State Owned Companies: state capture, clientelism and corruption in Bulgaria

The report is based on a mixed methods analysis that includes: assessment of legal documents regulating the activity of state-owned enterprises (SOEs) in Bulgaria, 21 structured interviews conducted with experts regarding the activity of state enterprises in various industries, as well as five in-depth interviews, data from the Commercial Register, websites of the 11 enterprises included in the comparative study, media publications concerning the enterprises included in the study, and official reports concerning the management of state-owned enterprises.

1. The current legal regime of state-owned enterprises in Bulgaria is a hybrid, insofar as this matter is regulated by both commercial law and public law. The main issues in the legislative framework are the following:

  • Lack of synchronization of the various laws and regulations, contradictions within the regulations.
  • Governance through secondary legislation – legal rules and procedures, ordinances, letters, administrative orders. Management through administrative orders given by phone are commonly mentioned.
  • Lack of regulation for the application of international standards for good corporate governance (OECD and the GRI).
  • Ineffective mechanism for appointing and control of the management bodies.
  • Lack of effective supervision and control mechanisms.
  • Problems when effectively convicting personnel in high management positions for malfeasance in office due to the principle of collective responsibility.
  • Extremely vague regulations applicable to municipal enterprises.

2. Main challenges

The survey identified several challenges:

  • Political: 71.4%
  • Managerial: 66.7%
  • Financial: 52.4%
  • Framework: 19.0%

The analysis highlighted three main problems:

  • No framework for deciding when the state is to get involved in business;
  • Incomplete and unstable SOE governance framework;
  • Financial accountability is in place, but economic accountability is absent;

3. Prospects for improvement

There is a consensus around the following future steps:

  • Assessment of the need for SOEs and a need to establish a public body – a Council of management of state-owned enterprises, comprised of representatives of NGOs with experience in the relevant industries and sectors, independent experts, and scholars;
  • Formulation of well-thought-out strategies for economic development of the industries, with clear priorities;
  • Transition to a market strategy;
  • Adoption of the Public Enterprises Act (a draft exists since 2014);

4. Analysis of state capture and clientelism

The existence of all the problems and challenges to the management and operation of state-owned enterprises in Bulgaria creates a favourable environment for their capture and subordination to interests other than the collective interests of the citizens. Fieldwork in the case of Bulgaria shows several different types of such capture in the country.

  • Ideological capture – consists in utilizing the existence of and especially the monopoly position of state-owned enterprises to promote a particular ideology at the expense of other ideologies regarding the preferable ordering of social relations in a society and in a specific context;
  • Political-power capture – it can be defined as exploiting the existence and management of SOEs for the attainment of particular political and power purposes;
  • Party capture – it explicitly aims to solve certain issues of party building for specific parties. This type of capture follows well established traditions of clientelism, such as access to economic resources – which in this case through state ownership of certain companies is used to promote the interests of the clients;
  • Corporate capture – certain private businesses take advantage of state-owned enterprises to ensure their own profitability at the expense of the state.
  • Individual capture – select individuals use some of the features of these businesses to their personal advantage. The main features which allow for abuse are a lack of clear objectives, lack of responsibilities, lack of and assessment of outcomes and economic efficiency.

You can download here the Executive Summary Bulgaria

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