Банкеръ Weekly

Briefs

MUNICIPAL COMPANIES: EYES WIDE SHUT

The old maxim about the joint irresponsibility is flawlessly valid for most of the actions taken by the joint structure called Metropolitan Municipal Council. It echoed strongly during the council last session (the one before the well-deserved one-month holiday) on July 28. The agenda was rather striking - it contained 59 proposals that had to be considered, the most important of which the passing of the financial year 2004 reports of the 88 municipal companies and medical institutions.One oddityfollowed another and only those who know the councillor's soul well would consider it normal to vote without even knowing what is being discussed. Only few of the councillors made an effort to read the hard list of 59 questions from the field of construction, commercial law, accounting, medicine, social sphere and education. The most violent opponent of exchanges, Vladimir Karolev from the group of the National Movement Simeon II (NMSII), surprisingly proposed that 400 dka of uncultivated land in the village of Chepintsi, part of the municipal agricultural fund, be exchanged for several flats. After he was booed, no decision was made. That broke the discipline in the hall just before the most important points of the agenda had to be discussed - last year's financial results of the municipal companies.Actually, that was the smaller troublAt the very beginning of the debate a few councillors shamelessly admitted they knew nothing about the inquiries they were given in advance. This partly explains why they gave up so easily the 2004 dividend worth BGN1.267MN (of a total amount of BGN3.4MN) they had a right to take from four municipal companies. The companies are Roads and Equipment EAD, Water Supply and Sewerage EAD, Galateya 2002 EAD, and Parking Lots and Garages EAD. Every year the municipal council passes reports and balance sheets of the commercial companies, but it never analyses their activity. A councillor who has a medical or engineering education cannot be expected to be an accountant as well. Moreover, he cannot know the whole information about more than 70 commercial companies. This is too hard to be done. When a person is not informed, lots of violations are possible, Atanas Kundurdzhiev from the Democrats for Strong Bulgaria (DSB) admitted.Ivan Neykov, councillor from the Union of Democratic Forces (UDF) and Chairman of the Budget Commission, says thatmunicipal councillors have the ball in their courtas the sessions of the balance commissions are open. There are few colleagues who attended some of its sessions. That is why I do not accept reproaches that the information has been inaccessible, the former social minister said. Everyone who was interested in the reports and the balance sheets of the companies was able to examine them in the councillor's cabinet. But this is a matter of personal commitment by every councillor, his counterpart from the Bulgarian Socialist Party (BSP) Anna Yaneva added. I myself doubt if the information about the commercial companies available in the balance commission is comprehensive and real. The accounting report always works out, but it does not provide thorough information about their financial condition. The Deputy Chairman of the Metropolitan Municipal Council Stanimir Zashev, member of the Gergyovden group, shares her opinion. Each of the municipal councillors has had a chance to attend the meetings of the balance commission. It means that they had a right to learn the information about the activities of the companies. I have never heard a councillor asking for additional data. The information is not hidden, but it has to be requested, he said.However, the attempts of a BANKER weekly reporter to learn detailed information about the financial status of the municipal companies turned out a failure. Municipal Economy direction officers flatly refused to give an inquiry and assured it would only be accessible in a month. What is more important in this case is the fact that last year dividends of the most profitable companieswere cancelled, whereas they had to be added to the municipal treasury.For example, Galateya 2002 EAD whose assets include students holiday stations throughout the country. The company's last year profit amounts to BGN1.5MN and accounts for one fourth of the profit of all municipal companies which is worth BGN5.9MN. Since the dividend which all municipal companies owe to the treasury is 80% of their profit, Galateya 2002 was supposed to pay BGN883,516 to the municipal budget. However, that will not happen, because the local parliament gave the money to the companies. Municipal councillors Stanimir Zashev from Gergyovden and Orlin Ivanov from Democrats for Sofia claim that the profit figures are not real. The positive financial result is due to the sale of Galateya 2002 assets and not to other commercial activity. Revenues from the deals have already been absorbed under a series of investment projects and in fact, the company cannot pay this dividend. If it pays it, we'll simply have to close it, Mr. Zashev said confidently.The assets sold by the company should not be underestimated. They are two three-floor holiday houses, the Nicoletta hotel, a one-floor administrative building and a children's confectionery in Obzor at a