Bulgaria's Privatization Agency has announced a tender for the sale of two state-owned minority stakes in two of the country's military repair plants from the TEREM group.

Thus, the Agency for Privatization and Post-Privatization Control will offer investors 34% of the "Terem-Georgi Benkovski" plant in Plovdiv and 28% of "Terem-Gen. Vladimir Zaimov" located in Bozhurishte near Sofia.

The TEREM military-industrial complex consists of eight repair Plants, and the sale of the state assets in it had been banned by the Privatization Act. Back in 2008, the Stanishev Cabinet divided the eight military factories in two groups.

The first group includes "Terem Flotski Arsenal - Varna", "Terem Georgi Benkovski - Plovdiv", "Terem Khan Krum - Targovishte", and "Terem Ivailo - Veliko Turnovo". These factories are considered strategic for Bulgaria's national security, and 66% of each of these was to be offered for sale.

The second group includes "Terem Letetz - Sofia", "Terem Ovech - Provadia", Terem Gen. Vladimir Zaimov - Bozhurishte", and "Terem Tsar Samuil - Kostentz". 74% of each of these was to be offered for sale.

Subsequently, however, this scheme was abandoned, and the state has started to sell individual assets of the military repair factories with decisions of their management.

The state has already sold sections of three of the eight Terem factories. The sale of Terem Flotski Arsenal Varna – a naval ship repair yard – which was expected to attract the greatest investor interest – was blocked with an order of the Defense Minister at the end of 2008.

In March 2011, Bulgaria's Borisov Cabinet decided the Bulgarian state will no longer be required to keep a 34% share in formerly fully state-owned defense industry plants, thus paving the way for the complete privatization of what remains in terms of state assets in partially privatized military plants.

The formal motives of the Economy Ministry to shed the obligatory minority state quotas in the formerly fully-state owned military industrial complex were that the measure will ease the privatization procedures and will help attract more investments in the defense industry.

The requirement that the state should keep a minority stake in the privatized military plants was made in March 1998 by the right-wing government of PM Ivan Kostov.

Back then, the Kostov Cabinet approved a list of 25 companies from the military-industrial complex where the state was supposed to keep a minority stake; the Kostov government also envisaged the creation of a special institution to manage the state-owned stakes.

The tenders for the sale of the two TEREM group plant minority stakes come after last week the Bulgarian government opened a one-stage tender to sell the 35.8% minority stake it still holds in one of the largest military factories in the country, Arsenal Kazanlak, which produces arms suitable for use by NATO.

Eligible bidders will be companies involved in weapons production. They also need to prove an annual income of at least BGN 40 M in the past year, the privatization agency said in a statement on Friday.

Binding bids from the potential buyers of the government stake in Arsenal Kazanlak, which employs 5 000 people, should be submitted by the middle of December.

At present, the Bulgarian government is the sole owned of the capital of VMZ Sopot, NITI Kazanlak, and TEREM, and holds a minority stake in Arsenal Kazanlak.

The troubled VMZ Sopot, which is the largest Bulgarian military plant, is expected to be privatized in 2011. Candidates applying to buy VMZ Sopot will be eligible to bid for it if they demonstrate they have enough funds to cover its mounting debts, according to the strategy for the privatization of VMZ Sopot, and the future owner will not be allowed to lay off workers in the first three years after buying it. The VMZ Sopot plant employs 3 700 workers.

According to Economy Minister Traicho Traikov, state arms trading company Kintex will not be privatized.

For the time being the state is failing to privatize NITI Kazanlak because the company has a legal dispute for land ownership with the other military plant in the town, Arsenal Kazanlak.

"Our main goal with this tender is to procure funds and provide security in the defense industry sector. We will admit to the tenders only players that have been well investigated and have serious turnover. We don't want to allow speculators to buy off these minority stakes. We are trying to avoid that by upping the respective requirements," Emil Karanikolov, head of the Bulgarian Privatization Agency, has explained.

He is convinced that the Privatization Agency will manage to raise the BGN 450 M from the sale of state assets in 2011 – as the government requires it to in order to fill gaps in the state budget – even though the institution has sold only minor state firms and minority stakes on the stock exchange so far.

The bulk of the Bulgarian military-industrial complex was created during the communist period when the People's Republic of Bulgaria made lots of cash by selling arms mostly to developing countries. Together with the former USSR and the former Czechoslovakia, Bulgaria was the third COMECON member specializing in the defense industry.