Kaolin, example for criminal plunder of nation's wealth
Prokopiev and privatisation - arranged marriage of convenience
1 December, 2017
Over the years of Bulgaria’s transition to democracy, oligarch Ivo Prokopiev has barely talked about his golden goose Kaolin, which made him outrageously rich at the age of 28, barely out of college. This is why the made-to-order content of a recent interview that appeared on the Terminal 3 website, in which the businessman pays special attention to “the history of the (Kaolin) deal” is too revealing to be overlooked.
According to Prokopiev, Kaolin had one of the most successful post-privatisation stories in Bulgaria, thanks to having “the right strategy and a talented management team”. Furthermore, the oligarch’s own company Alfa Finance purportedly invested over BGN 120m in the development of the only Balkan company for mining and processing of raw kaolin material - only not as part of the privatisation but through capital increase, the oligarch notes. “Privatisation” has become an inconvenient and hateful word here of late for all the white-collar “businessmen” who got their wealth through illegal means under former PM Ivan Kostov’s term.
Of course, Prokopiev has now been forced to address the tricky subject that Kaolin poses for him for at least two reasons - the ongoing probe of the Commission for Illegal Assets Forfeiture (CIAF), which has investigators trying to figure out if Prokopiev illegally acquired assets, and the ruling coalition’s proposed amendments to the Constitution, which would scrap the time limit for bringing court proceedings regarding offenses related to the privatisation process. Prokopiev’s goal is to make another attempt at legitimising himself as a “moral authority” in the eyes of the public at the cost of deliberately discrediting the institutions that are finally looking into his criminal dealings. However, in this particular situation and especially with regard to the Kaolin case, boasting about how morally upstanding you are and what excellent investor and saviour of struggling state companies you are, when the facts clearly point to the opposite, is a sign not only of staggering arrogance but also plain old fear - fear that the state, on which you have had a decades-long stranglehold, could finally hold you accountable for who you really are, how you amassed your fortune, and how your self-proclaimed “holier than thou” status is nothing more than a misleading label produced by your own Fake News Factory, led by Capital and Dnevnik.
Actually, Kaolin, along with Damianitza Winery (earmarked for Prokopiev’s business partner Filip Harmandzhiev), is a glaring example, worthy of a textbook on anti-economics, for how Ivan Kostov and his “privatisation investors” plundered the fruits of the labour of generations of Bulgarians. But you cannot expect to hear the truth about facts from Prokopiev - his memory turned conveniently selective a long time ago (just like the memory of his pal Tsvetan Vassilev, who can no longer remember the hundreds of shell companies he used to drain CorpBank) and given way to hollow mantras about investments and modernisation.
The privatisation of Kaolin started in 1997, when Ivan Kostov’s cabinet took office, and the almost mythical figure of Nikola Nikolov, head of the Lamb Heads circle, became the chairperson of the Committee on Economic Affairs in the National Assembly. Perhaps it is a coincidence that Prokopiev’s father is a former employee of the Fifth Directorate of the State Security agency, while his brother Aleksandar Prokopiev served as a member of the counter-intelligence division of the Ministry of Interior in Razgrad. What we know is that back then Kaolin was earmarked for the young and entrepreneurial Ivo Prokopiev, who had no money or experience in the field (or experience in any field really, seeing as he had just graduated from college) but had more than solid ties with those in power and personally with Nikola Nikolov. Initially, the value of the company was assessed at BGN 31m and interest in it was shown by the Belgian firm Sibelco, a global leader in the sector. The negotiations were quickly abandoned despite the Belgian side’s offer to not only pay the privatisation tag but also invest $20m in the company’s development right away. Ivo Prokopiev stays conveniently quiet on this fact and for good reason. In 1999 RMD Kaolin 98 AD was set up with the involvement of (what a surprise) Prokopiev’s brother Aleksandar, until recently a member of the law enforcement, without him having met the legal requirement (in any employee buyout) for at least two years of employment in Kaolin. Another member of the company’s board of directors was Daniela Shishkova, wife of the head of Bulbrokers Petko Shishkov. Bulbrokers (what a surprise) is an investment brokerage firm privately owned by Prokopiev. None of Kaolin’s employees knows Daniela Shishkova or Aleksandar Prokopiev. These facts have also slipped Ivo Prokopiev’s memory. The same is true for perhaps the most important thing - how Alfa Finance became majority shareholder in a company valued at BGN 31m, and what price it paid for this golden goose.
No, of course Prokopiev did not pay BGN 31m. He paid only BGN 720,000 (!) for an enterprise that in the oligarch’s own words at the time had annual earnings of about BGN 15m but was somehow considered “struggling”. How was the price brought down, you may ask? Simple - a new assessment of Kaolin was prepared by none other than Bulbrokers (what a surprise), Prokopiev’s firm. The new price tag was BGN 7.2m and the deal was constructed so that only 10% of the value was paid in cash and the rest - in compensatory notes. The same person that did the evaluation bought the company and yet Prokopiev insists everything was aboveboard.