total initial tender price amounting to BGN750,000. Sixteen bungalows, a warehouse, a kitchen block, a holiday station and a 15 dka estate in the village of Georgi Damyanovo were also sold last year. The bidding started at BGN115,000. But how the sales revenues have been absorbed remains shrouded ininformation mistNo one of the councillors is aware of what the money has been reinvested in.As to the other three companies - Roads and Equipment EAD, Water Supply and Sewerage EAD, and Parking Lots and Garages EAD, their profit is much more real and the councillors have different motives to give up part of the dividend due.The reasons which the three companies pointed out for reduction of the dividend are sound, Mr. Zashev said. As far as Parking Lots and Garages EAD is concerned, the money is needed for installation of the new system reporting the stopover time as well as for replacement of the GPS and the signboards, more than BGN1MN. But an inquiry at the Municipal Economy direction shows that the necessary amount is just BGN190,000. I think that we only had reasons to reduce the dividend due in the case of Parking Lots and Garages, since the company presented a real investment program. Nobody wants to pay dividends and naturally, loopholes are sought, said Anna Yaneva from BSP.The part of this company's profit due was reduced from 80 to 50 per cent. The company has to pay BGN499,419 to the municipal budget instead of the expected BGN679,210. It was underlined during the debates that Parking Lots and Garages needs money to install a new stopover reporting system as well as new signboards in harmony with the Regulation on Traffic Organisation in Sofia, adopted on May 19, 2005.I think there is a paradox about Parking Lots and Garages, too. Nobody knows the amount of the real operating revenues of the company. If things were clear, the company would be obliged to reinvest them in infrastructure. It sounds strange for them to say that they have no money, as they have not built even one parking lot so far. Where does their money go then?, Mr. Kundurdzhiev from DSB said. The parking lots are ceded to private persons at a much lower price - the parking lot in front of the Sheraton hotel, for example. That will continue to happen until a register of the commercial companies' property is created. Nobody knows now what estates the metropolitan municipality has at its disposalThe two other companies - Roads and Equipment EAD and Water Supply and Sewerage EAD, will pay just 20% of their profit to the treasury (respectively BGN33,811 and BGN31,376, instead of BGN114,957 and BGN106,681). The clemency of the municipal councillors was explained with the imminent legal costs of the two companies on cases they initiated for invalidating the sale of their shares in Municipal Bank. I think this is a sound reason, because the two companies will have to pay BGN250,000-BGN300,000 for legal fees, Atanas Mednikarov, councillor from the Democrats for Sofia group, said. A municipal company exists in order to support the municipality by its operations. As to Roads and Equipment EAD, the company credited the municipality as it owes it BGN1.3MN for street repairs. It wasn't logical for us to refuse to cut the dividend. There are cases in which decisions are made with a view to the situation and this is part of the good management.However, there isanother point of viewthe one of the Municipal Economy direction in the municipality. According to its director Daniela Tsaneva, the reduction of dividends because of legal expenses is a kind of nonsense. The real reason why Roads and Equipment EAD asks for shrinking the dividend from 80 to 50% of its profit (amounting to BGN169,055) is quite different. Two weeks ago a letter from the company was received in the direction underlining the need of BGN190,000 for restoration of the infrastructure destroyed by floods.As to the Water Supply and Sewerage company (its dividend was cut from 80 to 20%), it became clear that the company had already settled its debts to the municipal treasury by paying in advance in February 2004 a dividend for 2003 amounting to BGN150,000 at the request of the then deputy mayor Minko Gerdzhikov. The next payment was accomplished in the summer of 2004, when the company paid another BGN75,860 as a dividend for 2003. The amount was calculated by the balance commission and the refusal of part of the 2004 dividend may be considered a gesture of the municipality towards the company.It is no secret that the supervisory and managing boards of the municipal companiesserve party interestsEspecially when these appointments are political, Mr. Mednikarov added. Unfortunately, there is no strategy for the management of these companies. But I do not agree with the statement that their management is shrouded in mist. Still, the Metropolitan Municipal Council is the principal. Petar Atanassov, councillor from the Union of Free Democrats, holds a similar view. Our group has the necessary information, but the municipal council takes not only financial and management decisions but also political ones. And when politics prevails, economic expedience remains in the background. Therefore, the municipality might be a good master, but it would not be better than the private owner.

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