This document provides an overview of Bulgaria and its food privatization project. It discusses Bulgaria's transition to a market economy and efforts to privatize state-owned enterprises to generate economic growth. The project aims to privatize two food processing companies - Selvikonserv and Storco Pleven - to serve as prototypes for future privatizations. The document outlines the project phases and tasks completed in Phase I, including identifying counterparties, assessing Bulgaria's privatization process, profiling the selected companies, and identifying potential investors.

1. Bulgaria
Food Industry
Privatization
Phase I Report
Prepared for the U.S. Agency for International Development under contract number
EUR-0014-I-O0-1056-00
Jean Gilson
Doyle Peterson
Robert Rodriguez
February 1993
D 0
dAi7250 Woodmont Avenue, Suite 200, Bethesda, Maryland 20814

2. i
TABLE OF CONTENTS
EXECUTIVE SUMMARY v
CHAPTER ONE
BACKGROUND TO PRIVATIZATION 1
BULGARIA FOOD PRIVATIZATION PROJECT 1
COUNTRY OVERVIEW 3
Political and Economic Situation 4
The Future 5
CHAFFER TWO
THE PROCESSED FRUIT AND VEGETABLE INDUSTRY 9
VIABILITY OF BULGARIA AS A POTENTIAL SITE FOR INVESTMENT 10
OBSERVATIONS ON THE INDUSTRY 11
THE FUTURE FOR PROCESSED PRODUCTS 12
CHAPTER THREE
LEGAL, REGULATORY, AND INSTITUTIONAL FRAMEWORK 15
THE LEGAL AND INSTITUTIONAL FRAMEWORK OF PRIVATIZATION 15
Identifying a Seller 15
An Institutional Vehicle for Privatization 16
CHAFTER FOUR
PRIVATIZING SELVIKONSERV AND PLEVEN 19
CANDIDATE SELECTION METHODOLOGY 19
THE SELLER 23
The Ministry of Industry 23
The Privatization Agency 23
THE BUYERS 24
PRIVATIZATION STRATEGY 25
Selvikonserv 25
Storco Pleven 26

3. CHAPTER FIVE
33
PHASE U WORK PLAN
37
ANNEX: ENTERPRISE PROFILES
39
Storco Pleven Enterprise Profile
Letter of commitment from the Privatization
Agency to include Pleven in the privatization
54
program
55
Selvikonserv Enterprise Profile

4. iii
LIST OF TABLES
Table 1 U.S. Government and Private Sector Initiatives 2
Table 2 Economic Structure of Bulgaria 5
Table 3 Summary of Agricultural Policy Reform in Bulgaria 6
Table 4 Production Decline in Fruits and Vegetables
(1988-1992) 9
Table 5 Initial Evaluation of Eleven Enterprises 20
Table 6 Selection Criteria Ranking of Food
Processing Enterprises 22
Table 7 Methods of Privatization - Summary 30

5. V
EXECUTIVE SUMMARY
As mandated by the U.S. Agency for international Development under the Eastern European
Enterprise Restructuring and Privatization (EEERP) indefinite quantity contract, Development
Alternatives, Inc. (DAD as a subcontractor to Deloitte & Touche has successfully completed all tasks and
analysis included in Phase I of the project and presents its general findings and recommendations for the
project's second phase. In accordance with the project's objectives, DAI is working with its counterp-s
in the Government of Bulgaria (GOB) to promote economic growth and sustainable eil ployment internally
through the privatization of selected enterprises in the processed fruit and vegetable subsector. Based on
the work completed to date and on extensive discussions with representatives from the Ministry of
Industry and the Privatization Agency of the GOB as well as with A.I.D. Bulgaria officers, DAI
recommends the following two actions:
• Privatize the state-owned enterprise Selvikonserv as a whole, in its present form; and
• Privatize the state-owned enterprise Storco Pleven in such a way that the firm can be
divided into separate clusters. These clusters should be based on investor interest as well
as on the combination of operations that offers operational synergies. The process should
be flexible enough to allow the clusters to chinge as needed.
In both cases, the DAI team recommends that no restriction on labor reduction be set. Instead,
the government should earmark part of the proceeds from the sale to offer adequate severance
packages to excess labor or to implement a job retraining and placement program.
PRIVATIZATION IN THE
BULGARIAN ECONOMIC AND POLITICAL CONTEXT
To accomplish successfully its stated goal to create a free market economy, the GOB will need
to transfer ownership of many of its state-owned enterprises into private hands. Completed privatizations
will help allay the current level of uncertainty within the investment community regarding Bulgaria's
commitment to free market principles.
Because ofpast investment in agribusiness and food processing industries, the processed fruit and
vegetable subsector represents a good arena in which to use privatization as a tool for economic growth.
To survive, this subsector will have to consolidate and enhance its productivity and efficiency. Both
Selvikonserv and Storco Pleven offer investment opportunities that the DAI team feels have a potential
to attract foreign investors. The privatization of these enterprises will result in viable companies if done
in a way that allows new owners the freedom to make decisions about labor or about other questions,
which, in turn, allows the owners to make an adequate return. Furthermore, by offering the workers who
are laid off due to privatization attractive severance packages or job retraining and placement, the
government will not only ensure a humane privatization that minimizes social costs, but also garner the
political support necessary for sustained privatization efforts by any government in transition.

6. vi
However, it is important to note that, in their current state, both of these enterprises are illiquid
and insolvent. They have massive debts and surplus labor. In the case of Storco Pleven, low
productivity and efficiency ratios are caused by production lines that offer no synergies or economies of
scale. Both of these enterprises also have claims on the land in which they are located. However, the
DAI team has concluded that these problems are solvable with proper attention from the GOB.
The privatization of Selvikonserv and Storco Pleven can alleviate the government's budgetary
pressures while sending a clear and strong signal to both the international investment community and the
people of Bulgaria that the government is committed to improving its economy through transfer of
ownership that takes into account the needs of investors as well as those of Bulgarian workers and
taxpayers.
SELVIKONSERV
Selvikonserv isa relatively small, highly specialized enterprise that makes fruitjam and processed
canned vegetables. It is located in Sevlievo, north of Sofia, Bulgaria. The enterprise's most promising
investment opportunity is its state-of-the art Terlet-built jam and confiture line that can potentially serve
the growing premium jam and yogurt fruit markets in Europe and the Middle East. Selvikonserv
currently employees 175 workers; the DAI team estimates that 50 percent of this work force are
redundant. One claim has been submitted for part of the land on which Selvikonserv is located. The
claim is unclear in defining boundaries so the actual amount of land being claimed has not been
determined.
STORCO PLEVEN
Storco Pleven presents a unique opportunity for growing food companies to expand their access
to European markets. The enterprise's highly diversified capabilities present a variety of excellent
investment opportunities. Storco Pleven's capacity includes a three-stage fruit and vegetable concentrator
strategically set up to produce ketchup, high value-added fruit filling for pastries, and concentrated nectar
for fruit drinks for export to European Community and Middle East markets. The enterprise offers
further opportunity to diversify cash flow through the operation of a state-of-the-art, welded-seam, fully
automated Itakian Cevolani metal can fabrication line that already has an established market share in
Bulgaria in addition to supplying the enterprise's pea, tomato, and mixed vegetable lines. Storco Pleven
also offers potential in the food ingredient mrket with an automated Walter Rau frozen fruit and
vegetable processing line with automated fillers and a three-ton/hour Frigoscandia individual quantity
freezing (IQF) tunnel.
At present, Storco Pleven is underperforming and is unable to service a massive short-term and
long-term debt. Currently, Storco Pleven has more than 1,000 employees on its payroll of whom 65
percent are estimated to be redundant. There are four claims on the land upon which Storco Pleven is
located. The "new" site, however, already houses more than 50 percent of the enterprises' operations
and has more room for additional operating lines. Therefore, the DAI team has concluded that this issue
is solvable.

7. vii
THE PHASE I REPORT
Chapter One of this report introduces the reader to Bulgaria and the Bulgaria Food Privatization
Project. Chapters Two and Three describe the Bulgarian processed firit and vegetable subsector and the
legal, regulatory, and institutional privatization framework in Buigaria. Chapter Four integrates the
information and analyses of previous chapters mid states the methodology for selection as well as DAI's
recommended privatization strategy for each selected enterprise. In Chapter Five, we outline the tasks
and analyses to be completed in Phase II of the project.

8. CHAPFER ONE
BACKGROUND TO PRIVATIZATION
Bulgaria's economy, like many of its Eastern European neighbors, is in the midst of an historic
transformation from plan to market. Stimulating the growth of a vibrant and productive private sector
- through both privatization of existing public enterprises and the growth of new private companies ­
is one of the most important challenges Bulgaria faces in this transformation. Privatization, of course,
is not an end in itself and is certainly not the only answer for the difficulties faced by Bulgaria. A variety
of efforts must be made to improve the organizational structure and enhance the performance of state­
owned enterprises in Bulgaria, and privatization represents only one of these efforts.
Privatization seeks the benefits that can be derived from the efficiency and quality gains generated
by the competitive forces and incentive structure that characterize the private sector. However, for
privatization to be a true solution to the budget squeeze, governments must not only demonstrate that it
offers cost savings but that these savings are realizable. Furthermore, these savings must be achieved
in a manner that honors existing bargaining agreements and that considers the costs that a privatization
process represents to displaced public sector workers.
However, the combination of a sagging Bulgarian economy due to the overnight collapse of the
former Soviet Union (FSU) market and a sharp weakening of domestic demand is causing unsustainable
budgetary pressures on the Bulgarian Treasury. In response to this challenge, the Bulgarian government
has launched a variety of efforts to improve the system's overall efficiency. These efforts are designed
to increase productivity and cut costs wherever possible. One specific effort has focused on the merits
and consequences of privatizing the Bulgarian food sector. The Ministry of Industry (MOI) believes that
theprogram for privatization and reorientation to free markets ofa key subsector such as food processing
is of critical importance for securing rapid and visible success in other priority sectors such as tourism
and agriculture. Together, these sectors are expected to become the locomotives for new economic
growth through ihe industries' ability to attract significant direct foreign investment, create new jobs, and
generate important export income. Current initiatives in foreign assistance are sketched inTable 1below.
BULGARIA FOOD PRIVATIZATION PROJECT
Development Alternatives, Inc. as a subcontractor to Deloitte & Touche has been authorized by
the U.S. Agency for International Development to execute Delivery Order No. 21, the Bulgaria Food
Industry Privatization Project under the Eastern European Enterprise Restructuring and Privatization
(EEERP) indefinite quantity contract (IQC).
The Bulgaria Food Industry Privatization Project seeks to capitalize on Bulgaria's past investment
in agribusiness and food processing to generate economic growth and employment internally. The first
steps in this process can be accomplished through introducing the efficiency ofprivate ownership of state­
owned enterprises on a sustainable basis. This project will culminate in the privatization readiness oftwo
state-owned enterprises in the processed food subsector: Storco Pleven and Selvikonserv. We expect
the privatization readiness process of these enterprises to also serve as prototypes that will guide future
privatization efforts by the Government of Bulgaria.

