Public Disclosure Authorized

Public Disclosure Authorized

REIMBURSABLE ADVISORY SERVICES FOR THE IMPLEMENTATION OF THE

PRINCIPLE OF SHARED SERVICES IN THE ORGANIZATION AND THE FUNCTIONING
OF THE CENTRAL ADMINISTRATION OF THE REPUBLIC OF BULGARIA

PROPERTY MANAGEMENT Report

Public Disclosure Authorized

May 2018

Project №BG05SFOP001-2.001-0009: Implementation of the Principle of the Shared Services in the

Organization and Functioning of the Central Administration, funded by Operational Program Good
Governance, co-funded by the European Union through the European Social Fund
Public Disclosure Authorized

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 ABBREVIATIONS AND ACRONYMS
COM Council of Ministers
GOB Government of Bulgaria
IFIs International Financial Institutions
MAFF Ministry of Agriculture, Food and Forests
MCMRA Military Clubs and Military Recreation Activities
MEW Ministry of Environment and Waters
MFA Ministry of Foreign Affairs
MLSP Ministry of Labor and Social Policy
MOC Ministry of Culture
MOD Ministry of Defense
MOF Ministry of Finance
MOI Ministry of Interior
MOH Ministry of Health
MOES Ministry of Education and Science
MOJ Ministry of Justice
MLSP Ministry of Labor and Social Policy
MRDPW Ministry of Regional Development and Public Works
MTICT Ministry of Transport Information and Communication Technology
NSI National Statistical Institute
OPGG Operational Program “Good Governance”
PM Property Management
RAS Reimbursable Advisory Services
SPA State Property Act
WB World Bank

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 DISCLAIMERS
This report is a product of the International Bank for Reconstruction and Development / the World
Bank. The findings, interpretation, and conclusions expressed in this paper do not necessarily
reflect the views of the Executive Directors of the World Bank or the governments they represent.
The World Bank does not guarantee the accuracy of the data included in this work.
This report does not necessarily represent the position of the European Union or the Bulgarian
Government.

ACKNOWLEDGEMENTS
This report was produced by a core team led by Ismail Radwan (Task Team Leader), comprised
of Christian Filipov (Component Lead), Elena Gabriela Ardelean (Operations Analyst), Svetozara
Petkova (Consultant), Dobrina Gogova (Consultant), and Hannah Messerli (Consultant). The team
was supported locally by Adela Delcheva (Operations Assistant). The report was drafted under the
careful guidance of Antony Thompson (Country Manager) and Roby Senderowitsch (Practice
Manager ECA Governance).

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 Table of Contents
EXECUTIVE SUMMARY ............................................................................................................ 8
1 INTRODUCTION ................................................................................................................ 16
1.1 Project overview and objective ..................................................................................... 16
1.2 Scope and limitations of the assessment ....................................................................... 16
1.3 Methodology ................................................................................................................. 18
1.4 Historical context .......................................................................................................... 19
1.5 Legal classification of state-owned properties .............................................................. 20
1.6 Managing state-owned properties ................................................................................. 23
1.7 Rules applicable to representational and social properties ........................................... 23
2 CURRENT STATUS ............................................................................................................ 25
2.1 Representational and social properties supply and demand ......................................... 25
2.2 Survey of recreational services demand ....................................................................... 30
3 KEY FINDINGS ................................................................................................................... 32
3.1 Financials ...................................................................................................................... 32
Lack of effective financial management principles and practices ........................................ 32
Services for government clients are offered free of charge .................................................. 33
Pricing: Accommodation rates are set extremely low .......................................................... 34
3.2 Utilization ..................................................................................................................... 38
The utilization of the facilities is varied ............................................................................... 38
Most properties are not well marketed.................................................................................. 42
Properties that accommodate external visitors generate additional revenue ........................ 42
3.3 Management/Operating Model ..................................................................................... 44
The property management model impacts operating results ................................................ 44
The current funding model incentivizes property managers to not increase revenues ......... 46
4 ROADMAP – RECOMMENDED ACTIONS and FUTURE CONSIDERATIONS for the
BULGARIAN GOVERNMENT .................................................................................................. 48
4.1 Identify strategic priorities ............................................................................................ 52
Develop property management strategy and framework ...................................................... 52
Review and amend legislation regulating state-owned properties ........................................ 53
Staffing and capacity building .............................................................................................. 53

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 Paradigm shift and cultural progression ............................................................................... 54
4.2 Adopt shared services principle .................................................................................... 54
Introduce a single, real-time reservation system................................................................... 54
Adopt revenue management ................................................................................................. 56
Adopt uniform efficiency and facility management standards ............................................. 56
4.3 Define property management operating model............................................................. 57
Identify operating model that allows profit retention ........................................................... 57
Centralizing property management ....................................................................................... 57
4.4 Partnering with the private sector ................................................................................. 60
Outsourcing models: concessions, lease, procurement ......................................................... 61
4.5 Issues and considerations for the future ........................................................................ 63
Annex 1: Country Case Studies - Finland, the Czech Republic, the Netherlands, Germany and
France ............................................................................................................................................ 64
Annex 2: Operation Overviews by Ministry System, Visited Facility Profiles and
Recommendations ......................................................................................................................... 78
1. Introduction ....................................................................................................................... 78
2. Key Findings ..................................................................................................................... 79
3. Review by System............................................................................................................. 84
Facilities operated by the Ministry of Agriculture .................................................................... 84
Facilities operated by the Ministry of Foreign Affairs ............................................................. 95
Facilities operated by the Ministry of Environment and Water ................................................ 98
Facilities operated by the Ministry of Interior ........................................................................ 101
Facilities operated by the Ministry of Defense ....................................................................... 110
Facilities operated by the Ministry of Labor and Social Policy.............................................. 118
3. Inventory Matrix ............................................................................................................. 121
Annex 3: Strategic Considerations.............................................................................................. 124
Annex 4: Legal Options and Considerations .............................................................................. 129
Annex 5: Outsourcing Models .................................................................................................... 132
Annex 6: Approaches to Managing Lodging Facilities .............................................................. 135

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 List of boxes
Box 1:Developing hospitality and tourism education standards in Croatia .................................. 53
Box 2: Issues and considerations for the Bulgarian Government – Looking towards a new
property management reform ........................................................................................................ 63

List of figures
Figure 1: Number of facilities reported by respondents (%) ........................................................ 25
Figure 2: Number of facilities reported by administrative system ............................................... 27
Figure 3: Have you outsourced the overall management/operation of any facilities to a different
legal entity? ................................................................................................................................... 28
Figure 4: Have you outsourced parts of any facilities (e.g. coffee shops, tennis courts, etc.,) to a
different legal entity? .................................................................................................................... 28
Figure 5: Recreation facilities collecting customer feedback ....................................................... 29
Figure 6: Do you support the social service vacation benefit at a recreational facility owned by
your administration? ..................................................................................................................... 30
Figure 7: Reasons to spend family vacation at government recreational facilities....................... 30
Figure 8: Do you support the introduction of an electronic reservation system? ......................... 31
Figure 9: Financial results by administrative system .................................................................... 34
Figure 10: Pricing ......................................................................................................................... 36
Figure 11: Difference in pricing for staff and external visitors of recreational facilities ............. 37
Figure 12: Comparison of facilities that produce operating surpluses versus deficits ................. 40
Figure 13: Marketing and advertising of the facility .................................................................... 42
Figure 14: Financial results by administrative system .................................................................. 43
Figure 15: Financial results by location and type of facility (Recreational only) ........................ 44
Figure 16: Financial results by location and type of facility (Recreational only) ........................ 44
Figure 17: Results by ministry system and operating model ........................................................ 46
Figure 18: Staff levels versus financial performance of select facilities ...................................... 46
Figure 19: Recommended actions towards a new property operating model ............................... 49
Figure 20: Recommended decision tree for government facilities ............................................... 52

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 List of tables

Table 1: Differences between Public State Property and Private State Property ......................... 21
Table 2: Number of facilities reported by administrative system ................................................. 26
Table 3: Accommodation capacity by administrative system ...................................................... 28
Table 4: Occupancy and Pricing by Administration ..................................................................... 38
Table 5: Operating surplus/deficit based on bed capacity and location........................................ 41
Table 6: High-level implementation roadmap .............................................................................. 50
Table 7: Inventory Matrix for thirteen selected properties ......................................................... 122

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EXECUTIVE SUMMARY
1. This document is an output under the
Shared Services Reimbursable Advisory
Services (RAS) conducted by the World Bank
in partnership with the Government of
Bulgaria (GOB).1 The World Bank (WB) team
is supporting the Government in introducing the
principle of shared services in the organization
and work of the central administration through
six key activities.2 This report corresponds to
the deliverable for Activity 6.
2. The Bulgarian Government is
committed to improving the effectiveness
and efficiency of its properties. In this sense,
the WB team has been tasked with: (i) preparing
a standalone general review of 1153
representative and social function properties
owned by Bulgaria’s central administration,
including an in-depth review of 13 recreational
and training facilities4, and (ii) a roadmap for
improving property management.

Approach
3. The report’s main objective is to
identify opportunities for improving the
current property operational model, and
underline key reform issues which would
require enhanced attention from the GOB in
the future. Through primary and secondary
research, this report includes information on the
status, assessment and approaches for
sustainable and efficient property operation
beneficial to the people of Bulgaria.

1
It is financed under the Operational Program Good Governance 2014-2020 with co-financing by the European Union
and European Structural and Investment funds. The RAS Agreement between the GOB and the WB was signed in
May 2017 and ratified by the National Assembly in July 2017.
2
(i) Preparation, baseline analysis and framework design; (ii) Pilot in centralized administrations for the provision of
shared services, (iii Developing a framework for management of shared services, (iv) Developing a methodological
framework for monitoring and evaluation; (v) Developing a methodological framework for change management;
(vi) Government property management assessment
3
For the purpose of this activity, the WB team collected data for 160 government run facilities
4
The Report does not review or present information on public properties owned and operated by other public bodies
such as municipalities, universities, schools, public enterprises, hospitals etc.

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4. It is to be noted that the team has not conducted a due diligence assessment on any of
the recreational facilities. Additional policy analysis would be necessary to guide the government
in defining new property management policy options for Bulgaria, assessing the impact, and
implementing a potential reform. However, the report addresses issues related to Government’s
role in operating these facilities, budget practices and facility utilization.
5. Despite diverse leisure options today, there remains a strong sense of attachment to
government-owned recreational facilities and subsidized vacation benefits among public
administration staff. Government-run recreational facilities were developed when there were few
private sector vacation options. The development of the modern tourism sector over the past two
decades produced private sector accommodation in popular destinations providing many
alternative vacation options. Facility offerings and operations have become a financial drain and
inefficient.
6. The analysis is also directed at property management personnel charged with the
management of government properties and delivering the social service. This group of
stakeholders include property management personnel at the ministry and agency level, as well as
facility managers, charged with taking care of the day-to-day maintenance, upgrades, and
management of government facilities.
7. The report presents an analysis of 115 government properties and a roadmap. It is
based on research including: (i) a structured on-line survey of facilities, (ii) focus groups and a
demand-side survey of the attitudes of public administration staff towards government-sponsored
recreation, (iii) interviews with and a survey of public officials tasked with the management of
government-owned properties, and (iv) site visits to 13 facilities selected for in-depth review.
Based on these findings, case studies of selected EU Member States and other relevant countries
is included to highlight international practice.

Situation
8. Constrained by limited resources, the GOB facilities face tremendous maintenance
and operational challenges resulting in continued losses to the state budget and, for some
facilities, a collapse into an inoperative state. The situation creates several challenges for the
Bulgarian Government including:
● Strategic: There is a lack of a comprehensive Government policy or vision for the
management of the facilities.
● Financial: The facilities generate large fiscal losses to the state budget.
● Economic: By charging less than market rates, the facilities present a competition
challenge for privately run tourism facilities.
● Managerial: The facilities are run by civil servants without specialist knowledge or
skills in property management and tourism.
● Social: As recreational facilities are operated by individual ministries, there is a lack of
equal opportunities for all public employees to benefit from the facilities.

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 ● Transparency: Comparable operational information is not available as the facilities do
not follow widely-accepted accounting practices and do not publish annual reports.

Findings
Providing services at less than cost results in large losses
9. Government-run facilities are not required to follow full cost accounting and report
only their operating surplus or loss. This method of accounting ignores the largest costs of
providing the service reflected in the depreciation of assets. Further, it hinders comparison of
operations between comparable facilities.
10. The current focus is on providing a social service and operating within an annual
budget limit defined by the parent ministry. Facilities receive three major revenue streams: (i)
income from paying guests, (ii) annual budget from the ministry, and (iii) additional subsidies
from the social, housing and cultural activities fund (i.e. SBKO fund). Facilities’ managers focus
on breaking even on operating costs. They are not incentivized to generate additional revenues as
all revenues collected are directly transferred to the Ministry of Finance. Managers are not focused
on financial management to foster sustainability and productive operations over the long term.
11. Many facilities are open to external visitors (i.e. non-staff guests) who pay a premium
of 15% - 100% above the standard staff rate. This allows the facility to generate additional
revenues. However, despite the higher price paid by external guests, it remains less than typical
costs or the market price and, therefore, the government is effectively subsidizing those guests.
12. All income collected from guests (whether internal or external) for accommodation,
food or other sundry items is not available for the facility to use. This results in a situation
where the facility has no incentive to increase revenues from paying guests such as charging for
parking or providing other additional services. Attracting more external guests simply incurs
additional expenses since revenues do not accrue to the facility but are instead transferred directly
to the Ministry of Finance.
13. Training and representational properties often provide services for free or at rates
well below the cost of providing the service thereby generating losses by default. The average
loss rate of properties with recreational functions is substantially lower than those with training or
representational functions. Many services are not charged back to the users or parent ministries
and the costs of providing these services are accounted for as operating costs. This practice is
followed in all the facilities visited and does not represent good practice. This creates a potentially
unlimited demand and no incentive for the operators to provide training efficiently.
Marketing of the facilities is limited and prices are set extremely low
14. Marketing and advertising of Government recreational facilities is very limited and
basic in form. Many of the facilities are only advertised through rudimentary official circulars,
emails/newsletters to staff, bulletin board notifications, and word-of-mouth.

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15. Facilities that are marketed more progressively report smaller losses. Properties which
do not advertise through a website, attractive pamphlet, colorful brochure or other means, on
average generate double the loss, compared to facilities which are advertised and promoted.
16. Accommodation rates charged are extremely low and far below the cost of operation.
The lowest reported rates are charged by the Ministry of Regional Development and Public Works
(MRDPW) at BGN 5 per person per night and the MOI with average accommodation rates of BGN
7.5 per person per night. On the opposite end of the spectrum is Residence Euxinograde which is
the most expensive government property reviewed. The Residence charges BGN 180 per room per
night for accommodation in a double room. This rate is charged for both staff and external visitors
alike.
17. Rates are set within staff affordability limits rather than market rates and are not
increased on a regular basis. All facilities operate within spending limits, commonly referred to
as “budgets”, which lump-in all the costs associated with the facility (i.e., operational expenses as
well as maintenance costs). Rate setting follows the budgetary spending considerations of the
primary budget holder. The amount of the funds budgeted by the ministry that manages the facility
determines both the accommodation rates and the annual operating period for the recreational
facilities.5
18. Budgetary constraints in effect define the size of temporary staff remuneration and
limit the annual operational period of the facility. Facilities are not provided with sufficient
budget to pay staff over a longer season, regardless of opportunities to increase the low season
operational period such as April-June and September-October for summer resorts.
Utilization levels vary
19. The occupancy of the facilities varies considerably with the most successful operating
at full capacity while others operate as low as 40% of capacity. Reservations are typically
made through a voucher distribution system which is designed with the objective of serving staff.
Packages are limited with a primary focus on families. Special packages or services for different
types of guests are even fewer due in part to there not being incentive to build occupancies or
revenues.
20. Facilities that generate an operating surplus have higher average occupancy rates,
receive a higher number of external visitors and charge higher rates for both staff and
external visitors. These recreational facilities also tend to operate more efficiently with a higher
bed capacity with fewer staff. Facilities that generate losses typically host fewer external visitors,
charge lower accommodation rates and have a higher staff to guest ratio. Loss-making facilities
tend to also be smaller in terms of number of beds, conference rooms and restaurant seats.
Centralized operating models generate better results
21. Most ministries manage their recreational facilities independently of each other as
standalone properties. There are often many different management models within the same

5
The annual number of days of operation for each facility is determined by budget practicalities, weather conditions
and availability for leisure stays y ministry employees.

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ministry. The varied operating models generate different operating results and do not enable
important system-wide economies of scale.
22. Facilities managed centrally by a government agency, specially tasked with property
management, achieve better financial results. The MOD has entrusted the management of all
properties assigned to the ministry to a special executive agency. Military Clubs and Military
Recreation Activities (MCMRA) operates all MOD recreational properties and is tasked with the
entire property management cycle (i.e., planning, budgeting, marketing, reservations,
maintenance, upgrades, staffing, etc.).
23. The facility operated as a commercial state owned enterprise (SOE) under a larger
property management structure has positive financial results and provides an instructive
model. The recreational facility ADIS Holiday Inn is part of the property portfolio managed by
ADIS LTD., a property management company under the MFA. This management model allows
the facility to retain generated revenues and incentivize the most efficient operation of the facility
while delivering high-quality recreational services at affordable prices.

Recommended actions, issues and considerations for the future

24. The Government’s approach begins with strategic clarity and commitment that
defines priorities and guides policies. Our recommendation is that government gradually exit
from managing state-owned recreational facilities. This is a medium-term objective. In the
immediate and short-term government can put in place a number of measures to improve the
management and operation of the facilities. Our recommendations are therefore presented as a
roadmap of immediate, short, and medium-term stages. It should be noted that decisions made in
each stage will require further evaluation and will define subsequent actions. However, each stage
of the recommended actions is consistent with the overall vision and builds upon the preceding
results.

Recommended Actions

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25. As an immediate step, the Government needs to define and formulate its vision in a
comprehensive Property Management strategy and framework through identifying strategic
principles. The framework will serve as an overarching set of principles, standards and objectives
guiding any reform effort. The strategy is a critical first step in the process of transforming Property
Management practices in the Government of Bulgaria.
26. Further, the Government can better manage the facilities by adopting shared services
principles around the marketing, reservation, maintenance, payment and procurement
functions. As well as accounting for amortization, the Government could set a minimum regular
maintenance budget to ensure that physical assets are conserved and protected. Increasing rates
would help to stem some losses without diminishing effective demand. Providing more incentives
to retain revenues is fundamental to operational sustainability. Further, providing management
with more autonomy could also result in longer annual operational periods and additional
revenues. Finally, following standardized accounting practices can incentivize creativity and the
offering of additional value-added services to guests and visitors. This will enable greater options
for the GOB to achieve their defined goals.
27. A central shared-services system for reservations, billing, marketing, maintenance
and procurement of basic goods could achieve significant efficiency gains. Introducing a
system-wide property management function would have the following advantages: (i) it could
capture economies of scale through a centralized maintenance team, (ii) encourage a career stream
for property managers and attract more professional managers to operate the facilities, and (iii)
take advantage of economies of scale in procurement (e.g., where several different ministries run
facilities in proximity such as in a seaside town or mountain resort area). By pooling management
and sharing services, lower prices for catering, supplies and outsourced services could be
negotiated. This would also enable government to have better and timelier information on the size
and utilization of the assets as well as set discerning rates for varied segments using revenue
management approaches.
28. In the short-term, the Government may consider options for centralizing the
management of government properties. Such options include: (i) Reassigning the operational
management of poorly managed facilities to other public property management bodies; (ii)
Creating a government property management agency; (iii) Registering facilities as commercial
companies; (iv) Creating a state-owned property management enterprise or a wholly or partially
state-owned property management company. The Government already has a successful example
in this respect, the ADIS Ltd., that could be replicated.
29. In the medium-term, the Government’s goal should be stewarding a private sector
based hospitality industry, and gradually exiting from operating hospitality facilities.
International experience presented in Annex 1 indicates that government’s involvement in
managing recreational facilities has gradually been phased out around the world. However, it is a
common and viable practice to run government facilities under public/private arrangements such
as outsourcing, concession or lease agreements which enable continued public-sector benefits
while taking advantage of private sector know-how.

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30. These recommended actions are outlined in this implementation roadmap. It is
important to emphasize that the road to success will not be a linear process; a future transformation
will rather involve additional evaluation and testing of policy options.

Implementation Roadmap

Measures Steps
Current challenges

Strategic Develop and implement property Identify strategic priorities

mgmt. strategic vision Review and amend legislation
There is a lack of a Ensure paradigm shift and regulating state-owned properties
comprehensive Government cultural progression towards exit Consult with stakeholders
policy or vision for the Allow profit retention Engage with the private sector
management of the facilities Adopt shared services principles Communicate
Conduct change mgmt. activities

Financial Adopt revenue mgmt. Calculate the true costs of facilities

Adopt uniform efficiency & Review pricing practices
The facilities generate large facility mgmt. standards Formulate new prices (external vs.
fiscal losses to the state Adopt uniform financial internal)
budget management principles including Introduce service quality standards
full cost accounting Ensure regular reporting
Economic Introduce market prices for Conduct market research
external guests Establish system to benchmark
By charging less than market prices to the private sector
rates, the facilities present a Define pricing approach (BAR,
competition challenge for BAR by LOS, Open Pricing,
privately run tourism Seasonal etc.)6
facilities Monitor and Evaluate
Partner with tour operators
Managerial Build staff capacity Evaluate staff capacity
Introduce single real-time Develop and deliver training
The facilities are run by civil reservation system modules
servants without specialist Adopt revenue mgmt. Develop system specifications
knowledge or skills in Procure the system
property management and Ensure system maintenance
tourism Ensure regular monitoring
Monitor customer satisfaction
Evaluate staff performance

6
BAR – Best Available Rate; BAR by LOS – Best Available Rate by Length of Stay

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Social Open facilities to all civil Initiate dialogue with all ministries
servants Create a platform to share
As recreational facilities are information
operated by individual Mandate opening of all facilities to
ministries, there is a lack of all civil servants.
equal opportunities for all Introduce real-time centralized
public employees to benefit reservation system with clear rules
from the facilities for precedence (i.e. ministry staff
first, then other civil servants and
then the general public).
Communicate the benefits
Monitor satisfaction
Transparency Introduce single real-time Review existing market solutions
reservation system including outsourcing e.g. through
Comparable operational booking.com of equivalent. Select
information is not available and procure optimal system and
as the facilities do not follow enforce through appropriate
widely-accepted accounting legislation Collect & Analyze data
practices and do not publish Publish annual reports
annual reports Communicate survey results
(customer satisfaction)
Introduce a rating system

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1 INTRODUCTION
1.1 Project overview and objective
1. This document is an output under the Shared Services Program conducted by the
World Bank in partnership with the Government of Bulgaria.7 It is financed under the
Operational Program Good Governance 2014-2020 with co-financing by the European Union and
European Structural and Investment funds. The Reimbursable Advisory Services (RAS) Agreement
between the Government of Bulgaria and the World Bank was signed in May 2017 and ratified by
the National Assembly in July 2017. This engagement includes the following activities:
I. Preparation, baseline analysis and framework design
II. Pilot in centralized administrations for the provision of shared services
III. Developing a framework for management of shared services
IV. Developing a methodological framework for monitoring and evaluation
V. Developing a methodological framework for change management
VI. Government property management assessment
2. The Bulgarian Government is committed to improving the effectiveness and
efficiency of its properties, and this report corresponds to the assessment deliverable for
Activity 6.
3. The GOB has engaged the World Bank to provide recommendations for improving
the property management model for recreational and training facilities, including presenting
current management trends, such as the principle of shared services for public property
management. The Government of Bulgaria owns and operates a significant number of properties
with recreational, representative, training and social functions. For the most part, the facilities are
not efficiently managed and the operation of the facilities is subsidized by the Government. Under
Activity 6 of the current RAS, the WB team has been tasked with preparing a standalone review
of over 100 representative and social function properties, owned by Bulgaria’s central
administration and an in-depth review of at least 10 of these properties. The list of these facilities
is presented in Annex 1.

1.2 Scope and limitations of the assessment

4. This report’s main objective is to identify challenges, opportunities and actions for
socially and economically productive operations for the GOBs recreational, representational
and training facilities. It includes information on the status, assessment and approaches for
sustainable and efficient property operation beneficial to the people of Bulgaria. It provides
recommended actions for achieving socially and economically productive operations. The report
addresses issues related to Government’s role in operating these facilities, budget practices and
facility utilization. It also includes examples of international practice providing guidance for
decision making.

7
Under the Shared Services Program, the World Bank (WB) team is supporting the Government in introducing the
principle of shared services in the organization and work of the central administration.

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5. The recommendations presented in this report focus on improving the current
management model and increasing the efficiency, sustainability and quality of services. The
recommendations are based on analysis of primary and secondary research gathered on properties
and leveraging international best practice trends in public property asset management.
Recommended actions can inform the discussions of Council for Administrative Reform in
defining a comprehensive vision for the efficient management of properties with representative
and social functions.
6. Limitations of the assessment. This assessment does not review or present information
on public properties owned and operated by other public bodies such as municipalities,
universities, schools, public enterprises and hospitals. It does not provide a single model or
business plan for improving the management of state-owned properties. The team has not
conducted a due diligence assessment on any of the recreational facilities. Also, it is to be noted
that further policy analysis would be necessary to guide the government in defining and assessing
new property management policy options for Bulgaria, and implementing the reform.
7. The Bulgarian government continues to own at least 115 recreational and training
facilities around the country8 and their ownership and operation is entrusted to separate line
ministries and agencies. For the most part the facilities were established in socialist times with
only a few established more recently in the early transition years through the initiative of individual
ministries.
8. In most cases, government recreational facilities are not operated efficiently nor at
their full potential. They are established to provide a service rather than generate a profit, yet
their management models, incentive schemes, marketing and sales efforts remain far from a
service-oriented model. Rates are set below market prices. Resources for operations and
maintenance are limited. Most facilities operate well-below capacity, as there are no incentives for
maximizing the economic value of the real estate assets. Since the financial crisis and the
subsequent fiscal consolidation, capital budgets have also been reduced, leading many facilities to
fall into a state of disrepair and making some inoperative.
9. The rapid development of the tourism sector over the past two decades produced an
abundance of private sector accommodation in popular vacation destinations, which eroded
the rationale for employer-provided recreational services. Yet, among public administration staff,
there remains a strong sense of entitlement to government-owned recreational facilities.9 This
creates a number of challenges for the Bulgarian Government including:
● Strategic: There is no comprehensive Government policy or vision for the
management of such facilities.

8
The total number is far greater as this figure does not include a large number of facilities owned and operated by the
National Insurance Institute, recreational facilities of universities, research institutes, schools, public enterprises,
hospitals and other facilities in the public sector.
9
Surveyed public administration staff – both those that use recreational facilities and those that do not – are supportive
of government recreation facilities and view these as a social benefit linked to public service.

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 ● Financial: The facilities generate large financial losses to the state budget. If the
full costs of building and maintaining the facilities were considered, the losses would
be much more significant than the currently reported operating losses.10
● Economic: By charging less than market rates, the facilities distort the marketplace
and present a challenge for privately run tourism facilities. They may also
discourage private sector investors and property developers in the vicinity as many
of the facilities occupy prime tourism locations.
● Managerial: The facilities are run by rank and file civil servants without specialist
knowledge or skills in property management, hospitality and the delivery of tourism
services. There are no established financial models for investment, operation,
pricing, promotion, etc. and no incentives to achieve a meaningful return on the use
of the assets or to increase occupancy.
● Social: As recreational facilities are operated by individual ministries, there is a
lack of equal opportunities for all public employees to benefit from the facilities.
The facilities may also create a perception of discrimination as ordinary citizens
either do not have access at all or are sometimes granted access at a higher rate.
● Transparency: Information is not available as the facilities are not run
transparently; are not subject to standard accounting rules for the tourism sector; and
do not publish annual operational reports. The lack of comparative accounting and
ministry defined reporting, as well as Government and/or public scrutiny opens
possibilities for abuse.
10. This report provides guidance on these challenges and aims to give current model a
chance to improve, elevate impact, and enable sustainability. The path towards adopting a new
policy reform would not be linear, it will rather require continuous testing, evaluation and
reconsideration of the new policy.

