The Bulgarian Privatization Law allows the use of extremely
wide-ranging privatization techniques, incl. different modes of
preferential treatment for the same privatization objects and
potential buyers. Potential buyers are often hesitant and tend to
put off the deals, owing to:
- insufficient knowledge of the legislation and existing
regulations, both on their part and on the part of practicing
consultants and most state authorities;
- the lack of experience in the implementation of particular
privatization methods. The implementation of auctions and tenders
is generally fairly developed but the other techniques are as yet
not familiar enough.
Another reason for the reluctance of potential buyers to make
firm commitments after the start of privatization in 1993 was
related to the imminent changes in the Privatization Law. They were
widely expected to introduce stronger preferential terms for
employees and tenants, and possibly to shorten and simplify
privatization procedures.
The new owners of the enterprises privatized before the adoption
of the changes very often regretted not having been able to use
some of the advantages provided by the amended Law. This would
become even more conspicuous should the preferential provision for
the buying of small enterprises without auctions or tenders come to
be widely implemented. That would have discriminatory implications
for the buyers under the initial and the amended Law with respect
to the post-privatization operation of the enterprises. However,
there will hardly be serious problems as only a particular type of
buyers are concerned - employees, and because of the quite limited
number of companies privatized in 1993.
In order, however, to avoid the rise of new expectations for
further strengthening or modifications in the provided preferences,
it is necessary to pursue a policy securing the stability and
thoroughness of the adopted legislation and regulations.
The study has shown that one of the chief problems of the
enterprises in the process of privatization is the lack of know-how
and information about the procedures, techniques and legislative
framework. The competent state authorities, as well as other
concerned organizations, should therefore launch an information
campaign for the popularization and clarification of the content,
advantages and disadvantages of the various privatization
techniques. This would be of considerable help to the potential
participants and would in many cases actually generate interest in
privatization.
Concerning the characteristics of the privatization
transactions concluded up to now, we can make the following
conclusions:
First, the financial conditions for participation in the
privatization of similar or comparable objects tend to vary
significantly. The case studies suggest that this is not so much
due to the different market value as determined by the character
and location of the particular objects, but rather, depends on:
- the authority carrying out the privatization;
- the privatization technique implemented by the respective
authority.
There are a number of other transactions of privatizing
character related to the activity of the liquidation boards,
liquidators, or in the case of execution for the purpose of
satisfying creditors.
The different prices at which similar from a market point of
view objects may be bought from the different authorities and under
the different privatization techniques are a cause for segmentation
and disturbances on the market. They deter certain buyers by
encouraging expectations for "cheaper" deals.
However, this problem is difficult to overcome owing to the
large number of privatizing authorities and possible techniques, as
well as to the lack of established tendencies on the real estate,
corporate and security markets. At the same time this impedes the
formation of stable market tendencies and correlations.
Second, the presence of non-financial conditions in
privatization transactions has been common practice up to now. In
the studied cases those include commitments to make additional
investments, preserving and/or increasing the number of jobs,
ecological activities and commitments, etc.
Table 1
Company
|
Initial value (BLV million)
|
Investment intentions (BLV million)
|
Jobs
|
Trade Unions
|
Debts
|
Payment
|
"Druzhba"-Avto '93 Ltd Sofia
|
18
|
7
|
20 new jobs
|
none
|
none
|
|
"Stil" joint-stock company,
Dimitrovgrad |
19
|
9
|
preserved 113 jobs
|
2
|
11mln
|
resched-uled, by bonds
|
Sole Merchant "Penkiler", Gotse
Delchev |
1.4
|
2.8
|
preserved 9 jobs; 25 new jobs
|
none
|
none
|
paid entirely, by bank loan
|
"Yurukov & ELIS-D" Partnership,
Gotse Delchev |
10.789
|
11
|
preserved 150; new 150
|
none
|
4 mln
|
paid entirely
|
"Teda" joint-stock company,
Haskovo |
71
|
|
500 made redundant out of 750
|
2
|
4 mln
|
|
Formally, the non-financial conditions are likewise obligatory
in the privatization by tendering or negotiations. They are
typically deemed to be of secondary importance set against the
price of the objects or the amount of the liabilities to creditors
that the new owner would take on. That is related to:
- the too formal and general character of the non-financial
conditions;
- the lack of objective possibilities for metrication and
commensurability of the non-financial conditions;
- the lack of adequate regulation and possibility for
post-privatization control, which is indispensable with respect to
the non-financial conditions;
- the lack of experience and the deficient regulations lead to a
general stipulation of the non-financial conditions in the sale
contract without securing the necessary operativeness of their
individual elements and without a mutual interdependence with the
transaction as a whole.