9. 2
Table 1
U.S. GOVERNMENT AND PRIVATE SECTOR INITIATIVES
Country Bilateral
Enterprise
Funds
The Overseas
Private
Investment
Corporation
(OPIC)
The United
States Export-
Import Bank
Trade and
Development
Program
Other U.S.
Government
Agencies and
Organizations
Bulgaria Yes, with
agribusiness
focus
Active Active; Short,
medium-term
financing
Eligible; No
current
agricultural
projects
1.USDA
assistance
2. USDA export
credit
guarantees
3.Commerce
trade mission
food processing
and packaging
October 19924
The DAI team plans to complete this project in two phases. During Phase I, the team conducted
two diagnostic missions in November and December 1992. While on these missions, the DAI team
completed the following tasks:
" Identified appropriate counterparts within the Bulgarian government;
* Assessed Bulgaria's privatization process;
* Identified and selected the best candidates for privatization;
* Developed detailed profiles ofthe selected privatization candidates; and
* Identified, contacted, and nurtured potential foreign investors.
of the Bulgaria Food Industry project, the DAI team will concentrate onDuring Phase I
implementation of the commercialization and pilot privatization readiness ofthe companies, or segments
of companies, that were selected in Phase I. The main objective of Phase IIis to prepare these two
enterprises for an eventual transfer of ownership. Chapter Five of this report outlines in detail Phase II
ofthis project.

10. 3
COUNTRY OVERVIEW
Bulgaria is an urbanized nation of 9 million people. At one time Bulgaria was one of Eastern
Europe's most highly centralized economies with extremely strong ties to the former Soviet Union. In
addition Bulgaria served as a conduit between the former Soviet Union and the Western countries with
which Bulgaria maintained relations.
Bulgaria is rich in natural resources. From an agricultural standpoint Bulgaria has a wide range
of microclimatic zones allowing production of vegetables and fruit products throughout the country.
Bulgaria is also blessed with a favorable and mild climate for these and other field crops. The main
production areas have an abundance of fertile and well-adapted soils for agriculture.
Beginning February 1, 1991, retail prices on virtually all nonessential items were liberalized.
(Most essential food items remain under some type of government price control.) Other structural reform
measures introduced included a tax overhaul, demonopolization, and privatization plans. A continuing
policy problem in the reform process is the government's attempt to shift the burden of the state
enterprises' large debt onto the tax payer and the state budget because of scarce financial resources.
Inefficient state enterprises continue running up new debts because of continuing production declines and
the resultant increase in costs of production.
The state foreign trade monopoly was abandoned in 1989. Trading entities can gain access to their
hard currency and may retain export earnings. The 1991 tariff averaged 8 percent for farm products.
A 15 percent surcharge has been imposed on most imported goods to improve balance of payments. Hard
currency shortages and currency inconvertibility remain formidable barriers to trade. Countertrade is
practiced with the CIS. Bulgaria imported a considerable amount of corn from the United States in 1991
($33 million). Export opportunities exist for U.S. grains oilseeds, livestock genetics, cotton, and farm
inputs. U.S. expertise in financing, farm management, and food processing is needed. The fine-flower
industry is considering establishing joint ventures. The Union Investment Fund (BIFP established in
February 1992 reports that 75 percent of the projects submitted are in the food industry. Agricultural
Exports for 1990 - $1.6 billion (fruit, vegetables, wines, tobacco, cigarettes, eggs, sheep, and live
animals). Germany was the largest export trading partner. Agricultural Imports for 1990 - $900 million
(corn, sugar, oilseeds, cotton, tropical products).
In January 1991 Bulgaria became eligible for U.S. Department of Agriculture export credit
guarantees. In April 1991 Bulgaria was given most favored nation status. In addition to MFN status on
tariffs the agreement improves the capacity of American businesses to operate in Bulgaria. Abilateral
investment treaty between Bulgaria and the United States provides basic guarantees to U.S. investment.
New tax legislation in 1992 provides tax incentives for foreign investment. Bulgaria maintains
intercountry currency convertibility at a floating exchange rate.
Although unlikely to provide much economic benefit inthe short run, Bulgaria has signed a new
bilateral trade agreement with the Russian Federation. Bulgaria is also a member of the Black Sea Trade
Group formed in June 1992 consisting of Russia, Ukraine, Georgia, Moldavia, Armenia, Albania,
Azerbaijan, Greece, Romania, and Turkey. The trade group may have some positive trade benefits
through Turkey or Greece in the short run but, like the bilateral trade agreement, it will likely take
several years before the benefits become measurable.
Bulgaria has a r.-latively complete commercial and investment code including privatization
regulations. The "Economic Activities of Foreign Persons and Protection of Foreign Investment Act"

11. 4
opens the country to foreign investment, provides the rules and rights for foreign investors, and provides
assurances against government expropriation. This act along with the Overseas Private Investment
Corporation (OPIC) insurance provides a sound basis for foreign investment. The commercial code on
the other hand is still being completed; the code for corporations and relations between business entities
are complete, but the definition and regulation of financial transactions and obligations are still
incomplete.
Bulgaria has been relatively successful in controlling inflation. By the end of 1992 the surge
caused by retail price liberalization had largely become a thing of the past; however, inflation continues
to be a concern. The government has maintained tight monetary and wage policies to control inflation
and the result ispositive for the general population since goods are available in the market and accessible
to most workers. However, consumption patterns have changed from high priced meats to some grain
products. Specifically for agribusiness, some retail food prices have been liberalized while others, meat,
flour, bread, oil, sugar, milk, and butter, are still monitored. In a similar vein producer prices for some
products have been controlled, resulting ina severe cost-price squeeze for producers of many agricultural
products. These changes combined with the continued reliance on state-owned entities for processing and
export have led to slow development of new markets and thus have not stimulated production. This has
significant implications for the fruit and vegetable processing subsector since it isimportant that they be
able to pay prices that will entice growers to invest innew production (for instance, trees) and encourage
them to produce vegetables that have a higher cost of production than cereals and other field crops.
Tables 2 and 3 on the economic structure of Bulgaria and on agricultural policy reform follow.
Political and Economic Situation
The present political uncertainty will have an impact on this subsector domestically as well as on
the interest ofpotential partners in potential divestiture or indirect privatization. The team observed some
of the effects when the government fell in November. For several weeks our government counterparts
were unsure of how to proceed because of the possible appointment of new ministers. Some ofour early
triage work had to be postponed into December because of this uncertainty. The lack of a majority party
and the potential for constanly shifting coalitions in parliament suggest that this will be a common
Since several factions inparliament do not want to see privatizationoccurrence over the next few years.
continue at its present pace the level ofuncertainty will continue through the next parliamentary elections.
The uncertainty ingovernment and the ability ofsome factions to enforce a go-slow approach to
privatization has resulted insevere economic consequences. Some of these have been outlined above:
for example, confused land privatization programs over several years, shifting support to enterprise
privatization, and confused response to the loss of the former Soviet Union market.
The concern of the external financial community is manifest in the continuing oversight by the
International Monetary Fund of its economic stabilization requirements for Bulgaria. The IMF has made
a complete and comprehensive privatization program a condition for long-range assistance. With over
$15 billion in foreign debt, the country cannot continue to function without outside monetary assistance
and a significant reduction in operating costs of industry through indirect and direct privatization.

12. 5
Table 2
ECONOMIC STRUCTURE OF BULGARIA
1987 1988 1989 1990 1991'
GDP (US$ 000,000) 28,101 22,961 21,690 19,905 11,445
GDP growth (%) 15.9 -18.3 -5.5 -8.3 -42.5
Retail trade prices (%) 0.1 0.5 9.0 70.0 334.0
Hard currency (US$ bn)
Exports 3.3 3.5 3.1 2.5 3.40
Imports 4.2 4.5 4.3 3.3 2.80
-0.8 0.8 -1.3 -1.2 -Current account
Gross external debt (Dec) 6.2 8.2 10.2 11.0 12.3
Population (inn, end year) 8.97 8.99 8.99 8.95 8.60 b
Official rate (ave) Lv/US$ 0.863 0.830 0.828 2.313 8.0
'Estimates.
bIncludes hard currency trade with former CMEA.
0Official data. For technical reasons the exodus of ethnic Turks form Bulgaria in 1989 was not fully
reflected inthe population data.
Sources: The World Bank, report dated July 9, 1991; The Economist Intelligence Unit, Country Report
No. 1, 1992; and The International Monetary Fund, report dated March 19, 1992.
The Future
While Bulgaria is considered to be lagging behind many of the other countries in passing and
implementing reforms, the true test will be whether they learned from the mistakes of others and keep
the momentum built for implementation.
Although slow getting started on reforms progress is being widely recognized. Bulgaria has been
successfully complying with the International Monetary Fund (IMF) stabilization requirements. In
addition the Overseas Private Investment Corporation (OPIC) has agreed to provide political risk
insurance and loan guarantees for equity and debt investment- to private businesses.
The thousands of small private businesses that have recently opened in Bulgaria are a result of the
broad structural reforms recently implemented by the government. These include reducing the state role
in the markets, redefining the state role in businesses that have private competitors, and development of
a well planned and organized privatization focus with the Privatization Agency and each of the individual
Ministries actively involved in privatization.