1.3 Methodology
11. The World Bank team, in close collaboration with the Administration of the Council
of Ministers, performed a diagnostic analysis of 115 government properties. The review is
based on specifically gathered information including: (i) a structured on-line survey of facilities,
(ii) interviews with public officials tasked with the management of government-owned properties,
(iii) site visits to 13 facilities selected by the Administration of the Council of Ministers and (iv)
focus groups and a demand-side survey of on the attitudes of public administration staff towards
government-sponsored recreation.
● An online survey of over 160 facilities11 was used to gather data on the number
and capacity of government properties, through a structured questionnaire.
The questionnaire captured information related to the function, bed capacity,

10
Government facilities do not follow the standard accounting rules for the tourism sector, but accounting procedures
that provide a distorted picture of their financial performance. This type of standards would be more suitable for
facilities run for hospitality or recreational purposes.
11
Out of which, 115 were selected for the diagnostic analysis.

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 pricing, quality and occupancy of government properties. Further, questions also
related to the practice of outsourcing specific functions or the overall management
of properties.
● The supply-side survey was initiated on June 5, 2017 and was open for
responses for a period of three weeks. A web-based link was sent to respondents
from all central government entities. The invitation was accompanied by an official
letter from the Council of Ministers, detailing the scope and timeline of the survey.
● The survey of the facilities was followed by analysis of staff demand for
recreation services. This assessment included organizing three focus groups with
10 public administration staff each. Findings from these groups informed the content
of an online staff demand survey. This was completed by 407 staff from 12
ministries during October-November 2017.
● The experience of other EU Member States and other relevant countries was
also examined to highlight international best practice. This review focused on
ways to improve the financial performance of administrative functions by
introducing standardized practices in property asset management.

1.4 Historical context

12. The Soviet-style vacation, and correspondingly the institution of the recreation
facility (i.e., the “почивна станция”), was introduced to Bulgaria after World War II
together with the Marxist ideology.12 Similar to the Soviet model, access to any of these facilities
required the procurement of a vacation voucher, or “карта за почивка”, allocated by the central
authorities through state-owned enterprises or trade unions. The facilities were heavily subsidized
by the state, and staff covered only a fraction of the actual value of the vacation voucher. This
practice continues today.
13. In Bulgaria, the state began establishing recreation facilities in the early 1950s and
over the next three decades the development of the network of recreation facilities (intended for
Bulgarians) and hotels (intended for foreigners) fueled the emergence of Bulgaria’s vacation
destinations. The seaside resorts of Sveti Konstantin and Elena, Golden Sands and Sunny Beach,
and the mountain resorts of Borovets and Pamporovo are the most prominent of such destinations.
By the 1980s, towards the end of the socialist period, the state subsidized the vacations of about 3
million Bulgarians on an annual basis.13

12
Recreational facilities are instruments for implementing Marxist labor policies - recreation and reproductive rest
are necessary conditions for productive labor. Such facilities were established in the mid-1920s by the Soviet state,
so that workers and peasants could recuperate from productive labor. Initially, recreational facilities provided
primarily therapeutic benefits and visitors were supposed to spend their vacations alone; the use of the facilities for
family-centered vacations emerged at a later stage -- solitary vacations served the productive interests of the Soviet
state, while a vacation as a family experience is underpinned by a consumer service approach. For a detailed discussion
see: Koenker, Diane P.: “The Right to Rest: Postwar Vacations in the Soviet Union”; University of Illinois at Urbana-
Champaign (2008)
13
Department of Tourism, Sofia University 2013

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14. The establishment of recreation facilities in Bulgaria coincided with the emergence of
the national tourism industry. All the way through the early transition years, state recreation
facilities were the predominant vacation alternative for most Bulgarians. During the early
transition years many of the hotels and tourism assets owned by the state were privatized.
Numerous recreational facilities were also privatized, most notably those belonging to former
state-owned enterprises, but also some facilities owned by public bodies. The privatization of the
property assets located in vacation destinations enabled the growth and rapid development of the
private sector in the tourism industry.
15. The recreational facilities owned by the central administration survived the demise
of socialism despite an abundance of private sector accommodation. Some new facilities were
even established during the early transition years to provide subsidized vacations to public
administration staff and their families and to serve as training facilities of the various public
administration bodies. The core focus of government recreational facilities today is to provide
subsidized vacations as a social benefit to public administration staff and their families. With very
few exceptions, all government-owned recreational facilities are technically open to external
guests; however, attracting and accommodating external guests is a low priority.
16. Subsidizing government facilities to deliver an inexpensive tourism product continues
to be a government policy. In addition to serving as a means to deliver social benefits to public
administration staff, some policy-makers view recreational facilities as a venue where civil
servants and their families can vacation together, build social cohesion, improve morale and
strengthen social bonds. While this can be a benefit of the current model, it is difficult to measure.
However, GOB recreational, representational and training facilities have suffered over the past
three decades from limited funding. Many government facilities are in poor condition, their
management is fragmented, and budgets are insufficient to halt the deterioration of the assets or to
cover the proper operation of the facilities.

1.5 Legal classification of state-owned properties

17. GOB recreational facilities operate in a complex legal context guided by public state
property and private state property classifications. These legal classifications specify how
properties can be used, funding streams and transfer guidelines. There are limitations on the use
of state-owned properties depending on their legal classification. Bulgarian law divides state-
owned properties into two major groups: (i) properties part of the “public domain”, which implies
that such properties cannot be disposed of and have limitations on their use and management
arrangements; (ii) those classified as “public state property”; and (ii) “private state property”
belonging to the “private domain” which are regulated similarly to privately-owned property.
18. There is no uniform classification of Government recreational facilities with some
classified as public state property and others as private state property. The classification
criteria are defined in the State Property Act (SPA). Classified as “private state property” are all
properties owned by the state that are not specifically designated as “public state property”, as well
as all income generated in the utilization of public state property (Art. 2 (3) SPA). Classified as
public state property are:

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 1. Property assets defined as exclusive state property in the Constitution
such as natural resources, beaches, waters, forests and parks of national
significance, natural and archaeological reserves;
2. Land sites, real estate and moveable property designated as public state
property by law or with an administrative act of the Council of Ministers;
3. Properties assigned to administrative bodies for the performance of their
official government functions;
4. Properties designated by the Council of Ministers as properties of
national significance, properties required for meeting permanent societal
needs of national significance through common usage; and
5. Land, designated for border access points and the buildings on it.
19. There is no uniform explanation as to why a particular recreational property has been
designated as public or private state property. These designations appear to be entirely based
on historical circumstances. In principle, properties no longer required by the government to fulfill
official or social functions should no longer be designated as public state property. However, under
Bulgarian law, the fact that a particular property is no longer used for the functions for which it
was classified as public state property, does not automatically affect its classification. For such
properties to be re-designated as private state property requires an act of the Council of Ministers
(Art. 6 (1) SPA). In the absence of such an act, the property in question remains public state
property. Currently, there is no practice to regularly examine the legal classification of public state
properties to ascertain whether their classification as “public state property” is still justified. The
public body, which is responsible for issuing methodological guidance on the management of state
property is the Minister of Regional Development and Public Works.
20. The legal classification of public property has very specific implications in terms of
the level of legal protection, as well as the manner and purpose for which the property could
be used. In terms of legally allowed actions, private state property offers the Government more
flexibility

Table 1: Differences between Public State Property and Private State Property
Public state property Private state property

May not be disposed of. (Art. 7 SPA) May be disposed of.

Sales of private state property with a tax evaluation of
more than BGN 10 000 shall be carried out pursuant to
the procedure set out in the Act on Privatization and
Post-Privatization Control (APPC) unless the property
has been assigned to the Ministry of Defense, to political
parties, to state-owned companies (Art. 1, APPC)
May be the object of a concession for use contract May not be the object of a concession for use contract
May not be acquired based on adverse possession. May be acquired based on adverse possession.
(Art. 7 SPA)

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Limited real rights on such property (e.g. building n/a
rights) can only be granted in exceptional
circumstances and based on a decision by the Council
of Ministers. (Art. 7 (5) SPA).
Buildings that are public state property should be n/a
insured for risks enumerated in an ordinance. (Art. 12
SPA)
The management of such property can be assigned to The management of such property can be assigned to
ministries, agencies or municipalities with an act of ministries, agencies or municipalities with an act of the
the Council of Ministers. Ministries/agencies can re- district governor. Ministries/agencies can re-assign the
assign the management of such properties to their management of such properties to their territorial units
territorial units or other SLBUs under them. (Art. 15 or other SLBUs under them. (Art. 15 SPA)
SPA)
Public state property may not be used for purposes n/a
other than the designated ones and cannot be assigned
to third parties except in circumstances explicitly
provided in the law (Art. 16 SPA).
Public state properties may be leased through a tender Private state property may be leased through a tender
procedure for a period of up to 10 years, provided procedure (Art. 19 (1) SPA) for a period of up to 10
that they are used in accordance with their purpose years. The tender shall be held in accordance with the
and the lease does not impede the performance of the Rules for the Application of SPA.
activities for which they were assigned to a particular
state body (Art. 16 (2) SPA). The tender shall be held
in accordance with the Rules for the Application of
SPA.
Individual properties or parts of properties - public Private state property may be leased without a tender to
state property, may be leased for up to 10 years, foreign diplomatic or consular representatives, as well as
without a tender, to international organizations where to international organizations by the minister, the district
this is necessary for the performance of obligations governor or the Head of the administration to whom the
under an international treaty by the Minister, Head of management of the property had been assigned (Art 19
administration or the district governor to whom the (6) SPA).
property has been assigned for management
following a procedure specified in the Rules for the
Application of SPA. The rental price shall be
determined in accordance with the Rules for the
Application of SPA.
n/a Private state property may be leased without a tender for
health, education or humanitarian purposes to meet the
relevant needs of the population. Private state property
may also be leased without a tender to non-profit legal
entities for public benefit. In these cases, the lease
contract shall be entered into by the Minister, the district
governor or the Head of the administration to whom the
interested parties shall make a reasoned request (Art. 19
(3) (5) SPA.
n/a Private state property may be leased to political parties
or to trade unions under a procedure determined by the
Council of Ministers (Art. 20 SPA)

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1.6 Managing state-owned properties
21. Ministers and heads of agencies manage the state-owned properties assigned to them
for only the specific purpose for which these were assigned (Art. 14 SPA). State-owned
property is assigned to the public bodies free of charge and the assignment allows the particular
administration to act as the owner of the property. First level budget holders may re-assign
properties assigned to them to their secondary, tertiary, etc. budget holders. However, if the
administration managing the property uses it in a manner that does not correspond to the assigned
purpose or if the state property is no longer needed by the respective administration, the assignment
could be revoked following a complex process.14
22. The individual administrations are responsible for the maintenance and upkeep of
the assigned property. By law, all maintenance, repair and upgrade works are to be carried out
by the administration to which the property has been assigned using dedicated funds under their
respective budgets (Art. 25 SPA); however, if the property is leased, then the responsibility for the
maintenance and upkeep transfers to the lessee. The lease contract may determine that the lessee
is also responsible for corresponding construction works and capital repairs (Art. 26 SPA).

1.7 Rules applicable to representational and social properties

23. The Tourism Act defines the term “recreational facility”, but does not adequately
capture the concept of properties with representational and social functions owned and
managed by the state. The popular term recreational facility (почивна станция) is often used for
properties of representational and social nature, defined in the Tourism Act as “an independent
accommodation facility with predominantly social functions and with an infrastructure that offers
health, spa, sports and other services.” (§ 1, point 26 TA).
24. Even though state-owned property in Bulgaria is regulated in multiple pieces of
general legislation, specific rules on operating government recreational facilities are
minimal. The term “properties of representational and social functions” is routinely used to
describe these properties. However, Bulgarian legislation does not define the term, nor does it
provide for any special regulation on such properties. The only instances where the law mentions
the existence of recreational properties owned and managed by the state is with respect to those
dedicated to military personnel, which regulate the right of certain categories of persons to have
subsidized vacations at such facilities.
25. Only a few administrations have specific laws regarding maintaining recreational
facilities. For example, the Law on Defense and Armed Forces of the Republic of Bulgaria and
the Law on Disabled or Harmed Military Personnel detail responsibility for recreational facilities.
The Government may assign properties with representational and social functions to other
administrations, but it has no legal obligation to do so.

14
The assignment of public state property is revoked with a decision of the Council of Ministers, acting upon a
proposal of the Minister of Regional Development and Public Works, after reviewing the opinion of the minister/head
of the administration, to which the property has been assigned, on the issue. The assignment of private state property
is revoked with an order of the Regional Governor after reviewing the opinion of the minister/head of the
administration, to which the property has been assigned. (Art. 17 SPA).

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 ● Under the Law on Defense and Armed Forces of the Republic of Bulgaria (Art. 202a),
upon returning from an operation or a mission abroad, the soldier and the members of
his/her family are entitled to a 7-day free holiday in the recreational facilities of the
Ministry of Defense or a 7-day free recovery in the hospitals for long-term treatment
and rehabilitation of the Military Medical Academy. The funds necessary to finance
the free holiday or recovery are earmarked in the budget of the operation or the mission.
● Under the Law on Disabled or Harmed Military Personnel (Art. 16) and the Rules for
Implementation of the Law on Disabled or Harmed Military Personnel (Art. 3),
military personnel that had been disabled or hurt is entitled to up to 15-day holiday,
once a year, in the recreational facilities of the Ministry of Defense, Ministry of Interior,
Ministry of Health and state-owned company “Prophylactics, Rehabilitation and
Recreation” EAD (PRO EAD). Under this mandate, eligible staff pay only 25% of the
fees charged for accommodation and food service. The remaining cost is covered by
the state budget and the corresponding funds are transferred to the first-level budget
holder that operates the respective facility.
26. By law15 all properties in Bulgaria that provide hotel-type accommodation or
restaurant services need to be categorized and registered with the National Tourist Registry.
The certificate of categorization is valid for 5 years16 and is intended to assure their guests that
hospitality establishments adhere to certain service quality, hygiene and customer safety
requirements. The Consumer Protection Commission is authorized to control whether the facilities
offering accommodation and food comply with the requirements of the Tourism Act.
27. Some of the Government recreational facilities are operating without current
categorization certificates. Review by the project team,17 indicates that some of the recreational
properties of the Bulgarian state have the required categorization, while the categorization
certificate of other facilities has expired. Yet others appear not to be categorized at all. It is not
clear how vigorously the Consumer Protection Commission exercises its control functions of
governmental facilities that offer accommodation and food.

15
Legal requirements on categorization of hospitality establishments are defined under the Tourism Act and the
Regulation on the Requirements to the Facilities Providing Accommodation and the Facilities Offering Food and
Recreation and the Procedure for their Categorization, Refusal, Demotion, Suspension and Termination
16
While hotels are categorized by the Minister of Tourism based upon a proposal by the Expert Committee on
Categorization and Certification of Tourist Facilities, recreational facilities (почивни станции) are categorized by the
Mayor of the municipality where these are located upon a proposal by the respective Municipal Committee on
Categorization of Tourist Facilities.
17
Verification of the categorization of the recreational facilities within the online Registry of the Facilities Providing
Accommodation and the Facilities Offering Food and Recreation, part of the National Tourist Registry

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2 CURRENT STATUS
2.1 Representational and social properties supply and demand
28. Government properties were assessed with the aid of two surveys to gauge supply and
demand-side issues:
● Supply-side survey: sent to all central administrations, gathered detailed
information on 160 properties owned and operated by the Government. A subset of
13 of these properties was reviewed in detail, including site visits and structured
interviews with management teams.
● Demand-side focus groups and survey: three focus group discussions composed
of members of staff that have recently used recreational facilities of the state
administration – assessed the attitudes of public administration staff towards
recreational facilities. These focus groups informed the context of a separate
survey, completed by 407 staff, providing insights to staff attitudes on pricing,
quality of services and social cohesion through the recreational experience.
29. The supply-side survey collected complete responses from 137 administrations: 71
administrations responded that they owned/managed properties (54 percent). Most
administrations operate only one facility, while only two administrations operate more than eight
facilities. The distribution of facilities is presented in Figure 1 below.

Figure 1: Number of facilities reported by respondents (%)

1 54
2 16
3 4
4 12
5 3
6 1
Number of Facilities

7 0
8 6
9 0
10 1
11 0
12 0
13 0
14 0
15 1

0 10 20 30 40 50 60

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30. The analysis is structured by the system of a given ministry (Table 2). Five ministries
reported having no facilities: Ministry of Economy, Ministry of Energy, Ministry of Tourism,
Ministry of Transport, Information and Communication Technology, and the Ministry of the
Bulgarian Presidency of the EU.

Table 2: Number of facilities reported by administrative system

Administrative System Number of facilities
1. Council of Ministers 17
2. Ministry of Foreign Affairs 1
3. Ministry of Interior 43
4. Ministry of Health 4
5. Ministry of Agriculture, Food and Forests 32
6. Ministry of Culture 2
7. Ministry of Education and Science 2
8. Ministry of Environment and Water 18
9. Ministry of Defense 52
10. Ministry of Justice 8
11. Ministry of Regional Development and Public Works 4
12. Ministry of the Labor and Social Policy 1
13. Ministry of Finance 20
14. Ministry of Youth and Sports 2
Note: Based on data reported by survey respondents
31. The largest property owners, by number of facilities, are the Ministry of Defense
(MOD), Ministry of Interior (MOI) and Ministry of Agriculture, Food and Forests (MAFF).
The MOD operates 52 properties, among which are military clubs, hotels and one representational
property (i.e., Residence Lozenetz). A special Executive Agency, the Military Clubs and Military
Recreation Activities (MCMRA) is tasked with the management of these properties. The MOI
operates 43 facilities, including rehabilitation and training facilities for police and fire department
personnel, as well as recreational facilities for ministry staff and their families. The MOI has 12
non-operational facilities. The MAFF has 32 recreational facilities; however, 10 of these facilities
are non-operational. Most of the non-operational facilities were closed down due to their poor
physical condition and the lack of funding for renovation. Others are not in operation because of
problems with property titles and other legal issues while some of the facilities operated by MAFF
served specific functions, such as veterinary clinics and agriculture cooperatives which were
dissolved during the transition period (Figure 2).

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Figure 2: Number of facilities reported by administrative system
FA C I L I T I E S B Y A D M I N I S T R AT I V E S Y S T E M ( 2 0 1 7 )
# of Operational Facilities # of Non-operational Facilities

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32. Of all ministries engaged in managing and operating recreational facilities, MOI has
the highest bed capacity (3,976) and the highest headcount of staff engaged in operating their
facilities (598). The MOD has the second highest capacity with 2,757 beds, 452 staffers and the
highest number of conference and restaurant seats. The Ministry of Foreign Affairs (MFA) and
the Ministry of Justice (MOJ) have the highest ratio in terms of number of beds per employee: for
each MFA employee fully engaged in managing and operating a facility there are 70 beds, while
for each MOJ employee there are 34 beds. The administrations with the lowest bed to employee
ratio are the Council of Ministers (4 beds per employee) and the MOD (5 beds per employee).
Private sector accommodation establishments use this ratio as an indication of service quality,
rather than a measurement of the efficiency of operation.
33. The Ministry of Foreign Affairs has only one recreational facility, the ADIS Holiday
Inn managed by ADIS Ltd, a state-owned property management company under the MFA.
The Ministry of Justice, through its Agency of Execution of Penalties operates facilities which are
not open to external visitors and serve employees from the prison system. The MOJ facilities are
situated on state prison territory and are free of charge for employees. The maintenance cost of
these facilities is low because the Agency of Execution of Penalties engages prisoners under
voluntary renovation and construction work programs. MOJs operating staff is minimal because
visitors are responsible for preparation of their own food and cleaning the properties.

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Table 3: Accommodation capacity by administrative system

Bed capacity Conference facilities Restaurant facilities Staff count

Admin. Av. # Total Av. # of Total # of Av. # of Total # of Av. # Total

System of # of conference conference restaurant restaurant of # of
beds Beds seats seats seats seats staff staff
MOI 120 3974 20 644 46 1506 18 598
MOD 95 2757 151 4236 133 2267 16 452
COM 100 1406 65 913 83 1164 26 370
MAFF 60 714 0 0 16 194 5 60
MOF 33 589 30 533 12 210 4 79
MOJ 30 238 6 50 0 0 1 7
MOH 49 194 0 0 0 0 4 17
MRDPW 45 179 11 45 39 155 4 15
MLSP 160 160 100 100 100 100 17 17
MEW 16 147 12 110 0 0 2 14
MFA 140 140 140 140 100 100 2 2
MOC 6 12 0 0 0 0 3 5
MES 0 0 6 12 n.a n.a 1 1
34. Outsourcing all or part of property management is not a common practice among
participating administrations. Only 5 percent of respondents (i.e., specifically from the Ministry
of Agriculture, Food and Forests and the Ministry of Environment and Water) indicate that they
have outsourced the full management of facilities to a different legal entity. The outsourcing of
parts of facilities such as coffee shops, restaurants, sports facilities, etc. is on average more
common among administrations, as indicated by 11 percent of respondents to the survey.
Figure 3: Have you outsourced the overall Figure 4: Have you outsourced parts of any
management/operation of any facilities to a facilities (e.g. coffee shops, tennis courts, etc.,)
different legal entity? to a different legal entity?

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35. Only a third of the surveyed administrations collect and analyze customer satisfaction
data. The Executive Agency Military Clubs and Military Recreation Activities, under the MOD,
is among the administrations that routinely collect feedback via visitor surveys. Most of the
facilities MCMRA operates are categorized as hotels under the Law on Tourism and have a
corresponding star rating ranging from one to three stars. The Ministry of Labor and Social Policy
(MLSP) also regularly collects feedback from individuals undergoing training at their Center for
Human Resources Development and Regional Initiatives in Kremikovtsi. Further, ADIS Holiday
Inn, the MAF facility located in the Black Sea resort Golden Sands, collects customer satisfaction
feedback as a regular practice. In addition, ADIS Holiday Inn is listed on most of the major internet
booking sites and has high independent customer reviews.
36. All ministries, which collect feedback, value the information while nearly two thirds
of those not collecting customer feedback noted such information would be useful. When
asked whether collecting customer satisfaction feedback would be useful, 65% of administrations
that do not collect such feedback responded “Yes”. All of the administrations, which indicated
that they collect customer feedback, also shared that they receive positive feedback.

Figure 5: Recreation facilities collecting customer feedback

% PROPERTIES COLLECTING CUSTOMER SATISFACTION

SURVEYS BY ADMINISTATIVE SYSTEM
120 60
Yes, collecting feedback
100 100 100 would be useful
100 50

Number of properties
80 40
%

60 30
38 36
40 33 20
25 25
20 13 10
0 0 0 0 0
0 0

% Properties collecting customer satiscation surveys (Left Axis)

# of Properties managed by Administrative System (Right Axis)

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2.2 Survey of recreational services demand
37. In October-November 2017, the World Bank team analyzed the attitudes of public
administration staff associated with recreational facilities. This included conducting focus
groups of 30 public administration staff and surveying 407 staff from 12 ministries (all of whom
had used state-run recreational facilities in the past year) to assess their attitudes towards
recreational facilities, reasons for choosing this type of vacation, views on quality, price-quality
ratio, the system for distributing vacation vouchers, and attitudes towards price increases.
38. The majority of surveyed public administration staff – almost 95% – are in favor of
the recreational facilities operated by their ministries and view subsidized vacations as an integral
part of the social package provided to civil servants.

Figure 6: Do you support the social service vacation benefit at a recreational facility owned by
your administration?

39. Government recreational facilities are popular among staff because of the low prices
they charge and their excellent location. The chart below notes that the affordable prices charged
by the state-owned recreational facilities and their location are the factors which influence staff
choice most. Only 13.2% of respondents expressed “known environment/colleagues” as a reason
for utilizing government recreational facilities.

Figure 7: Reasons to spend family vacation at government recreational facilities

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40. Overwhelmingly, 96% of respondents stated that they are satisfied with the
recreational facilities despite the poor physical state of many properties. This confirms the
views expressed during the focus group discussions that because of the low prices there can be no
claims as to service quality and comfort (i.e., a critical issue for staff is the balance of price and
quality).
41. The capacity of the recreational facilities is often insufficient to satisfy staff demand
for the service. This is particularly visible in the case of the MOI and the MOD. To ensure a fair
access to recreational services, most ministries have introduced complex mechanisms for the
distribution of vacation vouchers. Reportedly these mechanisms are cumbersome and 94.3% of
the respondents support the introduction of an electronic reservation system.

Figure 8: Do you support the introduction of an electronic reservation system?

42. The demand-side survey clarified the attitudes of staff towards rate increases: Nearly
three quarters of the respondents would accept a price increase if it is accompanied by
improvements in the physical condition of the facilities and better service quality. Over a third
of the respondents would accept rate increases of up to BGN 5 per day while a larger percentage
of surveyed staff – over 40% – would support a price increase of up to BGN 10 per day and 25%
of the surveyed staff would support increasing the price of accommodation at recreational facilities
with BGN 15 per day or more.

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3 KEY FINDINGS
3.1 Financials
Lack of effective financial management principles and practices

43. Facilities are not focused on prudent financial management and are not incentivized
to generate additional revenues. Currently the management of government-owned recreational
facilities is focused on providing a social service and operating within an annual budget limit
defined by the ministry that is entrusted with their operation. All revenues collected are directly
transferred to the Ministry of Finance.18
44. The facilities are not required to follow full-cost accounting and report only their
operating surplus or loss. This method of accounting ignores the largest costs of providing the
service reflected in the depreciation of assets. Despite ignoring those costs, the facilities as a whole
report operating loss.
45. Even those that report an operating surplus are, in fact, making major losses if the
real costs of providing the service are considered. The facilities were generally built decades
ago and the assets are treated as if they were fully depreciated. Sporadic renovations and
emergency repairs are undertaken on an ad hoc basis and the costs are not fully reflected in day-
to-day accounting. In effect, the facilities are allowing guests to stay as long as they cover some
of the utility bills and service charges, while the ministry “pays the rent”. Facilities that report an
operating surplus are actually making significant losses but these losses are not currently
recognized within the Bulgarian administration due to the current financial reporting practices.
46. Sustainable operation requires following standardized accounting and financial
reporting which is not the current practice. Due to the unique characteristics of lodging
operations such as seasonality, the daily perishability of lodging room inventories and the many
consumable goods a lodging operation sells, systematic accounting and financial reporting is a
priority. Such reporting is the basis for determining depreciation and reflecting an accurate
financial profile necessary for sustaining operations. The Uniform System of Accounts for lodging
and hospitality operations is the standardized tool for tracking lodging operations financial data
such as departmental expenses, income before fixed charges, and general administration. Further,
the Uniform System of Accounts enables accounting for the asset’s depreciation. Adoption of the
Uniform System of Accounts is not only useful for internal tracking of revenues and expenses, but
also enables comparisons with similar operations within and across portfolios through creating
standardized profit and loss statements.

