The business community in Bulgaria was surprised to hear this week of the difficulties of one of the former symbols of the communist era - Kremikovtsi.

The metallurgical giant is downsizing its production by 15 per cent. The decision for this step, made by the board of directors, was published by the press office of the country's biggest steel producer on Tuesday. The company justified the move by noting the crisis on the international ferrous metals market, which has lasted for over a year now.

"The ever increasing number of metallurgical plants in the world resulted in surplus production and 20-year price lows," the press release said. Another reason for the decision is the restricted import into the U.S. as a result of which supply on the European Union markets has increased substantially, and the ability of Kremikovtsi products to be competitive has dropped. The situation is identical in the Far East where demand has been relatively low ever since the onset of the Asian crisis.

The terrorist attacks on the U.S. aggravated the situation even more, affecting all sectors of industry. Experts expect the crisis to persist for another eight to 12 months.

Kremikovtsi management decided to counter strong market pressure and reduce its expenses substantially. It has been forced to resort to layoffs, which have so far been prevented thanks to the more favourable business climate, even though shedding of personnel is part of the plant's privatization contract.

Kremikovtsi was established by a government decree in 1959 by the merger of a company for ferrous ores and an investment company set up specifically to prepare the incorporation of the new plant. In 1982, it was renamed Leonid Ilich Brezhnev (the name of the former Soviet leader) but got its old name back in 1988. In 1991, it was transformed into a commercial partnership with the government being the sole owner.

Kremikovtsi started to run at a loss in 1999.

Seventy-one per cent of its assets were sold that year for the symbolic price of $1 to Daru Metal with the participation of the Italian company Marcigalia, which was renamed Finmetal Holding earlier this year.

Last year, the new owners tried to negotiate changes to the terms of the privatization contract with the government, claiming that after the initial deal was signed they found outstanding debts that were unaccounted for. At the time the contract was signed, the debts were believed to be 540 million leva of which the government wrote off 183 million leva. An audit of the company books by the new owner found that the actual debts were 840 million leva.

Kremikovtsi is on the black list of Privatization Agency transactions. In late September, Parliament decided to set up a subcommission for post-privatization control which, together with the Privatization Agency, will make sure that the new owners fulfill their obligations. Local media speculated that the first deal to be investigated by this new subcommission would be Kremikovtsi.

Interest in the Kremikovtsi deal has been triggered by information that the subcommission has obtained about defaults on the privatization contract on the part of the new owner. The owners denied the allegations and said that they have strictly implemented the investment program and that by the end of last year they had put 130 million leva into the plant.

Meanwhile, in mid-September, the former deputy director of the plant, Ognian Dekov, was appointed second executive director. Valentin Zahariev kept his position but his rights were limited. The dividing of the structure of management of Kremikovtsi, it was claimed, would allow Zahariev to concentrate on trade activity and distribution. However, the move was seen as a sign of a crisis within the company.

Kremikovtsi owes six million leva to the port of Bourgas. The amount was accumulated from unpaid bills for port services. Kremikovtsi is the biggest debtor of the port.