13. Table 3
SUMMARY OF AGRICULTURAL POLICY REFORM IN BULGARIA
REFORM Bulgaria
MEASURE
Land Reform Law passed February 1991 to return parcels of land to
and original owners. Sept. 1991, only 10 percent of land
Restitution previously owned or held in title claimed. Government
may be forced to maintain state and cooperative farms.
March 1991 law limits private ownership to 20
hectares and requires land be farmed.
Privatization Very little progress; state owns 93 percent of the
of State- wealth; government senselessly shifting burden of state
owned enterprises' large tax debt onto tax payer and state
Enterprises budget.
Currency Internal currency convertibility; floating exchange rate.
Convertibility
External Debt Since March 1990, moratorium on principal and interest
debt payments; recently agreed to service official debt
extended since Jan. 1, 1991.
Domestic Severe recession; high inflation; large current account
Economy deficit; suffering from increased cost of raw materials,
revenue losses from lower sales of manufactured
goods; energy crunch due to reduced Soviet deliveries
oil, gas.
Economic Feb. 1991, retail prices non-essential items liberalized,
Reform tax overhaul, demonopolization and privatization.
Remaining Issues
9 Absence of legal title
e Remaining 50 percent of land unclaimed
e Establishin'c.n of legal boundaries
e Small plots make operation inefficient
9 Limits on land ownership and sale
9 Consistent procedure for valuation
e How to handle the excessive debt of most enterprises
9 High percentage of businesses remain state owned (over
90 percent)
9 Potential for debt forgiveness to aid privatization
9 Price controls on some retail and producer prices
o Levels of foreign debt
* IMF and WB requirements related to privatization program
9 Negotiation of debt with creditors
* Price controls on retail food and producer prices
* High levels of business bad debt
* High interest rates
* Wage rates versus increasing cost of living
* Tariffs remain high
* Licensing required for many imports and exports
9 Legal system needs reform and experience in commercial
law
* Need uniform credit code and banking system reform
* Standardized accounting and resolution of debt
e Systems to move funds internally and linkage to foreign
system

14. REFORM
MEASURE
Foreign
Investment
Incentives and
Regulations
Key U.S.
Agribusiness
Investment
Opportunities
Bulgaria
1991 tariff schedule averaged 8 percent for farm
products, and 1/2 percent customs clearance fee for
imports and exports; Feb. 1991, 15 percent surcharge
on most imported goods; hard currency shortages
barrier to imports; Nov. 1991, 3-year trade relations
agreement with U.S. signed; Foreign investors may not
own land or natural resources.
Financing, farm management, and food processing
(especially fruit and vegetable), fine flower industry.
Remaining Issues
* Foreign ownership of land via participation of Bulgarian
firm
e Valuation of Investments on a cash basis
* Cross registration in both countries required to receive
benefits
a 'Economic activities' are treated different than
'investment'
* 'Demonopolized' firms are still state owned
e Debt reduction for state enterprises to be privatized
e Upgrading standards and quality of product
* Overcapacity throughout the subsector
* Many businesses have to be partitioned to make sense

15. 9
CEAITER TWO
THE PROCESED FRUIT AND VEGETABLE INDUSTRY
There is substantial overcapacity in the fruit and vegetable processing subsector. Currentlythis
subsector operates at approximately 25 percent of its 450,000+ tons annual capacity. The extent of
production decline in this subsector between 1989 and 1992 is presented in Table 4.
Table 4
PRODUCTION DECUNE INFRUITS AND VEGETABLES (1988-1992)
(Production Volume - Tons [0001)
........ .. . . ......
1988 .-1989
. . ..
.1990
•.
11
. . . .. .; . . - . .. . .-. . . . . ..
1992:
.
. ..., . .. .. .. . . ... . .:: .. -. ================================================================.=...==.=....=
S~Fruit____,,_
Canned Fruit 255 290 211 63 33
Compote. 71 93 66 14 16
Confiture 32 29 12 8 5
and Jellies :__
Marmalade 5 7 6 4 3
Total 363 419 295 89 57
Sterilized M- 241 206 158 110 41
(in.cans and
Tcrnato 37 60 50 21 19
Total 278 266 208 131 60
Grand Total'% 641 685 503 220 117
Source: Bulgaria Mir:.stry of Industry, Figures are roun-ed
Processing and packing plants for agricultural produce are common throughout Bulgaria. There
2re fruit and vegetable processing facilities in virtually every part of the country. Many of these plants
are old, have had little repair and maintenance, and do not represent viable assets. On the other hand,
some plants have modem, well-maintained production lines.
Irrigation is used in some areas, but the water resources have not been well develop_! because
of the relatively stable climate. Transportation is an asset for Bulgaria with well-developed land and
water access to Western Europe, the Middle East, the former Soviet Union, and other potential markets
accessible through the Danube or Black Sea.
Previous Page Blank

16. 10
Bulgaria's other assets include a relatively well-educated population and work fbrce, the existing
to the other East Europeanindustrial asset base, and a relatively high standard of living compared
countries and former Soviet Republics.
The legal and business structure has changed dramatically since 1991. In addition to opening the
country up to trade and investment, the shift to the free market is easily observed throughout the country.
Some of these changes include the rapid increase in private stores, kiosks, and restaurants. It is now
possible to form a private company in Bulgaria and majority ownership can be held by a foreign owner.
A concrete example of the problems facing the agribusiness sector is the uncertainty about
supplies of raw materials to the food processing plants. Many of the managers contacted during our
survey were pessimistic about the long-term health of the industry because they didn't have the money
no way of getting financing.to provide inputs to vegetable and fruit growers and the growers had
In an even more critical situation, many of the
Consequently premium seed stocks were not being used.
farmers were pulling out trees because the short-run return to grain crops was better. It is clear that the
long-time horizon necessary for planting new, permanent crops is going to be difficult for farmers to
grasp as they worry about short-run b-nefits. Finally, the prices that have been paid to farmers, and on
which the processing companies base their costs and pricing, have been remarkably low for high value
This will change as the successful r :.ocessors arecrops when compared to the other crops being grown.
able to increase their prices.
VIABILITY OF BULGARIA AS A POTENTIAL SITE FOR INVEAENT
It was clear to the DAI team that there are specific opportunities that could be attractive to a
The country has a relativelyWestern investor or food processing or marketing company in Bulgaria.
good infrastructure and many of the plants are located in an area where they have multiple sources of
transport for export. There is a noticeable positive difference in the attitudes of the managers and
entrepreneur. Bulgaria offers potential investors several advantages:
0 Good climate and growing season for fruit and vegetables, temperate climate free of
catastrophic weather swings that ire common in other temperate locations, and rich soils;
An adequate supply of skilled and unskilled labor for the plants and reportedly adequate,*
affordable labor for the work involved in this type agriculture;
* A strong entrepreneurial spirit among the management of many of the plants visited;
although not a Western work ethic, it did indicate a strong drive to succeed combined with
a generally European business structure that is not found in other parts of Eastern Europe;
and
* Although the signals are sometimes mixed, a government that seems to be in support of a
carefully organized transition to the private sector and recognizes the strategic importance
of the fruit and vegetable subsector.
However, few agribusiness operations will provide turnkey investments. In large measure the
organizations will have to be restructured, resulting in spin-off privatization, or they will enter into
contracting or leasing arrangements when the organization is restructured. All the factories the team saw
had lines that appeared to be uneconomic.

17. It is going to be essential for processors to get high-quality product since one of the potential
markets is high-quality, glass-packed product available to private labelers in the West. At present the
prices for process-grade raw materials are extremely low. It will require a bit of mind set reversal but
the nimagers of the plants need to be shown through financial analysis how paying higher prices for
higher-quality raw materials can pay off because of higher values for the packed goods. This is also an
important market as well because it is largely driven by contract production, which will help to lend
support to the presently unstable processing subsector.
The team was impressed with the number of factories in the processed fruit and vegetable
subsector thathave expanded or started exporting to new markets; the volumes are small but the direction
is positive. Asignificant increase in the availability of Western market products was noted during 1992.
Another positive note for Bulgaria is the opening of the Bulgarian-American Entrprise Fund, and the
announcement that OPIC would be providing equity investments and loan guarantees in addition to its
insurance for U.S. company investments.
Food product exports have increased since 1991 in a limited number ofcases (an example is jams
to the European Community and the United States). Domestic and imported products are widely available
throughout Bulgaria, something that was not true only three years ago. Prices are much higher because
of rapid inflation over the last 18 months but the thinking is that this is being brought under control by
strict monetary reform.
It is clear that rich opportunities for indirect and nondivestiture privatization exist as well as for
more traditional divestiture in a few cases. Facilities that meet Western standards can be leased,
contracted for production, or spun off into separate joint ventures. In some cases the plants might be
sufficiently modern to allow a management contract arrangement to provide a workable sohion. In all
of these cases the government would be relieved of the cost of carrying factories operating well below
the breakeven point, and technical assistance would be available to help upgrade skills in anticipation of
full divestiture in many cases.
OBSERVATIONS ON THE INDUSTRY
As a result of our visits to several representative plants throughout the country we can make some
general observations about the condition and health ofthe industry. In almost all cases the buildings and
production lines are 25-30 years old. The lines are frequently of Bulgarian manufacture or Bulgarian
with some parts from Hungary or Ea l Germany. These older lines are frequently in poor condition, are
generally of poor construction, and appear to be nearly worn out.
Preventative maintenance was almost nonexistent in the plants we visited. The standard procedure
appeared to be rehabilitation as needed to keep the lines in operation, with no thought ofworking on them
until the next season's operation. This was evident in lines that had already completed processing for the
year where rubber or fiber belts were left exposed to the elements, the equipment was not thoroughly
cleaned, and in most cases critical parts had not been greased, oiled, and prepared for winter weather.
In analyses for business plans and profiles of potential investment joint ventures, the cost in time and
product from frequent down time will have to be considered along with the capital cost of partial or
complete replacement of processing lines within a short period of time.
In contrast, although they were old and frequently badly in need of repair, the buildings were
constructed to be spacious with high ceilings and the ability to set machinery in the straight throw manner

18. 12
preferred in the United States for modern plants. The lack of preventative, or in many cases general,
maintenance was obvious in the buildings but structurally most were sound and useable. Another positive
factor for the plants was the existence of numerous buildings so that operations or lines could be laid out
and separated if desirable.
Ancillary or nonproductive assets are not common inthis subsector ofBulgaria. Steam generation
Several
plants were frequently part of the operation but this can be argued to be a logical inclusion.
plants also had retail outlets; again, these could be construed to be part ofthe overall integrated operation
Several of the older plants had apartmentsand are not uncommon in Western businesses in this sector.
or houses for some of their workers or health care facilities, but these were so limited that disposition
of ancillary assets will not be a major focus or problem for privatization activities in this sector.
The managers and technical personnel were all well trained and competent in the technical fields
ofspecialty fbr plant operation. Lacking were capabilities in management, marketing, sales, advertising,
promotion, and sophisticated financial analysis. These areas in which they are weak are just those areas
The loss offormer markets and the transitionthat are most important to a business in a market economy.
toward market economics has magnified the importance of these missing skills dramatically in the form
Access to these skillsof increased inventories, cash flow crises, and inability to forge new market links.
through technical aasistance programs, additional training, or additional employees will be essential for
those firms that will survive.
for improved sanitation and general cleanliness. InThere is a distinct need observed
to that weapproximately half the operations visited the sanitation level in the plants was comparable
would expect in a Western plant; the remaining plants were below par. Virtually all the plants suffered
from cluttered and decidedly untidy operations. These ranged from stacks of empty cans, bottles, empty
used jars, fruit boxes, and other materials randomly strewn around the sites. Since most of the plants
have a large number of buildings and are generally quite large in land area, a more organized appearance
could easily be conveyed. Since we did not see any organized control efforts for rodents and observed
evidence, this lack of external cleanliness and the lack ofnumerous buildings in which birds were ini
internal sanitation in some of the plants leave a rather large problem that needs to be addressed through
technical assistance. One of the most effective teaching devices may be getting some plant managers to
U.S. plants on exchange visits and information on FDA requirements for licensing so they recognize the
extent of the problem.
THE FUTURE FOR PROCFSSED PRODUCTS
For the Bulgarian processed fruit and vegetable subsector to survive, it will have to address
several key problems:
The primary former market of the subsector was the former Soviet Union. As a result,0
- There is a substantial amount of overcapacity with the resultant high fixed costs of
production due to low volume; and
In most cases the quality of the produce is not suitable for other markets because ofplant-
or line shortcomings in handling, packaging, and sanitation;