18
The spending limits of the facilities are aligned with the budget of the administrative structure to whom the facility
is assigned. In this context, the facilities do not have separate accounts from that of the administration to whom there
are assigned, neither does the administrative structure – they use the transitional account that feed directly in the
budget. Correspondingly all income generated by the facilities are transferred to the state budget. Art. 15 and Art 154
(5) Public Finances Act

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 Services for government clients are offered free of charge

47. Training and representational properties often provide services for free or at rates
well below the cost of providing the service. In comparison, the average loss of properties with
recreational functions is substantially lower.19 The facilities with the largest operating losses are
managed by the Ministry of Interior and the Council of Ministers (Figure 9). The top loss
generating facilities are the MOI Academy and the Boyana Residence.
48. Residence Euxinograde, under the Council of Ministers reports an annual loss of
nearly BGN 700,000. Similarly, the MOI recreational facility Lazur in Nessebar reported a loss
of nearly BGN 600,000 in 2016. While the losses of MOI properties with recreational functions,
can be tracked directly to the very modest accommodation rates charged, the losses generated by
government training and representational properties can be attributed to the major difference
between the generated revenue and operating costs. Many services are not charged back to the
users or parent ministries and the costs of providing these services are simply accounted for as
operating costs. The practice of not charging back for such services was noted in all the facilities
visited and is not good practice.
49. Charging back for services rendered between one part of government and another is
a practice that can also distort demand. Without charging back, the training and representative
functions are effectively being offered free of charge to potential users. This creates a potentially
unlimited demand and no incentive for the users to provide training efficiently. It also means that
it is impossible to accurately assess the government’s training budget and monitor it over time for
spending and outcomes.

19
In the case of the Ministry of Interior that number drops from approximately BGN -800,000 per facility to
approximately BGN -200,000 for 2016.

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 Figure 9: Financial results by administrative system

50. Only three administrations report an operating surplus: The Ministry of Defense20, the
Ministry of Foreign Affairs and the Ministry of Health (Figure 9). The Post Graduate Qualification
Center under the Ministry of Health’s National Center of Public Health and Analysis has reported
an operating surplus for the last three years, while the Central Military Club in Sofia, under the
MOD, reported the largest operating surplus in 2016 of over half a million BGN.
51. About half of the properties managed by the executive agency Military Clubs and
Military Recreational Activities, report an operating surplus. The seaside properties situated
in the summer resort St. St. Konstantin & Elena and the town of Nessebar have the best results,
while properties located in winter resorts, as well the Residence Lozenetz in Sofia, generate losses.

Pricing: Accommodation rates are set extremely low

52. Accommodation rates charged are extremely low and do not account for the cost of
operation. The lowest reported prices are charged by the Ministry of Regional Development and
Public Works (MRDPW) at BGN 5 per person per night and the MOI with an average
accommodation rate of BGN 7.50 per person per night. On the opposite end of the spectrum is
Residence Euxinograde is the most expensive government property at BGN 150 per night for
accommodation in a small apartment, for both staff and external visitors. The ADIS facility of the
MFA charges the second highest rates in the administration: BGN 48 per night for staff versus
BGN 62 for external visitors.

20
Excludes the 36 Military Clubs throughout the country due to unreported data; The Central Military Club in Sofia
is part of the analysis

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53. Rates have not been increased for several years despite requests to do so by some of
the facility managers. It is a common practice among most administrations to set rates at break-
even reflecting staff affordability rather than market rates. However, the primary factor for rates is
the budgetary spending considerations of the primary budget holder rather than actual study and
analysis of staff affordability.21
54. In many instances, the recreational facilities are located in popular tourist areas,
where demand for accommodation - especially in the peak months - is high. The prices
available to administration staff and their families is, in the majority of cases, much lower than the
market prices for comparable facilities.
55. The amount of the funds set aside by the ministry that manages the facility determines
both the accommodation rates and the annual operating period of facilities.22 All facilities
operate within spending limits, commonly referred to as “budgets”, which lump together all the
costs associated with the facility (i.e., operational and maintenance costs). Budgetary constraints
thus define the level of temporary staff remuneration and the operational period of the facility.
56. Facilities are not provided with sufficient budget to stay open or pay staff through a
longer season, regardless of opportunities to extend the operational period (e.g., such as
operating April-June and September-October for summer resorts).23 Due to such constraints,
visited facilities operate only 4-5 months during the summer season. In comparison, private sector
hotels operate 6-7 months in the same areas. Not only are they then able to capture economies of
scale, they are also more attractive to seasonal/temporary personnel.
57. Prices for external visitors are, on average, nearly 50% higher than prices for staff.
The average price per night for a double room for staff in the peak season is BGN 21 and BGN 31
for external visitors. In terms of price differentials, the greatest differences between prices for staff
and for external visitors are reported by the MOI at 121%; followed by the Ministry of Finance at
101% and the Ministry of Environment and Water at 80%. According to 61% of the facilities
reporting, staff pay rates below the market rate for similar facilities. According to the survey, close
to 50% of the facilities report that they charge external guests prices comparable to the market
rates in the locality (Figure 10). However, even with a mark-up, rates for external visitors are often
set too low. As rates for staff are often so low, the prices for external visitors, even when set at
double the staff rates, are still lower than market rates and not sufficient to generate the operating
surplus needed to make these recreational facilities self-sustainable.

21
In this context, the “budget” (i.e., spending limits) for operating a particular recreation facility is determined by the
primary budget holder at its sole discretion, while the process does not necessarily account for actual expenses required
to operate the facility or the facility’s capital investment needs.
22
For example, accommodation rates at MOI recreational facilities are derived by dividing the total budget by the
number of available capacity (beds), where staff cash contributions cover the difference of the cost of providing the
accommodation. Since the capacity of MOI recreational facilities is constant and is limited, in effect accommodation
rates decrease as the budget increases and vice versa. In this manner for example, the accommodation rates for 2016
were higher, as the MOI had a larger budget for social and recreational activities.
23
For example, some of the visited facilities have very desirable locations and the facility capacity could be utilized
in periods of lower staff demand by hosting public service retirees and children camps, events and trainings.
Interviewed facility managers believe that increasing the season i.e., the period for operating the facility, will help
address challenges with temporary staff attraction and retention, as well would contribute to revenue generation,
provided that proper revenue generation incentive are provided.

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 Figure 10: Pricing

Note: Category “Other” includes facilities which fully subsidize the stay of their employees, carry out training
and rehabilitation functions

58. The operation of recreational facilities is sponsored by staff contributions. The MOI,
MOD and MOJ use staff allowances for social, housing and cultural activities (SBKO in
Bulgarian) to partially or even fully subsidize the operation of their recreational facilities. Under
this practice, staff eligible for SBKO allowances subsidize the vacations of staff that is not eligible
to receive SBKO.
59. Prices for external visitors are higher than staff rates, but generally well-below
market rates. In terms of price differentials, the greatest differences between prices for staff and
for external visitors are reported by the MOI at 121%; followed by the Ministry of Finance at
101% and the Ministry of Environment and Water at 80%. Even with this mark-up, rates for
external visitors are set too low. The large difference is a result of the rates charged by these
administrations, which are way below the sample average of BGN 20 per overnight and well below
the rates charged by comparable private establishments. Because the rates for staff are so low, the
prices for external visitors, even when set at double the staff rates, are still not sufficient to generate
the operating surplus needed to make these recreational facilities self-sustainable.

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Figure 11: Difference in pricing for staff and external visitors of recreational facilities

70 140
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Price per night for outside guests during peak season for a double room
Price differencial Internal vs External (%) Right Axis

60. The Ministry of Foreign Affairs and the Council of Ministers charge the highest prices
for both staff and external visitors. These administrations show a divergent trend in the average
occupancy rate. The MFA enjoys a significantly higher occupancy rate of 71%, while the Council
of Ministers reports an occupancy rate of only 27%. The Ministry of Health and the Ministry of
Agriculture, Food and Forests receive the highest number of external visitors: 50% of all visitors
using the properties of the Ministry of Health are not part of the administration and 40% of all
visitors staying at MAFF properties are external to the administration.
61. The administrations charging the lowest prices accommodate fewer external visitors.
Reportedly, only 1.2% of all guests of MOI recreational facilities were external to the
administration, while this percentage in the case of the MRDPW is 4%. In comparison, the
Ministry of Finance receives a greater number of external visitors: 20%.

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Table 4: Occupancy and Pricing by Administration
Type of visitors Price
Ministry System Number Average Average Percent Percent Average Average
of number occupancy internal external rate for rate for
Facilities* of beds rate (%) visitors visitors internal external
(%) (%) visitors visitors
(BGN) (BGN)
MLSP (Training 1
160 90 9 n.a 15 25
Facility)
MFA 1 140 71 82 18 42 62
MRDPW 4 45 52 83 4 5 5
MOI 31 159 50 69 1 8 17
MOD 52 161 46 72 26 35 51
MEW 17 18 36 56 29 12 22
MAFF 23 52 35 57 40 17 23
MOC 1 6 32 n.a n.a 15 n.a
MOH 2 61 31 50 50 22 36
MOF 18 33 27 75 20 10 20
COM 14 117 27 46 13 48 62
MOJ 8 30 10 100 0 20 n.a
Note: As reported by survey respondents; Number of facilities reflects operational facilities only

3.2 Utilization
The utilization of the facilities is varied

62. The occupancy of the facilities varies considerably with the most successful operating
at near full capacity while others operate as low as 40% of capacity. All recreational facilities
offer vacation packages geared towards families, regardless of the location or the prevalent tourist
offering in the immediate area. Marketing and promoting to customer interests, is very limited.
There is minimal consideration for tailoring packages and facility offerings to market segments
(e.g., cultural/heritage tourism, active recreation, etc.), even if the location areas are particularly
attractive to specific market segments.
63. Under the current rate schemes, administrations subsidize the visits of external
guests. Rates charged to external guests do not cover operational costs. Also, rates charged to
external guests are significantly lower than the rates charged by adjacent comparable private sector
hospitality operations.

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64. Often accounted as “external visitors” are persons eligible to stay at the facility who
could not obtain a vacation voucher.24 Although all facilities are open to “external visitors” (i.e.
persons that are not staff of the relevant administration), few of the visited facilities report hosting
external visitors on a regular basis. “External” guests are most often former staff of the
administration managing the facility and members of their extended families who are not eligible
to obtain a vacation voucher to stay at the facility.25 For the most part this is not intentional, but a
consequence of the vacation voucher system for the facilities, which is inadequate to efficiently
balance staff demand and the available capacity.
65. The voucher distribution system is designed with the objective of serving only staff
entitled to the benefit. It is not intended or functional as a reservation system for external guests.
The facilities are designed to accommodate eligible staff with vacation vouchers; accommodating
external guests is an added task. As a general rule, external visitors reserve and pay for
accommodation through the same administration unit which is in charge of distributing vacation
vouchers (typically the finance or accounting departments).
66. Facilities that generate an operating surplus have higher average occupancy rates,
receive a higher number of external visitors and charge higher prices for both staff and
external visitors. These recreational facilities also tend to achieve a higher occupancy percentage
with a lower staff to bed ratio. In comparison, facilities that generate losses typically host less
external visitors, charge lower accommodation rates and have a higher ratio of staff to the number
of beds. Loss-making facilities tend to also be smaller in terms of bed, conference room and
restaurant capacities.

24
For example, the MOI facility Lazur hosts Slovak police staff under a holiday exchange program. Through this
program, Bulgarian and Slovak police officers cross pay for each other’s holidays: the accommodation of Slovak
police officers and their families visiting the Lazur facility is paid by the Bulgarian police officers on holidays at
Slovak recreational facilities and vice versa. Slovak police officers who are guests of the facility outside of the
exchange program, are accounted as “external visitors.”
25
Exception in this respect are the MAFF facilities, which have a dedicated number of rooms for external guests.
Even then, most of the external guests are MAFF staff or their friends and families.

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 Figure 12: Comparison of facilities that produce operating surpluses versus deficits

67. Besides annual number of operational days, bed capacity and location of the property
are key factors influencing financial performance. Table 5 details the results of recreational
facilities based on their bed capacity and location. There are five groups of facilities based on bed
capacity ranging from 0-50 rooms to facilities with capacity over 250 rooms in locations such as
(i) city, (ii) nature, (iii) seaside, (iv) seaside resort, and (v) winter resort. The table reveals that
smaller facilities on average generate greater losses than larger facilities. Among the largest loss
generating properties are facilities situated in seaside locales with an average number of rooms
over 100, whereas facilities situated in seaside reports with an average bed capacity of 50 to 250
rooms are one of few facility categories to report financial surplus.

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Table 5: Operating surplus/deficit based on bed capacity and location

Number of Average Average Average Average

Beds Location Surplus in Surplus in Surplus in Number of
2014 2015 2016 Beds
City (2,739) (4,490) (9,781) 19
Nature (27,986) (32,429) (38,589) 23
0-50 Seaside (6,767) (11,353) (10,469) 22
Seaside resort (9,700) (7,883) (8,216) 22
Winter resort (55,971) (52,848) (50,653) 21
City (247,136) (195,124) (185,319) 58
Nature 7,199 (139,897) (523,772) 96
51-100 Seaside (32,078) (53,810) (74,255) 73
Seaside resort 17,155 18,915 (556) 64
Winter resort (426,721) (528,654) (333,731) 86
Nature (598,851) (731,286) (474,519) 124
Seaside 4,280 (28,646) 20,699 111
101-170
Seaside resort 131,312 129,706 127,791 149
Winter resort (353,599) (249,099) (276,315) 135
Seaside (1,100,000) (931,770) (685,995) 218
171-250
Seaside resort 42,382 95,240 124,123 218
Seaside (457,087) (452,534) (495,910) 306
251-800 Seaside resort (232,034) (312,423) (224,180) 409
Winter resort (305,043) 78,196 (62,710) 294
Note: The distinction between locations, including seaside resorts and seaside locales, comes from the national
classification of resorts as reported by the National Statistical Institute (NSI).
68. Given that many of the costs of operating a recreational/lodging facility are fixed,
facilities that run higher occupancy rates will typically be more efficient and generate a lower
percentage of costs compared to revenues. Occupancy of the facilities visited varied from 40%
- 100%. Facilities operated by ministries with a large number of staff (e.g., MOI facilities) tend to
have full occupancy during the high season. The additional revenue that comes from having greater
numbers of visitors is directly transferred to state budget. In most cases facility managers view
external visitors only as a cost burden and are concerned with exhausting the allocated budgets.
69. There is opportunity to increase the efficiency of the facilities as a whole by
rebalancing the existing excess demand from certain ministries with the unused supply of
other ministries. Not all staff have regular access to recreational facilities and, thus, eligible
vacation periods (vacation shifts) are shortened to accommodate staff demand. For example, by
limiting the stay of staff at their facilities to a week, it is possible for the MOI to ensure that each

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eligible staff member has access to a facility once every three years. Other ministries’ facilities,
with largely similar characteristics and rates, have lower levels of demand. Balancing demand and
supply across ministries is an opportunity for higher utilization of assets while delivering social
benefit.

Most properties are not well marketed

70. Marketing and advertising of Government recreational facilities is very limited and
generally outdated. Many of the facilities are only advertised through official circulars or emails
to staff and/ or a notification on bulletin boards or ministry newsletter. A large number of
administrations feel discouraged from launching marketing and advertising campaigns because
they do not want to exceed their allocated budgets. The debate about marketing and advertising of
government-owned facilities is further complicated by the inability of administrations to retain any
operating surplus. Facilities are required to transfer any revenue or operating surplus back to the
state budget.

Figure 13: Marketing and advertising of the facility

71. Marketed facilities report smaller losses.

Properties which do not advertise through a website,
pamphlet, brochure or other means, on average generate
twice the loss of advertised facilities. Advertised facilities
make an annual loss of approximately BGN 130,000 per
property, while non-advertised properties record a loss, on
average, of BGN 230,000 per property. Approximately
only 2 of the surveyed facilities advertise their properties
on a website.

Properties that accommodate external visitors generate additional revenue

72. Properties that are open to external visitors (without requiring special permission)
outperform the others (Figure 14). In 2016, the properties open to external visitors were on
average close to operational breakeven. This is, in part, because external visitors often pay a
premium of 15% - 100% above staff rates.

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Figure 14: Financial results by administrative system

73. The largest loss makers are facilities which allow external visitors only with special
permission and those open only to public administration staff. These include facilities with
representative functions, such as Residence Boyana, Residence Lozenetz and Residence
Euxinograde, as well as training and rehabilitation centers managed by the Ministry of Interior,
the MOI Academy and regional directorates. An exception to this rule are the facilities under the
Ministry of Justice operated by its Agency for the Execution of Penalties. These accommodate
only prison staff and their case is very specific; these are located on the territory of state prisons
and do not report losses as they benefit from operational savings due to their association with the
prison system.26
74. Given that rates do not cover all costs of providing services, external visitors are
heavily subsidized. Subsidizing external visitors’ costs results in subsidizing the vacations of
private citizens or, in many cases, foreign nationals. Instituting standardized accounting practices
would enable improved tracking, greater awareness, and opportunities to address this.
75. Seaside resort facilities, including year-round properties and those operating only
during the summer season, are the only group which almost broke-even in 2016. Hotel
Flagman managed by MCMRA, the only hotel in the sample to operate year-round at the seaside,
generated a surplus of BGN 250,000 in 2016. The resorts of St. Sveti Konstantin & Elena and

26
MOJ facilities, due to their location, have smaller operational costs. They are self-catering, renovations and upgrade
works are implemented at very low cost by prisoners under a reduced penalty work program, and the facilities do not
require security guards.

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Albena have the best performing properties, while the properties located in resorts south of Burgas
are less efficient financially.
Figure 15: Financial results by location and Figure 16: Financial results by location and
type of facility (Recreational only) type of facility (Recreational only)

76. Recreational facilities operating year-round generate losses. Winter resort facilities
generated on average BGN 150,000 loss per property in 2016. In the same period the average loss
reported by facilities located near natural parks27 was approximately BGN 100,000 per property,
while seaside locale facilities that operate year-round have reported on average a loss of BGN
200,000 per property. The analysis of the operating results of the reviewed government properties
by location and operational model is based on the categorization of the National Statistical Institute
(NSI) which differentiates between facilities in seaside resorts and seaside locales.28

3.3 Management/Operating Model

The property management model impacts operating results

77. Most ministries manage their recreational facilities independently of each other as
standalone properties. Often one ministry has several properties that are operated using different

27
This includes facilities located in protected areas or areas of rural, natural or historic character, as well as in areas
with balneological and natural healing characteristics
28
The distinction between seaside resorts and seaside locales comes from the national classification of resorts as
reported by the National Statistical Institute (NSI).

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management models. The different operating models appear to generate different operating results;
the decentralized/fragmented operating model is associated with larger operating losses.
78. Facilities managed centrally by a government agency specially tasked with property
management have better financial results. Centralized property management allows for
economies of scale, pooling of resources, more efficient utilization of the government’s property
assets, monitoring the performance of the individual properties and implementing measures to
improve the results of the facilities. The MOD, for example, has entrusted the MCMRA with
management of all properties assigned to the ministry and is tasked with the entire property
management cycle (i.e., planning, budgeting, marketing, reservations, maintenance, upgrades,
staffing, etc.).
79. Facilities can be operated as a commercial company under a larger property
management structure. An example is the recreational facility ADIS Holiday Inn, part of the
portfolio of properties managed by ADIS LTD., a property management company under the under
the MFA. This management model allows the facility to retain generated revenues and incentivize
the most efficient operation of the facility while delivering high-quality recreational services at
affordable rates.
80. Centralized management of a portfolio of properties generates more revenue on
average. The MCMRA under the MOD and ADIS under the MFA operate the facilities assigned
to them as a portfolio of properties and have better financial results compared to other
administrations that are managing multiple properties in a decentralized manner, such as the
Council of Ministers and the Ministry of Interior. While all of the properties assigned to the COM
and MOI generate operating loss, the properties under the MOD and MFA are revenue generating.
In Figure 17 below, the operating results of the four administrations are presented, while Figure
18 depicts the relationship between the number of staff managing the property and the financial
results of that property across different ministry systems.

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 Figure 17: Results by ministry system and operating model

Figure 18: Staff levels versus financial performance of select facilities

The current funding model incentivizes property managers to not increase revenues

81. There is no incentive to generate revenue or operate facilities more cost efficiently
because individual facilities and their related administrations cannot retain generated
revenues; any financial surplus generated by the facility is transferred back to the Ministry of

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Finance at the end of the fiscal year. The operations and maintenance of most government
recreational facilities are subsidized by the state budget and the main objective of the facility
management is to stay within the spending limits (i.e. “budget” allocated to them).29
82. Administrations could retain revenues generated by facilities that are operated as
commercial entities.30 Revenues generated from such properties, as well as the respective losses,
stay within the commercial entity. Examples of such state-owned commercial companies are the
Agency for Diplomatic Properties in the Country (ADIS Ltd.) under the MFA and the company
Prophylactics, Rehabilitation and Recreation EAD under the National Social Security Institute.
83. Several administrations use staff allowances to partially finance the operation of
recreational facilities under their management. Some public administration staff are eligible
to receive an allowance for social, housing and cultural services (SBKO in Bulgarian).31 The size
of the SBKO allowance is set in the corresponding Decree for the Execution of the State Budget
of the Republic of Bulgaria: the SBKO allowance for 2017 32 was up to 3% of the salaries of staff
appointed under a labor contract. Eligible activities include, in addition to recreational services,
the provision of food, tourism, sport and transportation services, as well as cultural activities. The
Labor Code specifically prohibits the use of SBKO funds for other purposes. For military and law
enforcement agencies, the head of the administrative body decides how SBKO funds are to be
spent. The manner of spending SBKO funds in all other administrations is defined by the General
Assembly of the staff.
84. As a general rule, only staff hired under a labor contract are eligible for SBKO
allowances, while civil servants do not receive this allowance. Exceptions are the explicitly
specified categories of civil servants in the military and law enforcement.33 Correspondingly, using
SBKO funds to sustain the operation of recreational facilities results in the staff under a labor
contract subsidizing the vacation of civil servant staff. Staff employed by the MOD and MOI under
a labor contract and operational staff hired under the special laws for these ministries subsidize
through their SBKO allowances, the civil servants that are not entitled to such allowances.

29
All of the interviewed facility managers noted that the facilities could generate additional revenues provided that
they could use them to finance rehabilitation and upgrade works or to improve service quality.
30
However, vesting the properties in a commercial entity is applicable only to private state property. It would not be
possible for properties classified as public except by virtue of a law
31
SBKO allowances are regulated in Chapter 14 of the Labor Code.
32
Art. 40 of Decree for the Execution of the State Budget of the Republic of Bulgaria for 2017.
33
Public administration staff employed under the provisions of the Law on the Defense and Armed Forces, the Law
on State Agency “National Security”, the Law on the Ministry of Interior, the Law on the “National Guard Service”
and the Law on the “National Intelligence Agency

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4 ROADMAP – RECOMMENDED ACTIONS and FUTURE
CONSIDERATIONS for the BULGARIAN GOVERNMENT

85. This section outlines proposed actions to help improve the current property management
system and define a strategic vision. Although it does not include detailed legal, budgetary or
organizational ramifications of such a strategic vision – since that would be beyond the scope of
this engagement – this section provides several options that the Government should consider in
the future. The path towards the formulation and implementation of such comprehensive vision is
a process consisting of different phases – immediate, short and medium-term – which are further
elaborated in this chapter. Each stage in the process builds upon the achievements resulting from
preceding stages.
86. Recommended actions are designed to enable the GOB to: (i) strengthen property
management processes and practices across the Government of Bulgaria; (ii) ensure that
recreational facilities are run in a financially sustainable manner; and (iii) enable improved service
quality provided by state-owned properties. The recommendations are grouped into the following
phases, complementary and consistent to an overall strategic vision:
● Identify strategic priorities and adopt shared services principles;
● Define property management operating model; and
● Focus on shaping tourism policy and gradually minimize Government’s involvement in
hospitality management.
87. These actionable phases serve as basis for the implementation of the roadmap. It is
important to note that the road to success will not be a linear process; the change will rather involve
additional evaluation, testing and resources. The diagram below outlines the high-level
task/activities within each recommendation phase for the immediate-term (0-1 year), short-term
(1-3 years), and medium-term (3 -5 years). A more detailed action table responding to the key
issues identified in the report is presented in Table 6. As per the analysis, the key findings are
grouped into six categories as follows: strategic, financial, economic, managerial, social and
transparency.

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 Figure 19: Recommended actions towards a new property operating model

88. As an immediate next step, the Government needs to create a comprehensive Property
Management strategy and policy framework. The strategy will serve as an overarching set of
principles, standards and objectives guiding the reform effort. The strategy combined with a
framework is a critical first step in the process of transforming Property Management practices in
the Government of Bulgaria. Key policy considerations to be clearly addressed are outlined in
section 4.1.
89. Further, the Government can better manage facilities by adopting shared services
principles around the marketing, reservation, maintenance and payment functions. The
Government can also set a minimum regular maintenance budget to ensure that the physical assets
are protected. Increasing rates would help to stem losses without diminishing effective demand
since most of the facilities are oversubscribed particularly in peak periods. Creating incentives to
retain and benefit from revenues, and providing management with more autonomy, could result in
longer annual operational periods and the offering of additional value-added services to facility
guests and external visitors.
90. In the short-term, the Government may consider options for centralizing the
management of government properties. Such options include:
● Reassigning the operational management of poorly managed facilities to other public
property management bodies;
● Creating a government property management agency;
● Registering facilities as commercial companies; and
● Creating a state-owned property management enterprise.
91. Following the Finnish approach – as illustrated in Annex 1, the Government of
Bulgaria could create a wholly or partially state-owned property management company. The
GOB already has a successful example of this approach, the ADIS Ltd. Holiday Inn and could

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replicate that. The World Bank team visited facilities that had been split between a ministry and a
private operator or that have been sold to private investors. These approaches could also be more
widely adopted under carefully defined policies.
92. In the medium-term, the government can focus on formulating and implementing
tourism policies without being directly involved in managing such facilities. Adopting a
gradual approach, an option could be outsourcing the management of selected recreational
facilities to the private sector. International experience shows that it is a common and viable
practice for a private sector partner to run government facilities as a PPP (public/private
partnership) under a concession, a lease agreement or performance-based management contract.
In response to market demand the private sector can maintain assets, improve service quality and
provide additional services drawing upon best practice. These models are presented in Annex 5.
93. Privatization can always be an option for facilities from which the government wishes
to divest, and international practice shows that under economic constraints, many countries
actually opt for this approach. The maintenance of recreational facilities, especially loss-
generating facilities by the state, is an outdated concept and there is little rationale for continuing
the practice. However, divesting is not recommended in the short-run due to the complexity of the
social service benefit system and weak market conditions. Divesture of selected properties has
potential to drop the size of facilities available to ministry staff as a benefit. However, this can be
addressed through the government negotiating with the private sector for blocks of accommodation
at discounted rates.
94. Each of these phases involves distinct, yet integrated actions as presented below in the
high – level implementation roadmap. Table 6 illustrates an overview of main reform challenges
formulated in the analysis while identifying appropriate measures to tackle these. It is important
to be noted that some of the measures cover two or more focus areas due to a broader spectrum of
impact.

