Bulgarian PM, Deputy, EconMin to 'Watch' Bulgartabac Deal

Industry | September 1, 2011, Thursday // 15:02|  views

Bulgaria's Economy Minister, Traicho Traikov, says he has strong reservations about the sale of the State-owned tobacco monopoly Bulgartabac and would prefer more weight on the market criteria instead of social commitments. Photo by BGNES

Bulgaria's Prime Minister, Boyko Borisov, Deputy PM and Finance Minister, Simeon Djankov, and Economy and Energy Minister, Traicho Traikov, will monitor closely the sale of the country's State-owned tobacco monopoly Bulgartabac.

The news was announced Thursday by Traikov in a special press release to the media, where he reiterated the sole and full responsibility for the deal belongs to the Privatization Agency.

"After the procedure has been launched, despite being a principal of the State stake in Bulgartabac, under the law, I do not participate in the decision-making. The responsibility of the Agency is huge since it needs to detail the commitments of the investors in the contract," the Minister further says.

He pointed out once again that the Governing Board of the Privatization Agency, a fully political body elected by the Parliament from the quota of the major parliamentary represented parties, had outlined criteria for the sale of the cigarette maker which give priority to social commitments and purchase of locally grown tobacco.

"I have said it before – as economy minister I would prefer more weight on the market criteria though. Years ago, during the term of the party of former King and PM, Simeon Saxe-Coburg – National Movement for Stability and Prosperity, NMSP, the big tobacco companies did not yet have their investments and facilities in the region and the deal could have been way more favorable and sealed with a big tobacco firm," Traikov stressed.

On Tuesday, after one day of examination of the documentation the Bulgarian Privatization and Post-Privatization Control Agency approved the sale of Bulgartabac to BT Invest, a firm registered in Austria by the VTB bank owned by the Russian government.

The price offered by BT Invest is EUR 100.1 M with investments of BGN 7 M in the next two years and the commitment to purchase 5 000 metric tons of Bulgarian tobacco a year (about 14% of the crop).

The move triggered strong criticism particularly from functionaries from the opposition Bulgarian Socialist Party, BSP.

Rumen Ovcharov, former Economy Minister in the Stanishev Cabinet, claimed that powerful economic circles in Bulgaria featuring the participation of Prime Minister Boyko Borisov were behind the privatization of cigarette maker Bulgartabac. He and former CEO of Bulgartabac, Socialist MP Korneliya Ninova, stated that the Russian bank VTB was being used only as a cover by the "circles" in Bulgaria, and rejected the allegations that the Russian government was behind the purchase.

The criticism prompted the head of Bulgaria's Privatization Agency, Emil Karanikolov, to go on defense and back in Parliament the decision made by his institution to approve the deal.

Bulgaria's tobacco industry syndicates have already announced a protest against the sale of Bulgartabac to VTB, scheduled to take place on Friday. Tobacco growers, however, said they will not join the strike since what was most important for them was to have a buyer for their crops.

This is the fifth attempt to sell Bulgartabac Holding in the last 10 years.

The first steps for the privatization of the State company were made in 2000, during the term of the cabinet of right-wing leader, Ivan Kostov. Despite stated interest on the part of international investors, a deal agreement was never reached.

A year later, the Saxe-Coburg cabinet also prepared a strategy for the sale of Bulgartabac with the minimum price set at USD 100 M. The move triggered wide-spread protests on the part of the ethnic Turkish party Movement for Rights and Freedoms, DPS, since the large majority of tobacco growers in the country come from the Muslim minority. As result, the clause for mandatory commitment of the buyer to purchase local tobacco was included in the strategy.

In 2002, tobacco giants such as British-American Tobacco and Philip Morris stated their interest, but once again, the deal fell through. Three years later, the then Economy Minister from NMSP, Lidiya Shuleva, and Agriculture Minister from DPS, Mehmed Dikme, had to part with their posts over the failed privatization of Bulgartabac.

It happened during the term of the cabinet of the Three Way Coalition between the Bulgarian Socialist Party, BSP, DPS, and NMSP, led by BSP Leader, PM, Sergey Stansihev, which also attempted to sell the cigarette maker through an emergency deal by taking the company off the list of privatization bans.

At the same time, the former CEO of the Bulgartabac Holding, Hristo Lachev, and his wife were charged with and tried for tax evasion. They were declared not-guilty.

A new consultant for the deal was selected in 2010, already during the term of the current cabinet of the Citizens for European Development of Bulgaria, GERB, party – Citi Group and a new procedure was launched. 10 companies stated interest in the tender, but at the end only BT Invest remained standing as bidder.

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