19. 13
" With a very few notable exceptions the plants are relatively small in comparison to similar
operations in other countries;
* A wide variety of products are produced in spite of the small size so that few lines can
claim to have economies of scale;
" As a result of the loss of the former Soviet Union market, not only has Bulgaria lost its
markets but inventories estinuted to be in excess of $50 million have built up without much
hope for a sale;
* Because of this, the industry is strapped for working capital cash at the same time that
government support is waning in response to privatization pressures;
* Compounding this problem are interest rates that are reportedly from 50-70 percent on
working capital loans. Banks are preoccupied with debt collection. In the past the
government has written off loans; this is not expected to occur in the future although the
Ministry of Industry has indicated that it will take over old debt, as a government
obligation, as part of a privatization process for the processed fruit and vegetable subsector;
and
* Land restitution is reducing the scale of the farms to potentially uneconomic levels. This
fact, combined with the inexperience of farmers who are also strapped for cash, means that
they may turn their hands to field crops that require less input rather than to the fruit and
vegetables needed to fuel the plants.
The land restitution process has proved to be confusing and messy. Early concerns about its
potential effect on the processing industry have been partially validated by the past season in which
enterprises had to purchase products from all over the country to supply their needs.
Banks are being restructured through the Bank Consolidation Company. This includes
rationalization of loan portfolios and consolidation of the banking community.
The decision to build inventories in the face of market loss resulted from a decision that is
illustrative of the continued central planning mentality. Both the ministry and the plant managers
determined that it was preferable to buy the product from the farmers to pL'eserve their economic viability
and produce a product that might, however, not be sold. Although a market-oriented plant might decide
to buy product to honor contracts or keep its farmer growers alive, the plant would also recognize that
the product mix and packaging would have to adapt to the new market conditions or the additional costs
of processing and packaging would not be met by increasing returns.

20. 15
CHAPTER THREE
LEGAL, REGULATORY, AND INSTITUTIONAL FRAMEWORK
Bulgaria has made significant strides over the past two years to enact laws designed to support
a market economy. However, government officials have not yet formulated a comprehensive legal
framework nor created and strengthened the legal institutions needed to implement it. Defining real
property rights and creating the conditions for free and fair competition are still largely unfinished. Other
areas of law, including intellectual property, company, foreign investment, and contract law, are less
problematic.1
Bulgaria's new constitution was created in July 1991. In its present form, it represents a radical
departure from the past. Most socialist phraseology is gone, replaced by democratically oriented legal
principles and values. The new constitution provides reasonable protection for the property and economic
rights of individuals and creates a favorable legal basis for the development of the private sector for the
first time since the end of World War II. The reform of property rights is the most complicated legal
challenge in Bulgaria. Reversing marxist attitudes and the laws and institutions that embody them is a sine
qua non for private sector development.2
THE LEGAL AND INSTITUTIONAL FRAMEWORK OF PRIVATIZATION
A major challenge in developing a market economy in Bulgaria is to eliminate the virtual
monopoly ofthe state over commercial property that existed during the focialist period. This entails both
privatizing commercial property (or making restitution to previous owners) and developing an active
rental market in property still held by the state.
Identifying a Seller
Before state property can be sold or leased, one must first define the actual owner. This is an
imp3rtant step for Bulgaria. Because ithad a tightly planned economy, ownership ofsocial property was
indeterminate during the socialist period. The relevant overseeing ministries have ultimate decision­
making authority with regard to such property. In the cases of Selvikonserv and Storco Pleven, both
enterprises are owned by the Ministry of Industry.
The Law for Agricultural Land Ownership and Use, passed in February 1991, was designed to
return parcels of land to their original owners. At the end of 1991, only 10 percent of the land
previously owned or held in title by the state had been claimed. This was of great concern because it
could force the government to continue operation of state and collective farms. Restitution claims have
increased during 1992 but major blocks of land remain in state hands. One major problem that is
I Cheryl W. Gray and Peter Ianachkov, "Bulgaria's Evolving Legal Framework for Private
Sector Development," The World Bank, Working Paper 906, May 1992.
2 Ibid.
Previous Page Blank

21. 16
becoming more and more evident is the small number of owners who wish to returnto the land to farm
it. This is good economically because it means consolidation will result in farms large enough to be
viable. But the farmers who survive to rent these larger farms need credit, machinery, and infrastructure,
which had not existed before in Bulgaria.
This may force the government to maintain state and cooperative farms until the land is either
claimed or can be sold to citizens desiring to farm. Another law limits private ownership to 20 hectares
per person and requires that agricultural land be farmed. This has further limited the ability to produce
In 1992 the state still owned over 90 percent of the wealth in the country.efficient operating units.
An Institutional Vehicle for Privatization
For a successful transfer of ownership to occur, an institutional vehicle for privatization must
exist. Experience shows that for institutional vehicles to be effective, they must be easy to access and
they must be transparent. Currently, the Bulgarian institutional framework for privatization isnot very
clear. The lack ofclarity and thus access to this system stem primarily from the fact that the vehicle has
never been tested; no privatization has been realized to date. The lack of transparency may stem from
similar reasons but it more likely results from the Government of Bulgaria's unreadiness to give up its
traditional planning and controlling government role.
Clarity
The existing institutional framework has many steps that result in duplication of effort.' For
example, to privatize Selvikonserv, DAI is assisting MOI to complete a package of information that will
accompany a formal request to Minister Bikov to approve the privatization of the enterprise. Ministry
officials, however, are not clear on the documents needed for Mr. Bikov's approval. In the event that
Minister Bikov blesses the privatization, MOI will invite independent assessors to submit proposals for
valuating the enterprises. Most likely, these evaluators will have to duplicate much ofthe work done for
the initial request for privatization. Furthermore, once the valuation is completed, a separate oversight
commission is charged with the approval of the valuation.
Transparency
The existing institutional framework lacks a set of clearly stated criteria for approvals of the
various steps in the privatization process. Minister Bikov's initial approval issupposed to be based on
information that shows some potential for the enterprise and a restitution situation that will not make the
privatization too complicated. Nevertheless, clear criteria for approvals have not been developed, thus
creating opportunities for arbitrary decision making. Similarly, the system currently lacks clear criteria
for the valuation oversight commission approval process.
3 Refer to the Bulgarian Privatization Process Chart following the chapter.

22. 17
STRUCTURE OF MODEL BULGARIAN
PRIVATIZATION PROCESS'
Minstr of
Motionto Motzorto
Rptwre Concigonceof
Aalysi IIlistry of id
I - Restimit
Ninister of
e Decisonto Deddonto
~Yes
J ntepirse Nb Decisonto Yes 4 Yes
4-----iOvsseer
O "
L I
.There oe five soinces foainitiating pitvatization
1For Companies with Assets < 10 IVAlon Levo
s.For Companies with Assets • 10 IV~lion Leva
•. At this stage the activities are pare far both ministries but remcn separate
. Source of Se onserv Motion
'.Source of Stoilo Pleven Motion

23. 19
CHAPTER FOUR
PRIVATIZING SELVIKONSERV AND PLEVEN
CANDIDATE SELECTION METHODOLOGY
Bulgaria has approximately 100 state-owned processed fruit and vegetable enterprises. Half of
these enterprises are state owned and account for the bulk of production. The rest are cooperatives.
Twenty of the state-owned enterprises account for nearly 80 percent of total production. Given the
project's time constraints, the DAI team asked representatives from the Ministry of Industry and the
Privatization Agency to select about a dozen enterprises that were high on theirprivatization agenda. The
DAI team completed on-site visits for I1processed fruit and vegetable enterprises in Bulgaria. These
enterprises were evaluated in four general categories:
" Management and employee receptivity, market literacy, and privatization readiness.
The process of privatization, including extensive planning and documentation, requires
substantial amounts of time and effort. Development of a viable enterprise also entails
restructuring, which may affect many positions or change the responsibility ofpositions. The
legal requirements for privatization are onerous, requiring a strong commitment to working
within and through the affected government agencies. Commitment from all of the
participants in this process is essential.
• Enterprise viability. In cosidering enterprise viability, one considers the competing uses of
the plant or other resources, the returns possible in the processed food industry, and the value
and condition of the plant and equipment. If the plant can be improved to meet generally
accepted processed food standards, we seek to answer the question: Can the enterprise be
made financially viable?
• Quality control and sanitation conditions. A plant or enterprise has to recognize and
adhere to quality and product standards. These standards will include levels of hygiene
sufficient to pass international inspection (or the ability to upgrade to that level) and product
consistency. In addition the enterprises have to have facilities and trained personnel to carry
on the minimum levels of quality testing. Finally, there has to be a commitment from the
management and emloyees on the importance of quality standards.
" Replicability of a privatization readiness prototype. Replicability ofthe project for other
privatization efforts in the processed food industry, other subsectors in agriculture, and other
regional or municipal enterprises for ancillary assets isdesired. The target enterprise should
be selected so that it has value to the other enterprises in Bulgaria as a model or can be used
for training other host country privatization agencies.
Based on the analysis of data gathered from the 11 enterprises, the DAI team selected four for
further consideration as privatization candidates under the Bulgaria Food Privatization Project: Brigada,
Storco Pleven, Plovdivconserv and Selvikonserv. Following a second site visit and further research on
the potential restitution problems each ofthese choices offered as well as other input from representatives