Table 6: High-level implementation roadmap

Measures Steps
Current challenges

Strategic Develop and implement property Identify strategic priorities

mgmt. strategic vision Review and amend legislation
There is a lack of a Ensure paradigm shift and regulating state-owned properties
comprehensive Government cultural progression towards exit Consult with stakeholders
policy or vision for the Allow profit retention Engage with the private sector
management of the facilities Adopt shared services principles Communicate
Conduct change mgmt. activities

Financial Adopt revenue mgmt. Calculate the true costs of facilities

Adopt uniform efficiency & Review pricing practices
The facilities generate large facility mgmt. standards Formulate new prices (external vs.
fiscal losses to the state Adopt uniform financial internal)
budget management principles including Introduce service quality standards
full cost accounting Ensure regular reporting

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 Economic Introduce market prices for Conduct market research
external guests Establish system to benchmark
By charging less than market prices to the private sector
rates, the facilities present a Define pricing approach (BAR,
competition challenge for BAR by LOS, Open Pricing,
privately run tourism Seasonal etc.)34
facilities Monitor and Evaluate
Partner with tour operators
Managerial Build staff capacity Evaluate staff capacity
Introduce single real-time Develop and deliver training
The facilities are run by civil reservation system modules
servants without specialist Adopt revenue mgmt. Develop system specifications
knowledge or skills in Procure the system
property management and Ensure system maintenance
tourism Ensure regular monitoring
Monitor customer satisfaction
Evaluate staff performance
Social Open facilities to all civil Initiate dialogue with all ministries
servants Create a platform to share
As recreational facilities are information
operated by individual Mandate opening of all facilities to
ministries, there is a lack of all civil servants.
equal opportunities for all Introduce real-time centralized
public employees to benefit reservation system with clear rules
from the facilities for precedence (i.e. ministry staff
first, then other civil servants and
then the general public).
Communicate the benefits
Monitor satisfaction
Transparency Introduce single real-time Review existing market solutions
reservation system including outsourcing e.g. through
Comparable operational booking.com of equivalent. Select
information is not available and procure optimal system and
as the facilities do not follow enforce through appropriate
widely-accepted accounting legislation Collect & Analyze data
practices and do not publish Publish annual reports
annual reports Communicate survey results
(customer satisfaction)
Introduce a rating system

34
BAR – Best Available Rate; BAR by LOS – Best Available Rate by Length of Stay

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4.1 Identify strategic priorities
95. Making actionable recommendations requires a clear understanding of the
Government’s objectives by all stakeholders. Specifically, questions that require debate and
reflection to proceed successfully include:
1. What are the true costs of providing recreational services?
2. Can the Government improve the facilities under the current ownership
model?
3. Is the Government well-positioned to operate recreational facilities more
efficiently?
4. How long does the Government plan to continue providing recreational
services as a social benefit to public sector employees?
5. Does the Government want to incorporate the private sector in the provision
of recreational services to public sector employees?
96. To address these questions, Figure 20 presents a decision tree for government
facilities. A detailed review of the strategic choices is presented in Appendix 4.

Figure 20: Recommended decision tree for government facilities

Develop property management strategy and framework

97. The Government should craft a solid and inclusive property management strategic
vision. The vision can be incorporated into a strategy based on best practices from national and
international models informed by data. The collection and effective use of data are important
drivers in optimizing Government’s property portfolio. At the central level, internal process for

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data collection should be formalized so that simple questions related to the actual value of the
property, occupancy rate, and financial performance can be answered in an efficient, standardized
manner. This will enhance coordination and collaboration among institutions, and allow
verifications in real time. The strategy development process should include all decision-makers to
result in a more comprehensive property management strategy and lead to better coordination
between different institutions’ management facilities. As part of the property management
strategy, performance targets should be defined for various tasks, especially for those that deal
with external stakeholders. Consistent achievement of these targets will decrease the perceived
risk of dealing with government entities.

Review and amend legislation regulating state-owned properties

98. Developing a strategy and framework requires review of the relative legislation
concerning Property Management which also collectively create and regulate opportunities
for engagement with the private sector. Such legislation includes the Procurement Act, the
Concessions Act and the State Property Act (that regulates leases). Current legal arrangements are
a challenge for effective property management. The current public finance law is too rigid to ensure
profitable management for state-owned property. Alongside the development of a strategy for
property management, the Government should consider revising the legislation in question and
ensure effective property management.

Staffing and capacity building

99. The staff of the visited facilities lack professional hospitality industry experience.
While some managers have hospitality-related experience, most lack formal training or a strong
services, operations or property management background. Building human capacity through
training and professional development at all levels is pressing as operational complexities expand
and guests have higher expectations. Training and certification is fundamental to creating
financially viable and agile operations capable of delivering consistently. A sample of education
and certification schemes is presented in Annex 5.
100. Effective operation of the properties requires managers who have the appropriate
level of specific knowledge on diverse operational issues. Facility managers should be able to
read financial and operational reports in order to make strategic decisions; market to target
segments; and develop human capital. Acquiring such skills is well beyond the current practice of
“on-the-job” learning and perpetuation of out-of-date practices. Also, adequately trained staff is
integral to efficient and productive operations. Developing appropriate training modules would
address immediate and medium-term concerns. As the experience of Croatia indicates, an
important starting point is clarity of the required standards (see Box 1 below).
Box 1:Developing hospitality and tourism education standards in Croatia
The Hospitality and Tourism sector was failing to keep pace with other industries in terms of education and
training in the Republic of Croatia. Therefore, the Association of Employers in the Croatian Hospitality
(UPUHH) in conjunction with the Croatian Culinary Federation (HKS), Croatian Sommelier Club (HSK),
and the Faculty of Tourism and Hospitality Management decided to develop educational programs. All of
them were also supported by the Ministry of Tourism of the Republic of Croatia. The following
prerequisites were specified:

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 • Define minimum tourist content that must be included in the regular curricula at all education levels;
• Improve teaching and communicating methods modelled upon the best methods in the world;
• Set criteria for the evaluation of public and private, education and scientific institutions important for
the development of tourism;
• Create legal basis for the certification and licensing of knowledge based on uniform criteria for the
profession;
• Ensure conditions for conducting practical classes and practical work, and enable other opportunities
for acquiring experience and linking theory and best practices;
• Develop organizational forms and channels for providing consultancy services to personnel in tourism;
• Propose system of tax policy measures, incentives and exemptions to improve the system and ensure
different financing sources
The Republic of Croatia recognized the importance of industry-specific workforce development and,
therefore, invested in its education. This resulted not only in better service quality and satisfied guests but
also in workforce satisfaction.
Source: Perman L, & Mikinac K. (2014). Effectiveness of education processes in tourism and hospitality in the
Republic of Croatia. Retrieved from https://bib.irb.hr/datoteka/855441.THI_May2014_616to630.pdf

Paradigm shift and cultural progression

101. A clear government policy decision on which benefits and services they wish to
continue, and for how long, is the foundation to implementation effectiveness. This is crucial
in two key aspects. First, any significant changes will require extensive and consistent
communication of the government’s commitment to an updated paradigm. Communicating the
what, why and how of policies across and within Ministries is integral to successful change.
Second, a paradigm shift regarding the funding, operation and maintenance of government assets
requires cultural change at all levels of the government. Following the recommended sequence of
the implementation roadmap (Figures 19 and 20) commences with identifying strategic priorities
followed by adopting shared services principles; implementing an updated property operating
model; and partnering with the private sector. Each of these requires commitment and
communication of progressive changes.

4.2 Adopt shared services principle

102. A number of steps can be taken in the immediate term in order to improve the
financial and operational performance of government recreational facilities. A large part of
the inefficiency of the system arises from individual agencies or ministries operating facilities in
an insulated, singular manner limiting economy of scale benefits. As each ministry operates its
own facilities, benefits of a system-wide approach are not utilized.

Introduce a single, real-time reservation system

103. Occupancy of the facilities varies dramatically, despite relative similarities in

offerings and rates. Several facility managers suggested that their facilities remain under-utilized
due, in part, to the untimely provision of occupancy information from the parent ministry. As

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utilization is handled by the parent ministry through the process of assigning and distributing
vacation vouchers, facility managers do not timely information on projected occupancy and
available capacity. Moving to a centralized electronic system for monitoring reservations and
occupancy, as typically used in other lodging and facility portfolios, would provide reliable
information on reservations and available room capacity to the parent ministry, public
administration staff and to facility managers. This would also enable matching excess staff demand
from certain ministries to facilities that are currently under-utilized.
104. The design, implementation and maintenance of such a system entails upfront costs
to be budgeted for from operational or capital expenditures. The champion of the new system
would be expected to work with the State Agency for E-Government (SEGA) in order to review
existing practices and agree on a standard approach for the Government. Another option is to
review possible external providers. There are examples within the sample of government
recreational facilities that already take advantage of commercial reservation platforms.35

Advantages Considerations
•Provides an end-to-end solution including taking •Some ministries ring-fence their facilities for
care of payment, cancellations, promotions and their own employees (MOI and MOJ). This
even price benchmarking to ensure that the would need to be accommodated through
Government receives maximum revenues providing eligible staff with a booking code
accommodating external guests. used to pre-book facilities before they were
•Allows for major efficiency savings considering made open to staff from other ministries.
the limitations of the current system of
distributing vacation vouchers and collecting
payments from facility guests.

105. The single reservation system should be developed to support the reform’s objectives
and enhance the shared services concept. The expected outcomes and benefits from its
implementation can be achieved through the following main functionalities: (i) access to facilities
availability in real time for all civil servants, (ii) online payment, (iii) guests feedback, (iv) online
booking for all facilities, (v) storage of customer data in the cloud, rather than on a single hard
drive, (vi) manage seasons rental duration and prices, (vii) manage rental objects, (viii) paperless
confirmation to guests, and (ix) notification to system administrators.
106. The reservation system should include a scale of priorities allowing the state
administration and the political leadership to use the properties for various meetings,
seminars, conferences, discussions, forums, and other events. The administration should avoid
spending additional resources on renting hotel venues and conference centers. Having a single
booking and reservations system for both the accommodation and the conference facilities in the
properties can greatly contribute to this objective.

35
The “ADIS Holiday Inn” facility under the MFA is already marketed on booking.com and enjoys very high
customer ratings.

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 Adopt revenue management

107. A review of pricing practices in tandem with the introduction of real-time inventory
management can enable greater efficiencies and increase revenue per available room. Similar
to seats on airplanes, recreational facilities and services are perishable—a room not occupied
tonight represents lost, non-recoverable revenue. This provides an opportunity for revenue
management. Revenue management techniques can enable offering facilities to targeted
populations at preferential rates while simultaneously charging increased rates to external visitors.
The Government may wish to consider introducing a market-oriented mechanism for setting
accommodation rates. Small increases in rates will not affect demand since prices are currently so
low. For example, many of the visited facilities on the seaside sell a room for less than the price
of a sunbed and umbrella on the beach. The demand side survey revealed that staff would support
price increases provided these are associated with improvements of the infrastructure and service
quality. Rate increases could help to offset operating costs. As for external visitors, market prices
comparable to the prices in similar properties of the same category should be introduced in order
to avoid subsidizing the holidays of external visitors.

Adopt uniform efficiency and facility management standards

108. Quality control of recreational services is fundamental to financially viable

operations. Carefully defined service quality standards and regular monitoring of achieving these
standards, contributes to evaluating actual performance and eases comparison of properties within
a portfolio or market area. While most major hotel chains define their own standards, governments
also assign hotel grade classifications. It is the combination of these which highlights facility
offerings and delivery record. International best practice is inclusion of quality of service standards
in the service level agreement between the owner and the operator for a property under a
performance-based property management agreement. The standards should be applicable to any
operator – public or private. Examples of such standards are room cleanliness paired with how this
is to be measured and controlled. In contrast, customer satisfaction is measured by visitor ratings
and feedback. Adoption of standards also enables efficiencies in training and the capacity of
workers to be productive in multiple properties.

Adopt uniform financial management principles including full cost accounting

109. The Uniform System of Accounts for Lodging and Hospitality operations is the
standardized tool for tracking lodging operations’ financial data such as departmental expenses,
income before fixed charges, and general administration. Further, the standardized uniform system
of accounts enables accounting for asset depreciation. Adoption of the Uniform System of
Accounts is not only useful for internal tracking revenues and expenses, but also enables
comparisons with similar operations within a portfolio and across portfolios through unit-based

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profit and loss statements.36 This best informs maintenance, upgrading and expansion investment
decisions as well as providing the basis for accurate valuation of facilities.

4.3 Define property management operating model

Identify operating model that allows profit retention

110. Identifying and implementing an operating model that allows for profit retention
would support higher utilization of assets, enable viability and foster integrated
maintenance. In countries where property management is not centralized, as in Bulgaria, property
management is fragmented with the control of various public properties assigned to separate
administrative structures. With this approach, various classes of properties are managed by the
responsible administrative body according to their own rules and practices, rather than based on
an assessment of what type of management is appropriate in the market where each property is
located. This fragmented approach minimizes identifying beneficial strategic opportunities and
system-wide advantages.
111. Introducing a centralized, government-wide property management function would
have many advantages. These include: (i) capturing economies of scale for instance through a
centralized maintenance team; (ii) encouraging a career stream for property managers that would
help attract professional managers to operate government facilities; (iii) taking advantage of
economies of scale in procurement opportunities enabling the advantages of lower prices for
catering, supplies and outsourced services among other expenses.
112. There are several options for centralizing the management of government properties.
Given the strategic options and diversity of properties it is anticipated that GOB will need to adopt,
to differing degrees, aspects of each of the following:
a) Reassigning the operational management of poorly managed facilities to other
public property management bodies;
b) Creating a government property management agency;
c) Registering facilities as commercial companies; and
d) Creating a state-owned property management enterprise.

Centralizing property management

113. Administrations with units fully dedicated to property management have the best
financial track record. Centrally managed facilities are capable of competing with private
sector establishments not only on price, but also on service quality. The property management
model that is most aligned with a market-oriented approach is that of ADIS Ltd., under the Ministry
of Foreign Affairs. An example of a fully centralized property management model is the Executive
Agency Military Clubs and Military Recreational Activities under the Ministry of Defense, whose
mandate is to take care of all facilities, hotels and military clubs and other real property assigned

36
For valuation of properties, investors and lenders typically require and use financial performance stated following
the uniform system of accounts.

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to the Ministry of Defense. A similar model is applied by the Ministry of Interior, whose property
management directorate is in charge of all recreational, representational and training properties
assigned to the ministry.
a) Reassigning the operational management of poorly managed facilities to other
public property management bodies
114. The Government may wish to consider the property management capacities of the
individual administrations and their willingness to transfer property management functions
-- without relinquishing responsibility and decision-making -- to other administrations. Under the
current legal framework, the only manner in which the property management function could be
transferred from one administration to another is by transferring the property itself. However, if
the provisions of Article 5a, paragraphs 6 and 7 of the Administration Act are amended in a manner
that unequivocally allows for the introduction of the principle of shared services in state
administration, such re-assignment of the property management function without re-assigning the
property would be possible.37 Once the principle of shared services is introduced fully in Bulgarian
legislation, the sharing of the property management function among administrations or the transfer
of this function to a shared services center, would require careful assessment of the individual
properties and the manner in which they are managed by particular administrations. Shared
services in property management need not be introduced across the board; they may be
implemented with regard to administrations that demonstrate lower capacity in the area of property
management while retaining the current arrangements of administrations presently doing a good
job.
b) Creating a government property management agency
115. Centralized management of the facilities under one agency or a shared services center
would allow for more transparency in the operation of recreational facilities; achieve
economies of scale and support upgrading of human capital. Central management of state-
owned real estate is the path taken by many EU Member States in the wake of the 2008 financial
crisis, including Spain, Portugal, France, Germany, Czech Republic, and Greece. Centralization is
a viable solution for addressing the noted shortcomings in Bulgaria including the high degree of
fragmentation of responsibility, uncoordinated efforts, and each government facility pursuing its
own individual objectives proximate to other government properties
Advantages Considerations
• Increases transparency of operations • Creates more bureaucracy
• Allows for a more effective utilization of the real • May create opportunities for state capture and
estate assets possible crowding out of the private sector in areas
• Optimizing operational costs based on economies of where state facilities are in direct competition with
scale. private sector establishments.

c) Registering facilities as commercial companies

37
Corresponding legal amendments are recommended within the scope of the current program, in a separate
deliverable.

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116. Many of the individual properties require significant capital investments to be able
to deliver recreational services to a basic standard. Most facilities have the potential to increase
revenue generation and offer recreational services on par with private sector establishments in the
same locality, but have no incentive to do so as all income generated in the course of operation is
transferred to the state budget. As long as the facilities operate within the budgetary support
framework, they cannot retain generated revenues; however, if the individual facilities are
registered as state-owned commercial companies, they could invest generated profits in upgrading
the facilities, improving services, offering performance-based financial incentives to the facility
management and staff.
117. Recreational facilities could be registered as state-owned commercial companies and
operate within the tourism market on par with private sector establishments. As a
commercial company, recreational facilities could operate outside of the budget framework and
could invest generated profits in upgrading the facilities, improving service quality by hiring
professional management, training seasonal staff in hospitality service provision, and increase the
facilities’ public visibility through marketing and customer targeting efforts.
118. This is the model currently applied by ADIS Ltd. and PRO EAD and may be suitable
for existing facilities that require very little capital investment and have a location which
gives the facility a distinct market advantage. Registering facilities as commercial companies
is generally only applicable for facilities classified as private state property. Public state properties
may be assigned to fully owned state companies or to state enterprises only by virtue of a law,
through a lease contract of up to 10 years (assuming they are used in accordance with their pre-
assigned function) or by a concession.38
119. Reclassifying public state properties as private state property would be a
cumbersome process, and may be counterproductive since the classification of government
properties as private state property status would open the properties to title disputes and restitution
claims.
Advantages Considerations
• Helps the Government introduce market principles • May not be a universally applicable solution. The
in operating recreational facilities. viability of this option may depend on the specific
• Allows for financial independence. The facilities location of the property and correspondingly the
would not rely on the budgetary funding cycle capability to generate profit.
• The managers of the facilities would also have • Financial viability is driven by consumer demand at
more operational flexibility that particular location.
• The managers of the state-owned commercial
companies would have greater incentives to
improve financial performance
120. Converting facilities with representational functions into state-owned commercial
companies is not a viable option. Representational properties have a more nuanced focus due to
their specific role as protocol and official events venues. Even if they could generate meaningful
revenue, it would likely be insufficient to cover operational costs. These facilities can, however,
increase their revenue generating capabilities. While representational properties could not be

38
Article 16 of SPA.

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benchmarked against the private sector, they would could introduce services typically offered by
luxury private sector establishments and use the generated revenues to offset some of the cost
associated with the provision of representational and protocol functions.
d) Creating a state-owned property management enterprise
121. An alternative path to centralized property management is establishing by law a
state-owned company that manages all government properties. Such a property management
model is applied in Finland and Holland. The Finnish government transformed its real estate
agency into an unincorporated state-owned enterprise, Senate Properties, which manages land use
issues, construction and repair works, as well as matters related to renting government premises.
The state property enterprise operates as a commercial company, but compared to incorporated
companies it has limited decision making over its activities.39 It is not supported by the budget,
however, all important decisions made by the Finnish Parliament in the annual budgeting process
and the company follows the financial and operating targets set by the Ministry of Finance. The
state enterprise also leads the Finnish government’s property investments program and is
responsible for the sale of state property that is no longer required.
122. Following the Finnish and Dutch models, the Government of Bulgaria may establish
a state-owned property management enterprise, which could outsource property development,
construction and maintenance services to external providers following standard performance-
based service agreements.
Advantages Considerations
• Could serve as the vehicle for implementing • The establishment of a state real estate enterprise
government policies, for providing social services would be cumbersome process.
and operating state-owned real estate assets in the • It could involve legislative changes, the drafting of
interest of the general public a dedicated law, as well as re-assigning properties
• Opportunity to introduce efficiency gains through that are currently managed by individual ministries
economies of scale to the newly established state enterprise.
• It can be established by law as a legal entity that is • The process of re-assigning could be met with
objections by the administrations that currently
not a trader in the context of the Commercial Act.40
manage these properties.

4.4 Partnering with the private sector

123. Properties no longer needed by the Government to implement strategic objectives or
social policies should be converted to “investment” or “income-producing” properties or
disposed of.41 The options for transforming the facilities no longer required by the Government
into “income producing properties” also fall in two groups: (i) increasing revenue generation by
drastically improving public property management or partnering with the private sector in

39
Senate Properties operates under a special law - the Unincorporated State Enterprise Act of 2002; however, Senate
Properties is also governed by various government decrees issued in the course of implementing the State Real Estate
Strategy and the Government Premises Strategy of the Finish Government
40
In Bulgarian държавно предприятие under Art 62 (3) of the Commercial Act.
41
For detailed discussion see: Kask, Kaia: “Public sector real estate asset management models and their evaluation”;
University of Tartu Press, Estonia (2014)

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managing and (ii) operating government-owned assets under various lease and concession
arrangements. The disposition path includes privatization of the recreational facilities or assigning
the properties to serve a different social function, such as social housing, educational facilities or
other role depending on the particular case. In many EU Member States such as Finland, the Czech
Republic, Germany, France, and Holland,42 the public authorities tasked with managing
government properties regularly assess their real estate portfolio and sell the properties that are no
longer needed by their governments.
124. While the GOB has full discretion with respect to privatizing unwanted properties, it
needs to consider that, at least in the short term, the sale of properties will face certain
challenges. Many of the public properties are located within oversaturated real estate markets,
which could impact the sales price. Government also needs to consider the pool of potential buyers,
realizing that investors may acquire the assets for speculative purposes rather than to use the
facilities to develop a competitive tourism offering.
125. A number of legal options for partnering with the private sector are available to the
administrations that operate recreational facilities. The choice of an option depends on several
of factors, including the legal classification of the particular property, whether the Government
intends to continue to provide recreational services as a social benefit to public sector employees
through these properties, on the facilities’ physical condition, on the availability of funding
available to maintain and upgrade the property assets and increase the quality of the service
offering, and most importantly on the interest of the private sector to operate the particular facility.
Specific of legal options and considerations are discussed in Annex 3.

Outsourcing models: concessions, lease, procurement

126. Concessions, as defined under the recently adopted Concession Act, are legal tools
specifically designed to enable partnerships with the private sector. The Concessions Act,
which entered into force on 1 January 2018, expands the choice options available to public bodies
for incorporating the private sector in the management and operation of state-owned resources.
The new framework introduces more flexible terms, specifically designed to encourage public-
private partnerships and outsourcing the management and operation of state resources under
concession arrangements, especially in vastly underutilized area of construction and building
works.
127. Outsourcing property management under one of the concession mechanisms of the
new act is particularly appropriate for improving service quality and attracting private
investment in state-owned property, which may be leading concerns with respect to some of the
government facilities experiencing chronic lack of public funding for repairs and upgrades.
Concession considerations are presented in Annex 4.
128. Partnering with the private sector in outsourcing construction works or the provision
of services is possible also under a procurement process. The choice of taking advantage of
concession instruments or following standard public procurement procedure is depends on the

42
For Details see Annex

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desired level of flexibility with respect payments between the parties. The main differences
between these two mechanisms are:

Procurement Concession for works/services

• Operational risk43 is borne by the state • Operational risk is borne by the concessionaire.
• Public procurement for periodic or continuous • Concessions for building works or services could be
services can only be awarded for a period of up to 5 awarded for up to 35 years.
years (Art. 113, Public Procurement Act)
• The process for awarding procurement is simpler. • The process for awarding concession is more
complex and entails additional costs.

129. The use of a concession instrument is applicable only to public state property, where
the private concessionaire is granted the right to use a public property against compensation
under an obligation to implement an investment program, which would ensure the maintenance of
the property’s operational fitness. The concessionaire bears all operational risks and may not
destroy or materially alter the property granted under the concession arrangement. The concession
for use can be entered into for a period of up to 25 years.
130. Such a concession is very similar to a lease agreement; however, there are some key
differences. Therefore, the administration is advised to consider the differences between the two
instruments on a case-by-case basis in order to make a choice as to the more suitable option for
the particular property. The main differences between these two mechanisms are outlined below.

Lease of public state property Use of a concession

• Maximum period of 10 years • Maximum period of 25 years
• Property needs to be used in accordance with the • No limitation on the purpose of use
purpose it has been assigned for.
• The main obligation of the lessee is to pay the rent. • The main obligation of the lessee is to maintain the
property in good condition through implementing an
investment program.
• The process for awarding a lease is simpler. • The process for awarding a concession is more
complex.

131. The new framework decentralizes the process of awarding concessions. Concessions
may be granted by individual Ministers regardless of whether the state property in question has
been assigned to the first level budget holders or to lower level budget holders within the same
administrative system. Under the previous framework, concessions were awarded by the Council
of Ministers. Apart from making the process more flexible, this decentralization empowers

43
According to the Concessions Act, the term “operational risk” shall mean the risk of exposure to market fluctuations
related to supply/demand of the concession object/services. The risks related to poor management, violation of
contractual obligation by the private entity or force majeure shall not be considered operational risk. The operational
risk is considered borne by the concessionaire when under normal operational conditions of the concession, there is
no guarantee that the concessionaire’s investment would be recuperated.

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individual administrations to take advantage of the concession instrument to address some of the
more pressing issues associated with managing the recreational facilities, as well to attract private
funding for their renovation and upgrading.

4.5 Issues and considerations for the future

132. The decision-making process requires comprehensive understanding of all policy
related aspects, such as effectiveness, efficiency, impact and sustainability. The Government
of Bulgaria’s recreational, representational and training facilities assets are numerous and diverse.
The hold great value to the people of Bulgaria. This report has provided a review of these facilities;
an assessment of their challenges and recommended actions for improved operation and value
enabling greater social and economic returns. The box below illustrates key aspects and further
reflections, which cannot be covered through this engagement, and which the Bulgarian
Government should consider and analyze in its policy decision-making process.

Box 2: Issues and considerations for the Bulgarian Government – Looking towards a new
property management reform

➢ Should the Government provide subsidies?

Subsidies are not necessarily bad. Governments all over the world as well as international
cooperation have found justifications for social protection and social-oriented subsidies.
If the government and the beneficiaries of the --implicit and explicit-- subsidy policy for
recreation, training and representation of government personnel are persuaded subsidies are
a priority need, external evaluators should probably start by discussing subsidy relevance
vis a vis other potential uses of public resources as well as other ways to secure those public
services. The Government could develop a comparison of such subsidies with financing
other priority needs currently under-financed or not financed at all.
A subsidy can be evaluated in terms of social welfare, public policy or fiscal costs. Both the
welfare economics approach and the public policy approach to measuring benefits and costs
should incorporate expenditure externalities such as citizens´ trust in public institutions and
opportunities for corruption.

➢ The path towards policy reform

The policy cycle includes planning, approval, financing, implementation and evaluation.
Beside the implementation, the Government should consider testing and evaluation of the
new policy as well as a different reform path. In addition to change management and
communication strategies, the Government should develop activities for testing and
evaluation of policy prototypes, with limited resources and strict deadlines to assess the
pros and cons of the new paradigm. The efficiency and the feasibility of the identified policy
should be further elaborated along with identification of new risks, risk-mitigation,
governance structures and shared services, distribution of services among the universe of
eligible beneficiaries and transition costs.

