Bulgarian Govt Snubs Security Worries over Sale of Largest Military Plant

Industry | March 23, 2011, Wednesday // 17:32|  views

VMZ Sopot has debts amounting to BGN 140 M. File photo

Bulgaria's Parliament approved Wednesday a strategy for the privatization of the troubled VMZ-Sopot factory, which is Bulgaria's largest defense industry plant and was once the pride of its military-industrial complex.

The MPs voted to sell 100% of the capital of VMZ Sopot, without retaining the required minority stake of 34% in state-owned military plants.

A total of 86 MPs voted in favor of the privatization of VMZ Sopot, 19 voted against, and 6 abstained.

80 MPs from the ruling center-right party GERB, who were presented in the plenary hall, voted in favor plus 6 MPs from the right-wing Blue Coalition.

Four MPs from the ethnic Turkish party DPS and two from the Socialist Party abstained, while six deputies of the nationalist party Ataka, and 13 other Socialists voted against.

The privatization strategy drafted by the Cabinet provides for preserving and expanding the manufacturing of both military and civilian products by VMZ Sopot; its main goals include the modernization of the factor and its preservation as a major employer.

The potential investors will be offered 118 000 000 shares, or 100% of the capital of the company. Up to 20% of those, or 23 600 000 shares, can be paid for with non-cash means.

The largest Bulgarian military factor will be sold through a public tender. The bidders are required to accept the government's condition that VMZ Sopot cannot be declared bankrupt or ripe for liquidation for 5 years as of the date of acquisition.

No layoffs of workers will be allowed within the first three year period.The potential investor is required to cover all public debt of the plant and delayed salaries.

In order to become eligible for the tender, the bidders must have a security certificate issued by a respective institution, while foreign investors must have a confirmation by a Bulgarian institution of their right of access to classified information.

The nationalists from Ataka, who usually back the Cabinet, and the opposition Socialists demanded greater guarantees for the employment of the workers, and expressed concerns dealing with national security since VMZ Sopot is the largest plant in the Bulgarian military-industrial complex.

Ataka demanded that only Bulgarian companies should be allowed to take part in the tender because the plant is connected with the country's national security.

MP Nikolay Petkov from the ruling party GERB retorted that the privatization of VMZ Sopot will actually stabilize and preserve Bulgaria's military-industrial complex since the plant has been in a state of factual bankruptcy since the end of 2007.

MP Yordan Bakalov from the Blue Coalition declared that VMZ Sopot should have been privatized a long time ago because in the 1980s, the Bulgarian military-industrial complex was designed for an army of 117 000, while at present the Bulgarian Army is 35 000. His only concerns is not that its sale will have the national security but that there may be no willing buyers.

Bulgaria's Deputy Defense Minister Valentin Radev addressed the MPs with a declaration that the Defense Ministry has no concerns whatsoever that the privatization of VMZ Sopot could affect negatively Bulgaria's national security; he said the Defense Ministry did not need the plant in its current condition.

Radev pointed out that in 2009, 0.5% of Bulgaria's GDP were produced by the military-industrial complex, which employs 15 000 workers. However, the Defense Ministry buys only 5%-6% of its produce, including a similar share of what is manufactured by VMZ Sopot, while the rest is exported.

At present, VMZ Sopot's debts to the state, private companies, and workers amount to BGN 140 M.

The sale of Bulgartabac Holding AD, Sopot-based Vazovski Mashinostroitelni Zavodi or VMZ, and the minority stakes in the electricity distributors have been said to be a must-do task in 2011 due to the sorry performance of the state-owned companies.

The VMZ Sopot plant employs 3 700 workers. It is located in the town of Sopot in central Bulgaria, which is the birthplace of Bulgarian writer and poet Ivan Vazov, after whom it was named. The plant was founded in 1936, and during the communist period was developed into a large-scale military industrial unit.

VMZ Sopot produces anti-tank guided and unguided missiles, aviation unguided missiles, artillery ammunition, fuses. It also manufactures civilian products – it makes diamond tools, abrasive discs and grinding wheels, gas cylinders, food industry equipment, and household appliances.

VMZ Sopot has been in a troubled financial condition in the last few years. In 2007, Bulgaria's Privatization Agency started to sell some of the plant's assets in order to cover part of its debts; some of its assets were also sold at the beginning of 2009.

Over the years, several governments failed to decide on a strategy to privatize VMZ Sopot, and the Privatization Agency is said to be expecting a solution from the GERB government and the new Parliament dominated by them.

In February 2010, VMZ Sopot, which is in deep financial troubled, fired workers who protested against delays of salaries.

In April, the head of Bulgarian Privatization Agency Nikolov announced that in 2010 the Bulgarian state planned to initiate the privatization of VMZ Sopot – a plan which has failed to materialize until March 2011.

In May, Bulgarian authorities started investigating former managers of VMZ Sopot over suspected abuses that may have contributed to the dire financial situation of the plant. All information pertaining to the investigation is classified. The names of the former directors and senior managers of the military factory who are under investigation for abuses have not been revealed.

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


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