24. Table 5
INITIAL EVALUATION OF ELEVEN ENTERPRISES
Plant Name Products
baby food
Brigade vegetable/red pepper
20K tons
4 K tons
Danovia frozen products
peas/corn
concentrate
canned products
compotes
Kjustendill
frozen food
Maritsa jam
green beans
tomatoes
canned vegetable
Malta concentrates
lots of fruit*
dried & reconstituted fruit
compote
Piviconsev vegetables
veg. concentrates
compote
Pleven IQF veg. & fruit
ketchup
concenmrates
canned veg. & salad
Management
O.K. receptivity
fair market knowledge
ready for privatization
poor receptivity
fair market knowledge
not ready for privatization
O.K. receptivity
poor market knowledge
not ready for privatization
good receptivity
fair market knowledge
not ready for privatization
very receptive
all managers market literate
probably ready
?employee support
good receptivity
poor market
not ready yet
very receptive
market knowledge
hard to assess manager
quality duo to size
believe ready for
privatization
Enterprise Viability
Great physical assets
poor liquidity
poor market position
? potential
good product quality
good freezer
poor canning
did not see concentrate
fair liquidity
poor market position
poor assets
poor liquidity
poor market position
poor product quality
mixed physical assets
poor liquidity
poor market position
product quality not
consistent
good physical assets
liquid & solvent (low debt)
recognized brands-good
location & consistency­
good
poor physical assets
solvent/ liquid
limited market knowledge
poor quality
most very good
solvent but hi debt
good market poe & labels
quality good
local supply/consistent
Quality Control & Replicbility
Sanitation
Among the best very poor
frozen products good fair-good
good input control
average-poor on
overall sanitation
very poor O.K.
varied by line & very high
product
Average high
clean but cluttered
poor O.K.
high very high
bldg new lab
clean/well maintained

25. ketchup
Plovdivoonserv tomatoes
red pepper
pickles
peas
Republica pickles
tomato paste
jams
Salvikonserv compotes
apple concentrate
Vitamina canning
tomatoes
very receptive
very good market
knowledge
ready for privatization
receptive
O.K. market knowledge
not ready
vary receptive
good market knowledge
open to privatization
negative receptivity
gook market knowledge
not ready
Adequate physical assets One of the best O.K.
good market position
very good product quality
restitution claims
spotty on assets good operations shut
poor market position down
high debt
claims by producers
vary good assets
good liquidity
good fair
smalllspecialized
good product quality
overall very good assets good not very good
no problems with liquidity
good product quality

26. Table 6
SELECTION CRITERIA RANKING OF FOOD PROCESSING ENTERPRISES
Ranking: 1 (bad) to 5 (good)
Enterprises:
Brigada A Piviconserv F Vitamina K
Donovia B Pleven G
Kjustendill C Plovdivconserv H
Maritsa D Republica I
Melta E Selvikonserv J
A B C D E F G H I J K
1. Management and Employees 4 2 1 2 4 2 4 5 2 5
a. receptivity
b. market literate
c. readiness
2. Enterprise Viability 3+ 2 1 2 3 2 5 4 2 5 5
a. physical assets
b. liquidity
c. Solvency
d. market position
e. product quality
f. inputs supply
3. Quality Control
a. lab
5 2 2 3 3 2 3 4 3 3 4
b. qc systems
4. Sanitation
5. Replicability 2 3 3 3 4 2 4 4 3 2
Total Averages: 3.5+ 2.2 1.6 2.4 3.5 2 4.1 4.3 2.4 4 2.8
Selected Companies 4 2 1 3

27. 23
of the Ministry of Industry and the Privatization Agency, Selvikonserv and Storco Pleven were selected
as the two privatization candidates.
Phase I of the Bulgaria Food Privatization Project concluded with the completion of a detailed
enterprise profile ofthe two selected privatization candidate and the beginning of the consensus building
for their eventual privatization.
THE SELLER
DAI has two counterparts within the Bulgarian Government for the Bulgaria Food Industry
Privatization project: the Ministry of Industry and the Privatization Agency. MOI is the current owner
of both Selvikonserv and Pleven. However, by law, PA is charged with the actual privatization of
enterprises with a book value of long-term assets exceeding 10 million levas (approximately halfa million
dollars). Thus, the DAI team is working closely with the PA on the privatization of Storco Pleven, an
enterprise with balance value of long-term assets well above 10 million.
The Ministry of Industry
Since the privatization Act was adopted in April, the new minister of industry, Rumen Bikov, has
drawn up a list of 3,000 state companies with assets of up to Lv 10 million to be privatized. The
government suggests that a quarter of the total debt of Bulgaria's 20,000 public sector industrial
companies should be canceled in order to make them attractive for potential investors; it estimates that
the state companies owe the exchequer more than Lv 54 billion. The state forgave a total ofLv 9 billion
in debts owned by state firms in 1991. In 1992, however, the Bulgarian National Bank says it is against
any plans to write off state companies' debts.'
Within MOI, the DAI team has identified Mr. Venchev, Director of the MOI Privatization Unit,
as the primary counterpart for the Bulgaria Food Industry Privatization Project. Mr. Venchev and his
team have cooperated with DAI staff members to identify appropriate candidates for privatization and start
the firm-level and state-level steps necessary to accomplish a transfer of ownership by the end of May
1993. As the official owner of the two privatization candidates, the MOI oversees project work for
Selvikonserv and Storco Pleven. Nevertheless, as the government body empowered to sign off on a
transfer of ownership for enterprises with balance asset value of less than Lv 10 million, MOI is
particularly interested in the privatization process for Selvikonserv.
The Privatization Agency
The Privatization Agency's functions, capacity, rights, and obligations are provided by the Law
for Transfbrmation and Privatization of State-owned and Municipal Enterprises, ratified by the National
Assembly on April 23, 1992. According to the law, the agency is not the sole body authorized to carry
out the privatization. PA, headed by Alexander Bozhkov, will take decisions for privatization of state­
owned enterprises with a balance value of long-term assets exceeding Lv 10 million. These enterprises
The Economist Intelligence Unit Country Report, Bulgaria, November 3, 1992.

28. 24
comprise about 30 percent of all state enterprises, but at the same time involve state sector employment
of almost 70 percent and an asset representation of more than 80 percent. The responsibilities of the
Agency include giving opinions on the transformation of state enterprisez into commercial companies,
licensing of Bulgarian and foreign valuers, preparation of the annual programs for privatization, as well
as other functions pursuant to the law.2
Within PA, the DAI team has identified Alexander Gevob as another primary counterpart for the
Because of their unique mandate by law, PA is concernedBulgaria Food Industry Privatization Project.
only with the privatization process of Storco Pleven.
THE BUYERS
As part of the scope of work for this project, DAI has made contact with a number of firms in
orthe U.S. food processing and distribution sector that are potential partners for a joint marketing
investment opportunity with Selvikonserv or Storco Pleven. To date 13 companies have been contacted.
These companies were contacted as a test of the concept and to determine what additional information
they would need to proceed with any kind of cooperative agreement. Many ofthe firms we will contact
in the future are companies that have worked with DAI and DAI personnel in the past in other
investment, marketing, or cooperative arrangements and that we know to have an interest in international
expansion.
Many other firms fit the profile for potential interest in the two enterprises involved in this
privatization effort. We will begin contacting these firms as soon as we are comfortable that we have
adequate information to respond to their needs and that the process of privatization has moved through
the channels of the Ministry of Industry and the Privatization Agency to the point where approval to
privatize has been given.
The information needs expressed by these companies contacted initially include further
information about the markets, economic competitiveness of the enterprise's products, enterprise business
plan, economic condition of the enterprises, the potential for actual transactions to take place, and
information on the effectiveness ofthe commercial and privatization regulations to protect their interests
and investment. Many of these issues are being addressed by the legal, accounting, marketing, business
planning, and competitive analysis components of this project.
We expect to be able to deliver the additional information needed by these companies for
At this time we expect 25 percent of the firms contacted topreliminary review by the end of March.
have a continuing interest that would entail specific questions to the enterprises. Statistically, one or two
of the remaining firms will have sufficient interest to make field inspection visits. This is the reason that
the number of firms to be contacted will increase substantially once we have adequate data to respond
to their needs.
Most U.S. firms have many potential investments; they expect to move quickly and have access
to adequate information for decision making. Few firms will continue active interest in a project when
information in miswer to their questions is not readily available.
2 Information Bulletin, The Privatization Agency, October 1992.

29. 25
The firms, or divisions of firms, contacted to date that have a continuing potential interest are:
- General Foods
- Stoneridge
- SK Foods
- Tri Valley Growers
- Sun Pacific
- Heinz
- Chiquita Brands
- International Multi-Products
- Sun World
- Pillsbury Foods
- Sun Light Agri Products
- Power Packaging
- Con Agia
- Hunt Wesson International
We believe it is important to note that these represent initial conversations that have been preliminary in
nature. The companies expressed the desire for further information, some of which we were able to
deliver from work already completed. They have a continuing interest in learning more. This should
not, however, be construed as a commitment to expend markating, research, or analysis funds for further
exploration beyond that which we will provide through the project.
PRIVATIZATION STRATEGY
The decision to privatize Selvikonserv and Storco Pleven as whole companies or in smaller parts
is up to the Ministry of Industry and the Privatization Agency, respectively. To help them make this
decision, the DAI team has completed a privatization option analysis for each enterprise. Once these
decisions are taken, the Government of Bulgaria will also need to choose a method for the actual transfer
of ownership. The table following the privatization option analysis will assist Bulgarian government
officials with this task.
Selvikonserv
Based on four important criteria - maximizing price of state assets, maximizing total country
employment, ensuring enterprise viability following privatization, and feasibility ofprivatization plan ­
we have concluded that the optimal privatization plan for Selvikonserv is:
S Selling the enterprise as a whole in its present form.
The DAI team believes that this privatization option is really the only one available. Selvikonserv
is already a relatively small enterprise. The company's most promising line is its Terlet Jam operation.
Spinning off this operation would leave assets with no value other than what could be received from an
asset liquidation.

30. 26
The most important problem associated with selling the enterprise as a whole is what to do with
the excess labor. Selvikonserv currently employs approximately 175 individuals. Forcing the new owner
to retain the existing personnel will greatly reduce the value of the enterprise. The DAI team does not
keeprecommend that distortionary incentives be offered to support unviable operations simply to
We suggest that part of the proceeds from the sale be used to either construct anindividuals employed.
adequate severance package or implement a retraining and job placement program for workers whose job
are eliminated by the privatization.
Storco Pleven
Based on these same four criteria, we have concluded that the optimal privatization plan for
Storco Pleven is:
0 Divide the enterprise into separate dusters of operations that offer operational synergies
and that allow the use of several forms of privatization for the various dusters.
The DAI team believes that this privatization option offers the most flexibility thus increasing the
possibility of finding one or more marketing or investment joint ventures from outside Bulgaria, and
assures that the highest potential price to the government will be obtained for the assets of Storco Pleven.
The final decision for a privatization plan, of course, will be up to the Privatization Agency.
Therefore, in this memo, we outline several plans and assess them independently as well as against their
alternatives. Four options for privatization could reasonably be considered for this enterprise:
" Privatization of the whole entity as a unit;
" Privatization of the new processing site only;
* Privatization of the metal can fabrication facility; and
A mixture of smaller spin off enterprises using several forms of privatization.*
It is important to note that we are defining privatization in its broad form. Our definition includes
ordinary divestiture of the assets through a sale, but also all the forms of indirect privatization such as
spin off, leasing, contracting out, and other techniques that result in a transfer of control or ownership.
This point is particularly relevant to the fourth option above.
Whole Company Privatization
This option involves a unitdivestiture of the entire enterprise, including the uncontested portions
ofeach ofthe four sites presently occupied, to an investment group that would include a foreign investor.
Privatizing the whole company as a single unit has obvious advantages. It would allow a single
However, this option presentstransaction and the government would not be left with any unsold assets.
several potential problems.

