Privatization Agency's annual working plan for 2004

The 2004 Annual Work Plan of the Privatization Agency is drawn up in compliance with the provisions of Art. 6, paragraph 1 of the Privatization and Post-Privatization Control Act (PPCA) and its objective is to assist the continuation of the structural reform and meeting the commitments made to the international financial institutions. The Plan outlines the privatization priorities and objectives for 2004, specifying the number of sales, the amount of proceeds expected and the necessary expenditures.

The 2004 Annual Work Plan of the Privatization Agency is being drafted under conditions where great part of the state property has already been privatized. As a result of the restructuring and privatization of state owned enterprises as of 31.08.2003 54.37% of state owned enterprises assets (BGN 580 million as per balance sheet value as of 31.12.1995) and 82.33% of the assets subject to privatization (BGN 383 million) have been privatized, including the assets privatized under the first voucher privatization scheme. Great part of the enterprises from the main branches of the economy have been privatized, pending is the privatization of state owned companies in the public services sector and the infrastructure monopolies.

The legal framework within which the privatization process takes place is outlined by the Privatization and Post-Privatization Control Act (PPCA), its implementing legislation, the Public Offering of Securities Act (POSA) and the Transaction with Compensatory Instruments Act (TCIA).

I. Priorities

The key priorities of the privatization in 2004 in accordance with PPCA are as follows:

- clear and transparent rules and procedures for all participants in the privatization process;
- equality of investors;
- promptness of the privatization process;
- realization of economically effective privatization as a prerequisite for sustainable economic development and competitiveness of privatized companies.

The policy of the Privatization Agency in the coming privatization of state owned monopolies and companies in the public services sector would be focused rather on the implementation of a quality process and attraction of strategic investors than on the realization of quick privatization at any cost.


II. Privatization objectives in 2004

1. Forecasted number of deals

In 2004 the plan is to conclude 119 deals for the sale of packages of shares/stakes of commercial companies with more than 50 per cent state interest in their capital, as well as 45 deals for unbundled parts of commercial companies. Also planned is the sale of packages of shares/stakes of at least 100 commercial companies with less than 50 per cent state interest in their capital (Appendix 1).

The resource pending for privatization in 2004 is formed of companies from the branches construction (30 companies), trade (20 companies), energy (17 companies), industry (16 companies), etc.

From the companies with more than 50 per cent state interest in their capital planned for privatization in 2004 the greatest is the number of those from the construction branch. These are mainly companies from the “Road Maintenance” and “Geodesy and Cadastre” sectors.

The resource subject to privatization in the energy branch is formed of companies dealing with electricity generation and distribution, engineering companies, companies performing complementary operations in the sector – repair, transport, maintenance and coalmining companies. The seven electricity distribution companies, which have well developed and continuously operating system for delivery of electricity and a market with continuous demand for the electricity generated, are very attractive.

From the trade branch the privatization of Bulgartabac Holding AD, Teraton EAD and Kintex EAD is planned.

Big companies from the industry branch subject to privatization in 2004 are Zhelezoputen Komplex (Railway Complex) EAD, town of Devnia and Vazovski Mashinostroitelni Zavodi (VMZ) EAD, town of Sopot, while the rest have small assets and are from different sub-branches of industry – automobile, textile, electrical engineering, building materials, etc.

Attractive companies with more than 50 per cent state interest in their capital in the resource for 2004 are the companies from the transport branch - Bulgarian River Shipping Co., Rousse, Navigation Maritime Bulgare EAD, Varna and Bulgarian Air EAD, Sofia.

Boyana Film EAD is the company from the culture branch subject to privatization in 2004 - a company in a very good financial situation, with big real estate properties, situated on many sites on the territory of the country.


2. Forecasted proceeds from privatization

The expected cash proceeds from the deals to be concluded in 2004 are projected to amount to BGN 500,000 thousand (Appendix 2).

The cash proceeds from the privatization of state interest in the capital of commercial companies and of unbundled parts will be allocated in accordance with Art. 8, paragraph 1 of the Privatization and Post-Privatization Control Act (PPCA) – 90 per cent of the expected cash proceeds (with the exception of cash proceeds from the privatization of unbundled parts under Art. 8, paragraphs 2 and 3 of PPCA), as well as the full amount of the penalty payments agreed on for failure to fulfill obligations assumed under privatization contracts, will be transferred to the Central Republican Budget.

In 2004 non-cash payment instruments are also expected from the sale of packages of shares/stakes of companies included in the list under Art. 11 of the Privatization and Post-Privatization Control Act - investment vouchers and compensatory instruments at least to the amount of BGN 11,400 thousand (Appendix 2).

3. Forecasted expenditures, related to privatization activities

The expenditures related to the implementation of the Plan’s objectives and the attainment of the expected proceeds from state owned enterprises privatization in 2004 are projected to amount to BGN 22,075.300 thousand (Appendix 3).

The resources are required mainly for the carrying out of the privatization process – for preparation of privatization valuations, drafting due diligence reports, information memoranda, expert opinions, for consultancy services, publications, marketing, etc. They do not cover expenditures related to the observance of the provisions of § 9 of the Transitional and Final Provisions of the Environmental Protection Act pertaining to the measures for minimizing damages caused to environment in the privatization of enterprises for which privatization strategies shall be adopted.


III. Actions required for implementing the Annual Plan

1. Work on the privatization resource in 2004


The main job of the Privatization Agency is to work on the privatization deals, the implementation of the privatization procedures and the realization of sales. The deals of the sites subject to privatization are in different state of readiness or in different stages of the already started privatization procedures.

For 60% of the planned for privatization in 2004 companies with more than 50 per cent state interest in their capital all necessary actions for the realization of a sale are still to be undertaken.

