Nationalization of Private Business in a Democratic Country:Reinforcing the state’s monopoly and breaching the Constitution of Bulgaria and the EU law

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Somehow resembling the debate around the nationalization of the railways, UK faced a few years ago. Yet, another Member State might go through a robust process of nationalization in the European Union. This time it is Bulgaria – one of the poorest countries in the EU, leading unfortunate statistics like corruption rate, death rate, and lack of freedom of speech. In the past eleven years, Bulgaria has been primarily governed by a single dominating party, posing as right-wing, whose leader Boyko Borisov is a protégé of the Bulgarian Communistic Dictator Todor Zhivkov. The current political reality in Bulgaria is dealing with a series of serious scandals, amongst which the recent arrest of the Minister of Environment and Water as well as the upcoming motion of no-confidence expected this January. Having in mind the tension in Bulgarian politics, it is even more confusing that on  Friday, the Bulgarian government took a rather questionable route of action by submitting a Bill that aims to nationalize a whole private sector in the gambling & entertainment industry – the lottery businesses. And for those of you, unaware of what that is, nationalization, is the process of transforming private assets into public assets by bringing them under the public ownership of a national government or state.

The proposed Bill has been introduced to the Parliament by the infamous nationalist Valeri Simeonov, Ex-Deputy Prime Minister of Bulgaria, in charge of the economy and demographic policies as part of the Borisov cabinet until his resignation on 16 November 2018 following a series of scandals.  It has been signed by him and six other MPs, amongst which Prime Minister Boyko Borisov and Finance Minister Vladislav Goranov, who has somehow managed to keep this role after a series of scandals and layoffs in the Parliament last year. It is Simeonov’s second go at trying to amend the Gambling Act, the first one being three years ago when he tried to prohibit the advertisement of all gambling games. His main argument is that gambling is a vicious habit that results in dangerous addictions. Interestingly, it is only privately owned lottery businesses that the Bill is trying to ban. Other sectors of the gambling industry, like casinos, slot machines, online gambling sites, are not covered in the Bill. The privately operated Lottery has grown to what it is today with the help of an entertaining TV program on national TV.

Need any gambling institutions to provide entertainment, they better be under governmental control, so the profits from such businesses could be invested in Bulgarian sport, which Simeonov argues was the initial aim of the State-Owned Lottery.

The facts are that the State-owned Lottery has not been dominant in the industry, not to say almost non-existant for decades, giving way to private businesses to operate Lotteries. The lottery business in Bulgaria, which was deemed nearly dying, has been thriving since private companies have established themselves on the market after obtaining a license by the state seven years ago. Such privately owned lottery businesses have been generating a substantial amount of profits, and the taxes they pay directly to the state are not insignificant either. If the government votes for the Bill, it could result in foreign investors being even more reluctant to invest in Bulgarian businesses than they are now, as this would mean high insecurities for the big companies in Bulgaria. Because what would stop the government from deciding tomorrow to nationalize any successful business becoming a temptation.

The license of practice will be ceased in the period of three months after enforcing the law, with all the contracted prizes being left for the businesses to distribute as they should. If they are found to not comply with these obligations, the government is to sanction them and appoint a state representative to lead the process and ensure the winners are getting their prizes. 

It is all, in fact, a vicious cycle of the state being responsible for the supervision of the contracted payments that the private lotteries would owe, once their licenses are ceased. Still, the primary reason for that is that the state is preventing them from functioning correctly. Thus, it is likely that the state would incur a significant amount of expenses so it could handle the aftermath of the amendment. The costs of this do not necessarily seem justifiable with the aim stated in the proposal, namely financing sport and controlling gambling addiction. The goal of this whole action seems unclear, and one is left unpersuaded that it should all be at the expense of savagely destroyed private businesses.

Left the Entrepreneur Vassil Bojkov owner of the  Privately-held Lottery named “National lottery” / Right the Nationalist Valery Simeonov Ex-Deputy Prime minister

After that period of adjustment, what is left for the government is to actually proceed with its plan of building up the national Lottery and allegedly financing national sport from the profits. In theory, it sounds good, except that Simeonov’s argument is somewhat inconsistent as he explicitly excludes private owners dealing with games like bingo, keno, and their variations from the amendment. One couldn’t help but notice the useful distinction that is drawn between the large profit-making lottery branch and the less significant ‘innocent games’ one. Simeonov’s reputation of being an incompetent populist does him no favors in this particular case, where he is trying to project nothing but honorable intentions. However, in the complex and dirty world of Bulgarian politics, it is hardly ever someone doing something solely in good faith, and speculations about his personal gains in this are already present amongst the Bulgarian society.

It might be worth discussing the implications that nationalization is unlawful. This, as far as EU law goes, is not entirely true. As a matter of fact, art. 345 TFEU explicitly excludes the EU intervention in the national economy in normal circumstances. The EU does, however, have regulations on the matter and does not tolerate any attempts of market monopoly resulting in abuse of power. Where the EU would intervene is when an article such as art. 106, which concerns the monopoly, is breached. And here it’s probably worth mentioning that the position of the Financial Minister of Bulgaria Vladimir Goranov in front of official media is that the Bill he is supporting is not an act of nationalization, but a reinforcement of state monopoly.

Having all of these legislative restrictions in mind, the Bulgarian Association for Entertainment and Gambling Activities was quick to issue a complaint to the European Court for a breach of European Law. The claim is based on two main pieces of legislation – the TFEU, in particular, the right to work and Directive (EU) 2015/153 5. Moreover, it takes little time to figure out that the right to property in the ECHR extends to legal persons as well, which provides the basis for compensation when the state acquires a private sector. If the matter goes to the European Court, and a breach is found, the state will have to face stark remedies. Chances of Bulgaria making its case are slim, as the MS has in fact, lost almost 90% of the cases in front of the European Court. As said before, it all seems a bit disproportionate, as the state could incur high costs, and more importantly, the whole act would drive private investors away from the already tight and undeveloped Bulgarian economy.

Simeonov claimed that the other Member States are adopting a similar practice, and it is true that in some European countries, national lotteries have the dominant share on the market, which is by no means against EU law, as it concerns ownership. There has never before been such a case of the state granting a license for a sector to be developed by private owners and after seeing significant success achieved in such businesses, trying to prevent them from operating. Where EU competition law is likely to step in, though, is in cases like this one, where the state is effectively ensuring a monopoly by stripping private owners away from their license and prohibiting any further private activity in the lottery business. Thus, a precedent like that could be disastrous for the state’s democracy – it effectively declares that the government can do whatever it wants. The fact that the Finance Minister Vladislav Goranov supports the Bill provides disturbing evidence for reinforcing state monopoly where business owners are being stripped away from any form of protection.  

To most of us, it is crystal clear that the practice of the state abusing its power and neglecting democracy has not been left in the socialist regime but is, in fact, very much present today. Corruption is nothing new in the Bulgarian political reality, but perhaps disregarding democracy like this is taking it a step too far, and it is high time that something is done about it.

Robert Ford

Political Analyst

robertttford@gmail.com


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