Lighting Up

Economic News

22 Jul 2010
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The resignation of Bulgaria's privatisation chief last week seems to have come at an important moment in the country's troubled sell off story. With the Varna shipyards finally officially handed over, and major developments in privatisation within the energy sector now on the cards, it seems an unfortunate time to have to leave.

Yet, after around a year in post, Bulgarian Privatisation Agency CEO Iliya Vasilev bowed out April 8, citing personal reasons. His replacement is his former deputy, Stanislav Ananiev, who becomes acting chief of the agency.

The move came only a few days after a ceremony in Varna finally handed over the keys to the shipyard to the Bulyard Shipbuilding Industry company. This consortium had won the tender for a 75% stake in the yards last October, a victory that had itself come nearly five years after the government had begun the sell off procedure.

Deputy Prime Minister Nikolay Vassilev was at the hand-over ceremony, where he referred to the considerable problems the shipyard sell off had faced. Redundancies had also been many at the yard, which over its history had launched if not 1000 ships, then at least 800. Vassilev said that he was now confident that the yard faced a brighter future.

Yet such optimism was quickly dashed by the yard's new CEO, Zlatko Bakalov. He told the assembled dignitaries that currently the shipyard had no cash at all, a serious problem for a yard costing Lv1.5m a month to run. This, he said, was why the yard was not able to build ships anymore, but was simply acting as a dockyard. He then added that the yard didn't even own a single computer.

Bakalov then went on to pin his hopes on the new owners, who are to invest around $1.2m in the short term. The yard also faces a major shake up, with experts from The Netherlands due to arrive soon and conduct a survey of what needs to be done, Bakalov added.

Bulyard is committed to invest some $17.7m in the yard over the next three years, according to the terms of their winning $16.66m bid for 75% of the shipyard's equity. It was therefore a highly sweetened bid, with Bulyard also making commitments to expand the yard and the number of people working there. How this arrangement will stand once the Dutch experts have made their assessment is, however, another question.

Meanwhile though, steps are also being taken to gear up the country's power stations for sell off.

Early April saw a meeting between Energy and Energy Resources Minister Milko Kovachev and officials of the parliamentary committee on energy, at which the idea of establishing an electric power consolidation company was mooted.

This would be similar to the Bank Consolidation Company used in the sale of Bulgaria's state banks, and would effectively mean the bypassing of the Privatisation Agency - a move favoured in order to circumvent political frictions, the Sofia Echo reported April 9.

The company would be charged with the privatisation of several thermal power stations - such as the Varna, Maritsa Iztok 2, Bobov Dol and Rousse plants - and would also tackle the sale of the controversial Kozloduy nuclear power station.

Several factors lie behind the decision to set up such a company, not the least of which is that it will be able to direct finances received from the sell offs into investment in the national power network. The sums necessary to bring Bulgaria's electricity distribution grid up to scratch are quite considerable, requiring a central body with a high degree of funding. In addition, come 2007, the electricity market will be completely liberalised, placing increased pressure on the energy market. The fear is that if there is no body to shoulder the risk, electricity prices may shoot up.

The other part of the plan is to split the National Electricity Company in two. One branch will be in charge of transmission and overseas sales, while the other will deal with public supply. Regarding electricity exports, the hope is that a consolidated body will be able to represent abroad all of the electricity companies in the newly liberalised market, something more cost efficient than having each power company representing itself overseas.

Bulgaria currently has a leading position in the regional electricity export market, a status which it is understandably anxious to maintain. The hope is that the consolidated body will be able to leave domestic power companies alone to concentrate on selling to local customers and on improving their plants. With such a structure in place, it may also make the electricity market in general more interesting to investors, reducing risks and boosting much-needed investment in the national grid.

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