- Even though, the closing of the factories is clear breach of the privatization contract, the government will most probably turn a blind eye to its favorite oligarch
Businesses that are based on human vice, hardly ever die. In gambling it is mathematically clear that the bank always wins. Sectors such as alcohol and cigarettes, despite the state campaigns against their use and high taxation, are also thriving.
Against that background, it seems that a special business talent is needed to destroy Bulgartabac Holding in only six years. The former state cigarette monopoly was privatized in 2011, still as a market leader, by the then tandem Tsvetan Vassilev - Delyan Peevski. Three years later as a result of their divorce, it remained under the control of the MP from the Movement for Rights and Freedoms (DPS), who also had an official minority shareholding for a short time. In another three years, the brands have been sold, still as market leaders, and the factories are almost closed.
Just before Christmas the remaining 400 employees of Blagoevgrad BT were encouraged by their employer to quit due to his fault and receive compensation. 240 of them agreed. The tobacco factory in the village of Yasen - "Pleven BT", has only 12 employees since the beginning of January. The Sofia factory has been out of operation since last year, and now its terrain is becoming a real estate project. No reduction of staff is observed only in the Yuri Gagarin packing and filter factory, which has clients other than Bulgartabac. According to Capital’s data, only 20 people work at the headquarters of the cigarette holding. The recap after six years of "Peevski" management is almost analogous to scrapping.
Despite all the state's support
Such a collapse could be explained only by the presence of war, natural disaster, or if the state lead war against the company. However, the situation is quite different. The cigarette market in the country for 3.6 billion leva has been growing throughout the entire duration of the crisis and Bulgarbatac's business was periodically supported with special laws, customized excise rates and loans from the Bulgarian Development Bank. The Commission for the Protection of Competition closed its eyes to the loopings involving the company's property, the Financial Supervision Commission did not sanction the chronic non-disclosure of information and the various violations against the minority shareholders, and the prosecutor's office and the security services remained deaf to Turkey's ongoing protests in recent years that the brands of Bulgartabac are smuggled in the country and finance terrorism.
The list is endless. For example, the Privatization Agency does not notice the apparently unfulfilled commitment under contract for keeping the factories running for 10 years. Instead, the institutional energy is aimed at rewriting laws in order to review transactions from the times of mass privatization 20 years ago, the limitation period for which has already expired.
The newest gift
Last year Bulgartabac received another legislative gift, which former workers claim to have been introduced primarily to allow quicker layoffs. These are the transitional and concluding provisions of the State Social Security Budget Act, which specifically included an article regarding discharge due to the employer’s fault. According to this text, if you agree to leave for compensation by the end of 2017, you will receive between 4 and 10 salaries, but if you do it afterwards you will be able to receive just four minimum wages. Thanks to this lever introduced around Christmas Bulgartabac has been almost entirely emptied of content because of the almost total absence of workers.
The social ministry and the NSSI, who are the authors of the amendment to the Social Security Code, noted that the changes have been in force since 2002 as a principle and the last amendment is just aimed at further precision. The text adds the cases of dismissal of civil servants, which would probably relieve the budget from the payment of compensations while optimizing the administration. "The changes are of a precision nature, since the termination of the legal relations on these grounds is carried out based on a compensation offered by the employer/ appointing authority, which is accepted by the insured person. This means that in such cases the legal relationship is terminated with the consent of the relevant person, which coincides with the general hypothesis of the provisions of that article," the Social Ministry noted. They added that the texts were reviewed by the NSSI supervisory board, the tripartite council, the government and the MPs.
What did Peevski get?
Bulgartabac was privatized in 2011 without any clarity regarding the person standing behind the buyer BT Invest, who paid 100 million euro, while the cash balances of the holding at the time were 114 million leva. The company had purchased new machines and spare parts for production and had a lot of raw materials in stock. It had about 35% market share and made sales valued at BGN 367 million. With the exception of BSP, who clearly indicated that the real buyer was the tandem Tsvetan Vasilev - Delyan Peevski, all other political forces led by the ruling GERB, repeated the mantra that the state interest was protected despite the unclear buyer and the lack of guarantees for the future of the holding.
After the bankruptcy of CCB, Bulgartabac obtained loans from the state-owned Bulgarian Development Bank, which should, as a rule, support small and medium-sized enterprises. The subsidiaries also took loans. At the same time, however, given all the transformations in the holding it is difficult to trace the financial effect on the company or its owner. Entire companies such as "Technomarket" and real estate became part of it without any transparency and for vague prices. Outside the holding, a distribution company was set up, which was also included in the holding for an unclear price and then went out as part of the deal with BAT. A retail chain has also been created with institutional support.
Years of counter-growth
Over the next few years Bulgartabac's revenue growth was impressive - in 2014, for example, it reached 510 million leva, and the reports at the time mentioned that about 85% of the revenue was generated from sales in the Middle East. At the same time, the company was regularly mentioned as the producer of the most smuggled brands of cigarettes in Turkey that entered through Iraqi Kurdistan and thus financed the Kurdish separatists.
At the same time, since the privatization the market share of the cigarette holding in Bulgaria started to gradually drop, although the company continued to be the market leader, and shrunk to 25.8% in 2017. As early as 2011, Victory, the best-selling brand of Bulgartabac in Bulgaria, lost its leading position in competition with the Greek Karelia and failed to get it back, and in 2017 it was already third after Marlboro.
All this happened in spite of the complete overturning of the excise tax scale by GERB so that Bulgartabac cigarettes could receive a friendly excise duty in 2016 and could compete with the foreign enterprises. The current ruling circles made another valuable service to local producers - they did not introduce counters for the cigarettes manufactured by the factories.
"In addition to the lack of control and obvious assistance from the Finance Ministry and the Parliament for Bulgartabac, there was no control by the Commission for the Protection of Competition or the Financial Supervision Commission, or any serious state supervision. We just need to point out the cases in which the CPC allowed a change in the offshore company which owned Bulgartabac’s owner, without investigating the beneficial owner and within the shortest terms possible, the fact that the Ministry of Economy did not impose a fine for unauthorized advertising, the Financial Supervision Commission did not impose sanctions for violation of the interests of the shareholders or when it did, the court canceled its decision," a representative of a foreign cigarette company recalls.
The beginning of the end
Nevertheless, in April 2016 the Bulgartabac’s cigarette factory in Sofia was closed and more than 400 employees were released. At the same time, the revenues of the factory in Pleven, which prepares the tobacco for production processes, dropped by half. In 2017, Bulgartabac, without a decision of the general meeting, sold its most valuable asset - its brands - to British American Tobacco, for an amount higher than the price at which the holding was privatized. According to the minimum details of the contract that were disclosed, BAT signed a contract for commission production of the purchased brands in "Blagoevgrad BT" for up to two years, i.e. by April 2019 at the latest. The Bulgarian office of the cigarette enterprise noted that BAT has appointed Bulgartabac to produce the acquired brands for a period of up to two years and for now there are no changes in that respect. BAT also stated that they are not aware of the percentage of employees engaged in the production of tobacco products under the contract with them. At the same time, however, since the beginning of this year, the factory in Blagoevgrad has less than 200 employees based on the data received from the trade unions. On the other hand, BAT has sufficient capacities in the region to produce the brands.
The large-scale layoffs due to the fault of the employer did not lead to protests by the dismissed employees or to any concerns by the local authorities in Blagoevgrad and Pleven because of the dismissal of so many people. Although obviously the reason for the meltdown of the holding can be sought only in the management decisions or mistakes, so far, other culprits have been pointed out for each successive cutoff.