|- With Kiril Domuschiev at the helm, the Confederation of Employers and industrialists in Bulgaria has welcomed state-owned companies and businesses of dubious reputation |
- Elections for a new chairman and managing board are pending in February 2019 but it appears that the status quo will be replicated for a further 4+4 years.
The Confederation of Employers and Industrialists in Bulgaria (better, known by its acronym KRIB) has taken yet another step towards a quasi-state organization serving the government rather than its members.
In September the general assembly of KRIB decided to extend the term of office of the managing board and its chairman to four years from the current two. Additionally, the chairman will be able to hold two consecutive terms and remain on the managing board subsequently. The amendment could cement Kiril Domuschiev's, or another candidate's, chairmanship for a further eight years. Under the current statute, Mr. Domuschiev wouldn't have been able to sit on the managing board after completing his term in February.
The vote on changing KRIB's statute caps a saga of events during the last few years of Mr. Domuschiev's tenure that have seriously altered the organization's look and essence. Formerly the business association accepted only companies creating value for the economy and those of unblemished reputation. Now, its members have increased drastically, with newcomers typically having two profiles.
One group of those companies has a business model strongly dependent on or controlled by, the state - like cigarette producer Bulgartabak, First Investment Bank (FIBank), spirits producer Vinprom Peshtera, a number of construction companies, and the gambling consortiums associated with Vasil Bozhkov.
The second group of companies consists of a large number of state-owned enterprises, ranging from railway carrier BDZ and its associated firms, arms manufacturers and the Bulgarian Development Bank through to the universities in Svishtov and Veliko Tarnovo. Needless to say, FC Ludogorets, Mr Domuschiev's own soccer club, is there too.
The new management and members have changed KRIB's policies and attitudes. Rather than defending dearly held business principles against perceived governmental misdeeds, the association now kowtows to the executive. It has become a mere mechanism to grant indulgences to some of its members and its chairman. They also helped the government undermine yet another organization that used to block its march towards gaining total control of Bulgaria's business and society.
An organization of business cliques
In the past few years, KRIB has admitted numerous companies whose membership applications would have previously been rejected due to their questionable reputation. Corporate Commercial Bank, for instance, never succeeded in entering the association, even during its strongest years. If it had not gone bankrupt in 2014, it would have certainly become a member of KRIB, and its chairman Tsvetan Vasilev no less than a managing board member.
After Mr Domsuchiev's election, the organization expanded and all possible candidates were admitted. Entire business clusters entered together with most of their subsidiaries. For example, most companies associated with Delyan Peevski, an MP from the Movement for Rights and Freedoms, were granted membership. It's not only Bulgartabak Holding that is part of KRIB, but Sofia BT, Blagoevgrad BT, Technomarket, Express Logistics and Distribution (before its sale to Вritish American Tobacco), Elite Media Bulgaria (Channel 3), Lodis Invest, Yuri Gagarin AD, Tabakmarket (Lafka retail chain), and others.
The first wave of newly admitted members consisted of Vasil Bozhkov's Nove Holding and its associated gambling entities. Later, companies with large credits from, or linked to, FIBank also became members.
The newcomers instantly gained from their membership. Even though KRIB was originally supposed to be an industrial association, in the past year it has become one of the most vocal supporters of none other than the gambling industry, vehemently opposing a proposed ban on gambling advertising. Just before Vinprom Peshtera's chairman Ivan Papazov became a member of KRIB's managing board, his business received a gift in the form of the business organization's firm support for higher taxation of homebrewed rakia (a traditional Bulgarian liquor), a competitor to the output of industrial distilleries. FIBank also received a helping hand. In a joint declaration, all employer associations condemned the public protests in defense of Pirin National Park where a company linked to FIB's owners plans to build a second cable car to serve the ski resort of Bansko.
The government's intervention
The expansion of KRIB over the past four years has gone hand in hand with the takeover of the association by the government.
KRIB has been transformed from an association of big private businesses into a hybrid hosting not only big, reputable companies, but also state-owned enterprises some of which are in dismal financial shape. Yet, they participate together with a whole variety of associated structures that pay a membership fee while the state budget subsidizes them. Loss-making BDZ is a good example (see table).
The KRIB membership of Bulgarian Development Bank gave the government a representative on the managing board of the association - BDB chairman Stoyan Mavrodiev. In theory, the state-owned bank is supposed to help small and medium-sized businesses grow, but in the last few years, it has become notorious for its support for business ventures associated with MRF MP Delyan Peevski, Georgi Gergov (a prominent member of the Bulgarian Socialist Party), as well as large construction companies with ties to the government.
The reason for the presence of state-owned companies is simple - it provides votes needed to elect board members and alter the organization's statute. A source of Capital weekly claims that before KRIB meetings, precise instructions on voting are issued to the representatives of state-owned companies by the respective ministries. This only means one thing - KRIB has become a quasi-governmental entity existing solely for the purpose of facilitating dialogue between businesses and the state.
KRIB's political acrobatics
To judge from KRIB's public statements over the past few years, it can be concluded that the association maintains an excellent relationship with the government. Revealingly, almost the entire cabinet attends the organization's annual ball to hand out business awards.
