Could you briefly comment to our readers the history and background of the Privatization Agency?
The Privatization Agency was founded in 1992 as an independent body to help the privatization process in the country. This agency is under the direct control of the Council of Ministers and the Executive Director reports to the Prime Minister. There are two types of structures:
the Executive Committee with three members - Executive Director and two Deputies. They manage the day-to-day work of the agency and all the decisions that they make have to be sent to the Supervisory Board. The Supervisory Board consists of seven members elected from the Parliament, from the seven main political forces in the Parliament.
The general structure is like that: when somebody wants to buy a state-owned company we appoint a tender or an auction and the World Investment News Ltdr has to be approved by the Supervisory Board. For the last ten years the Agency has sold probably 50% of the state allowances. According to the current law Ministers can also sell state-owned property and companies evaluated for less than BGN 3 million. Probably early next month there will be a new law that will concentrate all the power for privatization in the hands of the Agency.
The philosophy you had when you entered the Agency, has it changed in these four months?
My philosophy has been the same since I have started my practice. The process has to be clear. Generally, I do not want to have a tailor-made process, I want to have a common process for all participants. All participants have to be treated on an equal base. Whoever wants to buy, has to pay more and auction is the best way. Sometimes it is not applicable and we have to adapt it through tenders and so on, because there are many more conditions in privatization, not only the price. Sometimes when you privatize the monopolies and the utilities, you have to persuade the government and the users that the new owners will not squeeze the users. Then we have to provide some other criteria.
What other criteria? How are you going to promote the competition and not the monopoly?
The scale of increase of electricity or water, the way they have to prepare the demand management or not to fire so many people - to have an employment policy and ways to compensate dismissed personnel. It is not only that, there are so many other things.
Does it always happen that the one who pays most, wins the bid?
In most of the cases it is the easiest way. For monopoles and utilities, I do not know a country in the world that did it in an auction.
How do you formulate these criteria, for example with Bulgartabac currently being privatized?
Bulgartabac will be a tender, and so will BTC.
Why?
Bulgartabac is an industry. Bulgartabac is not simply the company. It gives food and jobs to hundreds of thousands of people in this country. If I, as a Manager of the Agency, will have to sell the company to the buyer and the buyer would like to restructure the company he will probably have to fire 80% of the people. These people will have to go begging on the streets. This is not the way to privatize. About 50 or 60,000 people are at the tobacco farms, growing tobacco. We cannot be like a country in the middle of Europe where they import the tobacco and what they do inside the country is that they only cut the cigarettes, because there is a demand in the country. In Bulgaria this is the typical agricultural product, so restructuring, unemployment, liberalization of the prices are something very delicate. There will be no government that will be happy if next month there are 50,000 people on the streets on a strike.
Could you explain us a little bit more the meaning of the Privatization Act?
The new Privatization Act will implement the philosophy I have explained: all participants will be treated in an equal way. There will be no preferences for management buy-outs.
Are you referring to local or to foreign participants when you say that?
All of them, money has no color. All participants will be treated on an equal base. The payment will be done only in cash, there will be no alternatives (bonds, etc.). There will be no diverting of payments. Negotiations will be cut off as a mean of privatization. There will be only auctions and tenders, the third option is to offer the company on the Exchange.
What do you consider to be the most successful and largest deal in privatization, not only from the point of view of money, but also from the point of view of restructuring the company?
Let's speak about sectors. For me the best developed sector after the privatization is tourism. Also banking and winery industry. Unfortunately, there are not so many good examples in the industry sector, there are but not many. I do hope that the next deals will give more advantage, like the State Insurance Institute, BTC or Bulgartabac, and the electricity sector. We strongly believe that for the electricity sector we can bring really big investors from France, Germany and the US.
How do you target directly those foreign investors?
There are three ways. First we collect the letters of intent and then we send the invitations to all these participants. Second, we do the PR campaign - we post advertisements in the newspapers. Thirdly, we use the Commercial Representatives at the Embassies. We have very close relations with the Big five auditing companies and we also send information to them for their clients.
How do you choose who you are sending the invitations to? Could you give us an example with one of your clients whom you invited and it went successfully through the whole privatization process?
There is a mailing list of the people who have shown
interest in the past and one by one we send them
letters. There is the case with Alen Mak - a cosmetic
company. There was recently a Swiss company who
showed interest and we invited them to participate.
Currently they earned the status for the preferential
buy. The supervisory board approved the contract
and they became the owner of the company. |
On a general scale, Germany, Belgium and Greece could be listed among the major investors. What is it that needs to be done to attract more North American investment?
