Банкеръ Weekly

Briefs

THE SALE OF SOFIA CENTRAL HEATING - EQUATION WITH TWO UNKNOWN QUANTITIES

The competition for a private operator of the Sofia Central Heating Utility which has been dawdling for three years already seems perfect for the Guinness records. All that time the owners of the Sofia heat supplier - the municipality (58%) and the Ministry of Energy (42%), did not succeed in harmonizing their points of view on the foreign manager.Municipal officers insisted that the present managers of the company were doing their work well and no money should be spent on a new operator. In turn, the ministry required that the commitment to the World Bank and the European Bank for Reconstruction and Development (EBRD) be fulfilled. In 2002 the two institutions launched a EUR114MN loan for rehabilitation of the heat transportation system in the capital city and the appointment of a foreign manager was one of the conditions set. However, when Miroslav Sevlievski was appointed minister of energy the state's adamant position seemed to soften. Quite soon after sitting in the minister's seat he said that a mechanism was being discussed to settle the whole issue.I don't think it is to the benefit of the society to pay to a manager who has no clear functions regarding the management of the company. An agreement of the kind may have been useful two years ago, but it isn't now when the company is financially stable, the Deputy Minister of Energy and member of the board of the Sofia Central Heating Utility, Ilko Yotsev, said several days ago. Asked by the BANKER weekly whether the question had been coordinated with representatives of the EBRD and the World Bank, Mr. Yotsev explained that several possibilities had been discussed. One of them is to give up the idea of appointing an operator, the other - to seek another function of the manager, and the third - to privatize the heating utility.The implementation of any of these variants will hardly go smoothly, since the credit agreement approved by the two financial institutions will have to be changed. Officially we have not been informed about such demands. But so far we haven't changed agreements that are already signed, representatives of the World Bank Bulgarian office commented for the BANKER weekly.The serious discussions are still to come. How the municipality and the ministry will explain the reason for wasting so much time is another question. Back in the end of 2002 the consultants - the US Nexant company and Eurolex Bulgaria, decided that an operator would be chosen through a competition and began the preparation of the preliminary documentation. Three candidates who submitted preliminary offers passed the first selection - the French Dalkia International, the German MVV, and the consortium between RWE Industries and Stadtwerke Leipzig. It turned out, however, that Nexant and Eurolex did their job carelessly, because neither the Sofia heating utility owners nor the applying managers were fascinated by the draft agreement.The other companies noted that the term planned for management of the company was too short - five years only. There were other reproofs as well - the operator was not given enough freedom to conduct an independent investment policy and to change the number of the staff without being sanctioned by the company board and was not allowed to utilize the revenues from the sale of electricity produced by cogeneration (and purchased by the National Electricity Company at a preferential price of BGN80 per megawatthour). In turn, the owners replied that this text of the agreement allowed a foreign company to bring its own managing team which would take fat salaries without doing anything.Sources familiar with the situation claim that the three-year delay eventually achieved its goal - the privatisation of the company. This variant has been discussed openly since the beginning of April. The municipality proposed that part of the shares of the company be given to the future operator. In return, it had to commit itself to liquidate the company's debts to Bulgargas which now amount to BGN140MN. Obviously, the Ministry of Energy has matured for the sale, too. The municipal council and the ministry have to discuss the privatisation opportunity. I think that the price of the Sofia Central Heating Utility would be quite high in case it is sold, Ilko Yotsev said. The company's 2004 figures should not be underestimated, in fact - its profit exceeds BGN2.7MN, it has 378,000 subscribers and approximately BGN160MN uncollected receivables. All these figures would excite the appetite of quite many respectable international players. Still, there are two unknown quantities in the equation - what final stand the World Bank and the EBRD will take and what the opinion of the next minister of energy will be.

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