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I N F O R M A T I O N

ON THE ESTABLISHMENT OF A JOINT VENTURE BETWEEN

THE BNB PRINTING WORKS AD AND FRANCOIS-CHARLES OBERTHUR INTERNATIONAL SA

(The data included in the trade secret information have been furnished with the consent of BNBPW and Francois-Charles Oberthur)

LEGAL FRAMEWORK

Under art.57 of the Law on the Bulgarian National Bank (LBNB), the Bank may incorporate or acquire interests in companies in connection with the activities performed by it. Under art.8, item 24 of the Operating Rules of the BNB Governing Council, the Governing Council of the Bank makes decisions on the BNB’s setting up companies, acquiring or selling its interests in companies, in connection with its activities.

Under art.55 of LBNB, the BNB’s property is separate from the property of the State.

The BNB is not a budget organisation: it is financially self-supported by own incomes from bank transactions and operations, and is registered as a large taxpayer with the National Revenue Agency. The only relations between the BNB and the state budget are following art.8, par.3 of LBNB according to which the account of the state budget is credited annually with the remainder of the annual excess of the Bank’s revenue over its expenditure.

The companies where the BNB has interests in connection with its activities1 on the grounds of art.57 of LBNB have been set up as entities of the private law under the Law on Commerce.

The BNB independently exercises its rights over the shares it holds in joint-stock companies, including in BNBPW. All related decisions are taken by the BNB Governing Council which is the supreme decision-making body of the Bank.

The BNB is accountable only to the National Assembly. In accordance with articles 50 and 51 of LBNB the Bank presents to the National Assembly annual and semi-annual reports on the Bank’s activities, reports on the performance of the BNB’s budget, and consolidated financial statements certified by an international auditor and these reports consolidate the results of all joint-stock companies in which the BNB has equity holdings.

As required in articles 130 and 131 of the Treaty on the Functioning of the European Union, the central banks in the EU are independent institutions. These requirements have been literally transposed into art.44 of LBNB, under which when exercising its powers and carrying out its tasks and duties, the BNB, the Governor and the Governing Council members are independent and may not seek or take instructions from the government or other bodies or institutions. Neither may the Council of Ministers nor any other bodies or institutions give instruction to the BNB.

SECURITY REQUIREMENTS FOR THE PRODUCTION OF BULGARIAN BANKNOTES

Under art.25, par.3 of LBNB the central bank has the exclusive right to print banknotes and mint coins needed for the currency circulation in the Republic of Bulgaria. The main security features of Bulgarian banknotes, as is the world practice, are mostly built into the banknote paper and in the specifics of the used inks. There are no national producers of banknote paper in Bulgaria. Since 1991, in compliance with the relevant legal provisions, the banknote paper orders have been awarded to one of the biggest world manufacturers - Papierfabrik Louisenthal GmbH, Germany, and that company meets the European standards for quality and security and the requirements of the Classified Information Protection Law. Afterwards the manufactured banknote paper is provided to BNBPW to print the images on the banknotes, and during the printing process additional security features are built in.

The information on the banknote paper (its technical specifications) intended for the production of Bulgarian banknotes is on the List of the categories of information subject to classification as ‘state secret’ under Section ІІ, item 27 of Appendix No.1 to art.25 of the Classified Information Protection Law (CIPL).

The Bulgarian National Bank signs contracts related to the banknote production, and the object of these contracts contains or requires access to classified information, only for legal persons that meet the security requirements, are economically stable, are reliable in terms of security, have been properly inspected under CIPL and have been granted the required security certificates of confirmations issued by the competent security authorities.

Such certificates or confirmations giving the right to the relevant level of access to classified information have been issued for BNBPW and its staff, and also for the paper manufacturer - Papierfabrik Louisenthal GmbH, Germany. The same requirements apply to any other local or foreign person that could have access to classified information in relation with banknotes production or supplies of the required materials for banknotes production.

Therefore, who produces Bulgarian banknotes and where is of no relevance to ‘national security’, as it was unfoundedly suggested in the media, because the CIPL requirements are clear and have always been complied with.

For 112 years – from 1885 to 1997 – Bulgarian lev notes were printed in Russia, England, Germany, the USA, and the USSR.

