Intro
The combination of mass and market privatization as
a specific element of the Bulgarian model acquires more and more
distinct outlines as days go by. On January 8, 1996, mass
privatization made its official start by the commencement of the
citizens' registration for participation. The dead-line for this
phase was extended twice and as a result a little above 40 percent
of the eligible Bulgarian population bought their voucher booklets.
Despite the not particularly attractive public awareness campaign
and the non-participation in it of the privatization funds, a
fairly good result was achieved in the registration for
participation in the mass privatization process.
The first six months of 1996 can certainly be
considered the birth date of the privatization funds as an unknown
by then economic entity. During this period, more than 90
privatization funds were established and their prospectuses
received approval by the Securities and Exchange Com-mission. By
the Fall of this year, those who succeed in accumulating a capital
of minimum 70 million BG Leva will go through a lengthy procedure
of final licensing by the Commission and of court registration.
Despite the relatively unfavorable investment climate in Bulgaria,
considerable interest is being exhibited by foreign legal entities,
mainly from Austria, Germany, the Czech Republic and the U.S.,
towards the privatization funds. In this sense, it can be expected
that mass privatization will foster the inflow of foreign
investments. Still, inter-national investors demonstrate a higher
level of trust in private owners and market mechanisms.
The list of companies for the first mass
priva-tization round comprises 1,050 enterprises. Of them, upon
completion of the first round 911 will be above 67 percent
privately owned. The balance is as follows: against 75 billion
investment BG Leva in the population assets amounting to 92 billion
BG Leva (in 1992 prices), or about 20 percent of the state-owned
enterprises' assets, are being offered for denationalization.
While for technical and administrative reasons all
phases of mass privatization in Bulgaria had to be prolonged, the
centralized auctions are expected to start before the end of 1996.
Most probably this will be an extremely strenuous period for the
state administration because some basic issues of a substantive as
well as of a procedural nature are still awaiting normative
solutions.
Parallel to the mass privatization preparation and
under unfavorable macroeconomics and financial conditions over the
past several months, market privatization continued its onerous
development. Unfortunately, during 1996 a number of negative
factors continued to impede the privatization processes. Despite
the explicitly declared political will in support of privatization,
the process is being obstructed by the unwillingness of the state
administration to sell the enterprises. It is com-plemented by
perpetual changes in the legal framework and in the practice of its
imple-mentation.
For the period January 1-June 30, 1996, a total of
147 privatization transactions were concluded. Of them 112 were for
detached parts and 35 for entire enterprises. In practice, this
means slightly above 30 percent fulfillment of the adopted by the
Parliament on May 14 Program for Privatization of State-Owned
Enterprises in 1996. Of the total number, 31 transactions were
concluded by the Privatization Agency. Most active in the first
half of 1996 were the Ministry of Trade (48 deals), Ministry of
Construction (22 deals), and, unlike during previous periods, the
Ministry of Industry (21 privatization transactions).
Number of
Transactions Concluded by Institutions (For the period 01.01.96 -
30.06.1996)
Source: Privatization Agency
Direct negotiations with potential buyers were more
widely used as a privatization method than ever before and the
cases of selling through auctions or tenders were rare.
Inconsistencies between provisions in the Privatization Law and in
the Securities, Stock Exchanges and Investment Companies Law
continue to be an obstacle to the implementation of methods for
public offering and sale of shares in the privatization process.
The priority of mass privatization in the current year will
postpone for awhile the solution of this problem.
The appointment in January of the Securities and
Exchange Commission by the Council of Ministers and the timely
adoption by the Commission of the most urgent regulations
concerning trading with securities and the activities of the stock
exchanges laid the ground for the capital market development in
Bulgaria. In June, the Central Securities Depository was
established as a joint stock company with the participation of the
Bulgarian National Bank, the Ministry of Finance, the Center for
Mass Privatization and some 30 commercial banks.
In about 70 percent of the concluded in the period
January-June privatization transactions, buyers were
workers-managers teams, tenants or lessees. The boom of this type
of deals was probably due to the upcoming mass privatization and
the expected changes in the Privatization Law which were indeed
adopted by the Parliament in May and affected this circle of
buyers. These changes were an attempt at a more stringent
regulatory frame-work of the opportunities and preferences with
regard to the buyers and to certain enterprises.
In terms of branch priorities in the annual
privatization program, the first place is occupied by tourism. In
June a decision was made to offer for cash privatization the first
14 sites of the tourist complex Zlatni Piassatzi. This decision put
an end to the lengthy discussions about the method of privatization
of such enterprises - as a complex or in detached parts.
