Upcoming changes for the underground resources sector in Bulgaria

Bulgaria

After almost two years of anticipation, a new bill amending and supplementing the Bulgarian Underground Resources Act (URA) was published for discussion and public consultation.  

The Bill is the result of efforts by the Ministry of Energy to provide comprehensive regulation on concessions for underground resources after this was excluded from the 2018 Concession Act. 

The suggested new additions clarify principles underlying the current URA, and create a more transparent legal framework for granting permits and concessions in the underground resources sector.

This draft Bill has been a hot topic in the sector for the past eighteen months.

The most significant changes proposed in the new Bill include:

  • Comprehensive procedural rules and requirements when granting prospecting and/or exploration permits or concessions

In line with the main rules of the Concessions Act and the Public Procurement Act, the Bill provides more detailed procedural rules and requirements for granting permits and concessions to candidates. There are new requirements for evidence of compliance during procedures.

According to the Bill, candidates applying for permits and those applying for concessions must fulfil certain financial and technical requirements, which will be outlined in the tender documentation and unlike the existing URA gives some guidelines for these requirements.

For example, in order to apply a candidate's financial resources must be sufficient to perform the activity under the permit or the activities under the concession for at least five years after the entry into force of the concession agreement. A candidate must prove this activity with a bank certificate, an excerpt from a financial statement or an agreement with a third party providing the resources (i.e. financing). 

In addition, the Bill sets out a list of circumstances that must be met for an individual to participate in a procedure (e.g. lack of insolvency proceedings, no criminal record and no outstanding tax obligations).

  • Options to prolong terms

As per existing regulations, extending the concession term is not possible unless provided for in the concession agreement. The Bill states, however, that the concessionaire can propose an extension of the term based on a plan for development of the discovery and if there is proven financial justification for the extension. The candidate has performed all its obligations and there are enough remaining resources in the discovery.

Regarding permits for prospecting and exploration, the Bill provides that apart from the existing opportunities for prolongation of the term (twice with two years), the holders shall be granted one additional option to extend the term with two more years.

  • Amendments to Concession Agreements 

Unlike the current URA, the Bill allows for amendments and supplements to concession agreements if:

    • a danger for the national security, the environment, the health or safety of the citizens has occurred;
    • the object of the concession has been partially demolished or cannot be used for the stated purpose;
    • circumstances have occurred resulting in higher benefits for the concessionaire than originally envisaged;
    • in other cases determined by the law or in the concession agreement. If the amendments are within the frames of the decision for granting a concession, the additional agreement will be executed solely with the Minister of Energy and a permit by the Council of Ministers will not be necessary.
  • Granting concession to a successor and opportunity to grant concession “by right” to existing concessionaire

The Bill further provides that a concession may be granted to the permit holder’s successor if the conditions are met. An option for an existing concessionaire to be granted with a concession “by right” if the allowed maximum concession term has expired and there is remaining resource but not sufficient for granting a new concession.

  • Concession payment

Currently, the concession payment is determined in the concession agreement. According to the Bill, payment will be determined as per an ordinance adopted by the Council of Ministers, which shall be proposed by the Minister of Energy and the Minister of Finance.

We were hoping to see amendments to the ‘stability clause’, which was vaguely written and sparked discussions and questions, such as: how will it be enforced? Unfortunately, the draft does not contain any amendments or supplements for this provision.

Any contracts in force after the adoption of the Bill will remain in force and be performed in compliance with the agreed-upon conditions. All new provisions in the Bill concerning terms, termination and contract amendments will be applied.

Interested parties can make proposals and comments on the Bill until 15 May 2019. After the first vote by parliament, proposals for changing specific provisions can be made within seven days. Afterwards, the national assembly will vote on it text-by-text for the second time.

For more information, please contact the authors: Kostadin Sirleshtov, Denitsa Dudevska and Zornitsa Stoykova.