Guest article: Privatization – urgent

The state is a bad manager; as history clearly shows, where the state tries to take over the functions of the market, the economy fails miserably. This is especially true of socialist countries, where the state plays the role of the sovereign master of the economy, and private initiative is completely absent; the collapse of these systems is indicative of their economic inadequacy.

The transition from socialist to post-socialist state systems inevitably goes through a period of privatization, but ineffective state control in some enterprises remains. Bulgaria is no exception here - during the first two decades of the transition, a number of state-owned enterprises were privatized, but others continue to operate at a loss and accumulate debts that would bankrupt any private enterprise. For them, there is only one solution - immediate privatization, which would ease the burden on the budget, and the enterprises themselves to reform, or to collapse in their current form. Who are actually the "children of socialism", whose privatization is most urgent today?

1) NEK – The National Electricity Company is the state-owned company with the largest debts – over 2 billion leva, with over 1.5 billion owed to the Russian Rosatom for the preliminary phases of the Belene project, whose fate is still unclear; however, there is a real possibility that NEK will never receive a real product, i.e. a working power plant, against this obligation. The company’s large debts lead to a number of problems in its work – there are periods when NEK refuses to buy the electricity and heat produced by the producing companies, and it is necessary to periodically increase the electricity rate in order not to accumulate additional debts to the companies and still maintain the flow of electricity and heat to the distributing companies. The best option for the future of NEK is for the state structure to remain solely in the role of a contracting authority that would regulate relations between producers and distributors, but not to allocate budget funds and to act as an intermediary in the supply of energy. In turn, energy producers, which are currently regulated by NEK, should compete freely for supplies to distribution companies.

2) BDZ – in addition to the large debts of the railways, which amount to 740 million leva, they also suffer from a number of structural problems. Currently, the management of BDZ solves the problems “piecemeal” – the debts are covered mostly by selling assets, and reforms and optimization are not carried out, as a result of which new debts are inevitably accumulating. At the same time, a large part of the technical fleet of BDZ, especially in Freight Transport, is outdated, inefficient and often dangerous. The monopoly position of BDZ allows it to provide a non-competitive service and at the same time to pursue a non-market pricing policy that maintains artificially low prices and a system of preferences. At the same time, the quality of the service is constantly declining due to poor technical maintenance and lack of funds. Among the major problems of BDZ are the misappropriation of funds, which, according to an audit report for 2009 (a more recent one has not been made), exceed 120 million leva. The company also suffers from other internal problems, mostly caused by low-paid and poorly trained staff. The solution for BDZ is complex – on the one hand, the privatization of the carrier and the admission of private companies to the use of the railways, together with the replacement of the management staff, is urgent. The separation of the various services provided by BDZ and the separation of regional carriers would also be beneficial for improving the competitiveness and quality of the services offered in the sector.

3) VMZ – Sopot – of the listed enterprises, VMZ is the closest to privatization; the reason for this is the losses and inefficiency of an enterprise that nevertheless aims at production and sales. Under state control, VMZ functions only thanks to the constant state aid it receives; the enterprise nevertheless accumulates debts, which in 2012 reached 150 million leva. At the same time, VMZ has serious internal problems – unpaid salaries for months, constant protests by employees due to poor working conditions, an excessively large number of employees compared to the production volume. Over the past decade, due to outdated production methods and poor quality of products, VMZ has received fewer and fewer orders. It is expected that the privatization deal for the enterprise will be finalized in early 2013, but on the condition that the enterprise’s workers, who represent the majority of the working population of Sopot, are kept in their jobs. However, the future of the enterprise is uncertain, as its potential buyer will inherit large debts and an uncompetitive business.

4) Bulgarian Academy of Sciences – the system of scientific institutes currently has two sources of funding – the European programs for the development of science and the state budget, with the ratio being more than 10:1 in favor of the budget. On the other hand, the scientific output and the implemented projects of the BAS are negligibly small, and the external assessments of the activity prepared by ESF and ALLEA clearly indicate the inefficiency (in terms of the number of implemented projects) and the low public significance of scientific achievements. For these reasons, it is necessary to eliminate the monopoly of the BAS on scientific activity or to tie the funding of the academy to the produced scientific output, and not to a flat state subsidy. An option for the privatization of the academy is also to transfer the management of the various scientific institutes to the faculties of various universities, so as not to “distract” scientific activity.

5) Bulgargaz – the company is the only intermediary between natural gas suppliers and consumers in Bulgaria, especially district heating companies. The most common problem in the company’s work is the untimely payment of the district heating companies’ debts to Bulgargaz, which leaves the company without financial resources. On the other hand, Bulgargaz is the only body that determines the import conditions and is able to arbitrarily determine the prices of gas supplies, and thereby influence the prices of a number of products and services for end users. The solution to Bulgargaz’s current problems is similar to that of NEK – if its preservation as a regulatory institution is deemed necessary for political reasons, then its role should be reduced to that of a mediator between suppliers and gas consumer companies, which should not be involved in pricing and concluding real commercial transactions.

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