VZCZCXYZ0002
RR RUEHWEB

DE RUEHSF #1575 3211550
ZNR UUUUU ZZH
R 171550Z NOV 06
FM AMEMBASSY SOFIA
TO RUEHC/SECSTATE WASHDC 2840
INFO RUCPDOC/USDOC WASHINGTON DC

UNCLAS SOFIA 001575 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EINV ECON KPAO BU
SUBJECT: BULGARIA GOES HOLLYWOOD . . . FINALLY 
 
Ref: Sofia 0080 
 
¶1. (SBU) SUMMARY.  In a suspenseful tale full of intrigue, deceit 
and high-powered bluffs, Los Angeles-based NuImage films finally 
received the keys to the Boyana Film Studios on November 16, a 
year-and-a-half after they were selected as the winner of a 
three-way bid for the Bulgarian state film company.  Sustained 
embassy pressure in the face of strong-arm tactics from special 
interests was necessary in order to keep the American company from 
unfairly being forced out in a non-transparent process.  While the 
Hollywood happy-ending of this story turned out good for American 
investment - specifically for this company and for gaining Bulgaria 
exposure to the world through the wide screen - this process has 
been a textbook example of what Bulgaria should not/not do to 
attract Western companies. END SUMMARY 
 
¶2. (SBU)  Bulgaria's Privatization Agency (PA) transferred 95 
percent of the shares of Boyana Film Studios to NuImage on November 
16, 2006, about a year-and-a half after NuImage was selected by an 
interagency committee as the bid winner on technical and financial 
criteria.  The long delay resulted from non-transparent 
"negotiations" that started after the privatization agreement was 
initialed in August 2005.  The Privatization Agency, at times at the 
behest of unknown demandeurs, routinely imposed significant 
additional conditions that were reluctantly accepted by NuImage. 
While positing many legal, political and cultural objections to the 
sale, underlying much of this opposition was a desire to lay hands 
on all or part of the studio's real estate on the lower slopes of 
Mount Vitosha, the last large undeveloped tract of land in Sofia's 
most desirable suburb. 
 
¶3.  The final transfer of shares was made after NuImage paid the EUR 
6.25 M price under the privatization contract, presented a bank 
guarantee for post-privatization commitments, and mortgaged 30.2 
hectares of Boyana's land in favor of the state at a price of EUR 
300 per sq m.  Per the agreement, NuImage must continue to make 
movies for 20 years, and may not sell off the land as real estate. 
This latter clause was key to NuImage getting the deal, but has also 
confused those not trained in market-economics who complain that the 
Bulgarian government "gave away" the film studio at prices much 
cheaper than market value.  It will take time for the Bulgarian 
public to realize that land which must be used for a specific 
purpose can not sell for the same prices as un-restricted land upon 
which anything can be built.  Also, resolving this deal should help 
speed restitution claims over the property and show people that 
through new, higher paying jobs, private investment can lead to 
increased economic opportunities for all. 
 
¶4.  NuImage is obliged to invest at least EUR 15.6 M in Boyana over 
a three-year period, invest at least EUR 11.4 M in the first year 
alone, and produce no less than two full-length motion pictures and 
20 minutes of animation annually over the next five years.  NuImage 
Bulgaria Manager David Varod has pledged to greatly surpass these 
requirements in creating "the biggest film studio in Europe." 
Currently, NuImage is shooting a $ 15 M film written by and starring 
John Cusack, and also with Marisa Tomei and Hilary Duff.  Varod 
states that he will spend $50 to $100 Million in Bulgaria in 2007 
depending on how fast he can build larger studios that can handle 
big-budget movie production. 
 
COMMENT 
------- 
 
¶5. (SBU) While not a large deal in terms of purchase price and 
required investment, the Boyana privatization represents the 
disconnect between the desire at the highest levels in the Bulgarian 
Government for increased American investment, and the reality of how 
hard it can be at times for U.S. companies to invest here.  NuImage 
resisted the temptation several times to pack their bags and move to 
neighboring Romania after seven years of film production work in 
Bulgaria when it appeared that certain self-interested parties would 
prevail.  After lawsuits, counter suits, threats from both sides, 
and through it all, pressure from the Embassy and Washington 
visitors, the Bulgarian government finally pushed this deal through. 
 Looking optimistically at this saga, we hope this represents the 
final throes of an old way of doing business as Bulgaria fully 
enters the "Western club" she it joins the European Union in 
January.  As we repeatedly told the GOB during this epic drama, 
signing an agreement in Bulgaria should be the end of negotiations, 
not the beginning. 
 
BEYRLE