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Annex 1: Country Case Studies - Finland, the Czech Republic, the
Netherlands, Germany and France

Introduction
1. This annex provides insights into government property management models identified in
five different EU member states. The countries discussed in this analysis are Finland, the Czech
Republic, the Netherlands, Germany and France.
2. Generally, public sector behavior toward real estate assets can be characterized as rather
passive and reactive. However, the global financial crisis of 2008 urged many governments across
Europe to look for new potential saving areas. Research shows that under economically difficult
conditions, governments recognized the value of more strategic asset management. Very quickly
property management became a hot policy topic for improving government efficiency. The year
2009 registered in Europe sales of government property amounting to EUR 800 million. According
to a recent Deloitte study44, the United Kingdom introduced better control measures over lease
renewals which allowed the government to save more than GBP 190 million.
3. Similar to the UK, the Greek government looked into selling some of its state-owned assets
and considered establishing a real estate investment trust. A large number of government’s real
estate holdings were transferred to the trust. Other countries, such as France in 2010, set a selling
target of 6% of its total buildings stock over the next three years. Spain, Portugal or Ireland also
tackled this issue and begun selling off parts of state assets. At a first glance, one could say that
this trend is predominant representing significant cost savings, and a shift in mindset around state
property management. But in reality, the savings only illustrate the scale of the challenge. For
instance, the GBP 190 million the UK government saved represents in fact only a small portion of
the GBP 25 billion state assets cost per year. Nevertheless, austerity measures and other reductions
related to state property are important international lessons on rethinking real estate in difficult
economic times.
4. Globally, governments are working to improve and rethink the way public sector assets are
managed and distributed. The case studies illustrated in this section should provide an insight on
how European countries redeveloped their respective state property management systems.
Although each government faces its own challenges in improving state property management, a
2013 Deloitte research study identified five critical success factors which can be summarized as
follows:
i. Prioritize real estate management and empower asset managers accordingly;
ii. Join up corporate services;
iii. Collaborate more efficiently with the private sector;
iv. Work together to improve property data collection and use;
v. Build an integrated strategy across agencies.

44
Improving public sector property management, Deloitte 2013

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FINLAND | Senate Properties – Finnish state-owned enterprise

5. This case study discusses Senate Properties (SP) 45, a fully state-owned enterprise
which manages real estate assets owned by the Finnish government. It provides information
about the creation of SP, operating and governance model, challenges and lessons learned.

Background

6. The Finnish government has solid

Senate Properties’ vision statement experience in managing state property. It dates
back to 1811 when the Office of the Intendant – a
“Vision for the future: the state of government agency – was established with the goal
Finland is at the leading edge in new to supervise the planning of government buildings.
ways of working and new work During the years, this agency changed its name
environments.” several times – for instance, in 1995 into State Real
Property Agency – but its purpose remained
constant, namely property management. The year
1999 was a turning point for State Real Property Agency because of its transformation, from being
a government agency into being a state-owned enterprise. Following that transformation, in year
2001 the name of the State Real Property Agency was changed to Senate Properties. The name-
change involved changes in the law46 and it served as medium for a new corporate image, reflecting
both traditions and modern business philosophy.

Legal framework
7. Senate Properties is an unincorporated state-owned enterprise. This means that Senate
Properties is not a legal person separate from the State, and compared to incorporated companies,
the structure has limited jurisdiction over its activities. The main piece of law governing this type
of organizations in Finland is The Unincorporated State Enterprise Act of 2002.47 The operations
of Senate Properties are also governed by various decrees, the State Real Estate Strategy48, the
Government Premises Strategy49, and State Real Estate Strategy (2010).

45
https://www.senaatti.fi/en/about-us/ (accessed on October 30, 2017)
46
State Real Property Agency was a state enterprise under Finish public law, and such entities could not change
their name via registration as in the private sector
47
http://www.finlex.fi/en/ (accessed on October 31, 2017
48
http://vm.fi/documents/10623/1169930/Vn+periaatep%C3%A4%C3%A4t%C3%B6s+toimitilastrategiaksi+EN.pd
f/a2ca1d38-e391-4565-8360-6fcff96fb596
49
http://vm.fi/documents/10623/1107144/Toimitilastrategia+2020+EN.pdf/73a36a76-a47a-4f9e-b238-378adf47987e

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Operating model
8. Senate Properties operates like a private business. The enterprise provides a large
package of services mainly for the central government covering the following sectors: (i) the
management of state property, (ii) the rental of premises, and (iii) government partner in work
environment and premises matters. By being a work environment partner, Senate Properties
supports the Finnish government in several areas, such as the improvement of digital skills, of
methods and performance, and change management support and training. It also acts as main
repository for all data about property50 and information about the State’s use of facilities, including
the costs, are made publicly available twice a year in the facilities management system.
9. The value of the real estate assets owned by the Finnish government is
approximatively EUR 4.4 billion. This represents more than 10.000 buildings which is around
6.2 million square meters of premises. One fourth of the total floor area are offices, the rest consists
in other premises such as courtrooms, museums, police department, laboratories and storage
facilities.
10. State Properties covers three separate portfolios and employs 270 staff to manage the
business. These three business areas are responsible for generating income and they are: (i)
ministries, universities, and special properties, (ii) defense and security, (iii) and offices. The
portfolios have centralized responsibility for client relationships as well as issues related to their
specific facilities, such as building project, acquisition of properties, strategic planning and matters
relating to land use. The Finnish Defense Forces occupies the largest section of government
premises and has therefore a dedicated business area. According to the Finnish Ministry of
Finance, about 500 of the total number of State’s premises have a protected status and fall under
the first portfolio category for special properties.51 These are properties classed as prestigious,
protected buildings and facilities that have been specially designed for research institutes.
11. Most of property’s design, development and maintenance services are purchased
from external service providers. In order to ensure high-quality service delivery, Senate
Properties has developed a program of 40 service agreements through which enterprise experts
consult with departments and agencies to review accommodation requirements for cluster of public
sector businesses such as court services, police, and transport hubs. The company also pays a
central role in in electricity trading between departments.
12. Senate Properties also leads the Finnish government’s investments and asset disposal
program. As a trading company, SP is encouraged to make a profit through rents and returns on
investment. The state-owned enterprise is also responsible for the sale and development of
facilities no longer used by the government. In 2016, Senate Properties registered a turnover of
EUR 599 million, which based on Ministry of Finance analysis, this represents a decrease of 4%
compared to year 2015. For 2016, the results show that the enterprise invested EUR 258 million
in assets, and completed sales for EUR 201 million. The overall results for 2016 show that State
Properties generated annual savings of over EUR 25 million on premises costs.

50
The website of the Finnish Ministry of Finance http://vm.fi/en/governance-policy/corporate-services-for-
government/state-properties
51
http://vm.fi/documents/10623/1169930/Valtion+palveluntarjoajat+_kuva_EN.pdf/99fdff05-8edd-4d18-9d04-
862aaa6ed6bc

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13. The rents for public institutions tenants of Senate Properties are determined on a cost
price basis. In 2016, Finland adopted a new central government leasing mechanism for rental
calculations. Compared to previous systems, the new mechanism offers increased flexibility of
lease agreements. This makes it easier for government agencies and public bodies to withdraw
from state-owned facilities that are not needed. Senate Properties is the only premises procurement
unit within the central government which manages facilities leasing within state-owned premises
or premises of an external lessor. This arrangement offers effective and tailored solutions for the
use of the premises, including the possibility of selling space not needed by the government. The
property sold consists mainly of assets no longer needed.
14. Senate Properties is primarily governed by Government Premises Strategy (2014).
The strategy stipulates that state’s workplace surfaces should be improved so that they support
productive activity and reduce costs of premises. Particular attention is paid towards ensuring the
overall interests of central government and including social responsibility considerations. The
acquisition of premises follows the Government Premises Strategy and the Government Decree on
the Acquisition, Leasing, Possession and Management of State Real Estate Assets.
15. Senate Properties’ operations are self-financed. As an unincorporated state enterprise,
SP is not part of the government’s on-budget entities. Important decisions relating to
unincorporated state enterprises’ development are made annually by the Finnish Parliament in
connection with the budget.
16. The state enterprise follows financial and operating targets set by the Ministry of
Finance. In addition to Parliament’s decisions, each year the Ministry of Finance defines detailed
targets for Senate Properties’ operations. SP’s working program includes several environment
development projects which are incorporated into the Government Premises Strategy. The goal is
to achieve an annual saving of EUR 100 million in eight years.
17. Senate Properties is spread out throughout Finland. The enterprise has offices in 11
locations in different parts of Finland. The headquarters are in Helsinki. At a strategic level, the
business areas are responsible for their client relationships. At operational level, the Operating
Unit covers four property regions and is responsible for client relationships and the network of
suppliers. The property regions cover customer service, letting of properties, constructions
management and matters related to construction maintenance.
18. The Ministry of Finance nominates the Senate Properties’ Board of Directors. The
CEO is supported by the Executive Committee in the decision-making process. The Committee
also addresses issues decided upon by the Board involving business or other matters introduced by
involved parties. The CEO is the chairman of the Executive Committee.

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CZECH REPUBLIC | Two central structures under Ministry of
Finance supervision

19. This case study discusses the operating model for managing state-owned property in
the Czech Republic. It provides information about two central structures in charge of property
management which function under the Ministry of Finance. The organization is illustrated in the
figure below.
Figure 1: Public core bodies in charge of property management in the Czech Republic

Ministry of Finance

Office for Government

State Property
Representation in
Management Department
Property Affairs

Background
20. The central government hires around 69.000 staff and occupies almost 1.9 million meters
of office space. This represents around 5.000 buildings across the whole country. Out of these, the
central government owns 3.500 assets with total costs for their operation of EUR 88.4 million, and
total value estimated at EUR 2.00 billion.

Operating model
21. The government property management in the Czech Republic is based on two
structures supervised by the Ministry of Finance. These two structures are the State Property
Management Department (SPMD) and the Office for Government Representation in Property
Affairs (OGRPA). The links and ways in which these two organizations cooperate are further
illustrated in this annex.

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22. Through its strategic approach to state property management, the Czech government
plans to tackle the law efficiency rate of government property. Compared to other Central and
Western European governments where space per employee runs at about 12 to 14 meters, at around
27 meters per employee (up to 43 in some units), the efficiency rate of the Czech government
property is significantly low.
23. The State Property Management Department is a central administrative authority in
the area of state property management. This department operates under the Ministry of Finance
and fulfils the role of supervising and coordination all legal matters related to state’s assets. The
SPMD is structured into four units: (i) Property Unit, (ii) Methodological Supervision of State
Property Management Unit, (iii) Transfer of State Property to Third Parties and Privatization
Approval Process Unit, and (iv) Approval of State Property Disposal Unit.52 Within the scope of
its competences the department drafts laws, implementing legislation, and state’s financial policy
in state property management. It also provides coordination and guidance for the uniform exercise
of the state’s ownership rights.
24. In relation to the OGRPA, the SPMD ensures a coordination and supervision role. In
addition to this, the SPMD acts as an information center for Ministry’s needs and exercise
professional supervision over OGRPA activities. This type of assistance offered to the OGRPA
includes methodological support and monitoring of several tasks which are relevant for the
Ministry. Further, the department prepares and approves transfers of state assets to other entities,
and deals with issues relating to EU rules governing the provision of public aid in transfers of state
assets to other entities.
25. The Office for Government Representation in Property Affairs came as a response to
the need to modernize the property portfolio. The OGRPA is a governmental structure
established on 1 July 2002 which is supervised by the Ministry of Finance. The main objective of
the Office is to improve legal services of the state and to ensure efficient management of state-
owned property.53 The OGRPA is often commissioned by the police authorities, prosecutors or
judges to administrate the property in penal proceedings. The figure below represents the
OGRPA’s main domains of activity:

52
The website of the Czech Ministry of Finance
53
The website of the Office for Government Representation in Property Affairs http://www.uzsvm.cz/en/mainpage-
391-0-87/

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 Figure 2: Main activities covered by the OGRPA

Source: OGRPA, Basic Profile 2011

26. The office’s activities are spread out throughout the country structured in eight
regional and 45 district offices. The headquarters office is in Prague. The OGRPA employs
approximately 1800 staff across the whole territory.

Figure 3: OGRPA offices around the country

Source: OGRPA, Basic Profile 2011

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27. The structure of the OGRPA follows that of the judicial system in the country. The
arrangements are such that solicitors dealing with legal proceedings and advisory lawyers are
seated in Prague. Therefore, the regional departments’ staff are in charge of legal services and
property management and administration.
28. The Ministry of Finance plays a key role in the decision-making process. The General
Director of the Office is appointed by the Minister of Finance. The OGRPA’s budget represents a
section of the budgetary chapter of the Ministry of Finance.
29. The OGRPA’s work program is based on the following legislation:
• Act No. 219/2000 Coll., Act on the Property of the Czech Republic and its representation
in legal relations.
• Act No. 201/2002 Coll., Act on the Office of the Government Representation in Property
Affairs.
• Act No. 320/2002 Coll., Act on the Modification and the Termination of Some Acts
Related to the Termination of District Authorities (public administration reform).
• Act No. 279/2003 Coll., Act on execution of securing of the property and things during the
criminal proceedings.

30. In 2016 the Office achieved substantial financial results. In terms of income, the
OGRPA submitted to the state budget approximately EUR 40 million. The revenue was mainly
from the sale and lease of property. Moreover, in 2016, the Office registered the lowest expenditure
since its foundation, namely about EUR 52 million. The Office manages over 365,000 properties
for a total value of ca. EUR 690 million. Its property portfolio includes real estate and other assets,
while the real estate represents half of the total assets with a value of approximately EUR 434
million. In 2016, the OGRPA sold 3,479 properties and over 17,000 were transferred free of
charge.
31. The OGRPA uses effective asset management software to improve data collection and
use. High-quality data has the potential to enable centralized dashboards and wider use of
predictive analytics in property management. The Office’s asset management system is connected
to other parts of the internal IT system and to other external data sources. For instance, the
OGRPA’s system is connected to the Central Registry of Administrative Buildings (CRAB), and
its information is used for the analysis of potential savings. The figure below represents the
architecture for the asset management system.

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 Figure 3: Structure of the OGRPA's asset management system

Source: Source: OGRPA, Basic Profile 2011

NETHERLANDS | Central Government Real Estate Agency

32. This case study discusses the Central Government Real Estate Agency – a government
agency which manages and maintains a large portion of the Dutch state property. It provides an
overview of the real estate operating model in the Netherlands.

Background
33. On July 1, 2014, the Dutch government decided to merge four government institutions to
form a single organization called the Central Government Real Estate Agency (CGRE). The four
structures which merges were the Defence Infrastructure Agency, the State Property and
Development Agency, the Government Real Estate Directory, and the Government Buildings
Agency. The new formed organization benefits therefore from extensive accumulated experience
in real estate.

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Operating model
34. The Central Government Real Estate Agency is part of the Dutch Ministry of the
Interior and Kingdom Relations. The Agency is responsible for the management of various types
of public real estate from buildings to military training areas. Its portfolio includes prisons, court
buildings, airports, ministerial offices, listed buildings and historical monuments, museum and
palaces. 54
35. The Central Government Real Estate Agency operates based on an income and
expenditure system. In 2016, the Agency become is an official agency. Its legal status enables
the structure to have an operating model based on an income and expenditure mechanism. As such,
the Central Government Real Estate Agency falls within the scope of Chapter XVIII on Housing
and Central Government of the Dutch government budget. The Central Government Real Estate
Agency is registered in the Trade Register of the Chamber of Commerce. 55
36. Agency’s priorities are captured in the Central Government Property Portfolio
Strategy. The Strategy is implemented in the context of central government downsize. This
impacts the Agency’s property portfolio and reduces the number of assets to be managed. The
current context challenges the structure in determining what measures of property development
should be used. The Central Government Property Portfolio Strategy describes the property
development process, offers a response to current real estate issue in the government and defines
the next strategic steps.
37. The Agency’s objective is to meet the property needs of central government. Aligned
with government’s objectives, the Agency develops strategies and policies which enables
coordinate and direction of the overall activity in the state property field. The aim of the work is
to ensure effective real estate management through improved sustainability, reduced costs, while
providing productive spaces.
38. The Central Government Real Estate Agency has a significant impact on the real
estate and construction market. The Agency represents the commercial market’s biggest client,
and acts as the link between central government and the commercial market. Aware of its important
role and responsibility, the Agency is mitigating the impact by joining other commissioning bodies
in central government in participating actively in professional and trade networks in the
construction industry.
39. The Agency has a large and diverse business portfolio. Agency’s staff supervise the
management and maintenance, purchase and sale, construction, remodelling and renovation, and
development and redevelopment of properties in their portfolio. In 2016, the Agency employed
1885 full-time equivalent staff, managed 12.4 million square meters of gross floor space buildings,
and handled over 94.000 hectares of land.
40. The Central Government Real Estate Agency wants to contribute to a sustainable
society. The Agency considers only the most effective solutions for actual implementation. The

54
The website of the Central Government Real Estate Agency https://english.rijksvastgoedbedrijf.nl/
55 The website of the Central Government Real Estate Agency https://english.rijksvastgoedbedrijf.nl/about-
us/organisation

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decision-making process is guided by the state’s objectives. However, it also considers the
surroundings together with the interest of the society as very important factors.
41. The Agency enjoys flexibility in its decision-making about buildings and land. For
instance, when it comes to alienation of property, the Agency follows the State Portfolio Strategy
and checks whether properties fit to its purpose or not. In cases where assets’ use diverges from
the strategic purposes, the CGREA can redesign and/or transform the property so that it will attract
more buyers. If the property cannot be alienated, then for a period of time, the Agency will manage
it as part of its portfolio. The Agency is alone responsible in implementing decisions and existing
procedures seem to be clearer to apply and follow than in other governments.
42. Similar to other countries, the Dutch government increased investments in modern
platforms for optimal real estate management. In 2011, the government was challenged by the
National Audit Office to provide a better oversight of its property (land, buildings and
infrastructure). That event determined the state to establish a Building Information Modelling
system (BIM) to access in real time concrete and reliable data about the premises under its
management. BIM is a digital 3D model integrating all data related to the design, build and
management processes. Some of the key benefits for this type of system are: (i) increased
utilization of sites, (ii) improved planning to save costs, (iii) and better and complete overview of
real estate for the decision-making actors.

GERMANY | Institute for Federal Real Estate (BImA )56

43. This annex presents the Institute for Federal Real Estate, which is a government
Agency in Germany managing state-owned property. It discusses important information related to
the Agency’s operating model.

Background
44. The Institute for Federal Real Estate was established via law in 2005 and is preceding
another Agency, the Federal Property Administration. The tasks and staff were transferred from
the Federal Property Administration to BImA. Over the last years the property of Federal
Republic´s Real Estate has been transferred progressively into the ownership of BImA.

Legal status
45. The Institute is a legal entity of the type i.e. Public-Law Institute which is subordinated to
the Ministry of Finance.

56
In German Bundesanstalt für Immobilienaufgaben, abbreviated BImA

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Operating model
46. The Institute for Federal Real Estate is a government agency which provides real
estate services to federal government entities. The objective of BImA’s establishment was to
develop a standardized inter-ministry system of real estate management for public property which
will enhance its efficient use. BImA employs approximately 5,800 staff and is spread out across
the country in 120 locations. The BImA manages approximately 54 million square meters floor
space which represents ca. 38.000 state-owned assets.
47. BImA operates under the legal and control of the Federal Ministry of Finance. The
top management is represented by the board of directors formed by three members. The board of
directors is assisted by the board of governors, which in turn, is formed by ten advisory-members.
The facility management department ensures successful procurement, management and disposal
of real estate to government entities. The figure below illustrates the organization of the Institute.
Figure 4: Structure of the Institute for Federal Real Estate in Germany

Source: Institute for Federal Real Estate (2008)

48. BImA is one of the Germany’s “big players” in real estate. During the years, the
German government has built up a very large and diversified real estate portfolio. Due to property
transfer started in 2005, the Institute itself owns now a major portion of the state-property under
its managemnt. This makes BImA one of the largest owners of real estate in Germany. In 2005,
the book value of the government real estate stock owned by the BImA was approximately EUR
10 billion.
49. The Institute functions as a commercial business model for managing government
real estate. It covers a diverse portfolio of services, such as facility management, sales, portfolio
management, federal forests and real estate development. These constitute the Institute’s main
activities which are provided by five out of the nine department presented above. The portfolio
management department analyzes the property assets of the Institute, and is also responsible for
economic evaluations. Further, the sales department is responsible for the commercial sale of real

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estate no longer needed by the government. Its aim is to dispose about 30,000 properties by selling
early ca. 3,000. The revenue generated from sales accounts for around 50% of the total revenue
generated.

FRANCE | Real Estate Directorate (DIE) 57

50. This case study discusses the Real Estate Directorate, which is the French government
department in charge of supervising state-owned property. Information and details related to the
operating model are further presented in this section.

Background
51. The Real Estate Directorate was created in 2016, and is preceding the Service France
Domaine, which functioned as a service within the Ministry of Economy. The creation of the
Directorate is part of the government’s policy efforts to bring a new dynamic into the real estate
sector.

Operational model
52. The Real Estate Directorate’s objective is to create a clear understanding about the
real estate situation in France, and support the government in formulating appropriate state-
owned policies. In this sense, the Directorate helps the government to investigate on the current
status of its assets, and decide upon the selling of significantly valuable properties.
53. The Directorate operates under the supervision of the Ministry of Economy. Aligned
with government’s vision for the real estate sector, the Directorate’s activity crystalizes around
three main domains: (i) ensuring successful implementation of the state property reform, (ii)
drafting legislation missions related to the use and management of state property, (iii) and ensures
evaluation missions.
54. The Directorate’s activities are aligned with the government’s Strategy for State-
owned Estate. The strategy was formed in 2005 with the main goal to reduce government debt. It
was considered that selling state-owned real estate on the market would be the best option for
tackling the debt issue. As a result, in 2005 sales generated EUR 635 million, and almost EUR 800
million in 2006. However, only a small percentage went into reducing the public debt, large
amounts were used as an economic incentive to economies on real estate holdings, by being
returned to the ministries that previously occupied the property.
55. The DIE acts as the owner of the state real estate. In addition, the Directorate plays a
key role in advising different public administrations in defining activities related to real estate. For
this, the Directorate is best positioned to help various ministries coordinate the real estate strategy.
As the “owner” of the state property, its aim is to ensure effective management and increased

57
In French : Direction immobilière de l’Etat (DIE)

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quality of public services. It also works toward reducing costs and improving the working
environment for government employees.
56. All ministries in the central administration pay internal rent to the Real Estate
Directorate. Since 2007, the former Service France Domaine started collecting rent from all
ministries in the central administration for their use of state-owned real estate. The internal rent is
a form of transfer pricing (which presents some advantages such as: not treating the space as a free
good, and by charging an asset rent the “holding” department can determine the performance of
its real estate holdings.
57. The Directorate covers a large portfolio of activities. Its domain of activities includes
purchasing, selling, renting and developing the state property. These property management
activities are performed by the Directorate in close collaboration with other 150 regional and local
treasury offices under the Public treasury (Tresor Public). In particular, the Real Estate Directorate
has the mission to alienate property that is no longer used by the French government, especially if
this became too costly or outdated to maintain.
58. The French state is the largest owner of real property in France. Data is not very clear
on this, but recent state property valuations show that in 2008, the French state assets were
approximately EUR 45 billion. The government real estate stock represents circa 150 million
square meters of floor space, half of which seems to be offices. The remaining surface is covered
by warehouses, archival buildings and circa 300,000 residential buildings, and 80% of this state
property is occupied by government ministries and public administrative institutions.

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Annex 2: Operation Overviews by Ministry System, Visited Facility Profiles
and Recommendations
1. Introduction
1. This Annex presents a detailed assessment of property management practices in 6
ministry systems, takes inventory of the recreational facilities managed by these ministries
and provides a detailed description of 13 facilities visited by the RAS team in the summer of
2017. The review is based on survey data collected as part of the project, site visits and
management interviews conducted in the period of June-August 2017. The work provides an
overview of the current state of development of property management practices across line
ministries and their recreational facilities and sets out the outline for specific recommendations for
each of the visited properties. A detailed report on the site visits as well as detailed description of
properties by parent ministry are also presented in this annex.
2. The structure of the Annex is as follows:
I. The analysis starts with an overview of the key findings identified as a result of the
data collection process, management interviews and site visits. The analysis takes
into consideration existing property management practices applied by line
ministries, the physical condition of properties, current human resource
management practices, existing operational processes across marketing, booking,
customer feedback, pricing and others.
II. Next, the Annex provides a property management snapshot for each of the 6
ministry systems - of which the 13 visited facilities were selected, including the
Ministry of Interior, Ministry of Agriculture, Ministry of Foreign Affairs, Ministry
of Defense, Ministry of Labor and Social Policy, Ministry of Environment and
Waters;
Within each system the Annex presents a data snapshot of the systems’ property
inventory, followed by an assessment of operational capacity and existing property
management practices.
III. Further, the Annex presents a detailed profile of all 13 visited facilities, including
a description of existing operations and practices, as well as provides specific
recommendations for the future development of these facilities.

Table 1. List of 13 visited facilities

Property Location Principal
Ministry of Agriculture, Food
Recreation Facility Zora Kranevo, Dobrich Region
and Forests
Recreation Facility ADIS- Resort “Golden Sands” Varna
Ministry of Foreign Affairs
Holiday Inn Region
Bulgarian Food Safety Agency,
Recreation Facility Morsko
Shkorpilovtsi, Varna Region under the Ministry of
Konche
Agriculture, Food and Forests
Ministry of Environment and
Recreation Facility Kamchiya Bliznatsi, Varna Region
Water

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 Recreation Facility Lazur Nessebar, Burgas Region Ministry of Interior

Facility Izgrev Sozopol, Burgas Region Ministry of Interior

Facility Zelenika Kiten, Burgas Region Ministry of Interior

Recreation Facility Morsko Utro Kiten, Burgas Region Ministry of Agriculture, Food
and Forests
Hotel Shipka Sofia city Executive Agency “Military
Clubs and Military Recreation
Activities” under the Ministry of
Defense
Recreation Facility Ribaritsa Ribaritsa, Lovech Region Executive Agency “Military
Clubs and Military Recreation
Activities” under the Ministry of
Defense
Residence Lozenets Sofia city Executive Agency “Military
Clubs and Military Recreation
Activities” under the Ministry of
Defense
Recreation Facility Vedra Vitosha mountain, Sofia Region Ministry of Agriculture, Food
and Forests
Training Center for Human Kremikovtsi, Sofia region Ministry of Labor and Social
Resources and Regional Policy
Initiatives

IV. The Annex concludes with an Inventory Matrix covering the 13 visited facilities in
the period July-August, 2017. The matrix provides a categorization of the facilities
based on their characteristics, including occupancy, booking system, operational
model, property ownership information, and other relevant elements.

2. Key Findings

Pricing and financial management needs to be reviewed

3. All facilities open to the public operate a two-tariff regime. Government-owned
facilities open to external guests have two sets of accommodation rates. External guests pay more
than ministry staff. The idea is that the extra revenue generated from external guests could be used
to offset some of the costs associated with the subsidized rate charged to staff.
4. Government recreational facilities on budget support cannot retain and reinvest
generated revenues. The most obvious route to the financial self-sustainability of recreational
facilities would be to first increase the subsidized prices for staff and then increase the share of
external guests that are paying higher rates. Yet, all visited facilities make no attempts to attract
external guests nor target their services to various guest segments – water sports, active tourism,
and families with small children.

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5. Accommodation prices for external guests are not aligned with prices charged by
comparable private sector establishments located in the same area.58 Current price setting for
both staff and external guests does not follow market principles. Without taking either side of the
argument on the topic of operating under different price schedules, it is understandable that a parent
ministry would consider subsidizing the vacations of its own staff and their families i.e., the
persons eligible to obtain a vacation voucher; but it is very surprising to see that even the rates for
external guests are well-below market rates. In this manner, the central administration is
subsidizing the vacations of external guests (which sometimes includes foreigners) as well.
6. There is an excessive level of subsidization of the prices. For instance, MOI facility
rates are set centrally. The MOI facility Izgrev in Sozopol charges only BGN 7.30 for overnight,
which is comparable only to the rates charged per person to set up a tent in the nearby camping
site.59 The survey of staff demand for recreational services indicates that even significant price
increases from these very low rates would not dampen demand.60
7. Food service is provided at cost or at loss. As the government provides recreational
services as a social benefit it is also understandable that the food service offered at government
facilities has a subsidy element, however, it is often provided at cost or at loss. Not charging a
reasonable overhead, apart from foregoing a potential revenue source does not allow increasing
the quality of the food service.

