Банкеръ Weekly

Briefs

BULGARTABAC SWIRLS IN A DEADLY SPIRAL

Will there be a deal on Bulgartabac Holding? This question was discussed by MPs all Friday (January 28). Back on Tuesday (January 25) the MRF officially demanded to stop the current procedure for Bulgartabac's privatisation and invite a new one. The same stance was expressed in the draft decision, prepared by Ivan Kostov's Democrats for Strong Bulgaria. BSP's position was similar, but according to the socialists a new divestment procedure should not be invited. The issue of the tobacco holding's sale still bothers even Vice Premier and Deputy Minister of Economy Lidiya Shouleva, who chairs Bulgartabac's Supervisory Board and is therefore the person bearing the biggest responsibility for the privatisation of cigarette factories. Although for a long time there was no transparency regarding the sale of the Sofia BT and Plovdiv BT package, Ms Shouleva admitted that in the process of negotiations with the only candidate buyer - British American Tobacco - Blagoevgrad BT was added. According to unofficial information, the price of the three above-mentioned enterprises will not exceed EUR200MN. On December 9, 2004, the Minister of Agriculture and Forestry Mehmed Dikme and member of Bulgartabac's Supervisory Board, withdrew his signature from the memorandum of understanding with British American Tobacco. On December 30 he expressed in written his stance on the improved version of that memorandum, from which it becomes clear there can be no deal under these conditions. The indignation of the Agriculture Minister and his party, MRF, was caused by several commitments to the buyer of cigarette factories, undertaken by the State. One of them was to ensure a dominant position to British American Tobacco on the Bulgarian market. As the BANKER weekly already wrote, the Ordinance on giving permissions for the production of tobacco products, approved several month ago, stipulates such requirements for granting a licence, that only investors of British American Tobacco's rank could fulfil. Mr. Dikme's other concern is that the State has undertaken to provide a EUR200MN guarantee (perhaps the price of the three tobacco factories) if it does not fulfil its commitments to the buyer. The holding was also supposed to extend such a guarantee, amounting to EUR20MN. Moreover, British American Tobacco demanded that Bulgartabac should cancel all its contracts for export fo cigarettes. According to the Agriculture Minister, such requirements show that the the single candidate buyer does not intend to develop the sector, and will be only using our market. Nevertheless, MRF is inclined to compromise if the terms of the deal are changed. What will follow? It is quite possible that the deal becomes a fact, despite everything. The postponement of Bulgartabac's privatisation would injure all interests, and mostly the company itself where 300,000 people are employed. The truth is that the appropriate moment for negotiating the deal's best parameters has gone beyond retrieve. Even if the current divestment procedure is cancelled and a new one is immediately prepared, the social commitments to be demanded from the new owner would again repulse the so-called strategic investors. The more so if` a socially orientated government comes to power after the parliamentary elections in June 2005. Because hardly anyone believes that a new privatisation procedure could be invited and finalized within the mandate of the incumbent Cabinet. If the NMSII wants to add to its pre-election assets the tobacco holding's divestment and cancels the present divestment procedure, its should immediately invite a new one, literally speaking within several days. According to Bulgartabac's Executive Director Georgi Kostov, that won't be difficult as the entire documentation is available. According to some economists, the privatisation of cigarette factories in so short terms could be realized if the enterprise are put up for sale at an open tender or on the stock exchange. In that way serious investors could be attracted and a reasonable price achieved. But that would mean that the State says Good-bye to social commitments in the branch. One of the proposals of Bulgartabac's Executive Director Georgi Kostov is to allow financial institutions participate in the new procedure. However, the head of the Institute for Market Economy Krassen Stanchev recalled that during the former procedures for the tobacco holding's divestment such participation did not yield the desired results.

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