Bulgarian Govt to Opt Out of Minority Stakes in Military-Industrial Complex Assets

Industry | March 8, 2011, Tuesday // 20:21|  views

Bulgaria's government is paving the way for the complete privatization of Arsenal Kazanlak and other military plants by backing out of the minority state share requirement. Photo by BGNES

The Bulgarian state will no longer be required to keep a 34% share in formerly fully state-owned defense industry plants, according to a draft decision of the Bulgarian Cabinet to be approved Wednesday.

Thus, the Borisov government will pave the way for the complete privatization of what remains in terms of state assets in partially privatized military plants

For example, the new decision will allow the state to sell the 35.78% minority stake it still holds in one of the largest Bulgarian military factories, Arsenal Kazanlak.

The formal motives of the Economy Ministry to shed the obligatory minority state quotas in the formerly fully-state owned military industrial complex are that this will ease the privatization procedures and will help attract more investments in the defense industry.

The requirement that the state should keep a minority stake in the privatized military plants was made in March 1998 by the right-wing government of PM Ivan Kostov.

Back then, the Kostov Cabinet approved a list of 25 companies from the military-industrial complex where the state was supposed to keep a minority stake; the government also envisaged the creation of a special institution to manage the state-owned stakes, the Dnevnik daily points out in a report.

Subsequent cabinets, however, have moved ahead with the restructuring of the Bulgarian defense industry by declaring six of these companies for liquidation.

At present, the Bulgarian government is the sole owned of the capital of VMZ Sopot, NITI Kazanlak, and TEREM, and holds a minority stake in Arsenal Kazanlak.

The troubled VMZ Sopot, which is the largest Bulgarian military plant, is expected to be privatized in 2011 in accordance with a privatization strategy to be approved by the Parliament, which will provide for holding a tender.

According to Economy Minister Traicho Traikov, state arms trading company Kintex will not be privatized.

The TEREM military-industrial complex consists of eight companies, and for the time being the sale of the state assets in its is banned by the Privatization Act. Back in 2008, the Stanishev Cabinet divided the eight military factories in two groups.

The first group includes "Terem Flotski Arsenal - Varna", "Terem Georgi Benkovski - Plovdiv", "Terem Khan Krum - Targovishte", and "Terem Ivailo - Veliko Turnovo". These factories are considered strategic for Bulgaria's national security, and 66% of each of these is to be offered for sale.

The second group includes "Terem Letetz - Sofia", "Terem Ovech - Provadia", Terem Gen. Vladimir Zaimov - Bozhurishte", and "Terem Tsar Samuil - Kostentz". 74% of each of these will be offered for sale.

The state has already sold sections of three of the eight Terem factories. The sale of Terem Flotski Arsenal Varna – a naval ship repair yard – which was expected to attract the greatest investor interest – was blocked with an order of the Defense Minister at the end of 2008.

The Dnevnik Daily points out that for the time being the state is failing to privatize NITI Kazanlak because the company has a legal dispute for land ownership with another military plant, Arsenal Kazanlak.

The bulk of the Bulgarian military-industrial complex was created during the communist period when the People's Republic of Bulgaria made lots of cash by selling arms mostly to developing countries. Together with the former USSR and the former Czechoslovakia, Bulgaria was the third COMECON member specializing in the defense industry.

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Tags: Military-industrial complex, defense industry, VMZ Sopot, Arsenal Kazanlak, military factory, NITI Kazanlak, TEREM, Economy Ministry, minority stake, state-owned


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