For the third time, the privatisation of Bulgartabak Holding, the Bulgarian state-owned tobacco company that comprises several cigarette-making plants and processing factories, has been brought to a halt.

Unfortunately, that deprives the holding of brighter future prospects and serves as a bad signal to potential foreign investors. This time, the start of the privatisation procedure failed because of the failure to approve amendments to the Privatisation and and Post-Privatisation Control Act, which would have taken Bulgartabac off the so-called Forbidden List of companies excluded from being privatised.

The Economy Ministry officially declared its support for the sale of all the holding's cigarette plants, but the Movement for Rights and Freedoms (the MRF, the party supported mainly by Bulgarians of ethnic Turkish descent) through the MRF-controlled Agriculture Ministry, opposed the amendments and prevented Cabinet approval.

The privatisation of Bulgartabac Holding has proved to be one of the most problematic and protracted attempts at restructuring a state company.

Twice a privatisation procedure has been started, and each has ended in failure.

In 1998, the Privatisation Agency opened a bidding public tender, but in 2001 the tender was terminated without a buyer being chosen.

In 2005 the purchase of three cigarette plans by British American Tobacco was thwarted. The company withdrew its proposal, citing what it said was political instability in the country.

Privatising Bulgartabac is a sensitive issue and any talk of doing so brings a sense of deja vu to people's minds.

In the week ending May 11, the board of directors and the monitoring committee approved the sale of all enterprises that are included in the portfolio of the holding, including the profitable cigarette-making factories in Sofia, Blagoevgrad and Plovdiv and Stara Zagora and the processing company in Pleven. But representatives of the ruling coalition put a stop to the privatisation.

In the middle of 2006 there was not even a consensus about the sale of all companies in the holding; the board intended to hold on to the profitable ones. However, a decline in financial results and market prospects for the enterprises, as well as the intensive competitive pressure from foreign cigarette producers, forced Bulgartabac management to look for other ways to boost the efficiency of the company. The net revenues of one of the most profitable entities in the portfolio, Blagoevgrad BT, fell by 37 per cent in 2006 compared to the previous year's results.

The liberalization of the prices of cigarettes in Bulgaria at the end of 2006 proved to be a catalyst for new players to enter the Bulgarian market. An increase in excise duties on tobacco products in 2006 because of EU requirements did not deter international companies from competing for Bulgarian consumers. Currently, the excise on 1000 cigarettes is 35 euro, but by 2010 the excise level has to reach the minimum requirement of 64 euro for 1000 cigarettes.

Before October 2006, the state dictated the prices of all types of brands. This assured a monopoly for Bulgartabac, one that transposed into million leva in revenue each year, in spite of the inefficient unit production costs compared to EU standards.

However, in the face of competition and free market conditions, the holding proved inflexible and uncompetitive. According to the accounts and reports of the management, the number of employees at the factory in Blagoevgrad was more than triple the European norm.

The overall cigarette market value in Bulgaria is estimated a 17 billion leva a year. Foreign companies in the sector will fully use this potential, and just a few months, Bulgartabac's head start evaporated as companies such as Philip Morris and British American Tobacco entered the market. In the middle of 2006, Bulgartabac's market share was 99.3 per cent, while in December 2006 it fell to 98.5 per cent and in February 2007 it was 86.4 per cent.

Within just a few weeks, 11 new brands of cigarettes were on the market. Viceroy, which is produced in Romania, got off to a flying start and swiftly became a direct competitor to the most popular brand in Bulgaria, Victory. Such intense competition made the Bulgarian monopoly company reassess its pricing policy and at the beginning of the year it decreased the prices of 21 brands of cigarettes which account for about 50 per cent of the sales of the holding. As a result, in March it was reported that sales of domestically produced cigarettes had fallen by 4.9 per cent.

MRF leader Ahmed Dogan was quoted as saying that the sale of Bulgartabac through the Bulgarian Stock Exchange would be dangerous because no single entity could be identified to be held accountable to the public. At the same time, Dogan said that social commitments should be taken towards those who would lose their jobs. However, these arguments are neither reasonable, nor justifiable. Private ownership is the most efficient way to establish efficient monitoring and oversight to the management of the companies.

The effects of the change in the ownership of the company from the government to the private sector and the opportunity costs and any forgone benefits from the stalled privatisation can be summarized in the following way:

1. Boosting competition in the sector;
2. More efficient use of resources and assets;
3. Lower and more competitive prices;
4. Better quality of products;
5. Greater labour productivity due to investments in high-yield and modern equipment and machinery; more innovations;
6. Incentives-based salaries;
7. Enlarging of markets abroad;
8. More efficient fight against smuggling of cigarettes
9. Fiscal revenues for the budget from the sale of government assets

All these results are indisputable and as such, they present a sound case for the transparent and fastest possible sale of the companies, which is through the Bulgarian Stock Exchange. At the end of 2006, the only maker of packing and filters in Bulgaria, Yuri Gagarin BT, was successfully privatised through the Stock Exchange.

The privatisation of any big state-owned incumbent is usually followed by appeals for taking social commitments. The inefficient ways of management of government enterprises leads to, among other things, the necessity to dismiss employees, and reorganisation of human resources. However, the pretext of social responsibility is a fake and insincere argument in the case of Bulgartabac, and is aimed to conceal various political interests and rent-seeking behaviour. Socially responsible management is a derivative of the profits of the company, its stability in the long run, capacity for innovation and potential to add value to the economy.

Therefore, each subsequent delay of the privatisation process will lead to a decrease in the prices of the enterprises in the future and will make any economic and social consequences and side effects of the restructuring harder to overcome. Which are not by all means negative, even the opposite - freedom is always preferable to serfdom.