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1. Legal Status of the Privatized Enterprises

The majority of the privatization transactions concluded up to now involve the sale of separate parts or entire enterprises (according to Chapter VI of the Privatization Law). The number of enterprises privatized through sale of interests and shares is smaller. To a great extent this is determined by the legal status of the privatized enterprises. In most cases the privatized fixed assets, separate parts or entire enterprises under Chapter VI of the Privatization Law become part of the assets of the buyer company. As a result, the corporate body of the privatized state-owned enterprise is either subject to termination or has to indicate the changes in capital with the sale of the respective separate part or fixed asset.

Typically, when incorporated in the newly formed or already operating private company the state-owned enterprises privatized in this manner constitute the principal part of its assets. This is particularly true in cases when the buyers are smaller or newly formed companies, which seems to speak of the critical role that privatization is to play for the future development of this type of economic agents. In this sense it is closely related to the process of formation of new firms or to the development and expansion of the activity of already existing private enterprises.

When the buyers under the provisions of Chapter VI of the Privatization Law (privatization of entire enterprises or separate parts thereof) are larger private companies, there are cases when the acquired enterprise becomes a subsidiary company or branch.

Even if more limited in the practice to date, privatization through sale of interests and shares of commercialized state-owned enterprises will predominate in the future owing to the nature of the changes in the existing regulations and legislation. The post-privatization outline of the legal state of the enterprises in this type of transaction is the following:

- preservation of the corporate body of the enterprise with a registration of the changes in ownership;
- acquisition on preferential terms of part of the interest or share by the staff (there are nearly no instances of failure to use this preference);
- when the buyer of the majority share is not the staff or part of the staff, in a number of cases those who have acquired a share on preferential terms wish to sell it at the higher price to the major shareholder. Even if economically and socially justified, this possibility has been abolished with the changes in the Privatization Law.

2. Management of the Privatized Enterprises

The predominant part of the privatized enterprises are managed directly by their new owners which is largely determined by the employed privatization techniques. I.e., the selected approach to privatization in this country leads to the creation of real owners immediately involved in the management of their enterprises. Their direct participation in the management is also conditioned by the character of the privatized enterprises - above all small and medium-sized. It also follows from their legal status - mainly limited liability companies, partnerships and sole merchants, where executive power is generally directly exercised by the owner. In the privatized joint-stock companies there predominates a one-tier system of management with the major shareholders once again exercising executive power.

In this sense the management of the privatized enterprises reproduces the predominant mechanism in the private sector for immediate management of the enterprise by the owner as opposed to the public or anonymous management by persons appointed by the owner in the state-owned enterprises.

The management of privatized enterprises bought entirely by the staff is of particular interest. What is characteristic in this case is the keeping of the executives acting up to the privatization - an almost universal phenomenon, regardless of the former conflicts between managers, workers and employees, and their trade-union organizations. It is not by chance that opinion polls among managers of state-owned enterprises about their preferred privatization technique indicate a decided preference for personnel buy-out.

This tendency finds its explanation in the active role of the management of the enterprises subject to privatization. The studied cases indicate that it is the executive management of the enterprise who not only initiate, but actually direct the entire participation of the staff in the privatization. There are only isolated cases of open efforts by individual members of the management to buy out the enterprise independently without involving a larger part of the staff. This is accounted for by the management's fears of possible tension and opposition from the staff and the union organizations, both during and after privatization.

There is a general tendency in the privatized enterprises towards active efforts for the simplification of the management structure and functions, as well as towards discharge or reorientation of part of the administrative staff. In all five cases the financial and accounting departments were abolished, with only a chief accountant remaining in their place, often assuming the duties of a paymaster as well. That is a typical phenomenon in the presence of direct management by the owner. In the same direction, efforts are being made for certain typical administrative and managerial activities to be detached in economic and organizational terms or moved out of the enterprise altogether on a contractual basis.

On the whole, privatization leads to an imperative rationalization and simplification of management in the direction of greater pragmatism and economy.