STATE AND PROSPECTS OF THE BANKNOTE PRODUCTION AT THE BNB PRINTING WORKS

The Printing Works of the Bulgarian National Bank AD (BNBPW) was set up at the end of 2001 as a sole proprietor joint-stock company whose equity was fully held by the BNB. From 1996 to 2001 the Printing works was a directorate in the structure of the BNB. BNBPW was established on the basis of property of the BNB that was contributed into the company’s equity.

In 2004, as a result of the acquisition of FORMPRINT EOOD (the state-owned company for printing securities) by BNBPW, BNBPW was transformed into a joint-stock company whose shareholders were the Bulgarian National Bank (holding 95.6% of the company’s equity) and the State through the Minister of Finance (holding 4.4 % of the company’s equity).

Being a joint-stock company, BNBPW is fully subject to the Law on Commerce. There are annual general meetings of shareholders (the BNB and the MoF) which approve the annual financial statement, the report on the company’s activities, etc.

All documents relating to BNBPW, EIC 130800278, are public and can be found in the Commercial Register.

BNBPW has two workshops – a banknotes production workshop and a securities production workshop.

The securities production workshop produces Bulgarian identity documents, excise bands, vignette stickers, public transport tickets and other securities. This workshop operates only on the basis of awarded public procurement contracts after tenders held in accordance with the Public Procurement Law. According to average data for 2010 – 2012, this securities production workshop brings the biggest part of the revenues of BNBPW.

Over the same period the banknotes production workshop ensured 19.9% of the BNBPW revenues, consuming 29% of the company’s expenses. Therefore, around 1/3 of the profits from the securities production workshop is used to cover the losses from the banknotes production workshop, which for the period 2010 - 2012 were on average around BGN 1 200 000 on an annual basis.

Between 1998 and 2011 the banknotes production workshop produced only the issues of Bulgarian banknotes (before 1998 the Bulgarian banknotes used to be produced in other countries). So far, the participation in tenders and the attempts to win orders (directly or as a contractor to other companies) from other countries did not succeed. However, the BNB’s orders alone are not sufficient to ensure the use of the full production capacity of this workshop, and this makes the production costs considerably higher because the high fixed costs are distributed over a smaller volume of end production.

In the period 2002-2009 the amount of produced Bulgarian banknotes increased as a result of the replacement of some banknote denominations with new ones having better security features, the creation of a strategic stock of banknotes, the implementation of the requirements of the BNB Ordinance No.18, and the fast growth of the economy. Later, the slowdown of the economy and the currency circulation considerably reduced the number of the produced Bulgarian banknotes. As a consequence of the specifics of the currency circulation and the rise in the price levels it is very likely that over the next years the banknote of BGN 2 would have to be replaced with a coin, and this would additionally decrease the number of banknotes which the BNB is going to order for production.

The banknotes production workshop of BNBPW has a specialised sheet production line. Its capacity is around 200 - 220 million banknotes under two-shift operation. This line is a ‘second generation technology’ and its equipment was purchased mostly in the period 1996–1997. With the exception of the two systems installed in 2009 - On-Line Inspection System and Computer To Off-set Plate Hybrid System - which are not main production lines, the banknote production technology and equipment have not been renovated since their initial installation and are suited to the banknote production concepts of the mid-1990s. The machines were purchased in 1996-1997 by the BNB (at that time the printing works was still a unit in the structure of the BNB) and were accounted for with a depreciation rate of 5% (i.e. a working life of 20 years, which is too long in terms of the equipment obsoleteness).

The next generation technology lines are much more expensive and of a much more advanced technical capacity, which the BNBPW does not have. Investing in such production lines would reduce the unit price in the banknotes production to competitive levels, only if the guaranteed volumes of production were from 600 to 800 million banknotes annually. At this stage the number of Bulgarian banknotes produced annually cannot ensure an amount of production that would make investments in a next generation technology economically justifiable. The expectations for the economic growth in the coming years suggest that the production of Bulgarian banknotes would stay at relatively low levels, in the range of 60 to 90 million annually. Such a volume of production would effectively engage the capacity of the banknotes production workshop for approximately three months.

