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Bulgaria: The Death Of The Once-Mighty Nomenklatura Business Groups

Prague, 18 October 1996 (RFE/RL) -- The once-mighty business groups that arose out of Bulgaria's old party nomenklatura are dying.

With many of their insolvent private banks now under state supervision, nomenklatura bosses have been selling off their national media holdings to foreign owners. Their highly-touted infrastructure projects are becoming a distant memory, having failed to get off the drawing board.

Several key figures within these secretive private conglomerates have been jailed recently on money laundering charges or have left the country.

Bulgaria's chief prosecutor Ivan Tatarchev said yesterday that he had issued an order prohibiting the directors of nine insolvent banks from leaving Bulgaria. The directors reportedly are under constant surveillance by the Internal Affairs Ministry.

In the context of this decline, the murder of former Prime Minister Andrei Lukanov two weeks ago in Sofia closes the first chapter of Bulgaria's post-communist history. Lukanov, a former member of the Communist Party's Central Committee, had played a key role in the development of these so-called "old generation" nomenklatura businesses.

Until last year, Bulgaria's private sector was dominated by firms that were launched in the critical months after the ouster of Communist dictator Todor Zhivkov, when Lukanov was Prime Minister. These firms formed a self-styled lobby in 1993 called the "Group of 13" (G-13), which aimed to protect economic and financial sectors for themselves and to keep foreign firms from moving into Bulgaria. The G-13 included banks, insurance companies, stock exchanges, large trading and financial companies, real estate developments, television channels, national newspapers and private security firms.

Today, only the most powerful of the G-13 empires -- Multigroup -- remains in a strong position. Multigroup had close but murky ties with Lukanov. Multigroup president Iliya Pavlov replaced Lukanov last July as the head of TopEnergy, a joint venture with Russia's Gazprom that is building pipelines to link Russia with the Balkans through Bulgaria.

Despite Multigroup's cornering of oil, concrete, metal and chemical production in Bulgaria, many firms under the Multigroup umbrella will face serious challenges in the months ahead.

Sofia's weekly financial newspaper, "Capital," blames this situation on the lack of long-term strategies. The paper says most nomenklatura bosses made profits on quick deals, but ignored the need for investing in new technology or establishing long-term market shares in the West.

Other critics say that nomenklatura profits came largely by draining the assets of state companies, and that most nomenklatura bosses in Bulgaria never learned to conduct a profitable, legitimate business.

After six years of privatization delays in Sofia, Bulgaria's state firms have little left to pillage. Banks that issued loans to these ailing companies are now burdened by the accumulated losses. Ultimately, the burden falls upon the state budget.

Since his election in January 1995, Socialist Prime Minister Zhan Videnov has put an end to many policies that favored the former G-13 firms. Sofia University political analyst Ognian Minchev says Videnov wanted to create new business empires with his own contacts in a group called "Orion."

Meanwhile, the International Monetary Fund has been pressuring Videnov to clean up the country's internal debt. Videnov responded by closing more than a dozen shaky banks that were behind G-13 empires, as well as the newly-emerging firms in Orion.

The downfall of former G-13 member Valentin Mollov became apparent recently because of his links to the insolvent First Private Bank. Mollov, one of First Private's founders, is among the bankers now prohibited from leaving Bulgaria. He obtained his start-up capital for a second financial institution, Mollov Commercial Bank, through a 1994 loan from First Private.

Mollov reportedly had sold off his stakes in both First Private and Mollov Bank before state supervisors took over and demanded he immediately repay his loans.

Mollov's umbrella organization sold its media holdings in "168 Hours Group" last month because the companies weren't able to cover daily expenses. Germany's "Westdeutsche Allgemeine Zeitung" bought the group, including Bulgaria's largest daily circulation newspaper, "24 Hours," for a reported $22.3 million.

The decline of another former G-13 member, Tron, also came after its insolvent banking partners demanded loan repayments.

Tron president Krassimir Stoichev announced last month that the conglomerate was quitting Bulgaria altogether. He also said Tron had sold off its GSM telephone project, Mobiltel, to the mostly Russian-owned Global International.

A Tron project to create Bulgaria's first national private TV station never materialized. TS Bank, the financial backers for the TV project, are among the former G-13 banks that were recently placed under central bank supervision. Negotiations are still underway for the sale of Tron's national newspaper, "Standart." Stoichev says he will move to Vienna.

Meanwhile, the head of the now defunct Agrobusiness Bank, Christo Alexandrov, was arrested earlier this month. He was charged with illegally transferring bank funds out of the country before the Bulgarian National Bank forcibly bought his cash-strapped institution for about one U.S. cent.

Financial analysts in Sofia cite Alexandrov's case as an example of nomenklatura obtaining millions of dollars through connections with the Communist Party. Literally overnight, Alexandrov rose from a job as a waiter for Communist Party leaders to his position as a millionaire industrialist. Critics say he never had real control of the money within his Agrobusiness Bloc

The "Financial Times" of London reported in 1994 that Bulgarian Communist Party funds were behind many of the former G-13 empires.

The paper said several G-13 executives had been agents of the Bulgarian Intelligence Service and were sent abroad in the 1980s to establish foreign trade companies that were used as conduits for Communist Party slush funds.

When communism collapsed, the "Financial Times" said agents with alleged access to the state bank accounts in Vienna and Switzerland were in a perfect position to start private businesses.

Stoichev and Mollov deny that their firms were started with state funds. Pavlov, a former professional wrestler who married the daughter of the head of Sofia's Soviet-era military counter-intelligence and worked with Zhivkov's son-in-law as an art dealer in the 1980s, routinely brushes off questions about the origins of Multigroup. But in a 1993 interview with the Sofia financial newspaper, "Pari," Pavlov attributed his rapid climb to "being in the right place at the right time."

In the end, the demise of most nomenklatura groups has left Bulgaria in shambles. Minchev says the country now has little national wealth, virtually no middle class and no entrepreneurial elite -- only "a mafia network thirsty for new victims" and an impoverished population that questions the merits of democracy.