The Bulgarian Privatization Law allows the use of extremely
wide-ranging privatization techniques.The data about the employed
privatization techniques confirm the all too high level of
decentralization of privatization. Each institution carrying out
privatization has a specific policy of its own regarding the
employed privatization techniques. This policy reduces the revenues
from privatization, limits the competition in the process and
respectively, reduces the selling price.
As a privatization technique the auction is most widely used in
the case of smaller objects in the sphere of trade and services, as
well as the sale of separate parts of enterprises. Its shortcoming
is that it limits the possibilities to include non price-related
conditions in the contracts. The data about conducted auctions at
the Ministry of Trade indicate that in 71% of the cases the selling
price was considerably higher than the initial one.
Table 3.
PRIVATIZATION TECHNIQUES EMPLOYED BY THE
AUTHORITIES
|
Privatization Agency
|
Ministry of Trade
|
Ministry of Industry
|
Ministry of Agriculture
|
Ministry of Construction
|
Others
|
Negotiations
|
47.8
|
15.3
|
70.8
|
29.4
|
15.8
|
75.0
|
Auction
|
-
|
22.2
|
-
|
23.5
|
10.5
|
-
|
Tender
|
30.3
|
62.5
|
29.2
|
47.1
|
73.7
|
25.0
|
Public Sale of Shares
|
0.3
|
-
|
-
|
-
|
-
|
-
|
Others
|
21.6
|
-
|
-
|
-
|
-
|
-
|
Total
|
100.0
|
100.0
|
100.0
|
100.0
|
100.0
|
100.0
|
Source: Privatisation Agency.
Note: December, 1994.
Negotiations with potential buyers are the most frequently used
technique in the sale of large-scale objects. The changes in the
Privatisation Law in June, 1994 introduced additional privatization
techniques with the aim of facilitating the process and providing
new possibilities for the participation of the small business such
as leasing for a term of 25 years with a buy-out clause, management
with a buy-out or sale clause, sale by installments with subsequent
transfer of ownership, sale with non-financial conditions of
deferment or termination, and others.
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. It is important
to 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.
Another problem of the privatization transactions concluded up
to now is that 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 and the privatization
technique implemented by the respective authority.
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.
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. (See Table 4.)
Table 4.
Case No
|
Initial Value (BLV million)
|
Investment Intentions (BLV million)
|
Jobs
|
Trade Unions
|
Debts
|
Payment
|
Case No1
|
18
|
7
|
20 new jobs
|
none
|
none
|
paid
entirely
|
Case No2
|
19
|
9
|
preserved 113 jobs
|
2
|
rescheduledby bonds
|
paid etirely
|
Case No3
|
1.4
|
2.8
|
preserved 9 jobs; 25 new jobs
|
none
|
none
|
paid ent-irely, by bank loan
|
Case No4
|
10.789
|
11
|
preserved 150; new 150
|
none
|
4 mln
|
paid entirely
|
Case No5
|
71
|
|
500 made redundant out of 750
|
2
|
4 mln
|
paid entirely
|
Recently, one of the privatisation policy debates is that to
what extent the inclusion of non-price conditions in the contracts
is justified. One view is that the inclusion of commitments for
additional investments, preservation or increase of the number of
workplaces, retaining the principal activity, and others,
complicates the privatization procedure and in this way impedes the
speeding up of the process. Another argument used to back that view
is the fact that additional conditions require subsequent
monitoring involving considerable administrative expenses.
Without disputing these shortcomings of the inclusion of
additional conditions in the privatization contracts, it should be
stressed that their presence is related to the general strategy of
privatization. It does not only seek to achieve a price effect,
i.e. immediate revenues from sales, but also the restructuring of
the enterprises and improvement of their market positions, which
undoubtedly calls for investments. Certain social objectives are
also pursued through privatization, i.e. it is necessary, where
economically justified, to guarantee the employment of the
workforce, to create conditions for normal ecological development,
etc. The most important aspect of non-price conditions is, of
course, that they are a factor drawing public support for the
process and above all the support of the employees, for whom access
to privatization under capital privatization is relatively more
difficult. Last but not least, the commitments related to
investments and jobs reassure the state authorities regarding the
good faith of the buyer with respect to the motivation of the
purchase and limits possibilities for purchase for the purpose of
reducing production and limiting competition, especially in the
case of foreign buyers.
All of these advantages of the non-price conditions make them an
important element of privatization policy. It is true, however,
that this practice should be regulated and brought under control.
There also arise logical problems with the value of the negotiated
investments. Those agreed in leva are obviously not equivalent to
those in foreign currency due to the high inflation.
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.
The privatisation of state owned enterprises turn out to be
middle-term process. The procedure for all five cases was prolonged
from 8 to 4 months. The employed privatisation technic auctions,
tenders, negotiations with a potential buyer. (Table 5.)
Table 5.
Enterprise
|
Procedure Instituted
|
Procedure Completed
|
Bought by:
|
Final Privatization Technique
|
Other Privatization Techniques
|
Case 1
|
Jun 93
|
Oct 93
|
employees
|
tender
|
2 tenders
|
Case 2
|
16 Aug 93
|
Mar 94
|
employees
|
negotiations with potential buyers
|
-
|
Case 3
|
Jun 93
|
Dec 93
|
Sole Merchant
|
auction
|
conducted 3 times
|
Case 4
|
Oct 93
|
-
|
2 partners
|
tender
|
-
|
Case 5
|
n.d.
|
used preferences
|
sale of shares
|
-
|
|
One extremely serious question generating tension in the
seller-buyer relations is post-privatizatio+n 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.
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