BTC's Long Goodbye

Economic News

22 Jul 2010
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While the long drawn out saga of the privatisation of Bulgaria's state telecoms company appeared to have reached its final chapter last week, there were also developments in the energy distribution fields regarding sell offs. Yet the news of progress in sell offs did not go down well across the board, with opposition parties demanding investigations - and tabling a no-confidence vote.

The Vienna-based Viva Ventures Holding GmbH - an arm of the US-British equity house, Advent International - scooped up 65% of the Bulgarian Telecommunications Company (BTC) capital on February 20. The total cost was some €280m, €50m of which was in the form of an increase in BTC's capital. Viva also agreed to invest a further €700m in modernising the company, €400m of which must be invested within five years. It will also pay the Bulgarian government €70m of the company's €115m 2003 dividend.

So, after originally winning the bid for BTC as far back as 2001, only to see this suspended as a rival, Turkish group came forward, Viva now has control of the company. BTC has huge potential, with some interesting results announced February 4. BTC said profits in 2003 had increased Lv198.9m, up 13.1% on 2001. Last year's revenues amounted to Lv1.025bn, 8.8% up on 2001, while pre-tax profit in 2003 amounted to Lv263.2m, or 4% up on the same year.

"The company is developing wonderfully," said Minister of Transport and Communications Nikolay Vassilev, announcing the figures. "Its results are improving."

Yet all is not entirely well at BTC. While profit levels were up, they were short of their targeted Lv215m. BTC management attributed this to the Lv16m the company had had to pay out in indemnities to employees who had decided to take early retirement. Shedding staff has indeed become something of a priority at BTC, particularly as the government has approved Viva's plans to slash employment levels from the current 24,010 to 20,530. Early retirement and non-replacement have been the strategies so far.

In addition, the money pledged by Viva to modernise the company will have to be well spent. Bulgaria has the lowest digitisation rate in Europe; the cost of calls is also set by the state and kept low between regional parts of Bulgaria, while kept high for international connections. Meanwhile, BTC has lost its fixed-line monopoly. Five private companies have entered this field, making it a potentially much more competitive market.

Meanwhile, the privatisation of other state assets took a step forward earlier this week with an announced submission of preliminary offers for Bulgaria's main power distribution companies.

Five foreign companies submitted bids for a 67% stake in each of the seven power organisations on offer, which have been put together into three sub-groups.

CEZ from the Czech Republic, Austria's EVN AG, Greece's Public Power Corporation S.A., the Italian energy giant Enel S.p.A. and Germany's E.On Energie AG are the five bidders. Russian company RAO United Energy Systems was disqualified, despite protests from Moscow. The Privatisation Agency (PA) explained that it had ruled the Russians out due to their BBB credit rating and inexperience in the field of operating in a liberalised energy market.

The PA will now begin its deliberations before final bids are required. Of the three groups under which the state distribution companies will be sold off, the first includes the power distribution companies of Sofia City, Sofia Region and Pleven; the second consists of the companies of Plovdiv and Stara Zagora; and the third has the companies of Varna and Gorna Oryahovitsa.

Many analysts hope this privatisation will go a lot more smoothly than BTC's. Political interference was widely given as a major reason for the delays in selling the state fixed-line provider, particularly lobbying by the mainly ethnic Turkish Movement for Rights and Freedoms (MRF) of Ahmed Dogan. He has been widely accused of pushing a deal with Turkey's Koc Holding and Turk Telekom, who at one point held another signed contract for BTC, in addition to the one promising the company would be sold to Viva Ventures.

However, eventually, Dogan's opposition appears to have been removed. The MSF is a vital part of Prime Minister Saxe- Coburg's coalition government, a factor which - according to many in Sofia - eventually led to the prime minister and Dogan striking a deal. This allegedly involved cabinet promises of maintaining tobacco and other agricultural subsidies in return for the MSF supporting the sale of BTC to Viva. Much of the country's ethnic Turkish population resides in tobacco growing areas.

This comes as something of a relief, despite the fact that it postpones rather than settles the likely political denouement between the government's various factions. Eventually, agricultural subsidies will have to go, and the tobacco sector in particular will have to be shaken up with the presumed privatisation of Bulgartabac.

Meanwhile, BTC is at least off the books and to the winner of the original bid - a move that will hopefully calm some market nerves about Bulgaria's sell-off programme.

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