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.
|