Lack of strategy for property management

8. Ministries lack strategic direction and vision for the management of their properties.
Except for Adis Holiday Inn, none of the visited facilities develop and implement business plans.
Main documents presented to the World Bank team reflected rather accounting aspects such as
balance sheets, tracking expenditure and revenue etc. None of these documents incorporated any
vision elements or strategic thinking related to the management of the state-owned property. For
the future development of these facilities, the Government could formulate a strategy with an
action plan that would display the tasks over the next coming years to improve the management
system for its properties.
9. Current legal arrangements are a challenge for effective property management. The
current public finance law is too rigid to ensure profitable management for state-owned property.
Public institutions which have properties under their management must return all revenue back to

58
For example, the accommodation prices for external guest of the MAFF facility Zora in Kranevo, are twice lower
than the prices charged by nearby establishments. An excellent price benchmark, at least in the case of the MAFF
facility Zora, are the prices charged by Hotel Zora operated in the same building by a privatized state-owned
enterprise Birds and Eggs - the MAFF facility charges external guests BGN 30 for accommodation in a double
room, while Hotel Zora charges BGN 60 for the same accommodation.
59
Camping Zlatna Ribka charges BGN 30 per overnight to set up a tent accommodating 4 people; even then the
price per person is BGN 0.20 higher – it comes to BGN 7.50 per overnight for a person. http://www.zlatna-
ribka.com
60
Responses of the demand survey indicate that staff would accept price increases in the amount of BGN 5-15 per
overnight, which in effect would result in price increases between 75-200% on the current rates charged by MOI
facilities.

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the Ministry of Finance. This wouldn’t be an issue if the budget allocations were based on a
mechanism which would align budget with performance. As such, there are no real incentives for
institutions to perform better. Alongside with the development of a strategy for property
management, the Government should consider revising the legislation in question and ensure
effective property management.
10. Properties with consolidated management perform better. Among the two facilities
included in category A, Adis Holiday Inn is outstanding. It seems that both, guests and
management, benefit from having a centralized and transparent booking system61. The facility is
managed by ADIS which is a state-owned company operating under the umbrella of the MFA.
Therefore, costly services such as maintenance, renovations or procurement are centrally provided
by ADIS. Another important aspect to be considered is the legal status of ADIS. As a State-Owned
Enterprise (SOE), ADIS can retain revenue and reinvest where needed, in renovation works for
instance.
11. Marketing matters. ADIS is aware of the importance of marketing when managing
recreational facilities. It has therefore entered partnership with international hotel operators and
varying websites promoting hotel facilities on the Bulgarian sea cost. The results show that this
facility is performing better and over the years, it managed to increased occupancy and generate
profit.

Lack of strategic customer targeting

12. There is no clear customer targeting. It is difficult to ensure efficient customer targeting
when vision and direction are weak. The main objective of the visited ministries is to provide
affordable vacation for its staff. Except for ADIS, none of these facilities track customer
satisfaction, and more importantly, only a low percent of staff can benefit of vouchers and access
these recreational facilities.
13. Efforts in coordinating inventory demand could be improved. A significant number of
facilities seem to have good locations and attract external guests. However, planning room
availability ahead is often very difficult for the managers since the current systems centralize
vouchers allocation offering little visibility, and do not allow online bookings. Unfortunately, this
leads to unoccupied rooms and uncovered costs. The government should consider developing a
system to better coordinate the inventory demand for external guests which represents an important
source of revenue.

Significant budget constraints

14. The budget has a restrictive impact on the operational duration of facilities. The length
of the seasons is determined as a function of the available budget allocated to each Ministry and
facility. In terms of performance, there is no difference between winter and summer season
facilities. However, the duration of the summer season seems to be too short for effective

61
See also Table 2: Comparative table for property management arrangements for the visited facilities

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operation. Many of the visited facilities consider the duration of the summer season to ensure
readiness for the high season. According to the management, the low season could be extended to
a few more weeks which would give more time for preparation, hiring and training staff. In
addition, this would allow the facility to accommodate other guests, such as retirees and other
external visitors.
15. Management faces difficulties in hiring seasonal staff. This is partially due to the
salaries paid which are lower than relevant wages in the private sector. However, there is another
reason to be considered and this is the duration of the season. Private sector hotels offer six to
seven months’ contracts, whereas the visited facilities are constraint to four months. This definitely
impacts the recruitment process and the quality of services provided.
16. The poor condition of facilities increases the operational maintenance and upkeep
costs. Although the ministries have conducted renovation works for some of the facilities, there
are still a number of features to be improved. Moreover, this is also one of the main causes for the
low occupancy. For instance, in the case of Shkorpilovtsi expenses are six times higher than
income and emergency renovations additionally hike-up the operating costs. Ministries complain
that it is very difficult to obtain important funds for renovations or upgrades.

Lack of data and systems

17. The analysis results show that institutions lack data. During both phases, survey and
site visits, it was highlighted that at both levels, central and regional, institutions lack accurate
data. There is no uniform system for collection of property management data. In some cases, there
are discrepancies between the information provided at the central and regional level. The
availability of accurate data is crucial for decision making and should be integrated in the property
management process.
18. Only two out of six visited institutions use hospitality computer systems. These two
Ministries are MFA and MOD. These two institutions register relatively better financial
performance of their facilities than the rest of administrative systems. The use of such systems
facilitates efficiency improvements and reduces the risk of errors.

Complex arrangements for pricing, booking and food provision

19. Accommodation rates are extremely low.62 Table 2 below illustrates in a very simplified
way the logic behind the price setting process. Except for ADIS, none of the visited facilities
consider market research when determining the price or the duration of packages. The price is
centrally determined and established through a Ministerial order. All institutions apply this
procedure and most of them use the SBKO contributions as a basis for the price definition. This
method has not been revised recently, moreover, the management believes that increasing the
prices by 10-20 percent will not impact the demand side.

62
For more detail see Annex 1

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 Table 2: Comparative table for property management arrangements for the visited facilities

satisfaction
PM Model

allocation
Accomm-

Objective
Packages

customer
Provides
Booking

training
(# days)
odation

Tracks
service
Food
rates
MAFF PM SKBO Central 7 or 9 Pre-orders No Provide No
Directorate affordable
vacation to
Ministry ’s staff
MOI PM SBKO Regional 7 Pre-orders No Provide No
Directorate A la carte affordable
vacation to
Ministry ’s staff
MOD Ministerial SBKO Central 7 Pre-orders No Provide No
Agency A la carte affordable
vacation to
Ministry ’s staff
MFA SOE Market First 7 Pre-orders No Provide Yes
oriented came, first A la carte affordable
served vacation to
Ministry ’s staff
MEW Territor-ial SBKO Regional 10 no No Provide low cost No
unit accommodation
to Ministry ’s
staff
MLSP PM n/a Central n/a A la carte n/a Design and No
Directorate deliver training
to staff

20. The system for voucher allocation is fragmented. Voucher allocation is determined at
the central level, very often by the director of the property management department or the finance
director. However, the criteria on which the allocation is conducted remains unclear. Moreover,
some institutions have a second allocation process at the regional level which complicates the
procedure and hinders coordination. Very often facilities managed by the same institution and in
the same region lack coordination and perform differently. Some facilities operate at full capacity
and have to send guests away, while others struggle to attract to attract enough visitors.

Lack of formal training

21. None of the visited facilities provides no formal training. There is lack of adequate
training to staff involved in property management or hospitality. None of the staff managing the
visited facilities received training before occupying the position nor afterwards.

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3. Review by System

Facilities operated by the Ministry of Agriculture

Data Summary

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Assessment of Operations
The Ministry of Agriculture, Food and Forests (MAFF) has a dedicated property
management directorate that oversees the operations of the facilities. However, the operating
model is fragmented and the facilities are managed by staff with minimal tourism industry or
property management experience. MAFF properties appear clean and welcoming.
The visited MAFF facilities have a prime location in resort areas. However, the facilities
charge accommodation rates and provide food service at prices well-below market rates. The
facility managers interviewed believe that raising prices would not dampen demand.63
Some of the facilities are in poor condition such as the facility in Shkorpilovtsi. Others are
recently renovated such as the Zora facility in Kranevo and the Vedra facility near Sofia. The
Morsko Utro facility in Kiten has been partially renovated, but still requires significant upgrades.
MAFF facilities have dedicated capacity for accommodating external guests, but the efforts
to cater to external guests are not coordinated. In the case of the Zora facility in Kranevo, the
capacity set aside for external guest is used to serve MAFF staff demand, in the case of the Morsko
Utro facility the capacity set aside for external guests is insufficient to generate any meaningful
revenue. The Vedra facility was not operational at the time of the site visit in August 2017, but its
accommodation capacity is small. It is unlikely that the facility could cater to both MAFF staff and
external guests in periods of high demand (i.e., weekends and holidays). Due to its location,
however, Vedra has the potential to generate significant revenues from selling food and beverages
to external guests.
There are cultural issues associated with the MAFF recreational facility model – facilities are
viewed as our property and staff of other public administration bodies and the general public are
considered outsiders. For example, so far the only external guests of the Vedra facility was reported
to be friends and family of MAFF staff.64
Marketing and targeting efforts are not coordinated. The Vedra and Morsko Utro facilities
have functioning websites used to attract external guests and respond to their reservation requests,
while the marketing efforts of the Zora facility are rather rudimentary and the Morsko Konche
facility in Shkorpilovtsi is not advertised at all.
Facilities are not targeted to specific or different customer segment groups. All facilities offer
inexpensive accommodation, food service and parking. Efforts to provide additional services to
specific customer groups are incidental. Facilities host families with small children, but only a few
have amenities geared towards children such as playgrounds, etc. Customer targeting in the case
of Morsko Konche in Shkorpilovtsi may be an appropriate avenue to increase occupancy levels.
As a tourist destination, Shkorpilovtsi is a quieter, less developed, low budget vacation destination
that is frequented by families with small children, but also and attracts the more upscale tourist

63
For example, the management of Morsko Utro believes that accommodation rates for MAFF staff could be
increased and that the facility could charge at least a 30% overhead on the provided food service without impacting
the social objective of providing the recreation services
64
During the interview, MAFF representatives noted their concerns associated with opening the facility or the
restaurant to external guests as MAFF staff may feel uncomfortable. That being said, considering small
accommodation capacity and the proximity to Sofia, it is possible that Vedra could operate at full capacity serving
only MAFF staff.

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segment, such as people engaged in water sports (e.g., diving, wind and kite surfing) This indicates
an opportunity for the Morsko Konche facility in Shkorpilovtsi to target staff and external guests
engaged in such sports.
Budgetary constraints lead to shorter operational periods, which as a general rule is an
inefficient utilization of the real estate assets. The recreational facilities under MAFF, as well
as most government recreation facilities on the at the Black Sea coast, face a common operational
challenge: temporary staff attraction and retention due, in part, to short operational periods.65 In
addition, the short operational period does not allow the facility managers to take advantage of
obvious opportunities to increase occupancy levels.66
The mechanism for assigning vacation vouchers leads to inefficiencies and MAFF is
considering eliminating vacation vouchers for all MAFF facilities as the process is too
cumbersome. In this regard, it is planned that the most recently renovated MAFF facility – Vedra,
will not operate under the vacation voucher system.
Marketing efforts are far below hospitality industry standards. The management of the
Shkorpilovtsi facility indicates that MAFF staff that are not based in Sofia are not aware of the
existence of the facility. The manager of the Morsko Utro in Kiten noted that the system for
assigning vacation vouchers is unpredictable and is confident that the occupancy levels of the
facility could be increased to 80%, provided the management receives advance notice of
occupancy levels for MAFF staff, so the free capacity can be used to accommodate external
visitors.

65
For example, on July 27, 2017 i.e., the peak of the summer season; the Morsko Utro facility was still struggling to
fill multiple temporary positions: chambermaids and kitchen personnel; as it pays low salaries and offer shorter term
seasonal contracts than other hospitality employers in the area
66
In the case of the Zora facility in Kranevo the management believes that the facility could operate off-season as an
event center and overflow capacity facility for athletes using the adjacent sports and training facilities operated by
Russian investors. The managers of the MAFF facilities in Shkorpilovtsi and in Kiten are confident that the financial
results of the facilities could be improved by organizing children’s camps during the summer low season: June-July.
The management of Morsko Utro also believes that there is sufficient demand by MAFF staff and retirees to stay at
the facility – even in during the low summer season; however, the reservation process is cumbersome and MAFF
staff based in regional offices have no information and access to obtain vacation vouchers

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Selected Facilities Profile:
Recreational Facility Zora, Kranevo, Dobrich Region

The Zora facility is operated by the Ministry of

Agriculture Food and Forests (MAFF). The facility
is housed in a modest 8 floor building with a total
constructed space of 6,200 m2. It has a complex
ownership structure: the building is constructed on
a 1,500 m2 plot of land, designated as government
property, entrusted to MAFF, while 200 m2 of the
plot is designated as property of the Governor of the
Dobrich Region. The building where the facility is
located is owned only in part by the MAFF – a
56.18% share; while the owner of the remaining
43.82% of the building is a privatized former state-
owned enterprise Eggs & Birds, Donchevo,
Dobrich Region.
The Zora facility is in very good condition: it was
renovated recently - in 2016 all rooms were
renovated and refurbished, replaced
doors/windows, bathrooms, and water and sewage
system. The remaining immediate investment
needs include: façade, corridors, electric system,
kitchen equipment, water drainage of the property
etc.
The facility provides cafeteria-style food service to
its guests, based on day ahead pre-orders: menu for
the next day is displayed at the reception desk and guests prepay. Food is sold at cost, with no
overhead - breakfast is served at a flat rate of BGN 3 per person and lunch/dinner at a flat rate of
BGN 5 per person. These prices are much lower than the prices charged by food establishments in
the general area.
The objective of the Zora recreational facility is to provide affordable vacations to MAFF staff,
who purchase vacation vouchers for 9-day holiday packages – same day turnaround: no extra day
between shifts. There is no formal tracking of customer satisfaction, apart from maintaining a
Recommendations and Complaints journal,67 a regulatory requirement.
The cost of operating the facility exceeds its income and the operational subsidy that it receives
from the MAFF. In 2016, MAFF set the budget or spending limit of the Zora facility at BGN
266,255. During this year the facility generated BGN 70,892 in income, while spending BGN
303,834. The income of the facility is on a growth trend – in 2014 its income was BGN 56,738,

67
The World Bank team reviewed the entries in the journal in July 2015: all entries in the journal were dated
recently and were positive. There were no complaints.

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while in 2015 the facility generated BGN 61,645 in income. Such a growth trend is evident also
with respect to the facility costs: BGN 172,810 in 2015, while the cost of operating the facility in
2014 were BGN 164,560. It is very likely that the financial results are driven by renovation and
upkeep costs, as these are lumped in with the operational costs, however, it also indicates a
suboptimal pricing of the services.
Opportunities and Recommendation
Property, Location, Principal Opportunities and Recommendation

Outsource operational management under a Service Concession.

The facility is in good condition and does not require major renovation
or upgrading. MAFF could outsource the operational management to a
private hotel operator in the same location under a Services Concession
for a term that allows the private investor to recuperate his/her
investment. This would provide an opportunity for improved service
Facility Zora quality and targeted offerings/amenities that could contribute to
increased revenues.
Kranevo, Dobrich Region
A possible candidate could be the operator of the hotel located in the
Ministry of Agriculture, Food and same building. Operating the facility under a Services Concession could
Forests be awarded in exchange for blocking a certain room capacity to
accommodate public administration staff at rates specified by MAFF
during the active summer season.
After expiration of the concession agreement, the Government could sell
the property and use the income to subsidize social benefit to public
sector employees, unless the property could be used to deliver another
social benefit.

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Recreational Facility Morsko Konche, Shkorpilovtsi, Varna Region
The facility Morsko
Konche is operated by
Ministry of Agriculture
Food and Forests (MAFF).
The property is on a slope
facing the sea, has a
premier location in the
Shkorpilovtsi vacation area
and direct access to the
beach.
There are some property
issues with respect to the
land, on which the facility
is constructed. The process
of securing the required
documentation to establish
clear property title on the
land68 is still ongoing; the
property rights with respect
to the facility’s buildings are shared by two separate administrative bodies under the MAFF: the
Bulgarian Food Safety Agency (BFSA) and the Central Laboratory for Veterinary Expertise and
Ecology. As of 2015 the facility operates both facility segments: bungalows and hotel-style
accommodation; part as a joint facility; however, bookings for both segments are still made
separately through the two administrative bodies.
The facility is in very poor condition. The investment needs are severe. Management believes that
taking care of urgent maintenance needs would require BGN 300,000, while a full renovation
would require BGN 1 million. Management also does not believe that a renovated facility would
be able to attract more guests. The MAFF facility operates the cafeteria, and its food service is
outsourced to a catering company.
The facility operating costs are almost 5 times higher than the revenue generated in providing the
recreational service. The facility’s “budget” i.e., spending limit for 2016 is BGN 130,000; in the
same year the total costs of the facility were BGN 123,420, with only BGN 27,002 generated as
income. The financial results for 2015 follow the same trend – the costs were BGN 96,818, while
income was BGN 24,139.
The largest part of the operating budget is the salaries of the staff. They pay the minimum wage of
BGN 460 per month for guards (who are also offered free accommodation on-site).

68
Reportedly the title to the land has been transferred from the forest fund, and the buildings have been “inherited”
from public sector organizations that have been either privatized or no longer in existence.

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Opportunities and Recommendation
Property, Location, Principal Opportunities and Recommendation

Outsource operational management under a Works

Concession.
The facility has an excellent location but is in an exceptionally poor
condition and requires significant renovation and upgrading.
BFSA/MAFF could consider capital repair or demolishing the
current bungalows and stand-alone building and constructing a new
facility on the current lot in partnership with a private investor under
Works Concession agreement where private investor agrees to
complete all construction and upgrade works at no cost to MAFF in
exchange for taking on the operational management of the property
Facility Morsko Konche
after completing construction works.
Shkorpilovtsi, Varna Region
The concession agreement would define the construction and
Bulgarian Food Safety Agency,
building works to be completed by the private investor, the
under the Ministry of Agriculture,
performance standards with respect to service quality after the
Food and Forests
facility resumes operations and the amount of rooms set aside for
MAFF and other public administration staff and their families during
the active tourist season.
The Works Concession should have the maximum term (35 years) so
that the private operator has sufficient time to recuperate his/her
investment while at the same time deliver recreational services to
public employees at reduced rates. The Government could sell the
property after the expiration of the concession agreement and use the
sales proceeds to subsidize the provision of social benefits to public
employees.

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Recreational Facility Morsko Utro, Kiten, Burgas Region
The Morsko Utro recreational is
operated by the Ministry of
Agriculture Food and Forests
(MAFF). The facility is located in a
wooded area with immediate beach
access and has a prime location in
the tourist town of Kiten. The
facility is composed of several
large 5 story buildings. MAFF has
clear tittle to the buildings and the
land, on which these are
constructed. The average annual
occupancy of the facility is about
40%.
The total capacity of the facility is
370 beds: 120 rooms and 20 apartments. The facility has a dedicated block of 40 rooms for external
visitors and capacity set aside for MAFF staff: 80 rooms and the apartments. The condition of the
facility is acceptable. Morsko Utro was partially renovated in 2009 when BGN 600,000 were spent
for capital improvements.
The facility operates one café and a canteen-style restaurant; it has outsourced one other café on
the premises to a private operator; laundry service is outsourced as well.
The “budget” (i.e., spending limit) for 2016 was 266,000 BGN. During the same year the Morsko
Utro facility generated 13,216 overnights -- based on paid tourist tax for reported guests; of which
5,364 external visitors. The actual income of the facility in 2016 was BGN 312,369, of which BGN
171,000 from accommodation. In 2016 the accounted income from accommodation with a half-
board arrangement for staff with vacation vouchers was BGN 135,129; income generated from
external guests was BGN 85,924; and income from food service BGN 69,050 income from
operating the cafe.69 It pays regularly property tax and garbage collection tax to the Kiten
municipality - about BGN 30,000 annually.
Morsko Utro has a website, and most external visitors make reservations using the provided
contact information – email and phone.

69
There is a discrepancy between the financial information provided by Mr. Bozhkov and Ms. Todorova during the
site visit in July 2017, and the information provided in the survey completed in June 2017. According to the survey
data, Morsko Utro generated BGN 171,018 in income and BGN 266,255 in cost during 2016; reported financial
results for 2015 are: BGN 184,197 in income and BGN 274,548 in costs; correspondingly for 2014, Morsko Utro
generated 164,379 BGN in income and 225,965BGN in costs.

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Opportunities and Recommendation
Property, Location, Principal Opportunities and Recommendation

Facility “Morsko Utro” Outsource operational management under Services Concession.

Kiten, Burgas Region The facility has an excellent location and the current buildings are
Ministry of Agriculture, Food and partially renovated. Overall the condition is acceptable. MAFF may
Forests consider outsourcing operational management of the facility to a
private operator under a Service Concession. The performance of the
private operator would be monitored by a representative of the
MAFF property management directorate.
The concession agreement should define the building upgrading
works to be completed by the private investor, the performance
standards with respect to service quality and the amount of rooms set
aside for MAFF and other public administration staff and their
families during the active tourist season.
The Services Concession should have the maximum term (35 years)
to encourage the private operator to provide recreational services to
public employees at reduced rates. The Government could sell the
property after the expiration of the concession agreement and use the
sales proceeds to subsidize the provision of social benefits to public
employees.

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Recreational Facility Vedra, Vitosha, Sofia Region
The Vedra facility is operated by the Ministry of
Agriculture, Food and Forests (MAFF). The
facility was built in 1957 as a mountain hut; it was
renovated in 2016 with the intent to accommodate
MAFF staff and external guests alike; however,
at least for the moment the use of the facility is
restricted to staff part of the MAFF administrative
structures.
The facility is located at the end of Vitoshko Lale
– the premier slope of the Vitosha ski area. It is a
small facility – it has only 16 rooms and one
apartment - and the management believes that it
can be financially self-sustainable. It is designed
to operate as a hotel-style recreational facility,
rather than accommodating staff with vacation
vouchers. The facility restaurant offers a good
opportunity for generating additional income
dues to its location near the Vitoshko Lale ski
slope and the lack of food establishments in the
immediate area.
The facility has not yet operated during the winter
season. Current data on occupancy levels is based
on accommodating incidental guests – the facility
operates at full capacity on weekends and during
the week about 2-3 of the 16 rooms are occupied.
Prices were set based on comparative benchmarking of private sector offerings in the region -
based on online search, not a marketing survey; taking account the cost to provide the services.
Vedra plans to operate a restaurant open to facility guests and the general public alike. Food is sold
at cost plus small overhead – 20-30% on top of cost. Prices are lower than these charged by private
sector food establishments in the ski area, which is an opportunity to attract external visitors to the
restaurant and generate income.
The facility has its own website, including online reservation system developed by the staff of the
facility found at http://www.pbvedra-vitosha.com.
There are no other hotels in the immediate area, as the Vitosha Mountain is a national park and
development is severely restricted. The rates of Vedra are on par with the rates of small
accommodation establishments in the outskirts of Sofia in immediate proximity to the foothills of
Vitosha.

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Opportunities and Recommendation
Property, Location, Principal Opportunities and Recommendation

Recreation Facility Vedra Outsource operational management under a Services Concession.

Vitosha mountain, Sofia Region The facility is very small and is located directly at the foot of a premier ski
Ministry of Agriculture, Food and slope and has significant revenue generation potential, mostly from food
Forests and beverage services.
The facility is intended to provide recreational services on par with private
sector establishments and could be operated on a commercial basis. In the
short term, MAFF may consider outsourcing the management of the
facility to a private operator under a Services Concession. Under the
arrangement the private party would operate the property in exchange for
providing recreational services to public administration staff at rates
specified by MAFF. In the long term the Government should sell the
property.

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 Facilities operated by the Ministry of Foreign Affairs
Data Summary

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Assessment of Operations
The Ministry of Foreign Affairs has a dedicated property management company - ADIS
LTD, which operates a number of diplomatic properties, as well as the recreational facility
ADIS Holiday Inn in the resort Golden Sands. The management of the ADIS Holiday Inn facility
is in charge of day-to-day operations, while the ADIS central office in Sofia has full management
authority. The communication between the facility management and the ADIS central office is
regular and functions well.
The recreational services are on par with these of comparable private sector establishments
and the facility generates a small surplus. As the MFA recreation facility is part of the ADIS
portfolio of properties, it benefits from the parent company’s extensive property management
experience, financing to cover upgrade and maintenance costs, and the availability of an in-house
maintenance and renovation teams handle all major works.
The facility could generate additional revenue by hosting events in the low segments of the
summer season. ADIS Holiday Inn has a conference room with a seating capacity of about 50
persons and the facility management is confident that during the summer low season (i.e., May-
June and September), the facility could host events, team buildings, and corporate gatherings. The
facility could host children camps, as it has in the past.

Selected Facilities Profile:

Recreational Facility ADIS Holiday Inn, Resort Golden Sands, Varna Region
The ADIS facility is operated
by ADIS Ltd., a property
management company under
the Ministry of Foreign
Affairs. The facility is located
on an 11,000 m2, wooded plot
in a very desirable location –
immediately adjacent to a
luxury resort, Riviera, in the
Golden Sands resort. There is
direct access to an organized
beach through the property
and guests of ADIS Holiday
Inn70 can get an umbrella and
two chaise-lounges for BGN 8
per day, while not guests of the facility pay BGN 24 for the same service.
The facility’s total capacity is 106 beds: 56 rooms and 6 apartments. The recreation facility is very
well maintained and accommodating. The accommodation rates are well below the rates charged
by private sector hotels in the area; however, comparisons with adjacent hospitality establishments

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would not be appropriate as the ADIS Holiday Inn is comparable to a modest 2 or 3-star private
hotel, while most accommodation in the general area is in the upper-scale market segment.
Customer satisfaction is tracked regularly. The ADIS central office sends customer satisfaction
surveys to all MFA staff after their visit to the facility and informs the facility management of the
reported shortcomings.
The marketing efforts of the facility are on par with these of a private sector hospitality
establishment of the same size and capacity. ADIS-Holiday Inn has a website and reservations can
be made through the site or via the Booking.com reservation system. The Booking.com rating of
ADIS- Holiday-Inn for 2016 is 8.4. No efforts are dedicated to targeting the facility to a particular
visitor segment as most of guests, both the MFA staff and external guests, are repeat visitors.
The facility generates a modest operating surplus and most activities are done in-house: the only
outsourced activity is the laundry service.
Opportunities and Recommendation
Property, Location, Principal Opportunities and Recommendation

Continued operation under the current model.

The facility has an excellent location. Currently it provides recreational
Facility ADIS-Holiday Inn
services on par with private sector establishments to both public employees
Resort “Golden Sands” Varna and external guests. In the short term, ADIS may consider developing the
Region property as an event center during the low segments of the summer season
Ministry of Foreign Affairs and if possible during the off season. In the medium-long term, ADIS could
consider upgrading the facility and operating it as an upscale vacation
property or small luxury hotel.

