As in the other East European countries, the expectations for speedy privatization of a significant portion of the state-owned property proved unjustified in Bulgaria. The more essential reasons for this are the following:

• weakly developed private sector in the economy prior to the start of reforms. In 1989 the high share of the public sector in Bulgaria's economy was paralleled only in the former DDR and USSR;
• the strong centralization of the privatization process and the lack of adequate economic interests on the part of the participants in that process. Bulgarian legislation does not allow managers of state-owned enterprises to freely set up joint enterprises with Bulgarian or foreign companies or to participate in what has come to be known in Hungary as "spontaneous privatization";
• lack of experience on the part of both the Privatization Agency and the other state authorities involved in the privatization process;
• weakly developed domestic capital market and lack of legislation on stock exchanges and securities;
• lack of consensus among the political forces on the goals and techniques of the privatization of state-owned property.
  The process of privatization only started in 1993, with the conclusion of the first privatization transactions. This took place nearly a year following the adoption of the Transformation and Privatization of State-Owned and Municipal Enterprises Law.

The belated start of privatization made the realization of the government's privatization program for 1993 impossible. Merely 2 per cent of the designated enterprises will be sold by the end of the year. The work of the Privatization Agency on preparing the companies for privatization is slowed down by the fact that in a great many instances the legal state analysis indicates that the ownership of long-term assets is unestablished. Due to the fact that for decades all property in the country was self-evidently presumed to belong to the state, the state-owned enterprises do not have any titles on the lands and facilities in their possession. There frequently occur disputes with respect to the ownership which have to be settled in court and consume much time.

The difficulties encountered by the privatization methods employed up to now imposed the search for new forms and alternative techniques for the transformation of state property. Mass privatization is now perceived as another possibility for speeding up the privatization process.

As a measure furthering the realization of the mass privatization project, on September 8th the government introduced in the National Assembly a bill for the revision and amendment of the Privatization Law, allowing Bulgarian citizens over eighteen who are permanently resident in the country to participate in the mass privatization program.

This version of mass privatization was adopted following discussions of the two projects.

In the month of May Prime Minister prof. Lyuben Berov put forth for discussion a basic framework for privatization through personal privatization bonds with deferred payment.

A working group of experts headed by Deputy Prime Minister V. Karabashev elaborated another mass privatization project.
The principal aims of the two projects coincide and can broadly be summarized as follows:

• speeding up the privatization process;
• creating opportunities for all citizens of the country to take part in the acquisition of part of the national wealth in an equitable and fair manner;
• creating the conditions for more efficient management and operation of a large number of enterprises through the transfer of property rights from the state to private owners.

Prime Minister Berov's project provided for mass privatization through privatization bonds with deferred payment after ten years and did not exclude the option of handing out the bonds free of charge. Citizens were differentiated depending on the length of service, with persons whose length of service was over 12 years being entitled to bonds worth 10,000 Leva. The minimum amount for privatization bonds per person was fixed at 1,000 Leva, i.e. equal to the nominal value of one share of the privatized enterprise. The planned total amount for the emission of privatization bonds with deferred payment was 48 billion Leva.

One characteristic of the Prime Minister's project was that citizens were to acquire shares in enterprises (a total of 1,200 enterprises from different branches of the economy) at public auctions. A possibility was provided for the buying of shares and the exercise of shareholder's rights to be realized through private funds licensed by a special advisory board of representatives of the Ministry of Finance, Bulgarian National Bank, and the Privatization Agency.

An advantage of the mass privatization project through nominal bonds with deferred payment was that it did not imply changes in the acting Privatization Law. All regulation acts were to be created entirely by the Council of Ministers, in compliance with the authority delegated to them by the Privatization Law, and more specifically, by Art. 29, paragraph 1. The principal shortcoming was found in the proposed system of acquisition of shares with the direct participation of approximately 5,700 000 people.

The project of the expert group headed by Deputy Prime Minister Karabashev involved a considerably smaller number of enterprises to be privatized through investment (privatization) funds acting as intermediaries between the citizens and the enterprises.

