The European Commission (EC) has found that the largest Bulgarian steelmaker, the insolvent mill Kremikovtzi, did not implement the business plan established for its restructuring, which had been agreed by it in 2006 on the basis of a special steel protocol to the Europe Agreement applicable to EU/Bulgarian relations prior to the country's accession to the EU in 2007.
Accordingly, between 1998 and 2005, Kremikovtzi received about €222 million in restructuring aid, but failed to modernize its infrastructure and to reduce its production costs. The company went bankrupt in August 2008, after which Bulgaria initiated the recovery of the aid plus interest in the context of the ongoing liquidation proceedings.
"Restructuring aid for ailing steel producers is strictly prohibited within the EU. However, in the context of pre-accession, candidate countries may be given the opportunity to grant aid in order to restructure their steel industries once, before having to comply with the EU's regime for state aid to steelmakers," the EC said in a statement.
Bulgaria made use of this opportunity and decided in 2004 to support Kremikovtzi with restructuring aid totaling about €222 million to help it become competitive in the long term and to be able to survive in the market without further state support.
According to the conditions for granting this aid, Kremikovtzi was due to set up a business plan which would bring the company back to viability by 2006. However, the company had implemented only part of the plan by the deadline, and the EC accepted to prolong the restructuring period until 2008.
"Essential modernization and environmental investments originally foreseen were not carried out. In addition, the company failed to reduce production costs and continuously suffered from a lack of working capital for endogenous reasons that heavily affected its operational business," the EC said.
As SteelOrbis previously reported, after about 80 percent of Kremikovtzi's creditors disapproved of the recovery plan proposed by the mill's administrator, the key Bulgarian ministers made it clear that the bankrupt steelmaker would most likely be liquidated.