Bulgarian government to seek control of local CEZ assets

Bulgarian government to seek control of local CEZ assets
By Denitsa Koseva in Sofia March 1, 2018

The government in Sofia is seeking to take the controlling stake in the assets of Czech power company CEZ in Bulgaria, daily Dnevnik reported on March 1.

The unusual proposal came after in February CEZ announced that it had selected the unknown small family-owned Bulgarian firm Inercom Group, raising serious concerns about the buyer’s ability to fund and run such strategic energy assets.

At a meeting with Inercom’s owner Ginka Varbakova, Prime Minister Boyko Borissov and Finance Minister Vladislav Goranov asked to take over the controlling stake in CEZ’s Bulgarian assets should both the seller and the buyer agree.

According to Goranov, the deal can be funded either with money from the state budget or through one of the state-owned energy companies, Dnevnik reported. He added that this is a deal between two companies and the government is in a delicate situation, in which its possible participation depends on the goodwill of the two companies involved.

Varbakova said that she would allow the state to get a stake in CEZ’s assets if the seller also agrees. She is going to the Czech Republic to explain the situation to CEZ.

“The prime minister has asked for full control in order to be able to guarantee the security of the end consumers. These are talks that we are going to have with CEZ, the seller,” Dnevnik quoted Varbakova as saying.

The latest government initiative sparked yet more confusion, and local analysts and economists voiced concerns that such a move is unacceptable and shows the lack of rule of law in Bulgaria.

Meanwhile, Volen Siderov, the leader of Ataka – one of the three parties forming the United Patriots that is the junior coalition partner in the government — demanded that the government get a golden share in CEZ’s Bulgarian assets.

The deal has raised concerns over the ability of the buyer to finance it. Bulgarian media have leaked details of the financing behind the deal, apparently revealing that two local banks were prepared to support it. Borissov confirmed this, quoting documents sent by his Czech counterpart Andrej Babis.

According to the documents sent to Borissov by Babis, the deal was to be partly financed using funds from two offshore companies — Score Trade and Global Victory Trust. Bulgarian daily Capital reported earlier that, according to its sources the companies are linked to the former owners of the Paradise Center shopping mall, Patta Zurabayevich Gagoneishvili and David Mihajlovich Koblianidze. They reportedly made over €250m from selling the mall.

The remaining funding was to come from several Bulgarian banks; both Unicredit Bulbank and First Investment Bank have provided intentions for lending, worth €180mn and €80mn respectively. The Bulgarian Development Bank was also reported to have submitted a letter saying it is ready to refinance an existing European Bank for Reconstruction and Development (EBRD) loan of €65mn.

However, Varbakova said that Bulgarian banks are not participating in the financing, though she has declined to provide further details.

Meanwhile, Borissov held another phone conversation with Babis, asking for his help should the Bulgarian government take steps to acquire a stake in CEZ’s assets, the government said in a statement.

Bulgaria’s President Rumen Radev reacted to the government’s intention to acquire stake in CEZ’s local assets, saying that its actions are chaotic and contradict its own previous statements that this is a deal between two private companies where the state cannot intervene in any way.

The deal also has raised the question of why CEZ has not found another buyer, and indeed why it decided to exit Bulgaria, where it posts profits. According to Petr Baran, former operations director of CEZ, the company decided to exit Bulgaria due to the bad business environment and the conflicts with Bulgaria’s government. Baran claimed that no serious company showed an interest in the deal and that CEZ finally decided to sell its assets to an unknown company.