Media announcements also attest to the cozy relationship between businesses and the government. For example, the declaration in support of the presidential candidate of the governing GERB party issued by KRIB's branch in the city of Sliven, or KRIB welcoming the appointment of Zornitsa Rusinova as minister of labour and social policy in the second government of prime minister Boyko Borissov.
Another close and highly visible relationship is that between Mr Domuschiev and finance minister Vladislav Goranov. In 2014, KRIB was the only employer organization to oppose its own members - pension funds and the people insured by them - and support Mr Goranov on a proposed revision of the pension model. At the time, businesses described the proposed amendments as an attempt at their nationalization, and the plan was subsequently dropped.
Nonetheless, support for the government isn't absolute. Under its current chairman, KRIB has begun to singlehandedly take on non-compliant cabinet ministers.
Superficially, this may appear to be a disagreement with the government. However, the truth is that the motives for the organization's reactions can be traced to internal conflicts between different factions within the government.
A good example is KRIB's call at the beginning of 2016 for the resignation of the Minister of the Interior Rumyana Bachvarova. This drew a sharp rebuke from Prime Minister Borissov who asked Mr Domuschiev not to comment "from his vacation site in Thailand".
"Domuschiev has forgotten we took good care of his football hobby," the prime minister said. KRIB's general assembly took place shortly after and for the first time Mr Borissov chose not to grace it with his presence. This obviously motivated the KRIB management to visit Mr Borissov, apologize for the resignation request and declare its devotion to the government's stability and its policies.
One possible explanation for this animosity toward Ms Bachvarova is that while she was minister, she was under constant attack from the head of GERB's parliamentary group Tsvetan Tsvetanov and his entourage. Mr Tsvetanov, a former Minister of the Interior and the second-in-command in GERB, is a go-to person in the ruling party. Hence KRIB is doing everything to please him. When he felt jealous about his successor at the Ministry of the Interior, the business association had to accommodate his feelings.
In the last ministerial reshuffle in September KRIB backed the unsuccessful nomination of Alexander Manolev for transport minister, despite reports of his murky past. KRIB's managing director and board member Evgeny Ivanov sent a statement from the organization to the prime minister, insisting on Manolev's appointment as transport minister. The real motive for this was that the nomination was put forward by Tsvetanov's circle in GERB.
Neither does KRIB shy away from going against its own members when the interests of the GERB-led government are at stake. One such occasion occurred in the energy sector. The organization called on the government to break its long-term power-purchasing contracts with the owners of AES Galabovo and ContourGlobal Maritsa East 3 electricity producers. The paradox is that an association of private companies has asked the government to unilaterally cancel lawful trade agreements with other private business entities. Needless to say, both investors left the organization afterwards.
Increased dependence on the state
Just a few years ago, the business community in Bulgaria freely discussed internal developments in their own business confederation. Currently, however, KRIB's representatives flatly refuse to be quoted for fear that their words might undermine them or their companies.
"My arguments were that a real business requires real attention and that you can't be away from it for too long. There are two types of participants in these events - those who try to sit on the board in order to help their own businesses, and the others who try to help business by contributing their time," commented one of the participants in KRIB's general assembly meeting in September. "What's happening is obvious, but I'm part of the organization and I prefer to comply with the decision."
A managing board member said: "If you're running a real business, you can't spend eight years working as a board member at KRIB. This means that we need to appoint professional administrators and that turns us into a Communist, quasi-state organization."
In the present situation and under the amended statute of KRIB, it seems the board vote in February will cement the status quo for a further four plus four years.
A review of KRIB's public correspondence, in most cases signed by its director Evgeny Ivanov, leaves the impression that the organization is run by the administration because of its chairman's busy schedule. Ivanov has been at his post for many years and has a staff of about ten. When files of the former Communist state security service on board members of employers' associations in Bulgaria were made public in 2012, it emerged that Ivanov had been a full-time operative of the First Directorate of the state security service.
"Anyone who knows Kiril Domuschiev realizes that he runs the organization through Evgeny Ivanov. From a democratic institution, the confederation has turned into an instrument defending the interests of the chairman and his associates," said another KRIB board member who also requested anonymity. "What's truly striking is that most decisions of the managing board are taken without convening it, and no one seeks the opinion of the members of the board. The latest example is the declaration in defence of advertising by gambling companies. It was never put before the board and the members are scandalized that they have to find out what KRIB thinks only by chance."
According to a third KRIB board member who also asked to remain anonymous, the organization faces a crisis each year when the time comes to vouch for the number of its members in order to preserve its national representation. There are also crises around the collection of membership fees.
"Yes, we pay our membership dues because we trust that we'll be able to participate in meetings with ministers and KRIB could defend us in a more serious crisis. For many businesses, that hasn't happened for a long time," another member said.
It is apparent from KRIB's reactions over the past few years that certain businesses can rely on state protection, for example, gambling, alcohol production, and Kiril Domuschiev's own. Of course, this is not a reprimand and everyone is free to associate and protect their interests. The problem here is that KRIB, which used to be an organization for the reputable side of the business in Bulgaria - the companies that create value for their shareholders, employees, and the country as a whole - has gradually become something else. Its original purpose was to defend the interests of those companies, helping them increase their share of the economy. But over the past three years, KRIB has turned into a government lackey dominated by companies whose business depends on the state.
|State owned enterprises in KRIB |
- Holding BDZ