31. 27
First, the government wants to maximize price given a set of constraints it has set. The
government should clearly understand that constraints on keeping assets in production and setting
minimum levels of employment will drastically reduce the price at which a willing buyer will enter this
transaction. It may also put such a severe strain on the potential viability that a buyer might not be
attracted. Second, some of the assets may have a negative effect on a combined transaction. It is not
uncommon in divestiture and sales for the parts individually to be worth more than the whole. Over the
long run, if job creation and economic growth are important, the fewest possible restrictions should be
placed on the ability of the companies to function in the marketplace.
Privatizing the New Site
This option would consist of privatizing the new building site which includes the freezing
operation and cold storage, peas, tomato, and ketchup caming, and the other lines thatwould be moved
to the site. The other sites would be restituted to the owners or parts of them sold. In addition, the can
factory would be split off since it occupies several buildings and could not be accommodated at the new
site. This option has the advantage of only moving the lines that have comparative advantage. Since
some of the lines would be left behind it is assumed that the government would reduce the number of
employees. This should be a substantial reduction since the most labor efficient lines would be moved,
being the newest and most cost competitive. If the labor reduction is not sufficient for the proportional
change in efficiency, then the price would be reduced downward. This reduction would be more than
proportional to the effect on the operation's profit.
In conclusion, this is a preferable solution to that of whole unit privatization since it allows the
company to eliminate some potential problems with restitution and old lines. It does not give the
flexibility of splitting the freezing from the canning operations. It also ignores the very real possibility
that the canning lines at the new site might still have a higher value in parts than in the whole.
Privatization of the Metal Can Fabrication Unit
This option would mean the privatization of the entire fabrication unit consisting of the new
welded seam can line, the lids and blanks lines, and the can line for making soldered seam cans. This
unit has little linkage to the rest of the operation Eo that splitting it off would have minimal effects. The
price of the unit would be reduced if the new owner is forced to take the soldered seam units unless given
the option of closing this unit in the near future and relieving the buyer of the employment requirement
for this line. The negative effect of this privatization option include the elimination of a line that has
demand and operates profitably thus reducing the value of the remaining company.
On the other hand, this unit represents a sensible operating unit. It is not likely that it would be
further broken down but rather that the soldered seam unit would eventually be scrapped. It would
command a miarket value price that might reduce the government's need to retain high prices on the
remaining assets ofthe company. In short, it is a logical spin-off, would find a buyer, the price is likely
to be very competitive, and it does not detract from the rest of the unit. Yet, it may advisable to hold
off sale until the disposition of the other assets has been completed since the can factory is providing
positive cash flow to the company.

32. 28
Privatization of a Mixed Portfolio
This option involves privatization in pieces, units, or as a whole, whichever is the most effective
in garnering a maximum price for the combined asset sales and employs the largest number of people.
As before, the government can place restrictions on the number of employs retained or on keeping the
assets in operation. It is likely that this policy will reduce the sale value of certain inefficient production
lines and may even preclude their ability to be sold. This option, however, allows the pieces of the
company to be looked at individually so th.. their relative values, potential for management, and viability
Since some parts may be morecan be evaluated without the need to keep the whole company intact.
attractive than others, and the sale of some parts may make the sale of the remaining assets difficult or
impossible, a coherent plan would need to be implemented. It will be impossible in this scenario to
assume that all assets will be redeployed. Therefore the plan will call for the largest number of assets
to be sold and minimize diose left unsold including the timing of sales that might affect the other units.
This option allows the most flexibility, gives the DAI team the greatest possibility offinding one
or more marketing or investment joint ventures from outside Bulgaria, and assures that the highest
potential price to the government will be obtained for the assets of Storco Pleven. The remaining units
will have individual business plans completed for them and will be purchased by companies or individuals
The governmentknowledgeable about those lines who have the best opportunity to make them viable.
can place restrictions on the minimum operation of lines or employment levels with the understanding
that this will have the effect of reducing the price substantially in order to assure the viability of the
This option also allows the maximum potential use of indirect privatization, a veryremaining firm.
powerful tool for moving some hard-to-sell assets into the marketplace and creating employment.
The DAI team has frequently pointed out that the best way to proceed with privatization is to find
those companies that are desirable to potential buyers, and structure a sale in parts as necessary to ensure
that the highest price is obtained. These are the companies that will create economic growth and generate
future employment. It also recognizes that there is excess capacity in the fruit and vegetable processing
sector and some of Bulgarian's plants will have to be liquidated or turned to another use.
It is the DAI team's opinion that it would be a serious error to restrict the sale of assets to the
company as a whole. Requiring that all the sales close at the same time to minimize chaos is possible
and acceptable. A mixture of options is by far the best. We believe that the following hypothetical
scenario illustrates the strength of the privatization tools and options that will allow the sale value to be
maximized, provide the maximum option for retaining employment, and maximize viability of the
remaining assets.
Recommended Action Plan
Based on the above arguments, we recommend the foutth option: privatization of a mixed
portfolio for Pleven. We will assume that the can fabrication, r.oncentrate, ketchup, and pea lines are
the most desirable parts of this operation. These units would not be sold until the other parts of the
company had either been marketed or art c!early not marketablk. We would request that the employment
restrictions be limited to a requirement to keep ahe empioyees of the firm for any positions that would
be retained (thus protecting the employees from being let go and replaced by someone else in the same
position).

33. 29
The team would work with the management and the Privatization Agency to determine how best
to split and package the investment options. They would also work together to determine what ancillary
services might best be split off either to enhance the salability of the remainder or to increase the overall
price of the assets. For instance the laboratory, transportation, the canteen, and other similar business
services might be contracted out to separate companies (or companies made up ofthe employees in these
units). They would buy the equipment and lease space from the company as needed. The retail stores
could be contracted, leased, or sold individually or in groups. The can line could be separated for sale.
The frt,,2er and storage could te offered separately. If restitution issues can be cleared the concentrate
and jam lines could be offered separately.
As an alternative, those wishing to buy the lines might purchase them after they have been moved
to the new site. This would be preferable since the access is better, the sanitary conditions improved,
and they would be closer to the labs and other services. Four separate options might be considered for
the operations in the new site.
" First, they could be leased or contracted out, with a separate company or the government
retaining the assets but increasing the revenue and eliminating its carrying costs;
* The lines could be sold with a separate owner for the building who would lease space. This
owner might also provide lab, canteen, transport, training, or employment origination
services to the operators of the lines;
• Third, the building could be condominiumized so that each line or groups of lines along with
their proportionate share of the building would be sold, leased, or contracted. The building
could contract maintenance services or they could be provided by a service company who
also provide the lab, canteen, transport, or other services; and
• Finally, the unit could be sold as a whole with the possible options of selling or contracting
out the services mentioned before, such as the laboratory.
This combination of options allows a wide range of potential buyers to be solicited, gives the
maximum opportunity for Bulgarians to participate in the sale of assets or continuing businesses, and
maximizes employment generation. On the other hand, sale of the unit as a single company limits the
potential buyers to a handful at most, effectively eliminates Bulgarians from participating in the business
or asset sales, and is likely to result in a company that will close many of its lines and eliminate
employment as soon as the mandatory period is up, leaving it to operate the one or several production
units it really wanted while reducing the government sale revenues for restrictions that will only have a
short-term effect and reducing the potential for internal economic growth.

34. 30
Table 7
METHODS OF PRIVATIZATION - SUMMARY
Methods
Publio offering of shares.
Private sale of shares.
Sale of government or enterprise
assets.
Fragmentation.
New private investment in SOE.
Management/employee buy-out.
Characteristics
Distribution to the general public of all
part of shares in public limited
company (as agoing concern),
Sale of all or part of government
shareholding in astock corporation (as
a going concern) to asingle entity or
group. Can take various forms such as
adirect acquisition by another
corporate entity or a private placement
targeting institutional investors. Can
be full or partial privatization (i.e.,
transformation into joint venture),
Sale of assets (instead of shares).
Private sale.
Reorganization of aSOE into several
entitles (or one holding company and
several subsidiaries). Each entity will
be then be privatized separately.
Primary share issue subscribed by this
private sector (dilution of government's
equity position instead of distribution of
shares).
Acquisition by management and/or
workforce of controlling interest in
SOE. Leveraged
management/employee buy-out (LMBO
consists of purchase of shares on
credit extended by either the seller
(government) or by financial
institutions.
Procedures
If SOE is inrequired condition,
standard processing of public
offering on the basis of
prospectus. If not in required
form or condition, then readying
process necessary. Offer can be
on fixed price or tender price.
Sale may result from negotiation
or competitive bidding process.
May be done ad hoe or may be
subject to mandatory country
procedures or guidelines on
valuation, prequalification,
evaluation of proposals, terms of
payment, etc. In some cases,
prior restructuring necessary.
Involves investor search.
Alternatives: sale of assets by
government disposal of some
assets by SOE; dissolution of
SOE and sale of all assets; other.
Procedures for pivate sale of
shares generally apply.
Depends on structure of SOE.
Public offering or private issue of
new shares on basis of standard
procedures for new issues,
possibly in conjunction with
disposal of government equity.
New private investment may be
for capitalization of new
company embodying assets
transferred by government.
Negotiations by government,
management, employees and
lenders to cover wide range
issues.