For 18% of the companies some preparatory work has been done – assigned is the drafting, updating respectively of due diligence, privatization evaluations, information memoranda or tenders therefor are in progress.

8% of the companies with more than 50 per cent state interest in their capital are in the final stage of preparation of their tender or competition documentation.

The privatization procedures of 15 companies with more than 50 per cent state interest in their capital include development and approval of privatization strategies. This relates to the seven electricity distribution companies, VMZ EAD, Bulgartabac Holding AD, Kintex EAD, Teraton EAD and others. In some of these procedures, such as BMF EAD, BRP EAD, Bulgaria Air EAD, etc., the services of foreign consultants will be used. Restructuring, separation of certain complementary activities and/or assets, sale of unbundled parts could be possible, depending on the strategy adopted. In this sense, the approval of the strategies and the successful work of the consultants will be a condition for the faster finalization of these companies’ privatization procedures.

There are problems to be solved before the procedures in respect of 8% of the privatization deals for company majority stakes can start. The problems pertain to missing title deeds or the need for their updating, court disputes related to ownership, pending capital court registration, restitution claims, etc.

In 2004 the Privatization Agency as a privatization authority will continue to regularly update:

- the information in respect of the state interest in the capital of all commercial companies with the view of ascertaining any changes in the company capital, related to the possibilities for sale of the state interest;

- the resource of enterprises subject to privatization, taking in mind the changes in the list of companies not subject to privatization (Appendix to Art. 3, paragraph 1 of PPCA); the insolvency and liquidation procedures; adoption of decisions for privatization of newly established companies or unbundled parts of companies with more than 50 per cent state interest in their capital;

- the list of commercial companies with state interest in their capital, in the privatization of which payment could be made through non-cash payment instruments in accordance with Art. 11 of PPCA, as well as its supplementation with the view of maximum utilization of the compensatory instruments resource.

In accordance with Art. 28, paragraph 6 of PPCA the Privatization Agency shall judge the need for giving its consent commercial companies with more than 50 per cent state interest in their capital to be reorganized or wound-up.

2. Decision on the method of privatization

The possible methods of privatization are clearly set forth in the Privatization and Post-Privatization Control Act. For each specific site of the 2004 resource the most adequate method of privatization will be decided on and applied.

Public tender will be largely applied as privatization technique as its procedure is simple, fast and transparent. This method is preferred also because through it a better price can be achieved.

Publicly advertised competition will be applied where beside price, a condition for selection of buyers are also commitments to invest, to maintain certain level of employment, to pay the company’s liabilities, etc. Negotiation of an obligation to invest shall be undertaken with the purpose of rehabilitation of the privatized enterprises, improvement of their production facilities and renovation of their technological park. The Privatization Agency fully supports the thesis that privatization contracts should provide for obligations to maintain certain level of employment in regions where unemployment and social tension are high.

When privatizing packages of shares of public companies through the method of public offering and payment with pecuniary instruments, the proceeds of these sales will ensure revenues in the Central Republican Budget.

With regard to companies, whose privatization procedure is preceded by the development of strategies, the possible methods of privatization will be determined by the strategies themselves.

Packages of shares of companies on the list of commercial companies with state interest in their capital, in the privatization of which payment could be made through non-cash payment instruments in 2004 will continue to be offered for sale on BSE – Sofia AD, and in centralized public tenders, while packages of limited companies will be sold in tenders organized at the Privatization Agency. Under the amendments to the Transaction with Compensatory Instruments Act the Privatization Agency, after the adoption of the relevant regulation, will be able to contract with the regulated securities market the technical implementation of centralized public tenders under Art. 32, paragraph 1, item 4 or public tenders under Art. 32, paragraph 2, item 1 of PPCA. The offering of packages of state shares on BSE against compensatory instruments will solve the problem with the restitution securities of former owners on the one hand and on the other – support capital market development.


3. Marketing and public relations

The Privatization Agency will implement its marketing policy within the agreed for the purpose financial resources for 2004. The Privatization Agency will use to the maximum the potentials of its web site, wherefrom investors to get up-to-date information in respect of the progress of privatization procedures, announcements for future sales together with brief information on the sites, which will be regularly supplemented and updated. The practice of sending calls for proposals to entities, which have shown interest, to consultancy companies and other institutions will continue.

Another important aspect of marketing will be to attract strategic investors to particularly important deals, including for companies, for which privatization strategies are being developed. In this case the Privatization Agency will work together with the consultants chosen for targeted marketing of the deals abroad. For the presentation of these deals materials on paper and/or magnetic carriers will be prepared, which materials will be presented and disseminated at international fora.

The Privatization Agency will actively participate in investment fora both in the country and abroad to present some of the bigger and attractive deals to foreign investors.

The marketing policy of the Privatization Agency provides for presentation of the privatization resource also to the media. In the process of preparing the sites for privatization journalists will be given the necessary information. When carrying out the privatization transparency of the procedures will be ensured through using the media, foreign news agencies and the Bulgarian News Agency specialized economic missions, diplomatic missions, the Bulgarian Chamber of Commerce and Industry, the Ministry of Foreign Affairs, etc. Through the public register of the companies to be privatized access of stakeholders to the information pertaining to the preparation and conclusion of privatization deals will be provided.

The key priorities of the privatization in 2004 in accordance with PPCA are as follows:

- transparency of procedures and clear rules for all participants, provision of equality of investors;
- promptness of the privatization process;
- realization of economically effective privatization as a prerequisite for sustainable economic development and competitiveness of privatized companies.

See also:

Appendix 1 - Expected number of privatization deals in 2004

Appendix 2 - Forecasted proceeds from the privatization of state owned enterprises in 2004

Appendix 3 - Forecasted expenditures, related to privatization of state owned enterprises in 2004