In the same way, Kostov gave away Damianitza Winery to the Capital circle - the largest winery in the Balkans was acquired for the paltry sum of $60,000, when the storage facilities alone were filled with products for $4m. And how many times was the privatisation contract amended with annexes, methodically eliminating all post-privatisation responsibilities of the buyer? The Balkan Bulgarian Airlines was sold for BGN 150,000 and Kremikovtzi fetched exactly BGN 1. A similar fate befell over 3,000 state companies that changed ownership under the “competent” oversight of Kostov. Just like Prokopiev, he recently said that he was proud of his work in that regard. And perhaps he has reason to be - it is anyone’s guess as to how much his offspring of buyers of state companies have increased their wealth just as the Bulgarian people got poorer and poorer.
But back to Kaolin and its “most successful post-privatisation story”, as Prokopiev described it. After paying only 10 cents on the dollar for the ”struggling” business, under the leadership of Prokopiev’s brother, RMD Kaolin 98 AD quietly walked off the stage to make room for Ivo Prokopiev’s Alfa Finance. How exactly did the employees lose their shareholding stakes? Through the tried-and-tested capital increase scheme used in the case of Damianitza Winery too - Prokopiev’s firm is the only investor that subscribed to new shares. Do not expect Prokopiev to tell you who, how and why voted to approve such decision. You can expect, however, his tiresome mantra that he adhered to the law - even though he keeps quiet about the facts surrounding Kaolin, the oligarch uses every opportunity to shamelessly note that the deal was reviewed on three court levels and no wrongdoings were found.
This is yet another lie, because wrongdoings were found and both of the Prokopiev brothers were indicted - their scheme is so transparent that it must have been really easy for the prosecution to write and file the indictment. But then, during the court proceedings, the District Prosecutor of Razgrad Elena Hadzhidimitrova gave up on the case and the court ultimately acquitted the brothers and their accomplices. Do not expect Prokopiev to recall who, how and why helped this to happen. For him, the Kaolin deal is aboveboard, the BGN 120m in investments - real, and the Prosecutor’s Office’s attempt to seek justice - an abuse of power.
Perhaps Prokopiev even believes that he paid the state in full for what he owed as concession fees for the exploitation of 10 state deposits of kaolin and quartz sands, without deliberately lowering the numbers for the produced raw materials. Perhaps there were even no violations in the deal with which Kaolin was sold to the German concern Quarzwerke, and in which first Alfa Finance bought additional 3.5m shares in Kaolin at BGN 1.73 per share, and then sold 2m of those to the offshore firms, affiliated with Prokopiev, Stolberg Investment Limited and Wyclef Holding Limited at BGN 1.45 per share. Then the same shares were sold to Quarzwerke for BGN 4 per share. With just this scheme alone, realised in a matter of several days, Prokopiev illegally “saved” taxes for nearly BGN 700,000, a profit of BGN 5m was redirected to the oligarch’s offshore companies, and the small shareholders in Kaolin were severely defrauded.
The more that lawmakers and public institutions disturb Prokopiev’s decades-long peace as regards his dark privatisation past, the more patchy his memory will become and the more his distorted version of events and lies will be publicised by his affiliated television channels and other media outlets, and the more all sorts of grants-funded and politically dependent mouthpieces will raise their voices.
But the true questions (see text box) surrounding Ivo Prokopiev remain and should be continuously raised with him. Because his media blabber about morality (delivered with such an all-knowing and pompous tone) is extremely impudent and the opposite of moral in light of the facts about what actually happened through the years.
Of course, Prokopiev will not answer publicly. Kostov will also proudly stay silent, and the Capital circle’s media instruments will continue to throw mud at the public agencies and the institutions trying to do their job. These media outlets act to protect the interests of oligarchs such as Ivo Prokopiev, Ognyan Donev, Sasho Donchev and Tsvetan Vassilev, who got rich on the back of the nation’s economic achievements. It remains to be seen if they will finally be made to answer for their crimes, or if the government they hold hostage will once again abdicate from its responsibilities, as it did so many times during Bulgaria’s transition to democracy.
He owes society answers to six questions
1. How morally upstanding is for him to insist that he acquired Kaolin completely legally when he paid cents on the dollar for a company that had an estimated value of BGN 31m, thanks to a fraudulent scheme involving his brother and some of his employees, and for which he has been indicted?
2. Is it fair to harm the interest of the regular workers of Kaolin, which were defrauded and left with a minority stake after the capital increase?
3. Is it OK and aboveboard to have his own firm Bulbrokers prepare an unjustifiably low assessment of the value of a company that is about to essentially be bought by his brother, and that he himself would eventually buy a majority stake in?
4. How can a company be described as “struggling” when it exploits the country’s best deposits of practically inexhaustible raw material of kaolin and quartz sands on concession?
5. Was it legal that the profit from the eventual sale of Kaolin was funnelled to offshore companies, thus avoiding paying taxes to the public coffers?
6. Was it legal for the privatisation contract in the Damianitza Winery deal to be amended several times with annexes that gradually removed all post-privatisation responsibilities of the investor?