Bulgaria’s Finances Squeezing Existing Arms Deals

F910 Wielingen
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Bulgaria’s government recently allocated BGN 256 million (about EUR 131M/ $174M) from the country’s fiscal reserve in order to complete a number of arms deals, lest it find key defense items repossessed.

Bulgaria is actually one of the few NATO countries to meet the agreed 2% of GDP threshold for defense spending. The problem is a low base. Decades of communist rule left Bulgaria poor, and even among its peers in the former Warsaw Pact, its economic ranking was and is low. The recent financial crisis has hit the country hard, and left a number of key arms deals short on cash. While these deals are small in the context of global arms flows, they loom large in the context of Bulgaria’s overall military capabilities…

Bulgarian AS532
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The smallest adjustment involves a deal for 3 used Belgian ships: 2 Wielingen Class frigates and a Tripartite class minesweeper. The vessels have already been transferred to the Bulgarian Navy, but the country still owes Belgium about EUR 1 million (about 1.95 million Bulgarian Levs) from the payment that it was supposed to make in 2009.

Another adjustment involves Bulgaria’s modest fleet of 5 ordered C-27J light tactical transport planes. Bulgaria has already received the first 2, and still owes BGN 57.6 million (about EUR 29.5 million, of a EUR 91.8 million deal) to Alenia. Current Defense Minister Anyu Angelov says that “We are conducting hard talks with the Italians in order to be able to give up the fifth air plane.” In the end, the initial order was reduced to 3, and deposits on planes 4 & 5 were used to pay for the 3rd plane.

The draw on Bulgaria’s fiscal reserves would fix a 2003 umbrella deal for Daimler-Chrysler trucks, which provides for annual deliveries. In 2009, Bulgaria received 155 transport vehicles under this contract, and still owes BGN 22.3 million. That order was reduced under an agreement signed in December 2010, but details remain sketchy.

The biggest issue is a January 2005 deal with Eurocopter for 12 AS532 Cougar medium utility helicopters, and 6 small naval AS565MB Panther helicopters for its navy. Under the terms of the EUR 358 million deal, all helicopters remain Eurocopter’s property until the contract is paid in full. According to the Bulgarian Cabinet’s Aug 4/10 announcement, Bulgaria still owes Eurocopter BGN 175 million (about EUR 89.5 million).

So far, Eurocopter has delivered 11 Cougar and 3 Panther helicopters. Bulgaria has already paid the EUR 240 million guarantee deposit, and the French bank Societe Generale SA can draw from that deposit up to 60% of the cost of any helicopters that are not paid for. In other words, if nothing else is paid, Bulgaria could lose its entire deposit, and all of its delivered helicopters. Defense Minister Anyu Angelov is also looking to re-negotiate this deal, in order to give up the 3 Panther helicopters that have not been delivered yet, but the bank’s role complicates this discussion.

Additional Readings

• DID – Bulgaria Changes Its Order for up to 8 C-27J “Baby Hercs”

• Bloomberg (Dec 16/10) – Bulgaria Cuts Military Orders to Lower State-Budget Spending. C-27Js, Daimler trucks. Eurocopter still in negotiations.

• Sofia News Agency (Aug 4/10) – Bulgarian Govt Sacrifices Reserve Funds for Troubled Arms Deals