BULGARIA GOES HOLLYWOOD . . . FINALLY

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