Identifier
Created
Classification
Origin
06SOFIA834
2006-06-14 11:25:00
UNCLASSIFIED
Embassy Sofia
Cable title:  

BULGARIA: 2006 REPORT ON INVESTMENT DISPUTES AND

Tags:  EINV KIDE CASC PGOV BU 
pdf how-to read a cable
VZCZCXYZ0014
PP RUEHWEB

DE RUEHSF #0834/01 1651125
ZNR UUUUU ZZH
P 141125Z JUN 06
FM AMEMBASSY SOFIA
TO RUEHC/SECSTATE WASHDC PRIORITY 2068
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHINGTON DC
UNCLAS SOFIA 000834 

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: EINV KIDE CASC PGOV BU
SUBJECT: BULGARIA: 2006 REPORT ON INVESTMENT DISPUTES AND
EXPROPRIATION CLAIMS

REF: STATE 60294

UNCLAS SOFIA 000834

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: EINV KIDE CASC PGOV BU
SUBJECT: BULGARIA: 2006 REPORT ON INVESTMENT DISPUTES AND
EXPROPRIATION CLAIMS

REF: STATE 60294


1. The United States government is aware of one (1) claim
of U.S. persons that may be outstanding against the
Government of Bulgaria (GOB),and one claim that has been
resolved.


2. List is keyed according to reftel instructions.

A) Claimant A (Resolved case)
B) 2003
C) Claimant A and the GOB Privatization Agency signed in
February 2004 a sales agreement for the privatization
purchase of 65 percent of Bulgarian Telecommunications
Company (BTC) for 230 million Euro. The parties completed
the deal through the final transfer of shares on June 11,
2004, which ended the dispute.


A) Claimant B (Ongoing case)
B) 2000
C) In 1999, Claimant B established a subsidiary, which
purchased a controlling interest in a Bulgarian fertilizer
company through the privatization process. The subsidiary
was the holder of the fertilizer company shares. Shortly
after the privatization, the Russian partner in the
subsidiary of Claimant B, 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 dollars 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 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. A three-judge panel of
the SCC upheld on September 10, 2004, 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 against the Claimant, 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 dollars 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 percent of the company assets to
be transferred, while all liabilities for performance under
the privatization agreement stayed with the buyer (Claimant
B). We relayed this information to the attorney for
Claimant B with the request that they review the
privatization agreement to see if this arrangement was
agreed upon by the buyers of the fertilizer company at the
time of privatization.


3. Claimant reference list:
Claimant A: Viva Ventures, U.S. Company
Claimant B: IBE Trade, U.S. Company
BEYRLE