Black Sea airports could not have come at a more critical time. The challenge has created uncertainty just as the country begins gearing up for what it hopes will be another record-breaking year at its Black Sea tourist resorts.

The legal challenge concerns the 35-year operating concession granted Copenhagen Airports of Denmark for Varna and Burgas airports.

The case, some analysts argue, could delay much-needed investment in two air hubs that form a bottleneck to expansion of tourism on the Bulgarian Black Sea coast. In a worse case scenario, the tender could be cancelled, stalling the boom in seaside tourism and dealing a major setback to privatisation and transport planning.

Two of the failed bidders, Fraport AG of Germany and Vinci Airports of France, are behind the legal challenge, potentially delaying a finalisation of the deal until June or later. Fraport came second in the evaluation of the tender committee and Vinci, third.

The French consortium claims that the Transport Ministry had outlined no clear methodology in defining the criteria for bid evaluation.

Vinci Airports Senior Vice President Operations, Chris Orphanou, recently said his company had appealed in order to clear up how the bids had been ranked.

"We were told we had the strongest business plan and investment plan and the second highest concession fee... and we were astonished to be third," Orphanou told Reuters earlier this week. "We hope the court will provide us with a justifiable explanation."

Fraport AG claims that there have been violations in Bulgaria's Concession Law.

Bulgarian Transport Minister Nikolai Vassilev announced the award of the tender to Copenhagen Airports in early April, saying the judging panel had been pleased by the Danish firm's commitment to modernising the two airports and by its high payment offer.

"We were pleasantly surprised by Copenhagen Airports' investment programme, which envisions 526m euros in investments over the next 35 years and 106m for the first three," said Bulgarian Transport Minister Nikolai Vassilev.

The ongoing expansion of Sofia airport is budgeted at around 100m euros.

Copenhagen had also offered to pay 30% of either airport taxes or concession activities - whichever is higher - as an annual concession fee. The tender conditions had set a minimum of 12% of airport taxes as the fee.

As well as running Copenhagen's Kastrup airport, the Danish operator also has airports in China, Mexico and Britain.

The Danish company is keen to sign a final deal and wrap up the process. Copenhagen said it would have no difficulty in meeting its commitments made in the tender offer, calling for a rapid completion of the deal.

Under normal procedure a final signing would come a month or so after the tender was announced. The period is allowed for the winning bidder to iron out any details with the government and to familiarise itself with existing management at the airports.

Announcing the tender results, Minister Vassilev said he expected Copenhagen to be operating the two airports by the summer.

But such a smooth handover now looks increasingly unlikely, at least until the administrative court has had a chance to weigh the merits of the two challenges.

Presently Varna and Burgas airports suffer from underinvestment, both in terms of runways and terminal handling capacity. Tour operators in Europe as well as locally based hoteliers and other tourism firms would all welcome the expansion promised by a successfully completed tender.

The pair of airports lie roughly 130 km apart on the Black Sea coast, which generates around 75% of all of Bulgaria's tourism revenue. Income from visitors accounted for some 10% of the country's GDP in 2004.

The pair handled some 2.7m passengers last year, but cannot take more unless significant investment is made. Minister Vassilev said predictions put traffic at the two airports at 4.5m in 2010 and over 8m in 2020.

"Bulgaria should have modern gateways to the world," he said.

In addition to tourist traffic, a number of cargo airlines say they would be keen to enter discussions with the winning bidder on opening one or both of the airports to cargo traffic.

The administrative court is expected to hold its next hearing on the issue on June 14. Until then yet another crucial Bulgarian privatisation hangs in legal limbo.

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