According to the Karabashev project the first step would have been setting up the investment funds and distributing among them the interests and shares of the enterprises (selected among 353 enterprises proposed by the expert group), which
are to be privatized within the mass privatization scheme. The second step involved signing contracts for the management of the funds. At the third stage it was planned to proceed with the privatization of the funds through the buying up of shares by citizens. The characteristics of the project required changes in the privatization law. Unlike the Berov project, the Karabashev project allowed for government bonds to be sold freely on the secondary market.

Following several months of discussions an agreement was reached among the different views of mass privatization. The resulting, in fact third, project was approved by the Council of Ministers. In order to realize the idea for mass privatization, the Council of Ministers developed and put forth in parliament a bill for the amendment and revision of the privatization law.
For the purposes of the mass privatization project the bill proposes the creation of a new chapter in the privatization law - "Privatization of Investment Funds and Enterprises". In the proposed bill the larger part of the activities related to the carrying out of mass privatization are placed within the prerogatives of the Council of Ministers with the aim of securing the proper organizational conditions for the speedy realization of the first preparatory stages of the project.

Along with the new chapter on mass privatization, the changes in the privatization law are aimed at diversifying the forms of privatization, extending the rights of the municipalities and enhancing the economic impact of privatization. Thus for instance, in addition to the defined in the now acting privatization law forms of privatization, the following new ones have been proposed:

• leasing for a term of 25 years with a buy-out clause;
• conceding for management with a buy-out clause or a clause for sale to third persons;
• sale through installed payments with retention of ownership;
• sale with condition precedent, such as preserving the functions and sphere of activity, the work places, making investments, achieving certain results and others.

The bill for the amendment of the privatization law envisions increasing the share of the funds remaining at the disposal of the municipalities upon sale of municipal enterprises. A number of administrative sanctions are provided for, against officials violating or failing to discharge their obligations as stipulated by law.

The bill includes certain amendments related to the need to change the established practice in the implementation of the law.

It is proposed to extend the scope of the privatization law so as to cover the sale of interests and shares owned by state and municipal enterprises, as well as those in privatization objects which are as yet inoperable or unfinished. In the acting law these questions are only treated in very general terms. There is currently no possibility for the state to transfer its own shares and interests to companies which are not 100 per cent state-owned or to other persons. The bill for the amendment and revision of the privatization law allows for such options. Another shortcoming of the existing privatization law is found in the fact that the moment of establishing a privatization procedure does not coincide with the decision on the type of privatization technique. In practice, in a number of cases, this has led to a deterioration in the state of the company following the announcement of the privatization procedure and the conclusion of unprofitable transactions. The new project is aimed at eliminating this shortcoming through restricting the possibilities for transactions involving the property of the enterprise following the announcement of the privatization procedure. In the project proposed by the government the rights of the state institutions exercising property rights on the enterprise are regulated in a more specific and strict manner and thus the possibility is excluded for delay of privatization due to the intervention of state institutions.

Although the bill does create further possibilities for speeding up privatization, it could arguably have been more rational. The general principles and the strong centralization of privatization characteristic of the existent law have been preserved. The only substantial changes are related to the introduction of mass privatization.

The Bulgarian version of mass privatization involves setting up ten investment funds. They are to be registered as holding companies with a two-stage system of management. The shares and interests - owned by the state - in the companies included in the mass privatization program are to be deposited in the funds. The management of the funds is to be assigned upon tendering open to Bulgarian or foreign persons. The larger part (8 funds) are intended to allow the individual participation of citizens in the acquisition of assets owned by the state, and two of the funds are designated for the accumulation of assets necessary for the creation of health service and social security systems.

All questions related to the profit distribution, the work of the boards of directors, the rights and obligations of share-holders, etc., will be regulated through the statutes of the funds. In the preparatory period prior to their privatization the titles to the investment funds will be held by the Council of Ministers, subject to the obligation not to change their statutes or capital.
Following the adoption of the changes in the privatization law, the investment funds will gain full control over the assets at their disposal.

The eight funds will hold a majority of voting shares in the companies giving them control over their management. Thus these financial institutions acquire features characteristic of holding companies. The distribution of the companies among the funds will take place on the basis of the following general principles:

• the enterprises should be from different branches of the economy;
• the enterprises should have different levels of rentability;
• the total size of the capital of the funds should be approximately the same.

