VZCZCXYZ0011
PP RUEHWEB

DE RUEHSF #0794/01 1791603
ZNR UUUUU ZZH
P 281603Z JUN 07
FM AMEMBASSY SOFIA
TO RUEHC/SECSTATE WASHDC PRIORITY 3913
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHINGTON DC

UNCLAS SOFIA 000794 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EB/OIA 
 
E.O. 12958: N/A 
TAGS: EINV KIDE CASC PGOV BU
SUBJECT: BULGARIA: 2007 REPORT ON INVESTMENT DISPUTES AND 
EXPROPRIATION CLAIMS 
 
REF: STATE 55422 
 
¶1.  The United States government is aware of two (2) claims of U.S. 
persons that may be outstanding against the Government of Bulgaria 
(GOB). 
 
¶2.  List is keyed according to reftel instructions. 
 
A)  Claimant A (ongoing case) 
 
B)   2000 
 
C) In 1999, Claimant A established a subsidiary, which purchased a 
controlling interest in a Bulgarian fertilizer company through the 
privatization process.  The subsidiary was holder of the fertilizer 
company shares.  Shortly after the privatization, the Russian 
partner in the subsidiary of Claimant A, through a scheme involving 
a bogus loan, acquired the fertilizer company shares from the 
subsidiary through another Cyprus-registered holding company, which 
he controlled. 
 
The Russian partner -- without a power of attorney or any other 
authority from the claimant -- signed a loan agreement between the 
claimant's subsidiary (on behalf of the fertilizer company) and his 
separate holding company for $4 million to purchase pipes.  When, as 
expected, the fertilizer company could not repay the loan, the 
holding company sued and gained control over claimant's subsidiary 
and therefore the fertilizer company.  On August 30, 2000, the 
Vratsa Regional Court issued a decision regulating the transfer of 
9,683,000 shares of the fertilizer company from the claimant's 
subsidiary to the Russian partner's holding company. 
 
Shortly after the holding company took over the shares of the 
fertilizer company, the Privatization Agency agreed to sell the 
remaining 14 percent of the shares still held by the GOB to the 
holding company. 
 
The claimant has since been caught in a legal dilemma in Bulgaria 
between the questions of jurisdiction and reciprocity.  On one hand, 
the Bulgarian courts claimed that they did not have jurisdiction 
because the case is between two American registered companies. 
However, when the claimant won its case before the New York Supreme 
Court in June 2001, Bulgaria refused to recognize the New York 
court's decision because the United States and Bulgaria do not have 
a reciprocity agreement. 
 
The Sofia City Court issued a decision on July 14, 2003, ordering 
the Cyprus-registered company to restore the above shares to the 
claimant.  Further to an appeal submitted by the Cyprus-based 
company, on December 18, 2003, the Sofia Appellate Court overruled 
the Decision of the Sofia City Court. 
 
Following the above Decision, the claimant submitted an appeal of 
cassation before the Supreme Court of Cassation (SCC), which was 
heard by its Commercial Division (case No. 144/2004) on June 16, 
¶2004.  This is the highest court and its decision is final for all 
parties concerned.  On September 10, 2004, a three-judge panel of 
the SCC upheld the decision of the Sofia Appellate Court.  On March 
8, 2005, a five-judge panel of the Supreme Court of Cassation issued 
its final decision and turned down yet another appeal. 
 
In the meantime, a separate case in the Vratsa District Court went 
forward based on the claim of the Bulgarian state natural gas 
company BULGARGAZ and the Bulgarian state electrical company NEC for 
proclamation of declaring the fertilizer company insolvent.  The 
court declared the fertilizer company insolvent on December 14, 
¶2004. 
 
