Yana Popkostova

Definition
In the economic literature privatization covers all forms of transformation of state-owned and municipal property - not only enterprises but likewise the land, and social services. Such a broad conception of privatization best fits its general definition as a process of denationalization. Privatization in Bulgaria includes at least three interrelated processes: privatization of state-owned and municipal enterprises under the provisions of the Privatization Law; privatization of the land and property of the former Collective Farms, and restitution. These three processes combine legal and institutional mechanisms for the sale and use of different types of state, municipal and cooperative property. Privatization is meant to be restructuring and modernization of the industries which will make them competitive and economically efficient.
History
In 1992, 3 years after the change of the political regime in Bulgaria, the new western oriented and democratic government passed the Privatization Act, allowing privatization of state-owned enterprises. Since February 1993, when the first state-owned enterprise was privatized, privatization has slowly been gaining momentum in Bulgaria. Despite this progress, however, the environment in Bulgaria was anything but conducive to privatization. The economic and political situations were unstable, scaring off potential investors. High inflation, high interest rates, an unstable banking system, an undeveloped financial sector, and a volatile political environment were the rule.
Bulgaria adopted its Privatization Law in 1992 - later than the other Central and Eastern European countries. (Actually, under the provisions of other Bulgarian governmental regulations, some privatization started before the adoption of the Law.) The Privatization Law favors capital privatization, i.e. sale, rather than free distribution of state property. This approach was accepted because of the belief that ownership should be transferred to persons with proper management skills and the ability to provide fresh investment.
The institutional framework was established and started operating at the end of 1992. It includes three main privatization institutions: (1) the Privatization Agency, (2) the ministries managing state participation in various areas of the economy and (3) the municipalities as owners of municipal property. The principal reason for the delay in privatization was because the responsible institutions had no strong interests in privatizing. Another reason for the delay was limited potential for Bulgarian citizens and the domestic private sector to participate in the privatization process. Large-scale privatization has been primarily accessible to foreign buyers only. These factors led to the introduction of a mass privatization scheme in Bulgaria. In May 1993, Prime Minister Lyuben Berov proposed a basic scheme of privatization through public distribution of coupons with deferred payment.
By 1995, rapid progress was being made at least in some areas. During that year more favorable conditions prevailed, including clear political support, intensive preparation, the availability of new types of financial instruments, and the simple fact that the officials responsible for privatization had nearly three years of experience under their belts. In fact, many small-scale privatization deals were finalized. Some projects were undertaken by the government to disseminate information among the general population, and to train privatization experts. These projects were grounded in the conviction that privatization and the development of the private sector are the foundation for all democratic reforms.
In early 1997, Bulgaria was on the edge of economic disaster. In order to address quickly the country's most acute problems on July 1, 1997 was created a currency board, and “Bulgaria2001” programme was developed by the government. The emphasis was put on “”accelerated, transparent and fair privatization process”, exercised according to legal principals.
Public Opinion
“Public opinion on privatization has been divided since 1990.” Each successive government prayed the same values as the one before, and supported “just privatization process”, however the widespread rumors about personal gains for politicians, corruption, and deals below the table made the population highly distrustful toward privatization (which was part of the developing trend of distrust towards politics as a whole). An opinion polls from the period show that “during the transition years, 60% to 80% of Bulgarians preferred that most of the SOEs remain state-owned”. The most striking thing though is that even at the late 90s, and at the beginning of the new century when the political climate in Bulgaria was stabilized, and the privatization process received “nationwide support”, “most people in Bulgaria preferred to work in a state-owned enterprise rather than in one that was privately owned.”
Mistakes and achievements
Most of the privatization deals in Bulgaria were completed in the period between late 1996 and 1999. The most successful deals of that period are the privatization of Kremikovci and Neftohim in 1999. Before that the mass confusion with the privatization model led to almost no privatization deals. The course of privatization was a complicated political process and an arena for fierce political discord. Conflicts related to the particular form of mass privatization to be employed arose among members of the government and was one of the reasons for the destabilization of the Government. In an effort to jump-start the mass privatization process, on September 8 1994, the government introduced in the National Assembly a bill, which amended the Privatization Law. This bill allowed Bulgarian citizens over eighteen who are permanently residing in the country to participate in the mass privatization program. The change of the model proved to be successful and resulted in 75% of the state-owned assets in 2000 to be in private hands. There is a slowdown of the privatization process in the last 5 years but that is mostly the result of the widespread privatization in the previous period which did not leave much to be privatized after that. The most substantial deal of the period after 2000 is the privatization of BTK finally in 2004.
One of the problems that accompanied privatization in the mid-1990s was that in enterprises where most assets have passed into private hands, there was no single owner with a controlling stake, which means there was no strategic investor with a strong incentive to inject much-needed capital into those companies. In most cases, individual participants and privatization funds had short-term speculative interests. The lack of viable capital markets hampered the transfer of corporate stock from passive small investors to owners of majority holdings.
With privatization developing more slowly in Bulgaria than elsewhere, it was difficult for its supporters to overcome the resistance of certain groups, such as SOE managers, government officials, and large banks. State officials were unwilling to give up their direct influence on the economy, which has effectively been blocking privatization's progress.
Another thing is the mentality of the Bulgarian nation. People were used to the state ownership and suspicious toward private entrepreneurship. Moreover, the high social expectations, followed by mass disillusionment exacerbated people’s view toward privatization. People expected higher wages and better working environment and in most cases they were either fired or displaced. It turned out that the new private owners had new demands which were not met by the old labor force.
The unrealistic estimation of the asset value added additionally to the slow rate of privatization in the past. International experts were estimating the price of a state-owned company to be far above the real market value. The large difference between the estimated price and the price at which the company was sold made the public suspicious of corruption within the government sector, and untrustworthy with the privatization process. In all of this the role of the state was not clear. The officials were not sure what kind of state they want to develop, thus there was no systematic privatization model - the method was changed with every change in government. This, accompanied with the constant change of privatization legislation made the process inflexible and full with loopholes.
Though most of these impediments were overcome there is still much to be done in the privatization process in Bulgaria in order it to be completed successfully. Still there is no overall concept of the role of the state in the process. Moreover, the perception is that the privatization process leads to private monopoly as a contrast to the state monopoly of the previous decade. The people’s suspicion and circle of criticism has to be surrounded. The integration process to the structures of the European Union, of course, made the political climate in Bulgaria more stable, and the economy more flexible and welcoming to changes. The privatization is expected to finish in full record with the European standards and the industries to be restructured and made competitive in the European market. Bulgaria’s privatization performance has been satisfactory and Bulgaria has to strive to hold and to build upon what has been achieved.

Sources:
1. “Privatization: Avoiding mikstakes of the past” – Alexander Boshkov lecture in AUBG
2. “Economic reform today: The lessons of Privatization” – Maria Prohaska at www.cipe.org/publications
3. http://www.priv.government.bg/ap/eng/content06.shtml___##0##___ 4. http://www.iccs.bas.bg/privat/base.html