BULGARIA'S IMAGE TARNISHED FOR MANY OVERSEAS INVESTORS

By Kerin Hope

Young pine trees growing on a freshly landscaped hillside bear witness to the efforts of Dundee Precious Metals to prove its environmental credentials in Bulgaria.

The Canadian mining group has included a large-scale clean-up as part of a $175m investment to modernise and expand facilities at Chelopech, the largest gold mine in the Balkans.

Laurence Marsland, executive director of Chelopech Mining, the group's Bulgarian subsidiary, says that exports of gold-bearing copper concentrate have doubled to 1m tonnes yearly and the company is in profit.

The next stage of Dundee's plan is to build a processing plant to produce copper and gold at Chelopech.

But the group's ambition of becoming Bulgaria's biggest gold producer has hit an unexpected obstacle.

Dundee, listed on the Toronto stock exchange, is officially rated a "first-class" investor by Bulgaria's government. Stoyan Stalev, director of the state investment agency, said: "Companies in this category should benefit from accelerated procedures for receiving licences and permits."

But the socialist-led coalition government has delayed almost nine months beyond the official deadline for issuing a decision on the Chelopech project. One environmental permit is still required, which has to be signed by Cevdet Chakarov, the environment minister.

"Senior officials at the environment ministry who handled our file tell us it's been approved as a high-quality investment. But we're still waiting for the minister to decide," Mr Marsland says.

Dundee is not the only foreign investor facing prolonged delays in getting permits. A dozen companies with projects totalling more than $2bn have similar problems, according to members of Bulgaria's employers' and industrialists' association.

"You would expect bureaucratic obstacles to fade away as accession approached but that hasn't happened," Mr Marsland says.

The European Union came close to postponing Bulgaria's accession because of its failure to tackle corruption and crime. The European Commission says safeguard measures could still be imposed next year if insufficient progress is made.

While foreign direct investment is expected to exceed $2bn this year for the third successive year, investors still complain of administrative obstacles, demands for kickbacks and inefficiency in the judicial system.

Bulgarian politicians are critical of the Movement for Rights and Freedoms, an ethnic Turkish political party in the governing coalition, which controls the environment ministry, for failing to curb corrupt practices. Ahmed Dogan, its leader, has spoken publicly about "a circle of companies" that enjoys close relationships with his party.

Evdokia Maneva, a former environment minister, said in a recent parliamentary debate that as many as 400 permits were being held up at the environment ministry. "It is clear that corruption is intended," she said.

In an interview with the Financial Times, Mr Chakarov says that Dundee is "a very good investor" but that the government needs to examine closely issues brought by local residents and environmental groups. "We want satisfied investors but we also have to protect national interests," he says.

Mining remains a politically sensitive sector because of poor operating practices under communism. Chelopech became notorious for causing environmental damage.

In 1990 the government halted local smelting of copper from Chelopech because of its high arsenic content. Land around the mine has been left uncultivated and fishing is banned in local rivers because of lasting contamination.

Dundee, the district's biggest employer with about 900 workers, has followed international mining companies' best practice - cleaning up past pollution, supporting a local school and funding community welfare projects.

Alexi Kesiakov, mayor of Chelopech, says "The company's made a positive difference around here. People have started to come from other places asking for work because they've heard the town's doing well."

Environmentalists object to Dundee's plan to extract gold through high-pressure oxidation, a technology including use of cyanide. Mr Marsland says the new plant is designed to outperform EU standards for cyanide levels in waste water.

Dundee is already making a fall-back plan to build its gold extraction plant outside Bulgaria. "Only a few international smelters accept Chelopech concentrate because of the high arsenic content, and those contracts will end soon. We can't afford to wait indefinitely," Mr Marsland says.