The big euro banknotes production market is inaccessible to BNBPW because of the large scale investments needed to create technical and competitive conditions for the production of euro banknotes in the BNBPW. Euro banknotes can only be produced by ECB certified printing works – a certificate which the BNBPW does not have. The currently existing equipment does not allow the production of banknotes of denominations 50, 100, 200, and 500 euro from the current series ES1. Equipment costs accordingly increase for the production of euro banknotes from the new series ES2 in circulation since May 2013.

Given the current level of technical equipment and practical distribution of the international banknote production market among three large printing works, the BNBPW cannot be competitive in direct tenders for banknote production.

CHOOSING A STRATEGIC PARTNER. WHY OBERTHUR?

The issue of the future of banknote production became particularly poignant with Bulgaria’s preparation for EU membership.

In February 2007, the BNB Governing Council discussed at its session a strategy for development of the banknote production in BNBPW and the issue of insufficiently utilized capacity of the banknote production workshop running only for Bulgarian banknotes’ orders. The analysis has shown the need of attracting a strategic partner for BNBPW with a view to developing the technical aspect of the BNBPW’s banknote production and reaching higher level of competitiveness, on the one hand, and on the other – BNB’s possibility to move onto tenders for selecting a producer of Bulgarian banknotes.

The global euro notes production market is controlled by three large private printing works – DeLaRue (UK), Gieseske & Devrient (Germany), and Francois-Charles Oberthur Group (France).

Within EU, euro banknotes are produced by 13 ECB-accredited printing works which are owned by the central banks, governments or private entities. The central banks of small production quota countries (such as Estonia, Malta, Cyprus, and Slovenia) combine their orders and run common tenders to achieve lower prices.

Over the recent years, in the process of looking for banknote printing orders for BNBPW by third parties, consultations were conducted with two world banknote production leaders to establish strategic partnership with BNBPW – Giesecke & Devrient, Germany and Оberthur Fiduciaire SAS, France, which the BNBPW knew from our cooperation and which are from EU member states.

The interest manifested by Giesecke&Devrient has always been only and mainly in buying BNBPW’s shares. The BNB’s answer has been negative basically because the BNBPW began producing identity documents and the postponed date for joining the euro area gave further time for finding another solution.

Subsequently, in the process of looking for orders to fill in the capacity gap of the production workshop, contacts were established with Oberthur Fiduciaire SAS, France who manifested interest in cooperation. Francois-Charles Oberthur Group is a holding based in France and is the third largest banknote manufacturer worldwide. The Holding produces annually between 4 to 4.5 billion pieces of banknotes for 70 countries around the world. The group consists of subsidiaries based in France (Оberthur Fiduciaire SAS), Belgium (Francois-Charles Oberthur International SA), and UK (Оberthur Fiduciaire UK) to name a few.

In 2011 and 2012, Oberthur Fiduciaire SAS, France and BNBPW started technical cooperation. During that period, the BNBPW staff’s expertise was assessed highly and as a result the French partners agreed to begin negotiations towards setting up a joint venture for banknote production using the existing equipment and human resources from the BNBPW banknote production workshop. Unlike Giesecke & Devrient, Oberthur did not lay down conditions for buying the Printing Works, which BNBPW and BNB found acceptable.

AGREEMENTS REACHED

By Resolution No 85 of 22 November 2012, the BNB Governing Council agreed to start a negotiation procedure for establishing a joint shareholding venture between Oberthur and BNBPW with the progress of negotiations being regularly reported to the BNB Governing Council. The circulated media assertions of Bulgaria’s care-taker government and its representatives playing a role in the course of negotiations are untrue. The Republic of Bulgaria’s government had a role only in the BNBPW shareholders’ general meeting held on 26.06.2013 when the state, through the finance minister, also gave its support to the project in the capacity of a minority shareholder.