3. Changes in the Organization of Labor

Most privatized enterprises tend to preserve or increase the number of workplaces. This is related to the fact that up to now privatization has essentially involved the creation of new private enterprises or expansion of the activity of already operating ones. To some extent the increase in employment is also due to the fact that preserving or increasing the number of jobs is stipulated as a condition in the contracts in most privatization transactions. As indicated by the study, that condition was present in the contracts of 4 out of the 5 enterprises, with only one of them having made 500 workers redundant (see Table 1).

The extensive increase in employment also results from the general expansion of production and enhanced efficiency of the overall activity of the privatized enterprises.

Another characteristic tendency related to the organization of labor in the privatized enterprises is the change in working hours, with modifications in the organization of shift work. Furthermore, there appears to be greater interchangeability and rotation, especially in the enterprises bought by the staff.

In all of the studied enterprises the system of remuneration of labor was changed after privatization. The common tendency was to change the relative share of, or abolish payment by the hour and replace it with piecework or a payment-by-results system. In view of the size and characteristics of most of the privatized enterprises, the relative extension of the piece rate system of labor remuneration is often combined with internal economic differentiation of separate structural units and occasionally even specific workplaces.

The observed tendencies in employment and organization of labor, even if of a fragmentary and non-representative character, are an indicator of extensive increase in the employed labor force and the effectiveness of labor in most enterprises privatized to date. This is largely dependent on their being small and medium-sized enterprises, mostly in the spheres of services, trade, and certain effective and market-adapted manufactures. It is to be expected that in the privatization of large industrial enterprises the measures for their subsequent restructuring and financial recovery will enhance labor efficiency and lead to a discharge of labor force.

4. The Activity and Financial State of the Privatized Enterprises

Table 2


Procedure instituted

Procedure completed

Bought by

Final privatization technique

Other privatization techniques

"Druzhba"-Avto '93 Ltd Sofia

Jun 93

Oct 93



2 tenders

"Stil" joint-stock company Dimitrovgrad

16 Aug 93

Mar 94


negotiations with potential buyers


"Penkiler" Sole Merchant Gotse Delchev

Jun 93

Dec 93

Sole Merchant



3 times

"Yurukov & ELIS-D" Partnership Gotse Delchev

Oct 93


2 partners



"Teda" joint-stock company, Haskovo


used preferences

sale of shares



The activity of the privatized enterprises is characterized by:

First. Retaining the principal field of activity, with substantial changes in the organization of labor and production. That is very often a non-financial condition stipulated in the privatization contracts, especially in the services sector.

Second. Increasing the output. This is a typical phenomenon, resulting from the active role of the new owner in making an optimal use of production reserves, improving production organization and the use of the labor force. In some isolated cases the output has been temporarily reduced for the purpose of repairs, expansion, and other investments.

Third. Introducing and developing additional activities in the enterprise. This process is particularly characteristic of enterprises in the sectors of trade and services. It stems from the new owners' wish to increase revenues as much as possible and secure a good return on investment, as well as from the need to meet the commitment to preserve or increase the number of workplaces in the privatized enterprises, as required in most privatization transactions.

Fourth. A certain improvement and diversification of the inventory of services and goods produced by the enterprise, both within its main field of activity and in the newly added ones. This seems to indicate that the privatized enterprises are adjusting their activity to the market conditions, i.e. they are flexible and easily adaptable to market conditions.

Apart from the outlined, generally positive tendencies in the activity of the privatized enterprises, there are other more unfavorable developments concerning their financial state that should equally be noted.

While retaining their legal and financial independence, after privatization most enterprises find themselves under considerable financial strain related to the servicing of investment loans received at the time of privatization. To most enterprises paying off the loans and the interests on them is the chief characteristic of their financial state. Nevertheless, and partly due to the limited number of privatized objects and the short period under consideration, almost none have been forced into insolvency.

In a number of cases, in relation to the need to secure credit resources, fixed assets of the enterprises are mortgaged or other assets are put up as security. There also appears a certain reduction of the assets with a view to optimizing production reserves and finished products in storage.

Measures are being taken to reduce certain production and other operating costs and to make them commensurate with the respective activity and the revenues it brings. In most privatized enterprises which have retained their independence there lack any substantial additional investments in liquid assets and expenditures on fixed assets. At the same time, however, the incomes from the activity and the additionally revealed resources prove sufficient not only to cover the generally increased operating costs, but likewise the investments required by the conditions of the privatization transactions.


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