WRITTEN QUESTION E-3144/02

by Herbert Bösch (PSE) to the Commission

(4 November 2002)

Subject: Privatisations in Bulgaria

As part of the Bulgarian Government's privatisation programme, Bulgartabac, one of the largest tobacco companies in eastern Europe, is being privatised. However, it is alleged that several of the tendering and privatisation conditions were breached during the procedure for the sale of the undertaking.

The company was sold to Tobacco Capital Partners (TCP), although serious doubts exist as to whether that company's bid was the most advantageous. Amongst other things, the company was unable to submit proof of funds to guarantee the funding of the purchase, and its financial offer was well below the tenders submitted by other bidders. What is more, it is alleged that the founder members of TCP are the lawyers who had previously drawn up the legal privatisation analysis for the government.

What information does the Commission have about this matter?

What value does the European Commission ascribe to transparent privatisation programmes in the applicant countries?

Have any similar problems recently occurred in privatisation proceedings in applicant countries?

What measures will the Commission take if it is proved that tendering and privatisation conditions were breached?

Can the Commission guarantee that similar problems will not arise when projects funded from EU pre-accession aid schemes such as Sapard, ISPA or PHARE are selected?

Answer given by Mr Verheugen on behalf of the Commission

(9 January 2003)

There have been several allegations related to the privatisation procedure of Bulgartabac from the three rejected bidders who subsequently appealed before the Court on the Bulgarian privatisation agency decision. The litigation procedure was initiated on 5 September 2002. On 29 October 2002, the Supreme Administrative Court rendered a decision rejecting the appeals made by the rejected bidders on the overall procedure. However, the Court also overruled the decision of the Bulgarian privatisation agency naming the winning bidder. The privatisation agency, according to the Court, did not fully comply with all procedures. An appeal was made against the decision of the Court, which was rejected on 16 December 2002.

The Treaty of Rome does not affect the rules in Member States governing the system of property ownership (Article 295). Notwithstanding this, the sale of publicly owned companies may in certain circumstances contain an element of State Aid.

When the privatisation is effected by way of the sale of shares on the stock exchange, it is generally assumed to be on market conditions and not to involve aid.

If the company is privatised not by stock-exchange flotation but by a trade sale, the following conditions must be observed if it is to be assumed, without further examination, that no aid is involved:

- a competitive tender must be held that is open to all comers, transparent and not conditional on the performance of other acts such as the acquisition of assets other than those bid for or the continued operation of certain businesses;

- the company must be sold to the highest bidder; and

- bidders must be given enough time and information to carry out a proper valuation of the assets as the basis for their bid.

In all cases, there must be no discrimination based on the nationality of prospective buyers of the shares or assets concerned.

Some candidate countries have experienced important difficulties linked to the transparency of the privatisation processes. The Commission has underlined them in its Regular Reports on the progress made by the candidate countries on their way towards accession.

Clearly, there can be no guarantees that problems will not arise with the implementation of pre-accession tools. But in case of fraud, signs of irregularity or non-respect of the processes and rules, the Commission asserts that adequate actions will be undertaken, including, if necessary, the total refund of the Community funding.