All entitled citizens aged over 18 will receive an equal number of privatization bonds to be deposited in one, several, or all eight investment funds. Following the distribution of the bonds among the funds, citizens obtain shares whose number corresponds to the relative share of the privatization bonds they have deposited with respect to the total number of deposited bonds in the respective fund.

The entire organization of the creation, operation and privatization of the investment funds will be managed by the Council of Ministers. The number of privatization bonds, their value, what part citizens will be required to pay in advance in order to acquire the right to use the privatization bonds, the manner of payment, etc., will also be regulated by the Council of Ministers.

The mass privatization scheme in Bulgaria allows for competition in the acquisition of shares from the funds. The speculative element characteristic of the accumulation of investment points, as revealed in the mass privatization scheme used in the Czech and the Slovak Republics, is avoided.

A crucial question for the realization of the mass privatization project is the selection of the companies. A specific category of enterprises will be selected for the creation of the investment funds. Will be excluded:

1. Enterprises from the branches and subbranches of the economy where privatization is excluded according to the program of the government, namely: power engineering, the mining industry, railroads, oil refining, the defense industry;
2. Enterprises included in the program of the Privatization Agency for 1993;
3. Enterprises whose privatization it is economically more rational to carry out in stages;
4. Enterprises in a poor financial state;
5. Enterprises which have not been transformed into companies according to the Trade Law;
6. Enterprises subject to restitution;
7. Enterprises in which prospective Bulgarian or foreign buyers have already demonstrated an interest and for which negotiations are already under way.

In addition to the above general criteria, the enterprises to be included in the mass privatization program should also meet the following financial criteria.
1. The property valuation in accordance with Decree X 179 of the Council of Ministers of 1991 should have been carried out and indicated in the company's capital;
2. The amount of each company's equity should not be less that BLV 70m.
3. The sales revenues, including the received advances, should exceed or be equal to the liabilities to suppliers.
4. Financial ratios should have the following values:

• the ratio of asset financing should exceed 1 (this is the correlation between capital and assets);
• the ratio of asset utilization should exceed 1 (this is the correlation between the net amount of sale revenues and assets);
• the solvency or general liquidity ratio should exceed 0.75 (this is the correlation between the total value of current assets and the sum of current liabilities);
• the ratio of current liquidity should exceed 1 (this is the correlation between current assets less the inventories and current liabilities. Inventories include the materials, unfinished products, stored output and packaging. Assets include available money, dues, and delivered goods and services);
• indebtedness ratio should exceed 0.5 (this is the correlation between capital and general indebtedness -borrowed capital plus all other liabilities);
• ratio of financial results from operation should exceed 0.60 (this is the correlation between the accumulated interests and the excess of income over expenditure).

From a technological point of view the enterprises should have the proper technical and technological level to secure good prospects for their operation without necessitating large investments and restructuring.

One problem in the selection of the enterprises will be the fact that very few will be able to meet all of the established criteria. Many of the enterprises have liabilities to the banks and other companies and their solvency is below the normal level. Due to the relatively high interest rate on credits, the financial state of the enterprises is deteriorating.

The reluctance of Bulgarian citizens to participate in the privatization process may pose another obstacle to the successful start of mass privatization. A number of sociological surveys and opinion polls indicate that barely 10 per cent of the Bulgarian citizens will participate in privatization, regardless of its form. The negative attitude of the general public is determined by the following factors:

• the relatively higher profitability of deposit accounts as compared to the expected dividends from shares in privatized enterprises;
• the lack of experience among the general public and the insufficient information about opportunities offered by the participation in privatization and the ways of investing capital in privatization;
• the financial difficulties of part of the households, above all pensioners and the unemployed.

The mass privatization project expects the initial stage of preparing the creation of the funds and the organization of their activity to be concluded by mid-1994, when the actual privatization of the funds may begin. As a means of saving time and reducing costs, the project allows for the possible substitution of the privatization bonds with some other suitable arrangement which would not require issuing bonds.

All specific deadlines will be set once parliament adopts the changes in the privatization law.