CEZ Bulgaria: True privatization or forced renationalization?

The until recently almost unknown company Inercom and owner Ginka Varbakova’s participation in the deal with CEZ-Bulgaria puts forth many questions.
Photo: BGNES

The electricity distribution in Bulgaria is in the hands of private foreign companies. The Czech state-owned company CEZ is the largest foreign company distributing power to over 3 million Bulgarians in Western Bulgaria, including the capital Sofia. The company stepped in Bulgaria 14 years ago and paid some EUR 280 million for this business. Now, the Czech company is about to leave Bulgaria and is selling its business. The assets of the company are estimated at EUR 1 billion and the company’s annual profit amounts to nearly EUR 50 million. It is selling its assets in Bulgaria to the private Bulgarian company Inercom for EUR 360 million and it turned out that the contract between the two companies was already signed. At first glance it seems as a normal deal between two companies where state interference only boils down to the approval of the Commission for the Protection of Competition.

However, the deal caused huge turbulence in Bulgaria. According to those who oppose the deal it poses a risk to the national security and the interests of over 3 million Bulgarians who use electricity distributed by CEZ. The Bulgarian Minister of Energy Temenuzhka Petkova handed in her resignation at the request of Premier Borissov. However, her resignation has not been approved by the National Assembly yet. The Bulgarian Parliament demanded explanations from Inercom’s owner Ginka Varbakova and Bulgaria’s President has been thinking over the possibility to convene the Consultative Council on National Security to discuss this issue. Bulgaria’s Premier Boyko Borissov said in return that the state was interested in buying a majority share from CEZ.

The Bulgarian business lady Varbakova agreed to partner with the state, but made it clear that the owners of CEZ have to approve this idea in Prague. However, the Premier of the Czech Republic Andrej Babiš announced that the deal was already finalized.

Why then such turmoil occurred around a seemingly normal commercial deal between partners from two EU member states?

CEZ has been dealing in the power distribution field for years and nobody doubts its activities. However, things are much different with the private Bulgarian company Inercom which is buying the assets of the Czech company in Bulgaria. There was not much information about this company in the public space until we learned that Inercom is about to buy the electricity distribution business from CEZ. As a result, many rumors, speculations and guesses occurred. Thus, the question related to the origin of the money used for the purchase of this strategic business arose. Currently, the opinion that the real future owner of this business is another person or company prevails. Offshore companies, puppet masters from former Soviet republics and other maneuvers typical of the gray economy in the early years of Bulgaria’s market economy were mentioned during the disputes. According to official information, Inercom owns 4 small photovoltaic parks. It also became clear that this company has refused to continue its business with several municipal parking lots in the town of Pazardzhik (Central South Bulgaria) and that Ginka Varbakova’s husband is no longer participating at some of his companies. At first glance the restructuring of the business activities of these Bulgarian entrepreneurs has no connection with the deal related to the purchase of the business of CEZ in Bulgaria. However, it shows the real dimensions and the scale of their business which are far from the necessary financial capacity, professional and managerial skills and business scope to manage a business with 3 million clients. After several days of silence the owner of Inercom Company did not tire telling all media and institutions in this country how reputable, legal and beneficial to the consumers and the state the deal with CEZ was. The Czech company also said there was no place for concerns and added that they were convinced that the deal would turn successful.

No one still knows how this story will end – whether it will end with a true privatization or with forced re-nationalization. Perhaps, the deal will merely fail under the political and economic pressure. All depends now on the talks between Inercom’s owner Varbakova and the owners of CEZ in the middle of the week in Prague, where Mrs. Varbakova will try to convince the sellers (CEZ) to accept the Bulgarian state as co-owner in the new company. Let us remind that CEZ has already launched arbitration against Bulgaria seeking dozens of millions of Euros and would perhaps not be so happy with the fact that this country has recently voiced willingness to become a partner of the Bulgarian buyer in their business. Moreover, the European Commission would probably not admire the government’s intervention in that business either, because it contradicts the rules of the game in the power engineering field. There is another option mentioned by Bulgaria’s Minister of Finance Vladislav Goranov – the state may buy Inercom itself together with the acquired assets. Things became very complicated and the Bulgarian National Assembly decided to adopt urgent amendments to the Energy Act which may be enforced in 15 odd days. Thus, the parameters of the deal with CEZ will match the interests of the state and the Bulgarian consumers. Meanwhile, the country’s authorities should think over the question why strategic investors are leaving this country.

English version: Kostadin Atanasov

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