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 Facilities operated by the Ministry of Environment and Water
Data Summary

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Assessment of Operations
The visited facility is small, offers self-catering accommodation and its service offering is
comparable to that of the adjacent private sector establishments; however, it rates are much
lower. The visited facility is in very good condition – it has been completely renovated in 2012;
maintenance and upkeep activities are funded regularly. The facility is operated by the Regional
Environmental and Water Inspectorate, (REWI) in Varna, a MEW secondary budget holder.71
The area where the facility is located is an area at the sea coast that is geared more towards
lower-income families. The area also has a significant number of competitive private sector
offerings – in the immediate vicinity there is a very large, Russian-owned tourist complex, which
hosts a large number of Russian tourists during the summer high season, Russian children’s camps
during the summer low season: May, June; and serves as training facility for Russian athletes in
the off season. The MEW facility performs quite well, considering the competition.

Selected Facilities Profile:

Recreational Facility Kamchiya, Bliznatsi, Varna Region
The Kamchiya facility is managed by
the Ministry of Environment and
Waters (MEW), which transferred
operational management to its
regional environmental and water
inspectorate (REWI) in Varna.
The facility located on a small
wooded lot near the Kamchiya River
and is composed of 12 free standing
bungalows, designed to
accommodate 4 persons. Both the
land and buildings are property of the
MEW. The facility is full during the
high summer season: July and
August; and operates at 70% capacity
during the summer low season - early June; and at 50% capacity in September. The bungalows do
not have direct beach access – the beach is a10 minute walk away, on a wooded path.
The facility is in very good condition- the bungalows have been completely renovated in 2012;
maintenance and upkeep activities are funded regularly. The housekeeper develops a report with
maintenance and investment needs and sends it to the REWI Varna - reportedly 100% of requested
maintenance and investment requests are approved.

71
The overall management of the recreation facility – bookings, approving maintenance and upkeep costs,
scheduling maintenance and construction works etc., is provided by the Chief Accountant and the Administrative
Director of the REWI in Varna.

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No food service is provided – the bungalows are intended as self-catering accommodation.
Previously the facility operated a small café, which was closed due to low demand. There are many
private food establishments in the immediate area and it is unlikely that the facility could provide
any food service. The laundry service is outsourced. The facility is closed during the off season:
September-May; while the housekeeper couple lives on the property to guard the assets.
The overall management of the recreation facility – bookings, approving maintenance and upkeep
costs, scheduling maintenance and construction works etc., is provided by the Chief Accountant
and the Administrative Director of the REWI in Varna.
The area where the facility is located is an area at the sea coast that is geared more towards lower-
income families. The whole area is wooded, protected natural area. In the vicinity, there is a very
large, Russian-owned hospitality facility, which hosts a large number of Russian tourists during
the summer high season, Russian children’s camps during the summer low season: May, June; and
serves as training facility for Russian athletes in the off season.

Opportunities and Recommendation

Property, Location, Principal Opportunities and Recommendation

Outsource operational management under a Services or a Works

Concession.
The facility provides recreational services on par with private sector
establishments in the same location. MEW may consider outsourcing the
management of the facility to a private operator under a Services
Facility “Kamchiya” Concession for the duration of the operational life of the bungalows
Bliznatsi, Varna Region Ministry of constructed on the property or awarding a Works Concession that would
Environment and Water allow the capital repair of the facility. Awarding a concession could
require the provision of recreational services to public administration
staff at rates specified by MEW during the active summer season. After
expiration of the concession agreement, the bungalows would likely be
fully depreciated and the Government may construct a new building on
same lot, change the purpose of the property or sell it.

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 Facilities operated by the Ministry of Interior
Data Summary

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Assessment of Operations
The recreational facilities under the MOI are designated as emergency facilities during war
times and in crisis situations and could be used to accommodate displaced populations and
refugees. MOI recreational facilities, including the three visited facilities on the Black Sea coast,
host police and military exercises – in 2016 the “Lazur” facility in Nessebar hosted a surprise
antiterrorism training (handling a hostage situation at a beach resort); while the “Izgrev” facility
in Sozopol hosts the regular trainings of police divers at the beginning or the end of the summer
season. Their main objective however, is social function – offering affordable vacations to MOI
staff and their families.
Accommodation rates at all MOI recreation facilities are exceptionally modest – about 9 BGN
per bed/overnight. For 2017, the accommodation rates for all MOI facilities were set centrally at
6.80 BGN per bed/overnight during the low segment of the summer season, and 9.50 BGN per
bed/overnight during the high segment of the summer season. Accommodation rates for all MOI
facilities are set by the MOI property management department under a complex procedure. 72
The operational budget of the facilities is formed by MOI staff contributions - the special
allowance for social, housing and cultural activities (SBKO in Bulgarian), which is provided on
top of salaries to MOI operational staff.73 The annual budget for operating all MOI recreational
facilities is the sum of all SBKO allowances of the eligible MOI operational staff.74 In 2016, the
total budget for all MOI facilities and other social services (formed by SBKO contributions) was
5.2 million BGN. The overall budget shrank to 4.16 million BGN in 2017 with the reduction of
the number of MOI staff eligible to receive SBKO contributions.75 This resulted in reduced
allowances for temporary staff salaries, maintenance and shorter facility operational period
The amount of the annual budget determines both the accommodation prices and the
operational period of the facilities. The budget is formed by pooling the SBKO contributions of
MOI staff and prices increase if the budget, i.e., total amount of the SBKO contributions is higher
and vice versa.76 In effect, the larger the MOI staff, the larger the pool of staff that contributes to
the SBKO fund, correspondingly the larger the MOI recreational facility budget.

72
The guiding factor in price setting is staff affordability, which allows the facility to offer a one-week vacation
package, including accommodation and food service, to a family of four - 2 adults and 2 children; at about 350
BGN. There is no base for comparison of these prices with private sector offerings in the resort areas where the MOI
facilities are located– even the most humble accommodation in is priced much higher.
73
SBKO is a 3% allowance on top of salary; this allowance is not paid to MOI staff, but dedicated to subsidize the
operations of MOI recreation facilities and other social benefits.
74
Civil servants employed by the MOI are not eligible for the SBKO allowance; however, can benefit from MOI
recreational facilities at the same rates. In effect, police operational staff (eligible for SBKO) subsidize the vacations
of their colleagues that hold civil servant status.
75
Only MOI operational staff (i.e., hired under the MOI law) is eligible for SBKO contributions; in 2017, a number
of the MOI personnel not directly engaged in police and security work were transitioned to civil servant status, i.e.,
the sum of SBKO contributions for that year was lower.
76
Accommodation rates are derived by dividing the total budget by the number of available capacity, i.e., beds,
where staff cash contributions cover the difference in the cost of providing the accommodation. Since the capacity
of MOI recreational facilities is constant and limited, in effect accommodation rates decrease as the budget increases

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The management of the facilities is not consulted on prices for accommodation, and all of the
interviewed managers believe that accommodation rates could be increased to at least BGN
10-12 per overnight, without impacting the affordability factor i.e., the facilities’ social function.
In the case of the three MOI properties on the Black Sea coast, due to the very high staff demand
and the significant number of generated overnights, even a symbolic price increase would generate
significant revenue.77
The available budget defines also the period during which MOI facilities operate during the
active tourist season. For the most part, the salaries of the seasonal staff follow monthly minimum
wage benchmarks and cannot be cut, so the reduced budgets in effect decrease the duration of the
engagement of temporary staff at the facilities. As all facilities rely on temporary/seasonal staff,
reducing the budget leads to a reduced operational period. For this reason, MOI facilities on the
Black Sea coast operate only 5 months during the summer season - in comparison private sector
hotels and operate 6-7 months, and are more attractive to seasonal/temporary personnel.
None of the visited facilities are effectively marketed or targeted. This may be due to the fact
that the MOI facilities are exceptionally popular with staff and attracting external guests is not a
focal point for the managers. MOI facilities are open to external guests, however, in practice the
external guests are usually persons affiliated somehow with MOI who use the facilities without a
vacation voucher.
Because of their desirable locations, all MOI facilities could attract both MOI staff and
external guests during the low season segments of the summer season (i.e., April-June and
September-October) and generate additional revenue, but the facilities do not operate during the
lower season segments. All of the interviewed MOI facility managers are confident that the
capacity of the entrusted facilities could be utilized in these periods of lower demand by hosting
MOI retirees and children camps, MOI events and trainings. Increasing the season i.e., the period
for operating the facility, will help address challenges with temporary staff attraction and retention,
as well would contribute to revenue generation
Shortened operational periods not only deprive the facilities of the opportunity to generate
revenue from external guests, but also have longer-term impacts. The budget cuts in 2017 did
not impact service quality even though the many of the facilities operated with a smaller staff,
working for smaller salaries and under shorter seasonal contracts; however, this may impact the
capability of the facilities to attract seasonal staff in the years to come.78

and vice versa. In this manner for example, the accommodation rates for 2016 were higher, as the MOI had a larger
SBKO budget.
77
In illustration, an increase of accommodation prices only by 1 BGN in 2016, would have allowed the Lazur
facility in Nessebar to generate BGN 41,500 in additional revenues. Under the same assumption, the Izgrev facility
in Sozopol could have generated BGN 40,718 in additional revenue in 2016; while Zelenika in Kiten would have
generated additional BGN 29,682. Similarly, if the MOI facilities charged their guests only BGN 1 per day for
parking, the Lazur facility alone could have generated additional BGN 120,000 in 2016. However, there is no
incentive to do so since none of the facilities could retain and reinvest the generated revenues – all revenues are
transferred directly to the transitional account of the Ministry of Finance.
78
In 2017, Zelenika lost 30% of its regular temporary staff, reportedly the better and more capable workers as it
offered its seasonal staff 4 month contracts – by comparison private accommodation and other recreational facilities
offer 6 month contracts. The facility attempted to hire students at the minimum wage BGN 480 per month but were

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MOI has an exceptionally burdensome mechanism for assigning vacation vouchers. As the
demand for vacation vouchers among MOI staff is higher than the supply i.e., the capacity of all
three MOI recreation facilities at the Black Sea coast, a set number of vacation vouchers are
designated by the MOI property management directorate to each of the MOI’s regional
directorates, which in turn distributes the vouchers to their individual staff members based on
committee decision. Then the individual MOI facility managers travel to the various MOI regional
directorates to deliver the vouchers and collect corresponding payments from the staff employed
by the particular regional directorate in cash. In an effort to optimize these “payment tours”,
individual facility managers travel to different regional directorates across the country and deliver
vouchers and collect corresponding payments for all MOI facilities on the coast,79 and not only for
the facilities that they manage. This system is needlessly cumbersome and can be easily replaced
by a centralized reservation system.

Selected Facilities Profile:

Recreational Facility Izgrev, Sozopol, Burgas Region
The Izgrev facility is operated by the Ministry of Interior (MOI). The facility is located in the more
central parts of the new town area of Sozopol. Izgrev does not have direct beach access, however,
its guests can enjoy of a large well-groomed park close to the town center – something that even
the most luxury
accommodation in Sozopol
cannot provide to their guests.
The total capacity of the
Izgrev facility is 413 beds and
the facility generated 40,718
overnights in 2016. The park
area is very well maintained,
however, the facility itself is
rather old and dilapidated: the
buildings were erected over
30 years ago, and for the most
part it has not been renovated.
In 2016, about BGN 150,000
were invested in renovating
45 of the rooms – partial

not successful in attracting workers. Instead Zelenika engaged retirees; correspondingly, the current pool of
temporary staff is for the most part (85%) older workers aged 65 years and older.
79
In illustration, the Izgrev facility manager would travel to the city of Plovdiv to deliver the vouchers and collect
corresponding payments from MOI staff based in Plovdiv for its facility, as well as for the other 2 MOI facilities - in
Nessebar and Kiten. On the same token, the Lazur facility manager would travel to the city of Ruse to deliver the
vouchers and collect payment for the other 2 MOI facilities. Reportedly this reservation and payment mechanism is
cumbersome and can easily be replaced by a more efficient system.

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renovation of the bathrooms and installing air-conditioning units;80 the renovated rooms are sold
at a premium.
Despite its poor condition, the facility is very popular with MOI staff. Similarly, to the Lazur
facility in Nessebar, the Izgrev facility operates at overcapacity during the high season (July-
August). It has more guests than listed bed capacity, as is allows accommodation of children on
stow away cots etc. Customer satisfaction at the facility is not formally tracked; the management
reviews only the entries (if any) in the facility’s recommendations and complaints journal.
Accommodation rates charged by the facility are well-below market rates - the management noted
that they offer the cheapest rooms in Sozopol: even the most modest private sector accommodation
would cost at least twice what Izgrev is charging per bed.
The facility provides a canteen-style food service, on a week ahead preorders of set menu, but does
not generate any income from this activity – food prices are set at cost. The facility generates
revenue from outsourcing the operation of one of the cafes to a private operator. The facility has
another café, which is not operating, and attempted to rent it out to a private operator, but
reportedly there were no candidates. The recreational facility canteen is not categorized under the
Law on Tourism and cannot offer food service to the general public.
Opportunities and Recommendation
Property, Location, Principal Opportunities and Recommendation

Outsource operational management under a Works Concession.

The facility consists of several stand-alone buildings constructed in a large
wooded park. As with all MOI facilities, the current buildings are not
sufficient to meet staff demand during the active tourist season.
The current buildings are very outdated and MOI may wish to consider
demolishing them and constructing a several larger buildings on the current
lot in partnership with a private investor, who would take on operational
management after completing the construction works under a Works
Concession.
Facility Izgrev
The concession could define the construction and building works to be
Sozopol, Burgas Region completed by the private investor, the performance standards with respect
Ministry of Interior to service quality as it resumes operations and the amount of rooms set
aside for MOI and other public administration staff and their families
during the active tourist season.
The performance of the private operator should be monitored by a
representative of the MOI property management directorate – i.e. a
property management supervisor for all MOI facilities in the Burgas
region. The Works Concession should have the maximum term (35 years)
so that the private operator has sufficient time to recuperate his/her
investment while at the same time deliver recreational services to public
employees at reduced rates.

80
The management reports their upgrade and maintenance needs regularly to MOI; however, has not developed a
dedicated investment plan based on the assumption that the requested investments would not be approved.
Management estimates that BGN 1 million is required for full renovation of the facility.

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 The Government should sell the property after the expiration of the
concession agreement and use the sales proceeds to subsidize the provision
of social benefits to public employees.

Recreational Facility Zelenika, Kiten, Burgas Region

The Zelenika facility is operated by the Ministry of Interior (MOI). Zelenika has an excellent
location - the property borders a large forested area, the town park and the premier beach of the
Kiten resort area.
MOI has clear
property title with
respect to the facility
building, but the
land on which it is
constructed is
owned by the Kiten
municipality.
The total capacity of
Zelenika is 306
beds, but as with the
other MOI
recreational
facilities located at
the sea side,
Zelenika operates at
full capacity during the high summer season, i.e., mid-July –mid –August. Similarly, to other MOI
facilities, occupancy drops to about 70% of capacity during the beginning and the end of the
summer season. The Zelenika facility was built in the 1970s and is in a good condition, some of
the rooms have been renovated and have air-conditioning, while other rooms have not. The
management develops annual reports on maintenance, upgrades and investment needs and submits
these to MOI for approval; however, requested investments are rarely approved. The facility has
not yet developed a business plan, but has a construction and renovations plan. Management
estimate that the renovation costs would be of the order of BGN 500,000. Top investment priority
is renovating the bathrooms and replacing the water and sewage system. The management
regularly tracks customer satisfaction – visitors receive standardized surveys (left in the room)
toward the end of their stay at the facility; and reviews sporadically the entries made by the guests
in the complaints and recommendations journal of the facility. Reportedly, most of the complaints
are associated with the conditions of the rooms – bathrooms, bedding, furniture, etc.
The facility has 2 cafes – one in the lobby and a one very attractive roof top terrace; the café in the
lobby is outsourced to a private operator, but the management was unsuccessful in attracting a
private operator for the roof top terrace; it is currently closed. Management report that the police
officers who stay at the facility are very cost conscious and bring their own alcohol and food.

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Opportunities and Recommendation
Property, Location, Principal Opportunities and Recommendation

Outsource operational management under Services Concession.

The facility has an excellent location and the current building, albeit very
outdated, is in a fairly good condition. MOI may consider outsourcing
operational management of the facility to a private operator under a Service
Concession.
The performance of the private operator would be monitored by a
representative of the MOI property management directorate – i.e. a
property management supervisor for all MOI facilities in the Burgas
Facility Zelenika region.
Kiten, Burgas Region Ministry of The concession agreement should define the building upgrading works to
Interior be completed by the private investor, and the performance standards with
respect to service quality and the amount of rooms set aside for MOI and
other public administration staff and their families during the active tourist
season.
The Services Concession should have the maximum term (35 years) to
encourage the private operator to provide recreational services to public
employees at reduced rates. The Government could sell the property after
the expiration of the concession agreement and use the sales proceeds to
subsidize the provision of social benefits to public employees.
Recreational Facility Lazur Nessebar, Burgas Region
The Lazur facility is managed by the Ministry of Interior
(MOI). The facility is located in Nessebar, one of the
premier vacation destinations on the Bulgarian Black Sea
coast. The MOI owns the buildings, but title to the land is
contested by the Nessebar municipality and this dispute is
currently being resolved in courts.
The facility has 345 rooms, and occupancy spikes during the
high summer season- full occupancy.
Reportedly, MOI staff is very fond of the facility, not only
because of the modest prices, but also because it is a venue
for the socialization of police officers working in different
parts of the country, which in turn supports social cohesion
among MOI staff and forms partnership that help police
officers in their work.
In addition to hosting MOI staff, the facility also hosts
Slovak police staff under a holiday exchange program, under
which Bulgarian and Slovak police officers cross pay for
each other’s holidays: the accommodation of Slovak police
officers and their families visiting the Lazur facility is paid
by the Bulgarian police officers on holidays at Slovak
recreational facilities and vice versa.

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Accommodation is modest, the facility is in dire need of upgrading, but appears well-maintained
and welcoming. Food service is provided on a canteen-style manner, based on day ahead preorders.
Food service is provided at cost – no overhead.81
Customer satisfaction is regularly tracked– the management distributes a standardized anonymous
survey to most visitors at the end of their stay at the facility. The survey is used to track service
quality and to guide management focus to areas in need of improvement. The management shares
the survey results with the staff and reports that the survey has been an excellent tool for motivating
staff performance.
The “budget” (i.e., spending limit) determines both the accommodation prices and the time period
for operating the facility. The facility revenues for 2016 are BGN 254,000, including BGN 246,000
generated from accommodation, while the management reports operational expenses of BGN
823,000, mostly to cover the cost the facility’s wage bill and maintenance costs. Food service
expenses are not included, only the salaries of food service personnel.
The management develops annual reports on maintenance needs and required capital investments
and reportedly most of the items are not approved by the MOI property management directorate.
In 2016 only BGN 120,000 of the requested funding for capital investments were approved and
45 of the rooms were renovated.
Opportunities and Recommendation
Property, Location, Principal Opportunities and Recommendation

Outsource operational management under a Works Concession.

The facility has an excellent location but the two buildings that house the
facility are insufficient to meet staff demand during the active tourist
season.
The buildings are very outdated and MOI may wish to consider
demolishing them and constructing a large new building with greater
accommodation capacity on the current lot.
MOI may consider partnering with a private investor under Works
Facility Lazur Concession to complete the construction works. As the property title to the
Nessebar, Burgas Region Ministry of land is contested, MOI should partner with the Nessebar Municipality in
Interior this process as well. The Works Concession should define the construction
and building works to be completed by the private investor, the
performance standards with respect to service quality after the facility
resumes operations and the amount of rooms set aside for MOI and other
public administration staff and their families during the active tourist
season. The MOI property management directorate should designate a
property management supervisor to control the performance of the private
operator of this facility and other MOI facilities in the Burgas region.
The Works Concession should have the maximum term (35 years) so that
the private operator has sufficient time to recuperate his/her investment

81
The Lazur facility, following MOI guidelines, records expenses for providing the food service as income, not an
expense, as the facility sells vouchers for food service that covers the cost of the food stuff and the expenses associated
with preparing the meal.

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while at the same time deliver recreational services to public employees at
reduced rates. The Government could sell the property after the expiration
of the concession agreement and use the sales proceeds to subsidize the
provision of social benefits to public employees.

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 Facilities operated by the Ministry of Defense
Data Summary

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Assessment of Operations
Government properties entrusted to the Ministry of Defense (MOD) are managed by a
special Executive Agency under the MOD - Military Clubs and Military Recreational
Activities (MCMRA), which manages in addition to recreational facilities, also hotels,
representational properties, apartments provided to MOD staff, homes for retired military
personnel, kindergartens, soup kitchens and numerous event venues.
The MCMRA organizes vacations for military personnel at the numerous hotels and
facilities it operates in Bulgaria, as well as abroad under the Liaison Committee of Social
Military Organizations framework (CLIMS)82. As with the vacations in Bulgaria, the MCMRA
also subsidizes MOD staff vacations abroad.
Overall, the visited MCMRA properties are managed well; however, there are shortcomings
that need to be addressed. The sample of visited properties under the MCMRA, included a
recreational facility (near the tourist resort Ribaritsa), a city hotel in Sofia and a representational
property, Residence Lozenetz.83
The management of Hotel Shipka is facing many challenges, which affect its performance:
NATO is expanding its operations in Bulgaria and is taking up approximately a quarter of the hotel
capacity and the largest conference room. In addition to that, occupancy has fallen to 46%, because
the hotel no longer works with tour operators and attracts fewer external visitors, while the number
of seconded MOD personnel that stays at the hotel for free keeps rising. In effect, seconded military
personnel are incentivized to stay at the hotel limiting the number of available rooms for external
guests. That being said, the hotel management is confident that Hotel Shipka would be successful
as a commercial entity.
It is surprising that Residence Lozenetz does not generate revenue from government events.
The use of the property for official functions is free not only to the MOD but for the entire
administration. In comparison, the Boyana Residence under the Council of Ministers charges all
administrations, including the Council of Ministers, for the use of the property for official
functions. The rates charged by Residence Lozenetz for private events are a little higher than the
rates charged by private event centers in Sofia, which is a clear indication that it offers more than
value for money; however, despite having a large kitchen, events organized at the Residence rely
on outside catering and do not take advantage of generating revenue from catering services. Also,
the Residence has an empty building with separate access to the property that can be used to
generate revenue – as small hotel and restaurant serving the general public. Another potential
revenue stream is to open the accommodation to paying customers that meet certain security
criteria.

82
CLIMS is a network of agencies providing social services and vacation packages to military personnel; its
members are Bulgaria, Germany, Belgium, Spain, France, Italy, Hungary, Poland, Portugal, Czech Republic,
Romania and Greece. MOD covers 50% of the cost of the vacation packages for Bulgarian military personnel
organized by CLIMS partner organizations. In addition to partnering under the CLIMS network, the MCMRA also
has similar arrangements with agencies providing social services to military personnel in Turkey and Vietnam.
83
All three facilities are part of the portfolio of properties managed by the Sofia Territorial Unit of the MCMRA. In
addition to the Sofia unit, MCMRA has territorial units in Plovdiv, Varna and Burgas.

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The Ribaritsa facility is a large and well-maintained property and is gradually improving its
financial performance. That being said, the facility could increase is revenue with small
improvements. For example, increasing the operational period of the swimming pool and
expanding the SPA services would attract more external guests, specifically families with children;
however, the management must focus on introducing energy efficiency measures to drive down
heating costs. The facility grounds are an excellent venue for organizing of various competitions,
hosting various festivals, reenactments of medieval battles, etc. The facility could generate revenue
from private sector establishments in the Ribaritsa area as there is no local laundry service
provider, the facility could offer laundry services to private sector establishments in the area,
provided additional equipment and staff is hired for the purpose.

Selected Facilities Profile:

Hotel Shipka, Sofia, Sofia Region
Hotel Shipka is entrusted to the Ministry of Defense and managed by the Executive Agency
Military Clubs and Military Recreation Activities (MCMRA).
The Shipka hotel was built in 1977. It is public private property and is located in the central part
of Sofia. The hotel provides
accommodation to seconded military
personnel for free and is open to external
guests.
Hotel Shipka has 173 rooms, but only
135 room have been categorized as hotel
rooms. A large portion of the hotel’s
capacity is used by the NATO Crisis
Center84 located in the hotel building.
The hotel has a 43-46% average annual
occupancy, including non-paying
seconded military personnel.
The hotel is in good condition, and it is
well-maintained. Hotel rooms are being
renovated gradually and renovation works are still ongoing. This facility has a SPA center, which
is well maintained and offers various services to hotel guests and walk in customers.
Shipka operates as a regular city hotel and charges market rates. The rate for external guests reflect
the operational expenses for providing the service, and is partially formed based on marketing data
on competitive accommodation offers in the general area where the hotel is located. The hotel also
offers discounts to groups of external guests of 5 or more persons and for extended stay at the hotel
(over 30 days).

84
The NATO Crisis Center was supposed to be located at the Sofia Tech Park, but MOD located the Crisis Center at
the Shipka Hotel despite the protests of the hotel management and the EA MCMRA.

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Shipka uses a hospitality reservation system “Hotel Computer System” provided by “El Tour 95,”
which is a software product used by MCMRA for all of the facilities managed by the agency. The
reservation system is a closed one as it has no interface with other reservation systems.
Reservations can be made via the hotel website, but the site has no online payment module. Guests
can pay by bank transfer or on-site in cash or via the hotel POS terminals, which operates only
with credit cards issued in Bulgaria.
Opportunities and Recommendation
Property, Location, Principal Opportunities and Recommendation

Hotel Shipka Continued operation under an improved model.

Sofia city Executive Agency The hotel has a good location and great revenue generating potential.
“Military Clubs and Military Unfortunately, it was selected to host the NATO Crisis Center and many
Recreation Activities” under the of the hotel rooms are used as administrative offices, which has a severe
Ministry of Defense impact on its financial performance. In the short term, MOD should operate
the hotel under the current model, while in the medium term; MOD should
consider selling the property to a reputable international hotel operator.

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Residence Lozenetz, Sofia, Sofia Region
Residence Lozenetz is a government representational property entrusted to the Ministry of Defense
and managed by the Executive Agency Military Clubs and Military Recreation Activities
(MCMRA).
The facility was established
in the early 1950s - originally
intended as the residence of
the Bulgarian head of state;
and was constructed on
nationalized properties near
the center of Sofia. The
facility has severe property
title issues and is subject to
multiple property restitution
claims.
Lozenetz is in very good
physical condition, but has
severe investment needs associated with the heating and water and sewage installations.
The Residence has upscale accommodation– total capacity 29 beds. Accommodation is provided
only to high-ranked official delegations for free and the accommodation capacity cannot be offered
to external guests due to the busy official event schedule of the Residence.
The Residence has a large equipped kitchen, but does not offer event catering; events are served
by different catering companies, selected by the event organizer – not the residence management.
The management does not wish to offer catering due to potential allegations of abuse.
Lozenetz has a complex price schedule and rates vary depending on the size of the private event
and duration.
The Residence currently has 5 staff: 2 chamber maids and 2 maintenance personnel, plus the
Residence manager.
Opportunities and Recommendation
Property, Location, Principal Opportunities and Recommendation

Residence Lozenetz Continued operation under an improved model.

