Bulgaria finally gives up on plan to privatize tobacco monopoly

SOFIA – Bulgaria’s ruling majority yesterday abandoned a long-delayed landmark sale of tobacco monopoly Bulgartabak to a Deutsche Bank-led consortium, saying the deal was unfavorable for the country. Analysts said the move looked to be aimed at pleasing the government’s junior coalition partner, the Turkish ethnic MRF party, on which it depends for its fragile parliamentary majority and which has strongly objected to the 110-million-euro ($119.8 million) sale. The ruling National Movement for Simeon II (NMS) and MRF decided at a joint session to relaunch the sale, which foreign investors see as a test for the pro-Western government’s ability to press ahead with privatization. The Bulgartabak sale is a politically sensitive issue because most of Bulgaria’s ethnic Turks, who account for some 10 percent of the country’s population of 8 million, make their living by growing tobacco. Economy Minister Nikolai Vassilev said Deutsche Bank had disagreed with the government’s decision to continue to set minimum tobacco purchasing prices after Bulgartabak’s sale and a requirement not to sell its stake in the monopoly for five years. Vassilev said Deutsche Bank had also objected to the government’s requirement to raise annual tobacco purchases to 62,000 tons in 2006 from 40,000 tons in 2004. Government officials have said boosting the local tobacco business rather than the price was the most important criterion for Bulgartabak’s sale. Political decision Analysts said abandoning the tobacco sale, which was launched last June but then delayed by court battles, would not damage the government’s credibility abroad as long as it remained committed to completing privatization. «This seems a political decision and it’s maybe related to… the local elections (this fall) and the government’s majority,» Andrew Roberts, emerging markets analyst at Schroder Salomon Smith Barney in London, told Reuters by telephone. «We are not talking about a major deterioration story in Bulgaria,» Roberts said, adding that investors would be reassured if the government put forward new plans for the sale. The government has established a good reputation outside the country for implementing tough IMF-prescribed reforms. But its popularity at home is falling and deputies have left the ruling party, saying the government has failed to boost living standards. The NMS has 110 seats in the 240-strong Parliament and its junior partner, MRF, has 20 seats. Earlier this month, Parliament approved the sale of 80 percent of Bulgartabak to Deutsche’s consortium, clearing the way for the deal’s completion. But the sell-off agency failed to strike a deal with the buyer, which was not ready to compromise. A previous attempt to sell the company, which has 22 domestic factories and five foreign subsidiaries, failed in 2000 when it did not attract any bidders. Foreign major tobacco firms shunned the sell-off last year because Bulgaria decided to sell the business as a whole, rather than offering its best working factories separately.