Industry voices reaction to Bulgaria's draft Underground Resources Act

Earlier this week, the Bulgarian Ministry of Energy addressed suggestions made by the industry and public regarding draft amendments to the Underground Resources Act.

The most comprehensive amendment and supplement to the Underground Resources Act tabled so far, the initial Bill's provision that each concession agreement may be amended or supplemented by mutual agreement of the parties (if the benefits for the concessionaire exceed the anticipated results when the agreement was signed) was one of its most controversial provisions, triggering discussions within the industry and suggestions from interested parties.

The main arguments by the business community against the initial versions of the Bill include:

• a perceived lack of clarity on the scope of the mentioned “benefits”;
• the belief that a mechanism is already in place for maintaining a balance between parties (regarding calculation of concession payments);
• the perception that the provisions are one-sided giving the concessionaire little area to "move";
• the perception that the text creates uncertainty and may be broadly interpreted.

Although the Bill's text closely followed European legislation, the Ministry of Energy (MoE) approved the following new text based on public feedback: "the concession agreement may be amended or supplemented upon mutual agreement, if there are circumstances that significantly change the financial conditions under the concession."

The initial version of the Bill had two separate provisions in a single article for financial collateral. One provision covered the performance of concession obligations, and the other addressed liability for environmental damages caused by the concessionaire. Because there appeared to be difficulty differentiating between the two types of collateral, the MoE amended the text, although the new wording is not currently available.

The limitation of having all disputes regarding the presence of grounds for amendment or supplement of the concession agreement resolved by state courts has been removed. The parties may select the form or appoint an expert to resolve the dispute.

As for conditions whereby candidates can be awarded a concession or license for prospecting and exploration, the following suggestions were accepted:

• A candidate cannot have overdue tax and social security liabilities;
• The Bill's provision that candidates must have certain assets for performance of the concession was considered restrictive towards new companies and did not recognise that assets can be acquired after a concession is awarded. As a result, it was proposed that preliminary agreements for acquisition of assets should be accepted as valid proof of compliance;
• To avoid disclosure of confidential information, compliance regarding the requirements for individuals responsible for the performance of activities under the concession or license can be confirmed by providing an excerpt from an agreement between the concessionaire and the individual;
• Foreign candidates can prove compliance with requirements for candidates by providing a declaration from an individual representing the candidate or with a document issued by competent authorities;
• Candidates should have the right to use the resources of third parties to prove compliance with any requirements regarding their financial, technical or professional capacity.

The new draft Bill is subject to review by the Council of Ministers before being submitted to Parliament where further amendments can be made. For more information on this Bill and its impact on resource extraction opportunities in Bulgaria, feel free to contact one of the following local CMS experts directly: Kostadin Sirleshtov and Denitsa Dudevska.

Law-Now's initial coverage of the Underground Resources Act can be found here.

Article co-authored by Zornitsa Stoykova.