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The Dundee Chelopech Bulgaria Case – A Story of Hidden Nationalization

After more than two years of hassle and attempts to overcome the state machine and certain interests of the ruling circles, it looks like the Canadian company “Dundee” will start its projects in Bulgaria, but at a high price. The usual logic, that laws and rights of ownership must be respected, did not apply in the case. Neither the European Commission nor the country’s legal system succeeded in forcing the minister of ecology Mr. Dzhevdet Chakarov to obey the laws of the country. However, observing the right of ownership and respecting contracts is a prerequisite to the existence of a market economy. Without this necessary condition we could not talk about any free market, effective judiciary system, free trade, etc.

For more than two years minister Chakarov refused to sign the EIA Report (Environment Impact Assessment). The report for the evaluation of the effects on the environment) of the projects for expanding the activities of “Dundee” and de facto was blocking the activities of the company. This month came out the news that an agreement was reached between “Dundee” and the Government. The royalty paid by the company will be increased between 2 and 8% of the value of the metal into the ore mined, which was estimated to be over 51 million levs per year under the current market conditions. During 2007 the revenues from royalties accounted to 1.73 million levs.

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The other term of the agreement is the State participation with 25% share in the new processing plant, where the gold-copper concentrates will be processed to metals. According to the Prime Minister the revenues from the participation of the State will accumulate in the “Silver Fund” (a fund that aims to guarantee the long-term stability of the pension system in the country). This fund, however, does not exist yet, since the act about its creation has not been passed by the Parliament.

How did we get here?

As a retrospect of the events we will present the facts about the “Dundee” case:

“Dundee Precious Metals” (Canada) bought “Chelopech Mining” JSC in September 2003, after the previous owner “Navan Mining” went bankrupt.

The investment program of the company envisages that more than 260 million levs will be invested in the deposit.

“Dundee’s activities lead to the creation of jobs on a local and regional level – 750 direct jobs at the mine + over 3 000 additional jobs with direct suppliers and subcontractors to the mine.

The income per head in Chelopech and the near-by villages, where “Dundee” is one of the main employers, is more than twice higher than the average levels for the region and the country.

In February 2005 the company got a Certificate for first class investments. According to the Encouraging Investments Act that means that the central and local government authorities should provide administrative services within periods one third shorter that those defined by the laws.

During 2005 the company prepares REEE for the expansion and renovation of the Chelopech operation.

On 18th of November 2005 – ran out the legal period within which the MEW had to sign the REEE.

In December 2005 г. – Dundee filed a complaint with the Supreme Administrative Court (SAC).

At the end of October 2006 – three-person panel of SAC ruled that minister Chakarov had to sign the EIA Report.

During 2006 Dundee paid to the state budget over 22 million levs in the form of royalty fees, direct and indirect taxes and social security payments.

During 2006 the European Parliament asked Mr. Dzhevdet Chakarov about the delay of the permisssion for the projects at Chelopech and Krumovgrad. The Minister argued that:

– The local municipal councils were against the realization of the projects;

– Greece and Turkey were against the project as there are risks of water contamination;

– The agreement with “Dundee” is not in the best interest of Bulgaria due to the growing gold prices and the low royalty fees being paid to the state and the local municipalities.

During 2006 “Chelopech Mining” became the first company in Bulgaria to get the international award “Green Apple” for best practices in environmental protection, which was awarded by the British ecological Green Organization.

January 2007 – an article was published in the “Financial Times” where the Dundee case was discussed; “Dundee is not the first foreign investor, which is forced to wait longer than the time defined by law in order to get permissions. Similar problem have approximately 400 companies”.

April 2007 – the decision that minister Chakarov must announce his decision about the EIA Report was confirmed by the five-members panel of SAC.

“Dundee” made several proposals to the Ministry of Economics and Energy to raise the royalty payments.

June 2007 “Dundee” submited a complaint against Bulgaria with the European Commission for blocking the projects of the company.

The difficult questions

The Chelopech mine is one of the reaches deposits of gold in Eastern Europe. It is not by accident that when the prices of gold on the international markets were raised above critical values and the company “brought back to life” the mine by investing millions of levs in order to create a modern, effective and profit-making operation, the appetites toward the company increased.

Several times the minister of ecology made claims that the economic interests of the state are not protected when the agreement was signed with “Dundee”, although the ministry is not responsible for the economic issues but protection of the environment. On the other hand, the attempts of the company to negotiate openly and to reach a new agreement, where it proposed voluntarily to pay higher royalties, remained unheard of.

Many questions remain unanswered and will be asked in the case of Dundee Company. Why exactly against “Dundee”? Why the laws and agreements are not respected by the state? Is there a danger for the other companies in this sector or other sectors could face similar destiny? Why were ecological arguments used when in reality the disagreements were based purely on economic interests? Why the government refused an open dialogue with the foreign investor and used approach which is quite similar to racketeering.

Source; Ime.bg

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