35. 31
Leases and management No ownership transfer. Under lease, No standard method; see actual
contracts. fee is payable to owner of productive cases in text.
facilities, lessee assumes full
commercial risk. Under management
contract, owner pays for management
skills, while manager has full
management and operational control.
Many variations exist.
Preferred Applications and Special Features Lm4-,Iementation Issues
- SeE sound going concern with reasona:3e earning - Structure or condition of SOE may not permit
potential or can be readied to become so. public offering feasibility of restructuring to be
- Objective is widespread ownership. a3sessed.
- Existence of equity market or feasibility of - Mechanisms necessary to achieve an maintain
structured offering, wide-spread ownership and possibly limit foreign
- Generally more appropriate for larger offerings than holdings.
direct sale. - Pricing mechanism to be defined.
- Often more acceptable politically. - Distribution mochanisms may need to be
introduced to compensate for weakness of equity
markets.
- Because of flexibility preferred method for weak - SOE may need be prior financial restructuring;
performing enterprises, difficult decision on whether to rehabilitate prior to
- In absence or equity market, may be only sale.
alternative for sale as a going concern. - Employment.
- Size of enterprise may not justify public offering. - Need for mandatory procedures.
- Preliminary step to public offering when presence
of leveraged party necessary to turn enterprise
around.
- New owner known and can be evaluated. Offers
flexibility in negotiation, such as obtaining specific
commitments from purchaser. Purchaser may
bring benefits (management skills, technology,
market access, etc.).
- Implies SOE is sold with assets and liabilities (there
are some exceptions).
- Where sale of shares not feasible or objective is - If assets are sold as a result of liquidation or major
sale of individual assets. restructuring, related issues arise.
- Permits privatization of SOEs not salable as going - Relating debt liabilities often not assumed by
concern. purchaser.
- Often results in separation of assets and liabilities.
- Where objectives to privatize only certain - Depends on privatization method applied to
components; where SeE is a monopoly, and break- individual entities.
up will improve competition; or where market will
not absorb whole SOE.
- Permits privatization of component parts when no
taker for the whole.
- Permits application of different methods to
different parts.
- Applicable where primary objective not divestiture - Implementation issues related to public offering
but provision of new equity by private sector, private sale of shares or transfer of assets may
- Addresses funding problems of undercapitalized arise.
enterprises. Offers flexibility: used as first step
to, and in conjunction with, sale of government­
held equity.

36. 32
- SOE must typically have competent. professional
management and skilled, stable workforce.
- Leverage buy-out a means of transfer to
management and employees even with limited
wealth; incentive to productivity.
- May be solution for SOE not saleable otherwise.
- May be solution to employment problems.
- May be preferred where privatization of ownership
of government or SOE assets not appropriate.
May be intermediate solutions rendering
subsequent sale possible.
- Sate unable or unwilling to transfer ownership to
private sector but wants privato sector
management.
- May also be planned as an intermediate step to full
privatization.
- Cash flow or other security required as underlying
element of LMBO.
- Risk to employees.
- Continued financial liabilities of state with respect
to ownership of assets.
- Under management contract, owner may still need
to inject funds to support operations.
Maintenance/renewal obligations.

37. 33
CHAPTER FIVE
PHASE II WORK PLAN
During Phase U of the Bulgaria Food Industry Project, the DAI team will concentrate on
implementation of pilot privatization for companies, or segments of companies, that were selected in
Phase I. The main objective of Phase R isto complete a successful privatization readiness process that
will take the enterprises to the point of transfer of ownership.
Each of the pilot processes will be undertaken with a mix of professionals including financial
planners, attorneys, valuation and financial and accounting analysts, economists, management specialists,
and industrial engineers, as may be required. To complete the second phase of this project, the DAI team
will:
* Based on Phase I,develop an approach for the implementation of the privatization process;
* Complete an assessment of privatization candidates including comparative and market
analysis and a survey of ancillary assets;
• Build counterpart consensus for privatization;
• Develop a plan to complete legal documentation and actions needed for transfer of
ownership;
* Restate historical, present, and projected financial statements into International Accounting
Standards and develop due diligence level information on the enterprises and activities of
company;
* With appropriate government officials and selected company management, determine
method of valuation, potential sale price, and potential investors;
* Develop business plans including a proposed market strategy; and
* Assess environmental risks of existing and proposed operations.
Overall Approach. The first step of Phase R1 of the Bulgaria Food Industry Project is to develop an
approach for the implementation of the privatization process. This plan will serve as a road map for
Phase IIefforts. It will be based on clear, agreed-upon objectives of the transfer of ownership. The plan
will also be based on the selected method of privatization. During this step, the team will also begin to
identify potential foreign investors in the processed food sector and ways to increase their awareness
about the Bulgarian market.
General Assessment. During Phase I and the early part of Phase II the team will begin a general
assessment ofthe selected privatization candidates. This assessment will include acomparative advantage
study of the subsector(s) and a market study. When combined, these two sources of information will
yield a more detailed understanding of the companies' export and domestic market potential as well as
their long-term competitive position. The team will also assess employment, production patterns, and

38. 34
efficiency, using comparable international standards, and develop recommendations for enhancement.
Although this initial assessment will be largely technical in nature, the team will maintain a due diligence,
research, and documentation process throughout most of Phase II.
Counterpart Consensus. Concomitant with the general assessment process, the DAI team will craft a
consensus model among the interested parties in the privatization process. Assuring consensus among
all the stakeholders will result in a network ofrelationships to facilitate access to data and action channels
resulting in more efficient decision making by enterprise and government representatives. To build this
network of relationships, the team will first identify key players in the privatization of the selected
companies, and assess their needs and agenda for the process. In addition the team will build
relationships with government officials in the national and local governments who oversee the
privatization activity. Legal and commercial documentation of the transfer of ownership process, the
steps necessary to meet government requirements, and an assessment of the legal environment for
privatization of land or enterprises will also begin during this step.
Legal Plan for Transfer of Ownershp. The project team will develop the documentation and legal
procedure required to complete the transfer ofownership. This will include the services of a U.S. lawyer
who will analyze the local legal conditions, the laws passed and those in process, and provide
recommendations on the steps necessary to comply with these laws and regulations. This will provide
both a plan and the appropriate legal documentation for the transaction to occur.
Restatement of Financial Statements. The DAI team will develop historical financial analysis and
projected earnings and loss statements, using standard practices developed for conversion of Soviet-style
accounting to GAPP or other internationally accepted standard(s). The twam will also continue the
intensive process of collecting and analyzing the due diligence and technical data needed to prepare an
offering prospectus. The financial data collected will be used to assess the financial performance ofthe
company and to develop pro forma projections for the business plan. Financial data will include cash
flow requirements of the planned privatization, taking into consideration existing debt, capital expenditure
requirements, and other related costs.
Valuation. The team will also provide advice and recommendations on valuation, potential sale price
(if applicable), and types of domestic or foreign investment that might be attracted. Within the limits of
the available data, the team will develop pro formas to determine the productive value of existing assets.
This information will be used as an input to the business planning process but also provides valuable
guidance to the enterprise managers and to government officials who must make decisions about the
privatization proposals.
Develop Business Plans for Selected Company. With the information from the valuation, the due
diligence, and general, market, and comparative advantage assessments, the team will develop alternative
strategies for the company to follow. The business plan will require the team to evaluate present and
potential markets in the light of privatization. It will also be necessary to consider the potentially
different operating structures and the resultant impact on marketing, strategy, and operations to be
integrated into the business plan and strategy. The role of the company in the domestic economy, the
impact of employment changes on the local economy, and long-term potential for the subsector
domestically and internationally will be evaluated with the information made available by the project
team.
Assess Environmental Risks. As a part of the ongoing concern A.I.D. has shown for the environmental
issues of processing industries in Eastern Europe, a member of the team will analyze potential
environmental risks for existing or planned operations. This analysis is not intended to be an

39. 35
Menvironmental assessment," but will identify potential hazards or risks, suggest sources of technical or
other assistance to deal with them, and most importantly alert the enterprise, the government, and A.I.D.
to the potential hazard. Although we may not be able to determine the level of risk we will be able to
provide input on whether further professional engineering evaluation isnecessary and identify other risks
to the successful business. Environmental evaluation is programmed to occur during the planning and
strategy process to ensure that the information is available when budgets for operations and capital
improvement are being prepared.

40. 37
ANNEX
ENTERPRISE PROFILES

41. 39
Storco Pleven
Enterprise Profile
Bulgaria

42. 41
ENTERPRISE PROFILE
January 15, 1993
INVESTMENT OPPORTUNITY
Storco Pleven presents a uniq-!-. opportunity for a growing food company to expand access to
European markets. The enterprise's highly diversified capabilities allow its managers to respond to sudden
market changes and control production decisions. Storco Pleven's capacity includes an excellent opportunity
to operate a three-stage fruit and vegetable concentrator strategically set up to produce ketchup, high-value­
added fruit filling for pastries, and concentrated liectar for fruit drinks for export to EC and Mddle East
markets. The enterprise offers further opportunity to diversify cash flow through the operation of a state­
of-the-art, welded-seam, fully automated Italian Cevolani metal can fabrication line that already has an
established market share in Bulgaria in addition to supplying the enterprise's pea, tomato, and mixed
vegetable lines. Storco Pleven also offers the opportunity to control a modern Walter Rau frozen fruit and
vegetable processing line with automated fillers and a 3-ton/hour Frigoscandia individual quantity freezing
(IQF) tunnel.

43. 43
.:OVERVIEW
Enterprise Name: Storco Pleven
General Directjr: Dip. Ing. Dimitar Angelov Makaveev
Telephone: 064/3-32-11 (216)
Fax: 064/3-72-29
Telex: 3-45-02
Location/Address: 5800 Pleven BG
80 G. Kotschev Str.
Pleven, Bulgaria
Ownership Strusture:
Single-person Limited Liability Company, 100% state owned. Established in 1936.
Enterprise currently operates in four different sites, three of which have legal claims on
them. Management plans to move operating lines from sites with claims to a new, larger
site that has no claims and already houses over 50% of production capacity.
Business Description:
One of the largest and most diversified processed fruit and vegetable enterprises in Bulgaria
with frozen, canned, and concentrated fruit and vegetable operations, as well as jam,
ketchup, and modem welded-seam can fabrication operations.
Plant Description
Aggregate Size (m2): 67,598
Capacity (tons): 31,000 finished product
Property (hectares): 15+
Number of Buildings: 39 (book value 12.1 million leva)
Number of Employees: 561 Permanent (176 Administrators)
540 Seasonal
Annual Sales 1991 1992 (9 months)
Volume (tons)
Food Products 12,578 5,176
Value (million leva) 193.3 99.5
Food Products % 49% 49%
Metal Cans % 22% 26%
Retail Store Sales 9% 19%
Sales of Raw Materials 19% 1%
Other Revenues I% 5%
5)9 1,