The following major agreements were reached:

• Establishing a joint venture with a capital stock of BGN 63,447,000, of which BGN 44,412,900 (70 %) to be paid in as a monetary contribution by Francois-Charles Oberthur International SA2 and BGN 19,034,100 (30 %) – by BNBPW, of which BGN 19,034,000 as a non-monetary contribution of banknote production machines and equipment and BGN 100 as monetary contribution for capital equalization. The non-monetary contribution of the BNB in the Company’s capital was evaluated by three experts appointed by the Registry Agency on the grounds of art. 72 of the Law on Commerce, BNBPW and BNB having no relation whatsoever to either their names or appointments;

Letting self-contained administrative and production premises - BNBPW property - to be used by the new Company. The new Company was envisaged to rent 5,173m2 production premises on the underground floor, 4478m2 production premises on the first floor and 398m2 administrative premises on the second floor of the BNBPW building which make up to a combined 38.8% of the overall built-up area of the BNBPW owned building. These premises are physically separated from the BNBPW’s other production premises. To determine the market rent of the above premises an assessment was made by a licensed assessor engaged by BNBPW which determined a monthly rental price of BGN 103,260, VAT excluding. For verification of the assessment, Oberthur, in its turn, engaged a licensed assessor who determined a monthly rental value of 41,864 euro (BGN 81,879). As a result of negotiations, the monthly rental price of the premises payable to BNBPW was set at BGN 95,000, VAT excluding, which would be BGN 1,140,000 per annum (VAT excluding). Added to this price would be rented movables and stock as per inventory list, located in the rented premises, and a pro-rata BGN 9120 payment for security guard and maintenance of the building, or additional BGN 109,440 per year. Thus, the income from letting BNBPW premises would total BGN 1,249,440 per year (VAT excluding);

Banknote production for the new Company was envisaged to be contracted at a price formed on the basis of fixed market premium (margin) above production costs. Primary material inputs of production would be provided by the contracting authority;

• The Company would distribute dividends annually, of which 30 % would go to BNBPW;

• Already from the beginning of next year, a three-shift loading of capacities and gradually increasing production to around 1 billion pieces of banknotes annually were envisaged;

Moving the entire staff from the BNBPW banknote production workshop to the new Company on the grounds of art. 123, item 7 of the Labour Code. The workers were duly notified of the forthcoming change by their employer, pursuant to art. 130 b of the Labour Code, at a general meeting of workers and employees held on 18 June 2013. As the prior notification under art. 130 b of the Labour Code is two months, signing of the Articles and Memorandum of Association for setting up the joint venture was scheduled for 19 August 2013. The plan also included opening a fund raising account with a Bulgarian commercial bank to pay in the capital and entering the documents into the Commercial Register for registration of the Company.

Clearly from the aforementioned data, the intended date for the Company’s registration is an outcome of the nearly 6-months’ negotiations started on the grounds of BNB Governing Council’s Resolution No 85 of 22 November 2012 and the Labour Code constraints, and has nothing to do with the so-called “parliamentary vacation” as slanderously reported in some media. To date, no Company has been registered as the BNB Governing Council wishes to wait until further information has been gathered at the National Assembly’s Budget and Finance Commission with the completion of the Sofia City Prosecution Office’s examination.

RATIONALE BEHIND THE SHARE PARTICIPATION. WHY 30%:70%

The share distribution between the two shareholders reflects the Company’s strategy for attracting orders from the international markets, commitments for providing similar orders (business) and revenues for the Company; the technological and legal requirements to awarding banknote production contracts. The availability of equipment and qualified staff by itself without production orders generates only losses and is not a sound business-model.

Providing of orders and utilization of production capacities will be done only by Oberthur Fiduciaire SAS without any commitments on BNB’s part.

The equity share participation of the two shareholders of 30% for BNBPW and 70% for Francois-Charles Oberthur International SA takes into account the exact contribution of the two shareholders to the Company’s development. Thus, Oberthur International SA will have the possibility to exercise control over the technology and methodology of the production process in the process of implementation of the production orders placed by it, consolidation of financial statements of the new Company in the Group’s balance sheet, as well as untroubled performance by the Company as part of the Oberthur Group of orders for production of other countries’ banknotes awarded following relevant procedures.

