The executive board of the Privatization Agency (PA) was expected to propose this week a termination of the negotiations with the management buyout company that was named a preferred buyer of the majority stake in the state-owned DZI.

On Friday, the PA's executive director Apostol Apostolov said that the candidate buyer, a consortium of the Israeli TBI and DZI 2001, was not ready to pay the promised price of $20.5 million.

The consortium offered $20.5 million for 67 per cent of DZI's capital, and suggested payment of most of the amount under a scheme settling Bulgaria's debt on Italy's Export Insurance Agency (SACE), and on Spain. The agreement with SACE, which was approved in December 1999, recognized the amounts due by Mineralbank and Economic Bank to the Italian agency as state debt. The agreement provided for a two-year period during which the state can use debt-for-equity schemes to swap debt for equity in companies being prepared for privatization. The agreement expires in two months and will not be applicable after that date.

The problem is that, at present, the PA does not recognize debt-for-equity as cash payment. DZI is on the list for dedicated privatization, which means it can only be sold for cash. According to the candidate buyer, the previous administration of the Finance Ministry recognized the payment in debt as cash payment but now the PA is demanding a new letter of confirmation from the Ministry.

Another problem is the PA's insistence that the buyer should confirm in writing the price it has proposed. "We sent a letter explaining that we confirm the price but we asked the PA to also confirm in writing that there have been no substantial changes in DZI's financial and factual indicators since December 31, 1999," an unnamed TBI source explained. "That is the date by which we have information about the condition of the state insurer and the price we propose is based on those data."

A new evaluator of DZI was expected to be selected in September to update the information about the company and reveal what price can be asked for it. However, the selection of an evaluator was not made. Apostolov said he expected the new valuation to be higher. According to representatives of the working group in charge of the sale, however, there are no grounds for such hopes. The company has neither improved its financial indicators, nor acquired new assets.

Meanwhile, the government has compiled a list of 186 companies which will not be sold after the new Privatization Act comes into force, the Council of Ministers' Information and Public Relations Directorate announced on Monday.

The list includes the Kozlodui Nuclear Power Plant, Bulgargaz, Bulgarian State Railways (BDZ), the Air Traffic Services Authority, the airports of Sofia, Varna, Bourgas, Gorna Oriahovitsa, Plovdiv, Stara Zagora and Rousse, the seaports of Varna and Bourgas, the Danube River harbours of Rousse, Vidin and Lom, and the Bulgarian Post.

There are also 73 companies listed that operate within the system of the Ministry of Regional Development and Public Works, such as territorial cadastre units at various urban centres, water and sewerage utilities based in 29 places, organizations for protection against geo-hazards, and geodesy and cartography firms.

The companies currently placed under the authority of the Ministry of Transport and Communications, which will not be subject to privatization, total 18. The Ministry of Agriculture and Forestry has listed three such entities, including Napoitelni Sistemi (Irrigation Systems) - Sofia. Sofia-based Terem is the only company which is put on the list of the Ministry of Defence. The Ministry of Health has listed 64 such companies, including the Pirogov Emergency Hospital in Sofia and some large clinics.

The list compiled by the Ministry of the Economy features five companies, including Sofia-based LB Bulgaricum and the Bulgarian Rose State Laboratory. The Ministry of Finance has listed 12 companies, including the free trade areas of Plovdiv, Bourgas, Vidin, Rousse and Svilengrad, the Transit Trade Area of Varna, the Bulgarian Stock Exchange, the Central Depositary, the Bank Consolidation Company, and Promotional Bank.