The Price of Doing Business in Bulgaria

Economic News

22 Jul 2010
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There was a new twist in the ongoing drama surrounding recent attempts to privatise Bulgaria's state-owned Bulgarian Telecommunications Company (BTC) August 22 when, in a last minute decision, the Bulgarian Privatisation Agency (PA) decided to refer the offer made by Viva Ventures to the agency's politically-appointed governing body - the supervisory board.



An outraged Viva Ventures, the Vienna-based representative of the Anglo-American Advent International equity house, claims that this referral happened despite the fact that the company had properly complied with all requests made by the Bulgarian government. Viva had earlier won the bidding for a 65% stake in BTC, initially offered in May of this year, but then updated its offer at the government's request.



According to the terms of this new deal, which Viva had outlined in a letter sent to the PA on August 19, the equity firm agreed to upgrade its initial offer from EUR210m to EUR280m. It had also said it would increase the value of BTC's share price and refrain from claiming any dividends by 2002 which have already been collected by the state. Viva also promised to reduce the number of potential lay-offs by 2000 while simultaneously speeding up the pace of an investment programme, to be completed within three years time.



As one of the nation's largest employers, it is not surprising that Viva made a concerted effort to appease the BTC union's mounting concerns by announcing in a statement released to the Bulgarian press on August 22 its intention to implement a social programme designed to lessen the inevitable burden of reconstruction. The programme, amounting to EUR45m, would benefit three distinct groups: those facing the prospect of being downsized, the employees selected to remain within a reorganised BTC as well as surrounding communities largely dependent on the BTC as a viable source of employment. In the same statement, Advent's director, Chris Mruck, provided specific details of his company's "socially responsible programme" stipulating that, "The programme includes alternative employment, assistance in finding new jobs, requalification courses as well as a fund for encouraging entrepreneurship and other initiatives."



Offering additional forms of assurance, Mruck was optimistic in his prediction that, "thousands of additional jobs would be created through international projects already involving BTC."



Viva Ventures fiercely objects to what they regard as the PA's "politically motivated" efforts in delaying final approval of their bid. The firm was quick to assert that having met the requirements specifically outlined by the Bulgarian government on August 8, which, it has recently emerged, were subsequently ratified by the appropriate state authorities on August 18, the deal should have been a foregone conclusion. In a public statement, once again expediently released to the Bulgarian press, Viva Ventures lashed out at what it perceived to be the perfidious and corrupt nature of the privatisation process, surmising that this particular incident would have a detrimental effect on "international confidence in Bulgaria".



In defending its decision to refer back to the supervisory board for final approval of the deal, the spokesperson for the PA, Anna Rusheva confused matters further. She revealled that the preliminary agreement submitted by Viva Ventures in March was, in fact, still on the table - largely because the changes, requested by the government, had not been incorporated. Petko Nikolov, the chief of the supervisory board, went on to explain that because of the elaborate technical nature of the concessions recently made by Viva Ventures, a new document had to be submitted to the supervisory board to properly reflect these latest changes.



On August 25, Viva Ventures threatened to appear before the highest legal authority in the country, the Supreme Administrative Court (SAC), to appeal the PA's decision to refer the sell-off documentation back to its executive board. In late July, the same court overturned a previous attempt made by the supervisory board to reject the EUR201m preliminary deal that Advent had offered in March 2003. In light of the recent legal wrangling, the deadline in which the supervisory board was to grant final approval, offer its tacit consent to the contract, or in the extreme case withhold its approval officially expired on August 15. In turn, Viva has asked the SAC to ascertain whether the referral constitutes an 'administrative act'; if not Viva will seek to invoke the tacit consent rule.



In yet another interesting twist, the Turkish-based Koc Holding/Turk Telecom consortium, which had previously received the PA's endorsement for its own bid for a majority stake in BTC in late July, reasserted that it was still in the game, announcing its intention to challenge the supervisory board's final decision. In a statement leaked to the Bulgarian press on August 15, the Turkish firm harshly criticised the PA for its failure to adequately respond to its legitimate inquiries concerning the finite details of the privatisation process. "We have met all requirements of the Bulgarian institutions" the consortium told the press. "We have ratified before the deadline all seven papers which are part of the tender procedure."



Ahmed Dogan, the leader of the Movement for Rights and Freedom (MRF) and current junior coalition partner in the governing National Movement Simeon II (NMSII), has been subtly lobbying in support of the Turkish consortium's bid. As the approval rate of Prime Minister Saxe-Couburg continues to plummet, thus strengthening MRF's position within the coalition, Dogan's behind-the-scenes opposition towards the Supreme Administrative Court's right in ruling over the privatisation procedure is beginning to gain ground, especially so close into an election year.



Bulgarian political observers contend that there is no denying the fact that the current government lacks the political will to finalise the deal. If the NMSII chooses to favour one bid over the other, the losing party will not fade away into the sunset quietly. Moreover, because of the MRF's close links to the Turkish government - which flexed its muscles several months ago by halting energy imports from Bulgaria's National Electricity Company (NEC) because of supposed "technical reasons", at great financial loss to the state-owned electricity company - the full potential of the Turkish lobby could be used to wreak havoc upon its senior coalition partner.

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