Sell-Off Targets

Economic News

22 Jul 2010
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When Bulgaria's new economy minister recently outlined the government's priorities for the remainder of its term, two major privatisations came to dominate the discussion: the troubled sale of state tobacco giant Bulgartabac and the continuing grief over privatising auto manufacturer Balkancar. While the government renewed its commitment to a satisfactory conclusion to both before the elections, others remained sceptical of its chances.



On March 9, Economy Minister Milko Kovachev -- who succeeded Lydia Shuleva in the post after the Bulgartabac sell-off had caused a political crisis -- presented the administration's economic priorities. Beginning with general policy directives, such as achieving greater economic freedom, slimming bureaucracy and easing administrative barriers, Kovachev also argued for a restructuring of exports and for legislative changes, such as the new Consumer Protection Bill and the Accreditations Bill.



However, debate soon centred on the key sell-offs and what the government might do to speed along that of Bulgartabac, while also easing the social difficulties encountered with the recently announced sale of Balkancar.



Regarding the latter, a 43.2% stake in the company -- known by its full title as Balkancar-Shesti Septemvri -- was sold for just over 2m leva via a centralised public auction on the Bulgarian Stock Exchange back in February. The shares were acquired by Zlaten Lev Brokers on behalf of a client, but the intermediary declined to name the buyer.



The sale price was almost identical to the start price of the package, 2m leva, and under half the 4.3m leva that had been set two auctions previously. This price cut has angered many, who claim that the company is worth far more than the state accepted. Among the most vociferous in this group are the company's employees, who gathered late February to protest the sale. The labour federations Podkrepa and KNSB then issued a statement claiming that the real price of the company should be around 16m euros.



The unions have been highly active in protesting both the company's sell-off and in demanding redress for unpaid wages and benefits. These latter come to a total of some 2.7m leva, according to workers' representatives. Last year saw a series of strikes at the company on these issues.



Yet the union's assessment of Balkancar's worth is well at odds with that of the market. The company consists of some 14 subsidiaries, producing a variety of modern electric and fuel-powered forklifts and a considerable range of components. It has nine foreign sales and service subsidiaries abroad and in 2000 had around 4000 employees. Its production capacity is around 40,000 vehicles a year, according to the Bulgarian privatisation authorities, with flexible manufacturing facilities meaning that plant could easily be converted to produce other automotive products.



However, the company has had a chequered history. Back in 2003, efforts to sell it off first foundered, with the Privatisation Agency cancelling the sale when the amount offered by the only bidder, the Balkcars Consortium of Sofia, was found to be well below the asking price.



Since then, labour disputes have multiplied, with the firm insolvent and unable to pay wages. The condition of the plant and stocks is also seen by outside observers as a critical question.



Now then, Kovachev and the government will have to decide how to address the criticisms over the low sale price and the workers' demands. At the same time, they will also have to carry forward the Bulgartabac sell-off.



This foundered back in early February, when a deal with British American Tobacco (BAT) collapsed, triggering a political crisis that saw a cabinet reshuffle dispose of both Shuleva and former Agriculture Minister Mehmed Dikme.



The latter's successor, Nihat Kabil, was quick to reassure on taking office that the Bulgartabac sale would be concluded within the lifetime of the current government, which faces the polls in June.



"Bulgartabac must be sold within this cabinet's tenure," Kabil told reporters in late February. That doesn't leave much time, with many analysts thinking that if the sell-off is completed by the end of 2005, the authorities will have done well.



Also crucial in the privatisation campaign is energy. Last year, some of the most significant privatisations were those concerning electricity distribution companies (EDCs). Back then, the Czech CEZ paid 281.5m euros and Austria's EVN 271m euros for two EDCs in southeast Bulgaria. During the same period, the two EDCs included in the northeast Bulgaria package -- Varna and Gorna Oryahovitsa -- were sold to German giant E.ON for 140.7m euros.



This has left three thermal power plants still on the shelf -- Bobov Dol, Varna and Ruse. With these, however, there was recently a more worrying sign, when the government announced on March 21 that it was postponing the deadline for investors to place binding bids to April 27.



With recent disagreements at the International Monetary Fund (IMF) now apparently concluded -- Finance Minister Milen Velchev and IMF mission leader for Bulgaria Hans Flickenschild declaring so on March 16 -- the government is in a stronger position to push forward with the privatisation drive. Better than expected economic growth has eased disputes over the minimum wage and social policy, which does give some more latitude now for the administration to tackle disputes such as that over Balkancar. Yet, as always, the room for manoeuvre is by no means great; and how Prime Minister Saxe-Coburg's government therefore steers this narrow course over the next three months will determine much -- both for his electoral chances and the economy's future health.

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