44. 44
BUSINESS'DESCRIPTON'
Products
IQF: Peas, Gumbo, Raspberries, Red Peppers, Sour Cherries, Plums. (Bulgarian
500-g cans sealed with wax, 10- to 17-kg cardboard boxes lined with
polyethelene)
Concentrates: Ketchup, Tomato Paste. (F-algarian 850- and 425-g cans, 340-ml plastic,
340-, 450-, and 500- ml glass)
Jam: Raspberry, Strawberry, Cherry and Sour Cherry, Plum, Apricot, Mixed
Fruits. (370- and 454-g glass jars with twist-off caps)
Nectar: Plum, Cherry Apple.(530-g glass jar with twist-off cap)
Fruit
Compote': Plum, Apricot, Cherry, Strawberry, Sour Cherry, Peaches, Prunes, Peeled
and Unpeeled Whole Tomatoes. (720-g glass jar with twist-off caps)
Canned
Vegetables: Peas, Sliced and Whole Peppers, Pickles, Gherkins. (4.15-kg, 820-850, 425­
440, and 560 metal can and 800-g press-on 650-700, 270-g, and 2.65-kg
glass jar with twist-off caps)
Metal Cans: Several sizes
Sales of Food Products:
1991 1992 (9 months)
Volume (tons) 12,578 5,176
Domestic 38% 19%
Exports 62% 81%
% of Exports
NIS2 60% 38%
Germany 19% 15%
Other 21% 47%
Value (million leva) 95.5 48.5
Domestic 39% 19%
Exports 61% 81%
Fruit stewed or cooked in syrup.
2 Newly Independent States of the former Soviet Union.
2

45. 45
RODUCTION AND PLANT DESCRIPTION:
...... .. ;i:I!i:! I~...... ]i ,I'E..
RELEVANT PRODUCTION STATISTICS
Production (tons)
Food Products
Metal Cans
Payroll (million leva)
Inveatories/Raw Material (tons)
Inventories/Intermediate Product (tons)
Inventories/Finished (tons)
1991 1992'
17,777 6,161
23.7 21.7
360 128
3,795 2,159
180 2,567
MACHINERY USED IN PRODUCTION
Type Manufacturer
New site:
Ketchup Italian
Bulgarian
Canned Peas Hungarian
Hungarian
Concentrator Bulgarian
Whole Tomatoes Bulgarian
Pealed Tomatoes Bulgarian
Mixed Vegetable Bulgarian
Rotary Sterilizer German
(Rotomat)
IQF Fruit and Holland
Vegetable Frigoskandia Tunnel
Walter Raw
9 months.
Book
Value
(million
leva)
3.5
0
0.9
0
0.8
0.2
8.0
27.6
3
# Units
1
1
1
1
1
1
1
1
2
1
Capacity Age
(years)
10 t/8hr 1
10+
8 t/hr 7
8 t/hr 13
300 t/shift 4
16 t/shift 2
4 t/hr
8 t/shift 2
2
5 t/hr 2

46. 46
Metal Can Fabrication Site:
Nectar Bulgarian 0.3 1 4 t/hour 10
Concentrator' Italian 0 2 300 t/shift 24 & 15
Metal can Cevolani 3.6 1 400/minute 2
0 1 27
Old Pepper Mill Site:
Jam Bulgarian 1 3.5 t/shift 2
Vacuum Concentrator Bulgarian 4 300 kg/load
2 700 kog/load
Ajvar and Pfefferoni Bulgarian 1.3 1 3.5 t/shift 2
Administration Building Site:
Canned Pork and Bulgarian 0.1 1 5
Bean Sterilizer Dutch &Bulgarian 0 1 20 & 36
Syrup Bulgarian 0 1 3-4 thousand 14
.bottles/hour
OTHER POSSESSIONS
Owns 3 raw material concentration sites and 40 retail shops inPleven. The retail shops employ 67
employees. Storco Pleven owns all of the buildings. On average, 40% of these stores' sales is made
up ofproducts made at Storco; 60% is made inother factories.
ENERGY AND INDIRECT INPUTS
Owns electrical substation; water from combination of wells and municipal system.
ACCESS TO MAJOR TRANSPORTATION NETWORKS
Good access to main road. Railway on site.
TRANSPORTATION USED IN SHIPMENT OF PRODUCT
Owns 56 trucks accounting in total for 341 tons of products. 90% of their shipments are delivered
by trucks, 10% by rail. Approximately 25% of the total distribution costs are paid by Storco
Pleven; the rest is paid by the buyers.
Three-pass system.
4
4

47. 47
MA AGEM ENT BIOGRISI
General Manager
Production Manager
Economic Manager
Metal Packing
Site Manager
Chief of Quality
Control
Chief Accountant
Lawyer
Dimitar Angelov Makaveev
54 years of age; degree from Higher Food Industry Institute in Plovdiv;
worked in Storco for 22 years; General Manager for 10 months; other
positions in Storco include Chief of Sites, Technology Engineer,
Department Chief, Shift Chief, and Worker.
Boris Dachev
53 years of age; degree from Higher Food Industry Institute in Plovdiv;
worked in Storco for 9 years; Production Manager for 9 months; other
positions in Storco include Deputy Chief of Site and Shift Chief.
Elen Genchev
59 years of age; degree from Higher Finance and Economy Institute in
Svishtov; worked in Storco for 20 years; Economic Manager for 10
months; other positions in Storco include Chief Accountant, Deputy
Chief Accountant, and Senior Accountant.
Alexander Petkov
53 years of age; degree in chemistry from Sofia University; worked in
Storco for 26 years; Site Manager for 10 months; other positions in
Storco include Deputy Manager, Chief Specialist, Chief of Technology,
Chief of Shift Technology, Chief of Laboratory, and Laboratory
Technician.
lordanka Mazkova
49 years of age; degree in chemistry from Sofia University; worked in
Storco for 18 years; Chief of Quality Control for 6 months; other
positions in Storco include Chemistry Specialist, Chief of Metal Packing
Site, Chief of Chemical Laboratory, and Laboratory Technician.
Margarita Tzvetarova
51 years of age; degree from Higher Finance and Economy Institute in
Svishtov; worked in Storeo -or 26 years; Chief Accountant for 8
months; other positions in Storco include Deputy Chief Accountant and
Accountant.
Boris Tzvetkov
55 years of age; degree in law from Sofia University; worked as
Lawyer in Storco for 3 months.
5

48. 49
ANNEX
FINANCIAL STATEMENTS'
Previous Pag Bl
These financial statements were provided by Storco Pleven and have not been checked by DAI
accountants.

49. Expense Items
a
I. Ordinary expenses
1. Decrease of products
Instore, work in progress
and deferred cost
2. Cost ofmaterials and
hired services:
a) cost of materials
b)cost of hired services
3. Personal Costs:
a) Wages and other
remuneration
b)social security and
other welfare
allowances
4. Depreciation of tangible
and amortization of
Intangible non-current
assets
5. Other Costs
Including Inventory
Write - downs
6. Book value of sold
merchandise
TotalI.
II. Financial Expenses
7. Interest on loans
8. Losses on
securities:
a)from sale
b) from write - downs I
9. Losses from currency
exchange rate fluctuations
TotalII
II. Extraordinary Expenses
10. From management
operations
11. Other extraordinary
expenses
Total III
IV.Taxes
12. Profit tax
13. Other taxes
Total IV
Total expenses
(+.++iV)
V. Current period profit
Grand total
(I+II+III+IV+V)
STATE MENT
of Income and Expenses
of Storco Pleven
Full Year 1991 and January 1 - September 30, 1992
Amount (.000 leva)
previous current Income Items
year year
1 2 a
i. Ordinary Income
1. Net income from sales
6,7711
2. production
subsidies
137,085 70,867 3. State Budget Grants
4. cost of non- current
11,392 4,345, asset production
14,002 16,161
4,760 5,631
5. Increase of
products in store
work in progress
and deferred Income
6. Other Income
Total I.
2,877 3,635 1I.Financial Income Totals
3,056
43,129
216,301
49,530
1,418
923
51,871
1,076
351
1,427
0
269599
269,599
1,617
16,223
125,250
45,988
45,250
738
45,988
29
7,526
7,755
0
178,993
178,993
7. Interest from
Income
8. Income from
Participations
Including dividends
Other
9. Income from transactions
with securities
10.Gains from currency
exchange rate fluctuations
ill. Extraordinary Income
11. From management
operations
12. Other extraordinary
Income
Total III
Total income
(1+11+111)
IV. Current period loss
Grand total
(I+Il+lII+IV)
Amount (,000 leva)
previous current
year year
1 2
193.343 94701
1,763
64,321 30,461
5,187
259,427 130,349
2,527 1,354
296 988
3
2,228 366
887
1,002 1,506
1,889 1,506
263,843 133,209
5,756 45,784
269,599 178.993

50. 59
BALANCE SHEET
of Storco Pleven
1991 Full Year and Janau I - September 30, 1992
ASSETS
LIABILITIES
Amount '0,000 leva) Amount (0,000 le
SELECTIONS, Current year SELECTIONS,
GROUPS, pre- cor- bal- GROUPS,
ITEMS vious value rect- ance ITEMS Previous Curr
year ion sheet Year Ye
value
a 1 2 3 4 a 1 2
A. Non-current A. Equity
Assets
I
I. Tangibleassets I. Capital
1. Buildings, lands, 1. Authorized (initial)
forests and Capital
perennials 12,573 16,532 4,436 12,101 28,865 47,
2. Plant and 2. Additional capital
equipment 41,638 69,953 14,762 55,191
3. Other 1,914 5,148 1,733 3,415 Group I Total 28,865 47,
4. Tangible II. Reserves
non-current assets
in progress 4,000 4,646 13,507 4,
Group I Total 60,125 75,353 Il. Profit
I. Intangibleassets 1. Undistributed prior
period profit
1. Incorperation and 2. Current year profit
expa-sion costs
2. Products of
research and Group HI Total
development 0
3. Patents, licenses, Section A Total
concessions, (I+11+1I)
know-how, trade- 42,372 51,
marks, goodwill B. Borrowings
and software J
Group I Total 0 . Loans
ll Financialassets 203 228 1. Short-term loans 65,345 101,
1. Participation 2. Long-term loans 46,015 98,
2. Other long-term 3. Debenture and
securities bonds loans i
3. Long-term loans Group I Total 111,360 199,
Group III Total 203 228 __
Section A Total II. Payables
(I+II+II) 60,328 75581 1
B. Current assets 1. To suppliers 48,558 14,
L Inventories Fo. participation ___2.
1. Materials 26,444 24,170 3. To employees 1,542 3,
2. Work in progress 5,889 3,405 4. To the budget 319 1,
3. Products, 5. for social security
merchandise and
containers 40,176 62,192 127 1,
4. Young and 6. Other
fattening live stock _ I 20,810 7,
Group I Total 72,509 89,7671 Group H Total 71,356k27,