Bulgartabac's Privatization - Selling Bulgaria One Company at the Time

Editorial |Author: Maria Guineva | September 1, 2011, Thursday // 12:37|  views

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

The price offered by BT Invest, the sole bidder standing, after several major players withdrew, 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 draft contract also includes a clause banning a resell in the next 5 years.

The move triggered strong criticism particularly from functionaries from the opposition Bulgarian Socialist Party, BSP. Bulgaria's Economy and Energy Minister, Traicho Traikov, says he has reservations about the deal and would prefer more market criteria than social commitments. Protests are looming.

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

During the term of the cabinet of former King Simeon Saxe-Coburg, the deal was blocked twice by 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. This is when the clause for mandatory commitment of the buyer to purchase local tobacco was included.

The said social commitments by BT Invest, however, seem quite absurd, considering current Bulgartabac investments are estimated at an average of BGN 25 M a year while in 2010, the Holding bought over 6 tons of local tobacco. On the other hand side, the buyer cannot peddle the business, but the resell can easily happen through change of ownership of the BT Invest company itself.

With the cigarette maker's BGN 500 M in assets, the offered price seems indeed too low. However, EU directives and measures to restrict smoking and cigarette contraband have lowered this price significantly. The golden opportunity has been missed due to political bickering and interests.

As expected, this privatization is becoming just one of a series that turned not profitable for the State – power utilities, the telecom BTK, the Burgas refinery come to mind, all while the saga with the latter, owned by another Russian giant, Lukoil, is still rampant.

Among speculations about who exactly stands behind BT Invest, such as the Russian Vedomosti report that the initiator of the Bulgartabac purchase is Bulgarian, Atanas Bostandzhiev, previously employed by Goldman Sachs and Merrill Lynch, and working in the VTB bank's London office as strategic planner, the truth of the matter is that the real buyer behind the bid remains unknown and unnamed.

And this could end up being much worse than the country's "backseat ruler," DPS leader Ahmed Dogan...

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