Despite the court ruling, the Post-Privatization Agency (PPA) has 
initiated legal proceedings against the claimant for failing to meet 
commitments under the privatization contract.  In addition, the PPA 
sent, on April 11, 2005, a letter requesting the claimant pay $7.4 
million for non-performance under the privatization contract. 
Embassy asked the PPA to reconsider this in light of the Bulgarian 
Court's determination that claimant is not the owner of the plant. 
The director of the PPA responded that she found it very unusual 
that the privatization agreement allowed for 100% of the company 
shares to be transferred, while all liabilities for performance 
under the privatization agreement stayed with the buyer (IBE).  We 
relayed this information to the attorney for IBE with the request to 
confirm.  No response to this request has been received.  The 
privatization agreement in fact allowed for the transfer of shares 
to third parties, while IBE retained all liabilities and 
responsibilities. 
 
A)  Claimant B (new case) 
 
B) 1999 
 
C) In 1999, through its daughter company, Claimant B started 
developing the Chelopech deposit on the grounds of a Contract for 
Granting Concession for Mining Underground Resources 
(Gold-Copper-Pyrite Ores from the Chelopech Deposit).  The 
gold/copper mine at the time was sustaining financial losses and 
exhibiting low morale amongst its staff due to shortage of funds for 
mine upgrades.  The implementation of the project will avoid the 
liquidation of the mine providing full-time employment to more than 
860 people.  Claimant B agreed to dedicate funds to developing 
municipal infrastructure and assist in improving municipal services. 
 Consistent with the Investment Promotion Act and the Rules for its 
implementation, in February 2006 Claimant B received a Certificate 
for First-Class Investment.  In this Canadian company, about 40 
percent of the shares are held by U.S. companies and individuals. 
 
In November 2005, Claimant B deposited with the Ministry of 
Environment and Waters (MoEW) an Environment Impact Assessment (EIA) 
statement done by an independent team of experts, followed by EIA 
public hearings held a month later.  At the beginning of 2006, a 
date was set for a meeting of the Higher Council of Environmental 
Experts (HCEE) at the MoEW for consideration of EIA.  The 
consideration, however, was postponed by MoEW which requested 
clarification of the issue regarding the hygiene protection belt 
around the tailings management facility.  The MoEW minister Djevdet 
Chakarov argued his obstruction was based on his ambition to protect 
the state interest, as well as the opposition of some intellectuals 
against the further implementation of the project.  In March 2006, 
HCEE reconvened and approved the EIA overwhelmingly (with 22 in 
favor and only 1 against).  Instead of passing a resolution on the 
EIA, in April 2006 MoEW further delayed the procedure by asking the 
Ministry of Economy and Energy (MEE) to issue its opinion on the 
EIA, which was positive. 
 
Again in March 2006, Claimant B filed an appeal against the MoEW's 
silent refusal to rule on the EIA.  At the end of 2006, a 
three-member panel of the Supreme Administrative Court revoked the 
MoEW's silent refusal and returned the case to MoEW, obligating the 
minister to issue a resolution on the EIA, which the MoEW appealed 
against.  In April 2007, a five-member panel of the Supreme 
Administrative Court re-confirmed its Resolution 10363/24.10.2006 as 
a final one.  To date, the MoEW has not yet complied with the court 
resolution and has not passed a resolution on the EIA. 
 
In 2006, the USG supported the Canadian Embassy's efforts to draw 
attention to the case, by pointing to it as an example of business 
climate deterioration and discussing it in meetings with AmCham.  In 
early 2007, Ambassador Beyrle mentioned the case privately during 
meetings with high-level GOB officials.  In 2007, representatives of 
Claimant B met with USG executives in Washington D.C. and Brussels. 
 
 
The minister does not have any legal ground to obstruct the 
investment project, and the reason for his obstructive behavior is 
his attempts to mislead the court by pushing for a whole new EIA 
procedure and thus causing a further delay of Claimant's project 
operations. 
 
¶3.  Claimant reference list: 
Claimant A:  IBE Trade, U.S. Company 
Claimant B:  Dundee Precious Metals, Canadian-U.S. Company 
BEYRLE