Despite the March 1996 Council of Ministers'
decision in principle for opening procedures for privatization of
the Bulgarian Telecommunication Company and the chemical enterprise
"Sodi" - Devnya, the preparation of these deals has barely started
and is proceeding at a very slow pace.
During the first half of 1996, the good traditions
of municipal privatization established over the previous years
continued to produce results -- a total of 934 transactions for
privatization of municipal properties were concluded. June 30 was
the deadline for submission of applications under Art. 35 of the
Privatization Law - i.e. preferences for workers and employees,
tenants and lessees to buy properties without auctions or tenders.
It is difficult to foresee how municipal privatization will proceed
from now on but most probably its rate will diminish.
Privatization of
Municipal Enterprises (by 30.06.1996)
Source: Privatization Agency
Since the beginning of 1996, there were several
cases of serious tension between the Supervisory Board of the
Privatization Agency and its Executive Director. The reason for
this dis-agreement were several important privatization
transactions which became dismally infamous. This lead to the
formation of the opinion that changes in the management of the
market privatization process in Bulgaria were needed. It is
currently characterized by a mixture of political, administrative
and operational functions which are hard to be performed within the
existing two-tier management structure - Supervisory Board,
com-posed of representatives from the Parliament and from the
Cabinet, and Executive Director.
Meanwhile, changes in the Privatization Law were
drafted and approved by the Cabinet which pertain to the
Privatization Agency structure. The changes suggest reduction of
the Supervisory Board from eleven to five members to be appointed
by the Council of Ministers based on a proposal by the Minister of
economic development. The annual program of the Privatization
Agency is to be prepared by the Ministry of Economic Develop-ment
and to be approved by the Council of Minis-ters, not by the
Parliament as the present Law envisages. Should these changes be
adopted by the Parliament, which is very likely to happen given the
current majority of the Bulgarian Socialist Party, the Parliament
will be isolated from the privatization process and will no longer
have the opportunity to intervene and exercise public control.
The proposed changes in the Privatization Law are
unlikely to improve the management of the process. They would
rather provoke a negative attitude towards cash privatization in
Bulgaria and would breed distrust on the part of potential
investors in the institutions responsible for its
implementation.
The analysis of the results from the privatization
process in Bulgaria since the beginning of the year indicates that
no substantial changes in the methods and the approach of the state
institutions managing and conducting privatization have occurred,
neither are there signs that the weaknesses exhibited in prior
years have been overcome. On the contrary, it seems that the crisis
in the banking system and the mass privatization preparations have
further exacerbated some of the problems and have made the
execution of already concluded privatization deals
questionable.
The Bulgarian market privatization model is based
primarily on transactions financed by Bulgarian banks and this in
practice aggravates the problems of both the banks and the
enterprises. The high interest rates are unacceptable even for the
big economic groups, and are entirely unfavorable for the
enterprises' management teams which are aiming at buy-outs. Under
the influence of the Central Bank's restrictive policy, the
commercial banks have considerably limited the access to credit for
privatization purposes. Delays in payments under already signed
privatization contracts have also been witnessed due to the
liquidity crisis in the banks. In addition, the new owners suffer a
chronic lack of working capital and find it harder and harder to
observe their obligations for additional investments.
By the end of 1996 and over the next year, no
substantial improvements in the environment for privatization in
Bulgaria can be expected. It will be characterized by an excess of
supply over demand, unstable financial and economic conditions, and
unachievable for the state administration tasks related to both
mass and market privatization. The problems will be intensified by
the anticipated liquidation and isolation of a considerable number
of state-owned enterprises.
Under these circumstances, the opinion begins to
prevail that Bulgaria should seek a solution to these problems in
the attraction of more foreign investors in the privatization
process. To this end, work on the changes in the foreign
investments regime should be speeded up in order to make it more
attractive. The lack of conformity between the privatization and
concessions procedures is another obstacle for selling some of the
biggest Bulgarian enterprises which are subject to foreign
investment interest.
Currently, it seems that more than ever Bulgaria
needs a long-term comprehensive approach to the issues of
privatization and economic restructuring. The transformation of
state ownership should be perceived as an integral process which is
limited in time. Only the conceptual clarity about the
privatization model in all its forms and the preparation of a
strict time table can lead to success in the transition to a market
economy and democracy.
|