In a number of sale contracts the non-financial conditions
constitute conditions of deferment or termination of the contract
without being an essential part of the transaction. This produces a
certain insecurity and de facto sometimes proves to be an
unnecessary burden on the new owners.
Certain conditions (for instance, "number of jobs", "amount of
additional investments", "term for making ecological improvements",
"preserving the field of activity for a certain period") in some
cases have a purely formal character with respect to the interests
of the seller or the public interest. Yet they have a prolonged
effect as a mandatory framework for the new owners, limiting their
free economic initiative and the efficiency of their decisions.
From this point of view it is necessary to pursue a policy of
restricting the non-financial conditions of the privatization
transactions. That would simplify the procedures, would make the
choice of the respective buyers more transparent and unequivocal,
and would facilitate post-privatization control. In the cases when
the contract explicitly stipulates non-financial conditions the
latter should be sufficiently functional and clear-cut, and
preferably quantifiable in some way.
Third, it is the conclusion of the privatization transactions
and the post-privatization control that give rise to the most
serious problems to the parties to the contracts. The insufficient
experience and practice in the sphere of contractual relations as a
whole, especially in the field of privatization transactions, lead
to the search for simpler solutions in the transfer of property
rights.
The study has shown that privatization is not completed with the
conclusion of the transaction. There emerges a tendency towards
prolonging privatization both on account of problems arising with
already concluded transactions and owing to the transition to
methods of payment requiring subsequent transfer of ownership.
Experience has shown that a number of actual circumstances and
problems are not regulated efficiently enough in the contracts for
the privatization of enterprises, such as:
- subsequent finding of unknown prior to the conclusion of the
transaction defects in the respective privatization objects - in
facilities, equipment, infrastructure. This is largely due to
imperfect preparation and conclusion of the privatization
transaction;
- deterioration of the property and financial state of the
enterprises subject to privatization. Experience has shown that
this process is nearly always present and develops extremely
rapidly, especially in the period from the conclusion of the
contract until the new owner actually assumes possession;
- finding of undisclosed as a result of poor financial and legal
discipline liabilities and legal obligations (mortgages, property
put up as security, etc.);
- nonfulfillment on the part of the buyer of certain stipulations
of the contract for financial and non-financial commitments of the
new owner.
One extremely serious question generating tension in the
seller-buyer relations is post-privatization control. The analyzed
cases indicate that at this stage such a control is only exercised
by the Privatization Agency. To a certain extent that is
understandable in view of the short period of time since the
conclusion of the transactions (approximately a year has passed
since the conclusion of the first more substantial transactions).
In most cases the stipulations of the contracts refer to a period
of 3 or 5 years.
Furthermore, the attention of the privatizing authorities is
focused on the problems related to the increasing number of
privatization procedures. The scope and significance of
post-privatization control will inevitably grow. With the increase
in the number of privatization transactions under the conditions of
deferred payment, payment by instalments where the ownership
remains with the seller and is to be transferred subsequently, as
well as leasing or management with a buy-out clause, etc.,
post-privatization control will also be exercised by extending the
privatization procedure itself until the final transfer of
ownership.
Due to the limited scope of privatization and the virtually
non-existent post-privatization control there have occurred no
instances of annulment of privatization transactions owing to
nonfulfillment of sale contract stipulations. There have been cases
of dissolution shortly after the conclusion of the sale contract
largely due to nonpayment of the agreed price by the buyer within
the specified term. However, such developments are certain to arise
in the future, with the speeding up of privatization and the
growing number of privatization transactions. Therefore, in order
to facilitate and optimize post-privatization control it is
necessary to conduct a policy of minimizing the conditions of the
transactions, as well as their clear-cut definition and if
possible, their metrication.
That will facilitate the task of the privatizing authorities
which are also supposed to exercise the control. It will further
strengthen the security and enhance the economic freedom of the new
owners in the management of the privatized enterprise.
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