First, Bulgaria has to make more improvements as a country. Not only North American investors, but all investors in the world want to come here and see the necessary infrastructure, the necessary legal base, the necessary tax system, political stability. If Bulgaria can show such improvements, then all investors would like to come here and share a piece of the cake.
Is there a special recipe for that?
There is no recipe, it has to be the government attitude. The Deputy Prime Minister said for example that he is ready to give for free the Telecom to one of the world's biggest telecommunication companies because that would mean to bring more investors here. The local people, not only the opposition, started to argue with him, "Oh, you are selling the national interest!" and so on. Probably this is the right way. If I get the money now, I will have a budget now but no investors for the next five years. There are other hands that have to adapt on our tax and legal system.
What do you think is the image of Bulgaria in the international business community?
First of all, the business community does not know Bulgaria yet. We still need the best practices, we still need the success stories from our country. Some major deals like the Telecom or tobacco can be a quality approval for Bulgaria if they see the big names investing here. I will give you an example with the brewing industry. Brew Invest decided to come here because they saw their competitors Interbrew already in the country. It will be probably the same with the tobacco and the chemical industry. Solvay came after Norsk Hydro and the same thing happened in the cement industry. Swiss, Germans, Greeks, they all come one by one. And this is the style. If the Germans are here, why not the British, or the Americans?
Let's move on a little bit to the Stock Exchange. Deputy Prime Minister Mr. Vassilev said you were the only responsible person from the capital markets who did not avoid solving problems. What were the problems to be solved in the Bulgarian Stock Exchange and how did you solve them?
I had the chance to solve more or less technical problems. I consider myself more or less a technical person, someone who knows the system. I have not stopped reading about new improvements and developments. But the general problem of the Exchange is not only the trading system, the guarantee funds or the communications. I can say that the Bulgarian Stock Exchange has a pretty good level of technical development but we still need the companies to take an interest towards them and begin to be listed there. Till now there was no one that could help bring more clients to the exchange. I do hope that Vassilev will have this chance to convince the government and the people that they are outsiders on the capital market. This will help not only the Exchange but the financial system in the country. This will also bring new horizons to the investors.
Some of the companies in the privatization process should go to the Stock Exchange, right?
Yes, this has to be done and this is something I owe to the Exchange. It will be in the near future. Bulgartabac, BTC, DZI, some of the electric distribution companies, we are now trying to convince the Council of Ministers that at least 20% of each company should go to the Exchange. I know that at the moment this is stress for the people because it is something new but I do hope we can convince them.
Do you think the Privatization Agency will change in the future, during the post-privatization process into a consulting agency for these companies?
I hope that in the next two or three years this Agency will close and all people working here will find a job in consulting companies. If the government decides that the capacity here can be developed in another way, why not. For me this is a limited process and as soon as we can close it, the better. I do not want to see a privatization deal in 2010. Probably in 2010 we will have to privatize the railways but not the majority of the other companies. I do hope not to be so long in this Agency.
Where and when do you want to go, to the private sector, the banking sector?
If I can do it tomorrow, I will do it tomorrow. Currently I have to stay here, a bit more.
What do you think about Bulgaria joining the EU?
I see more advantages than disadvantages. There is no doubt about the big advantage to be a member of the EU. Is it the right moment? Probably yes. Now there are twelve member states. When Spain, Portugal and Greece joined, they had the chance to be only three of them and they split a lot of money to become the countries that can meet the criteria. For example, Greece and Portugal were far behind Bulgaria as an economic development twenty years ago and now they are quite ahead. They just had the money that improved the style of life of these purely agricultural countries. Anyway, if Bulgaria wants to become a real member of the EU, we have to change our way of thinking. We cannot keep thinking that the government will always preserve our people as employees. If my country and my company want to be competitive to the companies and countries in the EU, first I have to make products with good quality and low price. How can I do this as a General Manager, if I am obliged to keep 1,000 people when I can produce the goods with 700? In this case we have to pay not only the social price but also the price of the new economy, the new management, the new ruling of the country. Then probably we will have the real chance.
Now everybody says it is the time for joining. Everybody expects there will be money raining when we get into the EU. But the truth is: no pain, no gain.
As a final question, how would you invite investors to come to Bulgaria?
Again, I will leave this mostly to the Foreign Investment Agency. On our side, we want to prepare some very clear procedures, very predictable rules, fair and good competition among participants. If we do such procedures, investors will come again. Currently Bulgaria is in the investment focus of Europe and we have to use this momentum. This is the right place for investment.
Note: World Investment News Ltd cannot be held responsible for the content of unedited transcriptions. |