Since the start of its activities as an independent shareholding company in 2002, BNBPW has participated many times in international tenders for production of banknotes of other countries; however it has never won a contract. BNBPW as a shareholder is not in the position to ensure international contracts for the Company. Neither does BNB make any commitments to ensure contracts for Bulgarian banknotes for the new Company. On the contrary, BNB intends to organise the production of Bulgarian banknotes based on tenders according to the national requirements under the Public procurement Law and current European trends (Guideline of the European Central Bank 2011/3 of 18 March 2011 amending Guideline ECB/2004/18 according to which the single tender procedure for production of euro banknotes should start no later than 1 January 2014), and aiming to achieve the best possible production price in compliance with the highest quality and security standards.

Francois-Charles Oberthur Group is among the three largest, best reputed and market positioned banknote producers worldwide. The Holding annually produces between 4 and 4.5 billion pieces of banknotes under contracts awarded on a competitive principle (the entire free/competitive banknote production market worldwide is estimated at 18-20 billion pieces of banknotes per annum). In the next year, the joint venture is envisaged to produce around 1 billion pieces of banknotes under contracts entirely provided by the French counterparty. In practice, by the agreed participation the BNBPW will receive orders by Francois-Charles Oberthur Group at a guaranteed profit level. This is a volume of production and a share in the global market which BNBPW cannot gain on its own.

The second factor determining the distribution of shares between the two printing works are the technological and legal requirements of the agreements for banknote production. In conducting international tenders for production of banknotes central banks have a requirement to explicitly name the locations of banknote production, and the printing works fulfilling the orders should meet the standards of access to information, standards for security and a quality control standard. For Francois-Charles Oberthur Group to be able to guarantee the fulfilment of these standards they should have full control on the company, and hence on the process of production (thus, the new company will be able to receive from the ECB a certificate for production of euro banknotes, which presently BNBPW does not have).

The requirement of qualified control over the Company by Francois-Charles Oberthur Group due to all above-listed reasons was underscored as a required condition for channelling this enormous production of foreign banknotes to Bulgaria. The capital control in the amount of 70% will allow for treatment of the new company by all placing production orders with it as a separate production unit of the well-known Oberthur Group.

On its part, Oberthur agreed for the transactions of greatest importance for the Company (under art. 236 of LC) to be voted by the General Meeting of Shareholders of the joint venture by a ¾ majority (75% of the capital even though the Law on Commerce does not contain any requirement for such a majority), i.e. such decisions cannot be taken without the consent of BNBPW. These are transactions for transferring or providing the company for use, as well as for disposal of assets, assuming obligations or providing security, the amount of which in the current year exceeds half of the value of the company’s assets according to the latest certified annual financial statement.

Last, but not least, the shares of the company may be transferred only between the two shareholders. Provided one of the shareholders wants to sell its shares to a third party, it should first offer them for purchase to the other shareholder.

Provided the capital of the company totalling BGN 63,447,000 is not used for new investments immediately after the incorporation of the company, a possibility is provided for the capital to be reduced at the first General Meeting of the new Company. This is aimed at allowing for distribution of excess financial resources between the shareholders, instead of them being managed by the Company. Thus, each of the shareholders will receive at its disposal to manage a part of the capital corresponding to its share in the capital. As regards any future increase in the capital, it should be taken into consideration that BNBPW has sufficient free funds to participate in such an increase even without relying on the financial power of its shareholders, BNB and MoF.

ASSESSMENT OF ECONOMIC EXPEDIENCY BY INDEPENDENT EXPERTS

When making a decision for establishment of the joint venture, in addition to the above considerations, the following circumstances have been taken into account, analysed by the biggest audit and consultancy company in the world - KPMG:

Operational aspects

There are no technological obstacles for the separation of the banknote production from other productions of BNBPW;

Expansion of the existing production capacity and staff is envisaged;

The operating profit of the joint venture is ensured, as well as volumes of production.

Regulatory framework:

There are no legal restrictions as regards the participation of BNBPW in the joint venture.

Financial impact:

• Under the scenario of preserving the existing business model:

The banknote production will continue to generate losses in the long-term, in spite of certain projected increase of the volume of orders compared to 2012 in the amount up to 60 – 90 million banknotes per annum.

Taking into consideration the value of the cash stocks and the non-operating assets, which compensate the above-mentioned losses under the existing business model, the present value of the BNBPW’s capital is valued at BGN 19.5 million.

