BTC's Epic Sell Off

Economic News

22 Jul 2010
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With Bulgaria's privatisation authorities announcing that they had struck more than 1,000 sell-off deals since the year began, it was a little disheartening for some to find that old chestnut, the Bulgarian Telecommunications Company (BTC), back in the privatisation headlines this week. A tangle over awarding it a GSM licence created some difficult legal conundrums for the company's new owners, while elsewhere in the mobile telecoms market new technologies are about to come on line.

But first, the good news for the Privatisation Agency (PA). Announcing May 17 that 2004 had seen sell-off deals top the 1,000 mark, the PA also used the occasion to announce the start of tendering for consultants at the thermoelectric power plants of Rousse, Bobov Dol and Varna. The PA also stated that up to the start of the year, non-payment income from the finalised deals amounted to Lv67m. It did however, also say that the majority of those 1,000 deals had been for minority stakes.

Not so with BTC. After a protracted battle over the sale of 65% of the telecoms giant to US-UK equity fund Advent (in the guise of Austria-based Viva Ventures), last February 20, the government signed the 230m euro deal. Viva also pledged to increase the company's capital by 50m euros and invest an additional 700m euros.

However, one of the conditions for completing the sell off was the granting of a GSM licence to BTC. The award of this no-bid licence should trigger the transfer of a 51% stake in BTC to Advent by June 20.

Yet herein lies the rub. The no-bid nature of the licence award led to claims that this broke laws on tendering and competition. As a result, the Communications Regulation Commission (CRC) referred the transfer of the licence to the Commission for Protection of Competition (CPC).

The GSM licence - which would be Bulgaria's third - will also cost BTC some Lv54m, the price agreed when this arrangement was included in the sell-off contract earlier this year. However, this price too has been questioned. CRC member Petar Rendov told Pari Business on May 19 that the market price for the licence was between Lv10m and Lv20m. The decline in value, he remarked, was due to the changing market conditions since the beginning of the privatisation process and the performance of the potential rivals - Bulgaria's existing two GSM mobile operators, GloBul and M-Tel.

At present, M-Tel has the largest mobile market share - at 76% - while GloBul makes up 17%. The residual is made up of subscribers to the non-GSM, analogue mobile phone operator, Mobikom.

After deliberating for some days, the CPC finally announced its decision on the no-bid licence deal on May 20. State radio reported that the trust law body had agreed to the legality of the deal, clearing the way for the licence to be transferred without any further bidding or tendering.

The issue had pitted two laws against each other. The privatisation regulation allowed a no-bid deal, while the telecoms law ruled it out. In the final analysis, the CPC appears to have gone with the first of the two laws - welcome news for Viva's management.

Yet they may not be out of the woods yet. Commentators also referred to potential legal wrangles yet to come, as the courts deliberate whether the firing of CRC chief Georgi Alexandrov last week was legal.

This dismissal had come as something of a surprise to other members of the commission, Rendov telling the daily Dnevnik that the government's motives for doing so had seemed highly "vague". The official explanation had merely referred to the CRC's slowness at implementing decisions on telecommunications law. This might well be a reference to hold ups in the BTC sell off, many Sofia analysts concur.

Yet Alexandrov - who has been replaced by Gergana Sarbova - is not going quietly, and, some analysts believe, if he succeeds in getting the courts to rule that his firing was illegal, his reinstatement would invalidate the CRC's rulings since his dismissal.

All of which goes to show that the path of true privatisation seldom runs smoothly. At the same time, however, technological and market developments of the kind that have seen the third GSM licence's value decline so dramatically are still continuing.

Deputy Transport Minister Nedelcho Nedelchev announced May 20 that the first tender for 3G mobile operators in Bulgaria is on track to take place at the beginning of next year.

According to him, the cabinet is set to finance frequencies no longer being used by the Ministry of Defence, updating them up to 3G UMTS communication standards. This procedure will likely cost between Lv60m and Lv70m, the deputy minister told Novinite news, with both M-Tel and GloBul thought to be extremely interested - as well as BTC.

With such developments on the go, no doubt BTC will be anxious to finally see the back of its epic privatisation process.

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