Transport Minister Ivailo Moskovski will have this year the opportunity to dispose of part of his burden.

Having said recently that he drew the short stick to oversee some of the largest companies still owned by the state, all of them mired in debt and problems (he was referring to Bulgarian Posts and the railways), he will have the opportunity to part ways with one of his charges, the cargo division of the state railways BDZ.

The privatisation process is set to begin in March and the Cabinet hopes to conclude it as quickly as possible, because heavily-indebted BDZ needs the money.

However, any possible deal now faces a slew of obstacles – first, strategic investors are being put off by unnecessarily high standards.

Additionally, last-minute sales and transfers of assets could further weaken interest in the company. To avoid a repeat of the Bulgartabac scenario, where the deal appeared suspiciously rigged, the Government may want this time to consider a wider range of ideas and adjusting the according to the market logic, rather than the wishes of a particular investor. Because there are too many coincidences – accidentally or not, the same names of potential investors are being bandied about.

The subject matter

Although the legal analysis and financial evaluation of BDZ Cargo were completed only days ago, the Transport Ministry had drafted the tender criteria some time ago.

These were described in a letter to the Privatisation Agency dated November 21, signed by Ivailo Moskovski.

These criteria raise the bar high for strategic investors, requiring a total turnover of 500 million euro for the past three years combined.

For the record, BDZ Cargo's revenue in 2011 was 167 million leva.

According to industry sources, only a handful of state-owned railway companies in Europe meet that requirement. Moskovski's letter excludes freight forwarding companies from the tender, limiting the field of potential bidders to railway companies only, even though sale consultants have said that major European freight forwarders were also interested.

For financial investors, the criteria are an exact replica of the requirements demanded from Bulgartabac bidders – more than one billion euro worth of assets under management and 25 million euro of share capital.

"The requirements are set deliberately high in order to discourage random companies from putting in bids," Transport Ministry spokesperson Georgi Andreev said. This, however, can lead to the other extreme, namely keeping the number of bidders to a minimum, which might exclude some otherwise good offers.

"The criteria for strategic investors are exaggerated upwards and downwards for the financial investors," said Stanko Stankov, manager of railways operator Bulmarket, the first private company to enter the market.

Despite operating for seven years now, it is excluded not only on the grounds of insufficient turnover, but also because of the requirement that bidders need at least 10 years of experience.

According to Stankov, the ministry was contradicting itself – on the one hand, the ministry said it wanted the new owners to maintain cargo operations, yet at the same time it excluded strategic investors. Bulmarket would be interested in BDZ Cargo, but not at this time, because it does not meet eligibility criteria .

The position of Philippe Rombaut, executive director of fertiliser maker Agropolychim, which is a shareholder in Bulgarian Railway Company, the largest private operator in the country. "We are not interested, if we can not participate. There is no such option at this time," he said.

BDZ's management has said that the company has suggested much lower criteria, but the final decision on the issue lies neither with BDZ, nor the Transport Ministry, but with the Privatisation Agency.

Drawing an analogy with the Bulgartabac sale, the criteria for the quantities of tobacco that new owners would have to buy from local producers, a requirement that drove away foreign strategic investors, were decided at the highest level and where authorised by Prime Minister Boiko Borissov.

Moskovski's suggestions might have been passed down in the same way. So far, the Privatisation Agency has said that Moskovski's letter had an informative character, meaning that the agency may yet decide to amend the criteria.

Potential bidders

There is no accurate measure of interest in the company. Sale consultants speak of strong foreign interest, with several Bulgarian groups taking stock of the situation.

The list of local names has all the usual suspects: banker Tsvetan Vassilev, businessperson Vassil Bozhkov (who has a foothold in the railway business already), First Investment Bank and industrial conglomerate Chimimport, which is reportedly keeping an eye out for any asset up for sale.

Two independent sources have confirmed that former finance minister Milen Velchev, who acts as a consultant for Russian banking group VTB, has spoken about his client's interest in BDZ Cargo. But like in Bulgartabac's case, the rumours are that such an offer would only be a front for Tsvetan Vassilev's interests.

On the other side are several foreign strategic investors.

The exact list is unclear, with some sources speaking of Austrian interest, others of Spanish and British. The only common thread is that a Turkish company is closely tracking the sale. Two independent sources have said that the bidder in question is Koc Holding, one of the largest industrial conglomerates in Turkey.

In the past, the company came close to acquiring former state fixed-line monopoly Bulgarian Telecommunications Company, but lost as a result of a court challenge. This time, Koc Holding exploring the prospect of attracting Deutsche Bahn as a partner. To this end, the final tender criteria could be amended to include an option outlining the bidding requirements for a consortium.

More doubts

So far, the certainties about the deal are as follows – the Cabinet will sell 100 per cent of the company and the tender procedure should begin by the end of March.

Most likely will be an auction and the price is expected in the range of 70 million euro to 130 million euro.

But there are plenty of unknowns. Most of the documentation has been prepared by the advising consultants, Kambourov and Partners, and submitted to the Privatisation Agency. Certain details of the adviser's evaluation are still being worked on, since the firm had a very short span, only several months, to complete work. The adviser has said that it was too short a period to make a detailed assessment and evaluation of a company that has hundreds of assets and co-owned properties.

For example, is not yet clear what will happen to the ferry terminal in Varna, where ownership is shared by BDZ Cargo and the National Company Railway Infrastructure, but the terminal is used by the private shipping company Navibulgar. Equally unclear is the fate of about 10 buildings in use by transport police, but are still listed as assets of BDZ Cargo.

It is clear what the buyer will get: 219 locomotives, about 4950 freight cars and a loss of 10.5 million leva in 2011. As a bonus, there will be 4352 employees, although BDZ's firm policies might result in a reduction of that number by as many as 1000.

The new ownership will have to cope with ferrying 11.6 million tons of rail freight (BDZ Cargo's share in 2011 of the total market of 14-15 million tons). Given the numbers, a strategic investor would have better odds of turning the company's fortunes.