• Under the scenario of implementing the strategic partnership:

The realization of the strategic partnership would bring the following economic benefits for the shareholders of the Printing Works (the BNB and the State represented by the Minister of Finance):

• Improvement of the financial results of the Printing Works after the separation of the loss-generating banknote production;

• Additional revenues from renting production premises used by the joint venture, as well as dividends which would improve the profitability of the Printing Works.

Provided the new business model is implemented, only as a result of eliminating the losses from the banknote production, the economic value of 100% of the capital of BNBPW will increase from BGN 19.5 million to BGN 37.8 million, i.e. almost twice higher than the value under the present business model. In addition, as a result of the expected profitable operations of the new company in which BNBPW is a shareholder, the economic value of 100% of the capital of BNBPW will increase to BGN 56-57 million, i.e. it will almost triple, which is in favour of the two shareholders of BNBPW – BNB and the State through the Minister of Finance.

THE MANIPULATION “HIDDEN PRIVATISATION”

As a majority owner of the capital of BNBPW, and under the conditions of its legally regulated independence and with a status of its property as independent from the state property, the Bulgarian National Bank, through its Governing Council is the only one competent to make decisions regarding the future development and strategy of BNBPW in any direction whatsoever. The public allegations of “hidden privatization” cannot be defined in any other way but as untrue and manipulative.

Nobody can talk of privatization of BNBPW because, the property of the BNB is separate from the State’s property according to art. 55 of the Law on the BNB and the BNB is a majority owner of 95.6% of its capital.

There can be no talk of privatization of the Printing Works even if the State through the Minister of Finance was its majority owner, due to the following considerations:

According to art. 1, para. 2 of the Law on Privatization and Post-privatisation Control (LPPC), which is the only one containing any legal definition of the concept of “privatisation”, privatization is the transfer through sale to Bulgarian physical or legal persons wherein the state and/or a municipality holds an interest in the capital not exceeding 50 per cent, or to non-resident persons of: 1. any interests or shares owned by the state or the municipalities in any company; 2. any interests or shares owned by companies wherein the state holds an interest in the capital exceeding 50 per cent in other companies; 3. any self-contained parts of the property of companies wherein the state and/or a municipality holds an interest in the capital exceeding 50 per cent; 4. any self-contained parts of the property of companies, the capital of which is owned by other companies wherein the state and/or a municipality holds an interest in the capital exceeding 50 per cent; 5. properties that are private state property with tax valuation exceeding BGN 10,000; 6. municipal non-housing properties.

There is no sale of shares in BNBPW;

There is no sale of movable or immovable property of BNBPW – only renting at a market price;

Presently there are no plans for divesting BNB either of its participation in BNBPW, or of its participation in the new joint venture.

CONCLUSION

As it was repeatedly noted, one of the largest banknote producers in the world is a partner in the new company, and it cannot be defined as a “garage sales company”. Francois-Charles Oberthur, France, was established in 1842 and presently produces banknotes for 70 countries all over the world, which figure speaks in itself about the company’s magnitude and reputation. For the first time in its more than 170-year-long history Francois-Charles Oberthur, France, will start doing business for the production of banknotes outside the territory of France, which is a huge success not only for BNBPW, but also for Bulgaria;

All employees in the banknote workshop (57 people) are transferred as employees in the new company, and the number of the people employed is expected to triple by 2016, reaching 190. Presently the employees of the banknote workshop are on a paid annual leave or receive 50% of their remuneration under part-time employment due to absence of any work orders;

The establishment of the joint venture will not have any impact on the operations and assets of the workshop for production of securities, which remain, as currently, within the BNBPW. Their transfer into the new company is not planned either presently, or at any later stage. BNBPW will continue to do, as it has done so far, the designing and production of identity documents, excise bands, vignette stickers, bingo vouchers, other types of securities, printed matter (including totalizer forms, diplomas, savings books, tickets, fill-in forms, and other forms, etc.) observing the highest standards of security, control and quality. BNBPW closed the financial 2012 with a positive financial result exclusively owing to the revenues from the operation of the securities production workshop.

