Energy Sector Overview  Positioning of Bulgaria as a reliable base for the transit of oil, natural gas and electric power and as a regional dispatching centеr  Biggest exporter of electricity on the Balkans – 6,790 GWh  Available electricity generation capacity– 10,234МW  Trend towards greater energy independence through development of local energy resources

Investments in the Energy Sector Project: Rehabilitation of U 1-4 & construction of FGDs at units 5 and 6 of Maritsa East 2 TPP Rehabilitation of 4x150 MW units + installation of FGDs & Construction of FGDs at units 5 and 6 EPC Contractor U1-4: Mitsui Co Ltd, Japan EPC Contractor FGDs 5&6 : tender May 2004 Total investment EUR 226 M financed by JBIC – 85% of the project's cost 75 million euro, co-financed by ISPA (grant), EBRD (credit) and Maritsa East Status: financial arrangements in process, S&P assigned 'BB' long-term corporate credit rating to Maritsa East II TPP

Investments in the Energy Sector Project: Construction of replacing capacity on the site of Maritsa East 1 New capacity 2x335 MW + installation of FGD`s Total expected investment: EUR 900 M Project financed: BOO Status: financial arrangements in process, expected financial closure end 2004 Expression of interest: AES; Mitsui + ENEL

Gas Bridge between Asia and Europe NABUCCO GAS PIPELINE PROJECT Gas Bridge between Asia and Europe BASIC DATA The pipeline length – 3.400 km Consumption estimated: 20-25 billion m3 p.a. Status: Feasibility Study ongoing; New pipeline effective operation expected 2012; Starting at Georgian/Turkish and Iranian/Turkish border leading to Central and West European markets Estimated investments costs – 4.4 Billion Euros

The Regional Perspective New natural gas interconnections The main destinations: Increase of Russian natural gas transit through Bulgaria to Greece, Turkey and FYROM. Opening up of opportunities for Russian natural gas transit to Italy by means of a transit gas pipeline viewed as part of the development of European corridor № 8. Construction of a gas pipeline between Bulgaria and Serbia and Montenegro for Russian natural gas transit. The “NABUCCO” Project

Credit Rating of Bulgaria Bulgaria has proven higher investment credibility June 2004 Standard&Poor’s gave an investment-grade foreign-currency rating BBВ- (stable outlook) by Standard&Poor’s; BBВ- (stable outlook) by Fitch IBCA; Bа1 (stable outlook) by Moody’s; BBВ- (positive outlook) by the Japan Credit Rating Agency

Tax Reform – Budget 2005  establishing new enterprise  Corporate tax: 15%  Income tax rate: min - 10%; max - 24%  Increasing the amortization norm for new plant and equipment: 50%  Expenditure on research and development of the companies are not subjects to taxation  Tax Preferences:  establishing new enterprise  expanding of an enterprise  increasing the average number of employees

Investment Categories Third category – universal measures (Euro 5 - 25 mln.)  Submission of information, prepared and processed in advance;  Certificate, specifying the investment category and the type of administrative services, provided by the central and local executive authorities;  Minimum deadlines. Second investment category (Euro 25 - 50 mln.)  Individual administrative services;  Individual information services;  Institutional support. First investment category (above Euro 50 mln.)  Universal measures;  Institutional support;  State aid for developing the necessary elements of technical infrastructure.

Requirements to investors  Establishing a new enterprise, expanding or modernizing an existing one  Term of project implementation – up to 3 years  Creating new jobs  Economic efficiency

Investment incentives in Bulgaria  15% corporate income tax in 2005  0% corporate tax in areas with above average unemployment  Depreciation rates – 2 years for computers and related equipment and 3 1/3 years for manufacturing equipment  2-year VAT exemption for imports of equipment, consumables and components related to investment projects valued over € 5 million  0% capital gains tax  The highest bracket for personal income tax is only 29% for monthly income over € 300  The Employment Agency’s Programmes and measures for employment of young people

Innovation Strategy measures for stimulating innovative and research potential Stimuls for research, related to industry and the co-operation among R&D units, universities and business;  Improvement of the innovations funding, evolving mechanisms for attracting private equity/capital;  encouraging implementation of new technologies;  support for the establishment of clusters in sectors, traditional for our country;  support for newly established companies and firms that develop successfully in view of enhancing their innovative potential;  creating mechanisms for attracting foreign investment in the spheres of science and technology.