Bulgaria has made little progress in implementing the recommendations of the Organization for Economic Cooperation and Development (OECD), despite its ambition to join the OECD and its stated intention to align with its corporate governance guidelines. An analysis by Desislava Nikolova from the “Democratic Center” highlights the country's delay in adhering to these recommendations, particularly regarding state-owned enterprises (SOEs). In December 2019, Bulgaria officially became a participant in the OECD Guidelines for Corporate Governance of State-Owned Enterprises, yet recent developments show that the government has failed to address key issues outlined by the organization.

One example of the failure to comply with these guidelines is the case of Information Services AD, a state-owned enterprise that holds a special status for providing system integration for government services. A legal review commissioned by the Democratic Center revealed that the company’s activities contradict the OECD Guidelines on corporate governance. The company, which is funded through the EU’s Cross-Border Cooperation Program, has been criticized for lacking the necessary expertise and for assigning its restoration work to subcontractors without the proper technical qualifications. Despite this, the company received the full restoration amount of €198,000 and paid only €70,000 to the subcontractors.

The issues surrounding Information Services AD exemplify the broader concerns about state-owned enterprises in Bulgaria. The OECD guidelines aim to ensure that SOEs operate efficiently, transparently, and with accountability, aligning with the best practices of private companies. The guidelines also stress the importance of maintaining a level playing field between state-owned and private enterprises, and ensuring fair competition in the market. However, Information Services AD’s operations contradict these objectives, as the Ministry of e-Government, which has oversight over the company, also influences market conditions and policy within the ICT sector. This creates a conflict of interest and undermines the goal of fair competition.

The situation is further complicated by Bulgaria’s legal framework, which has exempted state-owned enterprises like Information Services AD from certain regulations that apply to private enterprises. For instance, the company is excluded from the provisions of the Public Procurement Act, which typically governs how public contracts are awarded. This exemption, according to the OECD, creates an uneven playing field, allowing state-owned companies to bypass market regulations and gain an unfair advantage over private competitors.

Moreover, Information Services AD’s dual role in both the government’s ICT sector and the private market raises additional concerns. The OECD’s guidelines on competition law highlight the risk of cross-subsidization when state-owned enterprises operate in both monopolistic and competitive markets. In the case of Information Services AD, its privileged position within the state ICT sector could allow it to transfer costs from one market to another, potentially giving it an unfair advantage in competing with private enterprises.

By operating without sufficient market oversight, Information Services AD risks distorting competition in the ICT market. The company's ability to leverage its position in the state sector for economic gain in the private sector could force smaller competitors out of the market or prevent new entrants from gaining a foothold.

The Bulgarian government’s failure to align its corporate governance practices with OECD recommendations and address these structural issues in state-owned enterprises has wider implications. The country's aspirations to join the OECD and the euro area are at risk if these inconsistencies continue. The lack of action on the part of the Bulgarian authorities could jeopardize the country’s credibility in meeting international standards for governance, transparency, and competition.

In conclusion, the issues surrounding Information Services AD’s operations reflect broader challenges in Bulgaria’s governance of state-owned enterprises. The failure to implement OECD guidelines in this regard not only undermines fair competition but also puts Bulgaria’s Euro-Atlantic integration at risk. Without a serious commitment to reform and compliance with international standards, Bulgaria’s path to OECD membership and further integration with the European Union will remain uncertain.

The full analysis in Bulgarian language.