No changes are envisaged in the activities of BNBPW as regards the production of securities, which is profitable, neither will there be any changes in the ownership of BNBPW, which will remain in the future with the BNB and the State, through the Minister of Finance, as its shareholders with the same shares in its capital (95.6% for BNB and 4.4% for the State through the Minister of Finance). Francois-Charles Oberthur SAS, France and Oberthur Fiduciaire, Bulgaria, have no relation to these operations of the Printing Works.

Making the non-monetary contribution into the capital of the new company by the BNBP will not involve any reduction of the capital of BNBPW, nor any change of ownership over the share capital of BNBPW. BNBPW will provide as an in-kind contribution in the new company only the banknote production equipment, mainly purchased in 1996 -1997, which is already obsolete and is at the end of its useful life, and one machine purchased in 2009. The non-monetary contribution of BNBPW into the capital of the new company amounts to BGN 19,034,000, evaluated pursuant to art. 72 of the Law on Commerce by three experts, appointed ex officio by the Registry Agency, and BNBPW and BNB had no relation, whatsoever, to their selection. Against the non-monetary contribution thus made, BNBPW will acquire shares in the new company.

As a shareholder in the joint venture BNBPW will receive on annual basis a dividend corresponding to its share, which will amount to 30% of the expected annual profit, as well as revenues from renting some self-contained premises (38.8 % of the total built-up area of the building owned by BNBPW), which will amount to BGN 1,249,440, calculated on annual basis. No such positive result of a similar amount could be realized from the banknote workshop if it operates within BNBPW, on the contrary – it generates losses from printing only Bulgarian banknotes.

To date, the joint venture is not registered, nor any documents have been filed for this with the Commercial Register;

If the joint venture with Oberthur is not realized, the alternative in the near future would be to close the banknote production and make the qualified staff redundant. This possibility was discussed before making the decision for establishing the joint venture.

From the point of view of creating technical and competitive conditions for production of the latest generation of banknotes (including euro banknotes) at the BNBPW, large-scale investments will have to be made, which however if made by the BNBPW shareholders (BNB and MoF) on their own, cannot be paid off in a long-term perspective from the orders made by the BNB, and no full-time employment around the year can be guaranteed for the employees of the banknote workshop. On the contrary, such investments would drastically increase the cost of Bulgarian banknotes. The utilization of the production capacities is only possible if orders are awarded for production of banknotes of other countries, which can happen only jointly with a foreign producer well established in the global market of banknote production.

From all the facts presented so far, it is absolutely and indisputably clear that:

1. All decisions of the BNB Governing Council and the Board of Directors of the BNBPW were made totally within the legal provisions and were motivated solely by the economic logic and public interest. So is the decision of the Minister of Finance to support the establishment of the joint venture.

The implementation of the joint venture will achieve:

• Attracting of a key global-scale investor, which is a success not only for the BNB but also for Bulgaria;

• A unique opportunity for the country not only to preserve its banknote printing capacity but also to get to the global market of this extremely closed business of age-long traditions;

• Providing opportunities for printing of euro banknotes in Bulgaria;

• Overcoming the average annual loss of about BGN 1.2 million of the BNBPW;

• Opening 130 new jobs in the next 2 years;

• Lower cost of Bulgarian banknotes as a result of the tender procedure opened under the Public Procurement Law.

2. If we eventually back out of the incorporation of the joint venture, that will mean:

• Publicly legitimizing and giving free rein to individual party functionaries, by their positions voiced in the media, to make decisions on key issues instead of the responsible Bulgarian institutions;

• A negative signal to potential large investors of high political risk in Bulgaria;

• Phasing out banknote production as a result of proven annual financial loss;

• Making redundant 57 employees, some of them extremely valuable banknote production experts.

_____________

1 BNB Printing Works AD, Bulgarian Mint EOOD, Cash Service Company AD, Borica Bankservice AD, and International Banking Institute OOD.

2 Francois-Charles Oberthur International SA is a subsidiary to Francois-Charles Oberthur SAS. The Company is registered in Belgium to conduct the FCO Group’s industrial and financial investments abroad. The value of the Company’s capital is 410 million euro.


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