A month before the municipal elections in Sofia and it seems that the most difficult thing for municipal councillors is not to predict who will be Sofia’s next mayor but to decide the value of Sofiyski Imoti (SI) municipal company. As The Sofia Echo reported on September 14, councillors finally decided to sell the most controversial municipal company, whose name has become a synonym of non-transparent deals with public properties, done in a completely unaccountable way.
SI is 100 per cent owned by Sofia municipality. It deals with all kinds of real estate activities and more precisely with all the property owned by the municipality. This alone, together with the boom of real estate deals in Bulgaria that led to a boom in prices, has made the SI a fantastic opportunity for every potential buyer. During 2001-2003, SI was among the biggest sellers of real estate and land in Sofia. For years the Bulgarian-language media and people from different political parties have claimed that SI was just a way for the authorities to drain Sofia’s money. The codephrase in this scheme was “barter deals”.
The law allowed a municipality to do barter deals with companies and individuals when the deal protected the interest of the municipality. This meant that if an individual wanted to buy a plot of land in Lozenets neighbourhood, for example, he or she could propose apartments in Lyulin neighbourhood to the council in exchange. An audit company evaluated the value of the apartments and if it did not harm the municipality’s interest, councillors could vote in favour of the exchange. This was how most “barter deals” happened in Sofia during the past 11 years of SI’s existence. The problem was that usually the audit was done not by a private auditor but by another municipal company, usually Sofinvest. Hidden behind the closed doors of the council, hundreds of such deals have happened. The public became aware of some deals only after they had happened. In such cases, councillors had to explain to TV cameras time and again how, for example, the price of a sq m in Lyulin was worth an incredible 1040 euro and was equal to Lozenets prices.
The other way of draining Sofia’s money was the so called “joint venture companies”. It worked in the following way: an investor came to the councillors and persuaded them to set up a joint company for a specific purpose. The investor provided the money and the councillors provided the land. The simple idea was that the joint ventures were usually transformed into joint-stock companies and then SI sold its shares back to the investor at a “reasonable price”, leaving the investor to develop the land.
That is a normal way for co-operation between the business and local authorities someone might say, and they would be right. The problem was that the details about such deals were also released after the deals were completed. In 90 per cent of cases it was obvious that the municipality’s interests could have been protected in a better way. The reason often given by councillors was that “this was the away to attract investors”. It was a deal like this that led to the prosecution of former Sofia mayor Stefan Sofianski – the deal involving Halite department store. Sofianski was accused of wrongdoing in office, for deliberately lowering, by 400 times, the price of the Halite building, after entering into a partnership deal with Israeli company Ashtrom – the company that renovated Halite.
Sofianski’s former party, the Union of Democratic Forces, had complete control over the council back then. Another similar deal was the Millennium Centre deal. Again Sofianski was accused of causing serious damage to the municipality by giving away 7000 sq m of land for free, in the Ivan Vazov neighbourhood, to United Bulgarian Bank. The Millennium Business Centre was built on the land in 1993 and Sofianski was accused of then selling the 25 per cent share of the municipality back to the bank at a very low price in 2001. Sofianski was acquitted on both charges.
Because of public pressure, SI became one of the major pre-election issues on the agenda of current mayor Boiko Borissov, in 2005.
Borissov promised to stop all deals carried out by SI with municipal properties and investigate the company’s actions throughout the years. An investigation was launched in 2006.
The investigation revealed the schemes mentioned above. It said that billions of leva from rents, sales and exchanges, participation in joint venture companies and donations, sponsorship and advertising were lost in the period 1996-2000.
An interesting fact is that the SI provided the largest amount for sponsorship for sporting activities. Such is the case with Slavia football club which was granted 500 000 leva under a sponsorship contract. Slavia is often linked to the controversial SIK group, notorious in the mid-90s for its “insurance business”. The Bulgarian Badminton Federation also benefited from SI, the investigation showed. It received a total of $210 000. Another 150 000 leva was granted to the Slavia basketball club.
The findings of the investigation said it all. During the auditing period, Sofia municipality signed 4455 regulatory deals with sales being the most numerous – 3192. Of these sales only 68 were signed under tenders or competitions. A huge part of the estate (3124 deals) was sold under the “related competence” scheme. There was also a large number of municipal estate exchanges – 1020 during the period reviewed.
After Borissov came to power all deals with SI were stopped and now that the company is to be sold, the issue of Sofia’s real-estate should be over. The question, however, is what is left of SI that could be sold? And isn’t this just a PR move in the light of the October 28 municipal elections?
As mentioned above, no one can really say what the value of SI is. There are no records of the amount of real-estate the company owns at the moment.
Again, Borissov’s investigation showed that somehow over the past eight years, municipal councillors “simply forgot” to create registers of the public and private municipal property, as well as to keep account of the commercial companies established. The auditors found out that the proposals for the contribution from real estate to the capital of the commercial companies came from the companies themselves. This result was also confirmed by an investigation by the National Audit Office.
The name of SI had become so connected with the word corruption that an event, typical in everyday business life anywhere else in world, that happened in 2006 was announced as a new beginning for SI. In October 2006, SI put six plots, worth over five million leva, out for tender. For the first time in its 10-year history, the SI had sold properties at market prices via a tender process.
As for the real numbers, the only indication of SI’s value was the profit reported by the company for 2006. Strangely enough, according to official data from the municipality, Sofiyski Imoti was among the best performing companies in 2006, despite the ban on deals imposed by Borissov. In total, the profit of Sofia’s municipal companies doubled in 2006, reaching a total of 4.2 million leva. The municipality was the owner of 31 companies. The best performing enterprises were Chistota Iskar (1.68 million leva), Parkingi i Garazhi (1.325 million leva), SI (578 000 leva) and Sofinvest (428 000 leva).
In order to present future, potential, buyers with more precise details about SI, on September 15 councillors decided to select a law firm to perform the evaluation of SI. Councillors will choose from three law firms: Kambourov and partners, Georgiev Todorov and Co, in consortium with North Consulting, and Sabev and partners, in consortium with Yavlena Impact. Councillors should select the auditor by September 21. This is all the current municipal council can do for now, as the buyer selection process will be left for the next term. Some predictions, and previous experiences with companies put up for sale, suggest that the audit could go on for six months, long after the elections. Besides selling SI, there is only one big question. It is the question about who will bear the responsibility for SI’s non-transparent deals. Although there is proof that SI acted against public interest, confirmed by the National Audit Office, no one has been charged, so far.