Sofia city This is the only representational property in the sample of properties
Executive Agency “Military Clubs selected for detailed review. As such it has very limited prospects to
and Military Recreation Activities” become financially self-sustainable as it is used for protocol and official
under the Ministry of Defense events and its operational costs vastly exceed any revenue that the
Residence could generate even by introducing services typically offered by
luxury private sector establishments. It is in a very good condition and is
used by the administrations for official events and by private parties alike,
but at present only external gusts pay to use the Residence.
MOD should address this issue and charge the administrations for using
the facility. The current building is in very good condition, most of the
rooms have been renovated. The facility requires small investment in

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energy efficiency measures and upgrading the water supply and drainage
systems to curb operating costs.
MOD should continue operating the facility under an improved property
management model – based on financial incentives for good performance,
defined financial targets for generating revenues and performance
standards with respect to service quality to external guests.
MOD should use the generated revenue to offset some of the cost
associated with the provision of representational and protocol functions,
i.e., reduce the burden on the budget

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Recreational Facility Ribaritsa, Ribaritsa, Lovech Region
The property is entrusted to the Ministry of Defense and managed by the Executive Agency
“Military Clubs and Military Recreation Activities” (MCMRA)
The recreation facility is operational since December 1979, it has its own waste water treatment
installation, as the waste water used by the facility flows into the adjacent river “Vit”.
It is a large facility
constructed on a well-
maintained 3.3 hectare
wooded lot and has a
large barbeque pit
available to the facility
guests. The facility
amenities are geared
toward families with
children: on average the
facility accommodates
about 50 children per
month.
Correspondingly, the
facility has a swimming
pool, a football field, 2
tennis courts, a volleyball field, ping pong tables and an air rifle shooting range and 2 non-
operational fighter jets installed on the property set as monuments.
The facility has a total capacity of 178 beds - 85 rooms and 5 apartments and 2 conference rooms
– one renovated in 2016 with seating capacity for 30 persons, and a larger conference room with
120-person seating capacity. The facility’s indoor swimming pool operates only from June 15 to
September 15 as the heating costs during the winter months are excessive. The pool building
houses also sauna, gym and has an open terrace overlooking the woods.
The average annual occupancy of the Ribaritsa facility for 2017 (as of August 22, 2017) was
28.7%, while the occupancy during the more active tourist season for the region (December, July
and August) was 75%. Average annual occupancy grew by 6% in the period 2015-2016 – from
25% in 2015 to 31% in 2016. The growth trend is attributed to the rising number of accommodated
external guests – and increase of about 900 external guests per year, as well as due to improvements
of the facility.
Food service is provided under a socially subsidized full board program on a week-ahead preorders
for the entire vacation package period. The facility charges a small overhead for the different food
categories – on top of cost for providing the service, the facility charges 100% overhead on
beverages, 50% overhead on food stuff, and 30% overhead on coffee/tea. The restaurant operates
a la carte to external visitors and MOD staff alike. Ribaritsa also has a lobby bar with a seating
capacity for 30 persons, a traditional style restaurant (mehana-style). The facility restaurant has a
120-person seating capacity indoors, a separate room for smaller gatherings seating 20, and a
summer garden with a seating capacity for 190 persons.

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Customer satisfaction is tracked by the MCMRA – anonymous surveys are distributed to all guest
and they place the completed surveys in a sealed box at the reception desk; the survey box is
opened and its contents are reviewed and analyzed by a special committee; survey results are used
to improve the service offering.
Opportunities and Recommendation
Property, Location, Principal Opportunities and Recommendation

Recreation Facility “Ribaritsa” Continued operation under an improved model.

Ribaritsa, Lovech Region This is a very large facility, with an excellent location and a very good
Executive Agency “Military Clubs revenue generation potential: both as a tourist accommodation and as an
and Military Recreation Activities” event venue. The current building is in very good condition, most of the
under the Ministry of Defense rooms have been renovated. The facility requires investment in energy
efficiency measures to curb operating costs.
MOD should continue operating the facility under an improved property
management model – based on financial incentives for good performance.
MOD should consider defining financial targets and performance standards
with respect to service quality and regularly monitor management
performance.
MOD should continue operating the facility as a recreational facility for
military personnel and should consider attracting other public employees,
such as law enforcement personnel, to use the facility for recuperative
vacations sponsored by the administration.
In the long term, MOD may consider outsourcing operational management
under a Service Concession or sell the property and use the sales proceeds
to subsidize the provision of social benefits to military personnel.

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 Facilities operated by the Ministry of Labor and Social Policy
Data Summary

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Assessment of Operations
The property entrusted to the Ministry of Labor and Social Policy (MLSP) is the only
training center in the sample of visited government properties. The Center for Human
Resource Development and Regional Initiatives is dedicated to designing and delivering trainings,
and all activities not part of the educational process, including the dormitory-style hotel
accommodation, the restaurant, property maintenance activities and facility security are
outsourced to private vendors. The facility is modern and its service offering is on par with that
of similar public establishments in other EU Member States; however, at least at the moment its
capacity is not used efficiently – a large portion of the new accommodation capacity is used as file
storage by the MLSP, despite the availability of vacation older building on site.

Selected Facilities Profile:

Center for Human Resource Development and Regional Initiatives (CHRDI), Kremikovtsi, Sofia
Region
CHRDRI is only training facility of the MLSP and is established to design, organize and
implement trainings related to social activities. The Center develops methodologies and guidelines
on trainings, including interactive trainings for the unemployed – it is licensed to train unemployed
in 24 different disciplines. It is also a training facility for civil servants and mentors working under
various programs of the Labor Agency. The facility is in very good condition, has been recently
renovated it offers modern dormitory-style hotel accommodation.
The Center is housed in a 10-hectare wooded park, it has multiple buildings with a total constructed
space of over one hectare,
including 4 hotel buildings85:; it
has a restaurant with 150-person
seating capacity, and 9
conference rooms: conference
hall seating capacity 60 persons
(could be arranged to seat 120
persons), another conference hall
with 130 seating capacity, and
multiple class rooms-style
training facilities.

The Center also has a distance

(online) learning program and trains remotely on average about 150 persons per year; it maintains
a club of lecturers on labor and social topics and an Information Center, including a smart social
network of trained personnel, on demographic and social policies in the Western Balkans.
CHRDRI has a partnership with the International Labor Organization of the United Nations and it
could be established as outsourced location for ILO trainings.

85
One of the renovated dormitory buildings is used to store the MLSP archive.

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The Center provides accommodation to the staff being trained at the facility and occasionally
provides accommodation and access to training facilities to external guests.
The CHRDRI has 16 staff, which supports only the educational and training activities.
Opportunities and Recommendation
Property, Location, Principal Opportunities and Recommendation

Training Center for Human Continued operation under the current model.
Resources and Regional Initiatives This is the only training facility in the sample of properties selected for
Kremikovtsi, Sofia region Ministry detailed review. It is a modern training facility located in a calm forested
of Labor and Social Policy area. It has modern training halls and new hotel-style dormitories.
MLSP should continue operating the property under the current model –
MLSP is engaged only in the design and delivery of educational content –
accommodation and food service is outsourced to a private operator.
The current management has been successful in attracting private users of
the training halls and accommodation capacity, as well as forming
partnerships with similar venues abroad, most notably the training center
of the International Labor Organization in Torino; it could attract ILO
trainings and generate additional revenue to offset operational costs.
The MLSP may consider marketing the facility more aggressively to other
administrations to attract them in conducting their trainings at the center.

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3. Inventory Matrix
For the purposes of this analysis and planning for future proposed actions, four categories (A-
D) of properties have been developed. The categories are based on the number of criteria met per
facility. The elements defining these categories are not exhaustive. They are sufficiently consistent and
relevant to inform and be considered in the decision-making process given the current legal
arrangements for property management.86 These categories are:

• Category A: facilities that have clear ownership titles, and meet a considerable number of
the criteria (6 to 10)

• Category B: facilities that are identified as non-discretionary based primarily on existing

property ownership, and meet a high number of criteria (5 to 7)

• Category C: facilities that do not meet all the criteria but have clear ownership titles (3 to
5)

• Category D: facilities that meet very few or none of the criteria (less than 3)

The categories incorporate existing conditions and facilities relevant for effective property
management development. This classification should not be considered as a list of prioritizing criteria
for future investments, it rather illustrates good practices, and the degree of effort needed to better
coordinate the management of these facilities.
None of the facilities visited meets all criteria. All facilities were build 30-50 years ago, and no
longer serve the expectations that existed back then. More than two thirds of facilities fall in lower half
of the classification with poor property management infrastructure, high demand for investments and
upgrades. Many of the facilities are in different states of dilapidation and require heavy investment
just to halt the process of deterioration of the assets. This has been clearly communicated by the facility
managers to the ministries which operate them. The Government could look into its recreation
infrastructure to align its use with the resources available to operate and maintain it to standard. The
overall results are poor.

86
Compared to other EU countries, Bulgaria does not have a specific law for managing state property
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Проект №BG05SFOP001-2.001-0009 „Въвеждане на принципа на споделените услуги в организацията и работата на
централната администрация“, финансиран от Оперативна програма „Добро управление“, съфинансирана от Европейския
съюз чрез Европейския социален фонд.
Table 7: Inventory Matrix for thirteen selected properties
Properties Additional information Total number of Category

Sports facilities/Spa
Occupancy rate (≥
criteria met (A-D)

Marketing (Y/N)
Ownership Staff Outsourced Season

Online booking
improvements

Business Plan
issues #s services

(renovations,

Food service

Playground
satisfaction
furniture)

Customer

Vouchers
Recent

40%)
“Zora” 56.18% 14 Food Summer 5 B
X X X X X owned
“Morsko Utro” 28 Food Summer 6 A
MAFF

X X X X X X
“Vedra” X X X X 7 All Year 4 C

“Morsko Land 9 Food Summer 1 D

X
Konche”
“Lazur” X X X Land 11 Food Laundry Summer 3 C
MOI

“Izgrev” X X X 11 Cafe Summer 3 C

“Zelenika” X X X X Land 69 Food Summer 4 C

Hotel “Shipka” X X X 40 City 3 C

EA|MCMRA

“Ribaritsa” X X X X X 40 All Year 5 B

“Residence 5 All Year 0 D

Lozenets”
ME MFA

“ADIS-Holiday 23 Laundry Summer 7 A

X X X X X X X
Inn”
“Kamchiya” X X 2 Summer 2 D
W

www.eufunds.bg
Проект №BG05SFOP001-2.001-0009 „Въвеждане на принципа на споделените услуги в организацията и работата на централната администрация“, финансиран от Оперативна програма „Добро
управление“, съфинансирана от Европейския съюз чрез Европейския социален фонд.
 Training Center 16 Food All Year 1 D
MLSP

Accommodation
X
Maintenance
Security

www.eufunds.bg
Проект №BG05SFOP001-2.001-0009 „Въвеждане на принципа на споделените услуги в организацията и работата на централната администрация“, финансиран от Оперативна програма „Добро
управление“, съфинансирана от Европейския съюз чрез Европейския социален фонд.
Annex 3: Strategic Considerations
a. Does government want to continue to provide a social benefit to employees?

This is perhaps the most fundamental question to be considered. Many governments around
the world provide a range of non-monetary benefits to public sector employees. Such benefits
include housing, health insurance, pension benefits, training subsidies, subsidized food etc.
However, in recent years many of these benefits have been monetized as governments have tried
to introduce a “clean wage”. This has several advantages. Firstly, it allows government to easily
and accurately assess the cost of the civil service. Secondly, it allows employees the option of
using their monetized benefits for something they would prefer to purchase. Thereby reducing the
cost to government and increasing the satisfaction of the employee.
Health insurance is a different topic since providing such a benefit to all employees reduces
the cost of purchasing or providing such a service. In this case government is able to purchase
something at a significant discount and pass on the savings to employees. Moreover, it is assumed
that all employees care about their health and would prefer to have health insurance and of course
government has an interest in having healthy and productive employees.
However, recreational services do not seem to fall in the same category. Presumably if the
government provided the benefit in cash to all employees and allowed them to choose how to
spend it some would choose to go on vacations internally, others abroad, while others might choose
not to take vacation at all. As noted above, this benefit was started during the communist era where
there were no private facilities providing such a service and overseas travel was limited. This
situation has changed and the Bulgarian Government may wish to reconsider its options in a
different context.

b. Can government efficiently own and operate recreational facilities?

There is no evidence that the Government of Bulgaria is better placed to run recreational
facilities than the private sector. The case for continuing to provide such a benefit often hinges
on the idea that government can provide the service at a lower cost than the private sector.
However, the true cost of providing the service remains hidden. Government currently only
announces the operating costs of the facilities as if these were the only costs involved in running
the facilities. Therefore, in comparing the costs of service provision, the government facilities
operating costs are compared to the total costs of provision in the private sector and of course the
later are much higher.
Managing tourist accommodation establishments is not a typical Government function. The
government should focus on providing core public services rather than competing with the private
sector to provide what are essentially private goods. The government of Bulgaria and probably

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Проект №BG05SFOP001-2.001-0009 „Въвеждане на принципа на споделените услуги в организацията и работата на
централната администрация“, финансиран от Оперативна програма „Добро управление“, съфинансирана от
Европейския съюз чрез Европейския социален фонд.
any government has no additional expertise or abilities in providing recreational services than they
do in making cars or clothes.

c. Can government calculate the true costs of providing such a service?

The true cost of providing subsidized vacations remains hidden. The Government currently
only announces the operating costs of the facilities as if these were the only costs involved in
running the facilities.
The Government would need to calculate the true costs of providing recreational services.
The costs that remain hidden include: (i) the full operating costs, including depreciating the assets
and providing a regular maintenance and renovation budget; (ii) the opportunity costs of
continuing to hold the facilities in state hands rather than providing an opportunity for private
investors to develop the land and facilities and create a unique tourism product tailored to the
specific conditions and features of the location. This should be weighed against the value derived
from providing a social service to selected staff of certain ministries and agencies. Without an
accurate idea of the true costs of providing the service, the Government cannot take an informed
decision on the future of the recreational facilities it owns.
A valuation of the real estate assets would need to be conducted in order to calculate the full
costs of providing the recreational services. This would be a costly and time-consuming task
but is important in the broader context of maintaining and protecting government property. Once
the value is known the depreciation costs would be easily estimated. In addition to these costs, we
would need to add the administrative costs i.e. the costs involved in having centralized staff in the
ministries overseeing the process, the costs of their salaries and benefits and their full on-board
costs (the costs of their IT equipment, rental and office costs). All of these administrative costs
are currently covered in the central ministry budgets and could prove to be substantial burden if
added to the cost of operating each of the individual facilities.
We would recommend making some back of the envelope calculations based on estimates of
valuations per square meter until such a time as government can undertake a full inventory
valuation.

d. How can government improve the facilities under the current model?

Adopting a shared services approach and centralizing some of the functions around
recreational facilities would help to improve the efficiency of operation in the following ways:
• The Government could consider centralizing the management of the facilities or at
least some of their functions. At the moment, the facilities are run independently by each
administration and some of the civil servants benefit from them while others are excluded.
There does not appear to be a strong rationale for operating recreational facilities across
the Government, although there might be a good reason to maintain certain facilities (e.g.
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Проект №BG05SFOP001-2.001-0009 „Въвеждане на принципа на споделените услуги в организацията и работата на
централната администрация“, финансиран от Оперативна програма „Добро управление“, съфинансирана от
Европейския съюз чрез Европейския социален фонд.
 those of the Ministry of Defense) in state hands. Centralizing the operation of the facilities
will allow economies of scale in management, reservations and maintenance.
• The Government could establish a systematic maintenance budget. At the moment,
the facilities are in various states of disrepair. With a sporadic maintenance budget, they
are often not able to cover even the costs of emergency repairs and maintenance. A leaking
roof or damaged water pipes can result in large damages that would dwarf a regular
maintenance budget. The limited budgets of the ministries for operating recreational
facilities have led to the closure of recreational facilities, shorter operational periods,
operating with less staff, limiting activities, but most importantly have resulted in
deterioration of the value embedded in the public property assets.
• The Government could consider setting efficient prices. In the short-term, the
Government could consider setting minimum prices for some of the facilities. Small
increases in the price will not affect demand since the prices are currently so low. For
example, many of the visited facilities on the sea side sell a room for less than the price of
a sunbed and umbrella on the beach. The demand side survey revealed that staff would
support price increases provided these are associated with improvements of the
infrastructure and service quality. The increases in the price will help to offset some of the
operating costs. If the facilities are allowed to keep some or all of their revenues, there
would be an incentive to increase the revenues especially if this was matched to bonus
payments for management e.g. tied to occupancy rates or centrally gathered customer
feedback.

e. Can the private sector effectively be incorporated to meet government’s needs?

Privatizing unwanted properties and transforming recreational facilities into

income generating properties

Properties no longer needed by the Government to implement strategic objectives or social

policies should be either disposed of, or converted to “investment” or “income-producing”
properties.87 The disposition path includes privatization of the recreational facilities that the
Government no longer needs or assigning the properties to serve a different social function, such
as social housing, educational facilities or other depending on the particular case. In many EU
Member States: Finland, the Czech Republic, Germany, France, and Holland88 the public
authorities tasked with managing government properties regularly assess their real estate portfolio
and sell the properties that are no longer needed by their governments. The options for
transforming the facilities no longer required by the Government into “income producing

87
For detailed discussion see: Kask, Kaia: “Public sector real estate asset management models and their evaluation”;
University of Tartu Press, Estonia (2014)
88
For Details see Annex
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Проект №BG05SFOP001-2.001-0009 „Въвеждане на принципа на споделените услуги в организацията и работата на
централната администрация“, финансиран от Оперативна програма „Добро управление“, съфинансирана от
Европейския съюз чрез Европейския социален фонд.
properties” also fall in two groups: increasing revenue generation by drastically improving public
property management or partnering with the private sector in managing and operating government-
owned assets under various lease and concession arrangements.
While the Government has full discretion with respect to privatizing unwanted properties, it
needs to consider that, at least in the short term, the sale of properties will face certain
challenges. Many of the public properties are located within oversaturated real estate markets,
which could impact the sales price. Government also needs to consider the pool of potential
buyers, realizing that investors may acquire the assets for speculative purposes rather than to use
the facilities to develop a competitive tourism offering.
The Government needs to consider the benefits and shortcomings of privatizing the facilities.
If handled correctly, it could attract investment from reputable hospitality operators, while the
downside is that the privatization creates opportunities for capture by non-state interests that could
be detrimental both to the overall privatization process as well as to Bulgaria’s tourism sector. In
many cases, the more advantageous option for the Government would be to partner with the private
sector in developing the properties, which in addition to receiving income from lease or concession
payment could also enhance Bulgaria’s tourism sector.

Outsourcing operational management to the private sector

Outsourcing facility operation would lead to the introduction of commercial practices

without changing the ownership model. Public properties operate well below private sector
operational and financial benchmarks. State-owned real estate is used to implement government
policies and deliver public services, rather than generate profits. Managers of state-owned
properties are not focused on deriving maximum financial gain from using the property assets, but
on providing the public service.
Public properties lag the private sector not only in terms of financial results but also with
respect to the quality of services provided through the properties. A valid concern is that
many government properties are not in a condition that allows effective delivery of public services.
Attracting private sector investment could address capital improvement needs, especially
considering the chronic shortage of budget funds for renovation and retrofitting activities.
The decisive factor for a more effective and efficient property management is not the
ownership structure but the strict adherence to clearly defined performance criteria and
introducing the correct management incentives. In the process of introducing standards of
economic efficiency and effective organizational management, the Government could take
advantage of performance-based management techniques applied by the private sector, especially
with respect to promoting a more customer-centric orientation of the services and increasing the
financial effectiveness of the service delivery.
When entrusting the management of government assets, it is critical that private sector
operators are only engaged under a performance based-management model that clearly
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defines the cost savings and efficiencies in delivering the services.89 The same criteria used for
measuring the performance of private sector operators should be applied also in cases where
government units retain the property asset management function.

For detailed discussion see: Kask, Kaia: “Public sector real estate asset management models and their evaluation”;
89

University of Tartu Press, Estonia (2014)

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Annex 4: Legal Options and Considerations
While the legal options available for facilities classified as private or public state property
are similar, some of the options are available only for private state property (e.g. privatization
or transforming a recreational facility into a state-owned commercial company and vesting the
assets in that company by way of an executive act) while other options are available only for
facilities classified as public state property (e.g. concession for use or vesting in a state-owned
company by virtue of a law). This annex outlines these options and considerations for each.

Options for recreational facilities classified as private state property

Privatization

Lease of private state property

(up to 10 years)

Vesting in a state-owned
company
Works concession (up to 35
years)
Private state property
Concession

Services concession (up to 35

years)

State body manages the

property directly

Continued management by the State body assigns management

state body to shared services center

State body assigns management

through procurement contract
(up to 5 years)

If the Government decides to discontinue providing recreational services through a

particular facility classified as private state property, it may privatize it. Privatization of
private state property with a tax evaluation of more than BGN 10,000 would be carried out
pursuant to the procedures set out in the Act on Privatization and Post-Privatization Control
(APPC), unless the property in question is assigned to the Ministry of Defense, to political parties
or to state-owned companies (Art. 1, APPC).
A partnership option is to lease the facilities classified as private state properties to the
private sector. Private operators of leased facilities classified as private state property have more
flexibility with respect the use of the property, including choosing not to use the facility for
recreational purposes. The procedure for leasing out private state property follows the tendering
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provisions prescribed in the Rules on the Application of SPA. In addition, there are a number of
exceptions to these rules; facilities classified as private state property may be leased without a
tendering procedure to:
● foreign diplomatic or consular representatives, as well as to international
organizations with an order of the Minister, the Regional Governor or the head of
the administration to which the corresponding property had been assigned;
● private and public operators for health, education or humanitarian purposes or to
meet the relevant needs of the population;
● non-profit legal entities for public benefit, based on approval of the request of the
non-profit by Minister, the Regional Governor or the head of the administration
to which the corresponding property had been assigned.
● political parties or to trade unions following a corresponding decision of the
Council of Ministers.

Options for recreational facilities classified as public state property

Change classification to private state
property (see options above)

Lease of public state property (up to

10 years)

Vesting in a state-owned company

Works concession (up to 35 years)
(only by virtue of a law)

Public state property Concession Services concession (up to 35 years)

Concession for use (up to 25 years)

State body manages the property

directly

Continued management by the state State body assigns management to

body shared services center

State body assigns management

through procurement contract (up to
5 years)

Facilities classified as public state property must be operated only for the purpose for which
they have been assigned to the corresponding public body: e.g., as recreational facilities
serving a social function. There are however, exceptions to this rule, in case: (i) a concession has

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been awarded for operating the property by a third party; or (ii) the property has been leased out
to an international organization in order to comply with the requirements of an international treaty
to which Bulgaria is a party.
Recreational facilities do not require the legal protection inherent to a public state property
classification, as long as they are not instrumental in discharging specific policy objectives.
Correspondingly, when it comes to considering the future of facilities classified as public state
property, it is always advisable to first make a decision on whether it is justified to retain the
classification of the property as public and if the justifications for this classification are no longer
present, to re-classify the facility as private state property.

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Annex 5: Outsourcing Models
Concessions, as defined under the recently adopted Concession Act, are legal tools
specifically designed to enable partnerships with the private sector. The Concessions Act,
which entered into force on 1 January 2018, replaced the Concessions Act of 2006 and the Public-
Private Partnership Act of 2012,90 transposes Directive 2014/23/EU91 and expands the choice
options available to public bodies for incorporating the private sector in the management and
operation of state-owned resources. The new framework introduces more flexible terms,
specifically designed to encourage public-private partnerships and outsourcing the management
and operation of state resources under concession arrangements, especially in vastly underutilized
area of construction and building works.
Outsourcing property management under one of the concession mechanisms of the new act
is particularly appropriate for improving service quality and attracting private investment
in state-owned property, which may be leading concerns at least with respect to some of the
government facilities in light of the chronic lack of public funding for repairs and upgrades.
Depending on the stated objectives, administrations may choose between three types of concession
arrangements:
● Works Concession under the provisions of Art. 7, Concessions Act of 2018
● Services Concession under the provisions of Art. 8, Concessions Act of 2018
● Use Concession under the provisions of Art. 9, Concessions Act of 2018

Works Concession Services Concession

The Work Concession instrument is particularly The Services Concession instrument suitable for
appropriate for outsourcing the upgrading and facilities located in commercially attractive areas
operation of recreational facilities with a but in need of expensive maintenance. The
commercially attractive location, but in dire need Services Concession is a public-private partnership
of upgrading. Work Concessions are essentially model for outsourcing service provision (other than
“renovate to operate” contracts. Albeit being construction and capital repair services) and
defined as a “concession” this instrument is a form property management to a private operator in
of a public-private partnership, under which the exchange for the right to receive income generated

90
Both pieces of legislation were associated with a number of limitations that have diminished their applicability.
Due to a number of limitations, the Concessions Act of 2006 has been used almost exclusively with respect to
exploration and utilization of natural resources, while its application for granting building concessions has been
insignificant. The repealed Public Private Partnership Act of 2012 has not been used at all, because of the very narrow
range of cases to which it could be applied.
91
Directive 2014/23/EU on the Award of Concession Contracts establishes rules on the procedures for procurement
by contracting authorities and contracting entities in EU member states by means of a concession, whose value is
estimated to be not less than EUR 5,186,000. Member states needed to transpose this directive in their national
legislation by 18 April 2016.
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 public body assigns to a private operator the in the course of operation. As with the other type
implementation of the construction works, the right of concessions the private concessionaire bears the
to operate the renovated buildings and the operational risk. The Services Concession may
operational risks. It is suitable not only for include certain construction works, i.e. ongoing
designing and constructing new buildings but also repairs and maintenance of an existing facility,
for attracting private investment for the allows engaging private operators in the provisions
reconstruction or restoration of existing buildings. of public services that benefit the society or the
Such concessions may be awarded for a period of public body. Such concession may be awarded for
up to 35 years, and the private concessionaire a period of up to 35 years and the concessionaire
bears, in addition to the operational risk, also the bears all operational risks.
building risk, i.e. the probability of events, facts or
circumstances, which may affect the cost or the
duration of the building works.

A concession procedure could be initiated by the administration or a private entity that is

interested in obtaining a concession for a specific property. At the time of opening the
concession procedure, the public body must define the forecast value of the concession. It is
calculated as the total expected income from using the property for the entire concession period,
excluding VAT. If the value of the concession equals or exceeds EUR 5,225,000, the concession
must be awarded under the trans-border concession procedure following much stricter provisions
in conformity with of Directive 2014/23/EC.
If a private entity initiates the procedure for awarding a concession, it needs to provide a
justification and a financial-economic analysis. If the proposal is for a initiating a procedure
for awarding a Works Concession, the private party should also provide an investment offer,
including a pre-investment study and an investment project fiche specifying the forecasted
technical and functional characteristics and the economic parameters of the building that will be
constructed or renovated. If the administration chooses to award a concession to another private
entity, different that the one that developed the investment proposal, the public body should
compensate the private entity that has developed the investment proposal. This right to
compensation was not available under the previous concessions regime and would likely
incentivize for private entities to initiate concession procedures.
If a facility is outsourced under a concession arrangement, the concessionaire may receive
payments directly from the users of the facility, from the public body that has awarded the
concession or from both. The Works or Service Concession arrangements also allow payments
from the administration awarding the concession to the private party in the following cases:
● When no payments would be due by users of the services provided by the
concessionaire; or, if such payments are due, the concessionaire would not be the
one to receive them;
● When the aim is to receive a socially acceptable price of the services offered by
the concessionaire;

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 ● In case the prices of the services offered by the concessionaire are regulated by
the state.
The opportunity to include in the concession contract a clause, under which the public body
may owe a fee to the concessionaire and, in return, require the concessionaire to provide
services below market prices is very relevant to outsourcing the operation of the recreational
facilities of the state. This mechanism is particularly appropriate in cases where the
administration in question wishes to outsource the renovation or operation of state-owned
recreational facilities and transfer the operational risk, while retaining the possibility to provide
recreational services to public sector employees at affordable rates.

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Annex 6: Approaches to Managing Lodging Facilities
1. Operational models for lodging facilities
The development of the private tourism sector and the emergence of new practices in recent years
has moved forward quickly utilizing various management models, standardized financial practices,
sharing resources and economies of scale. At the same time, government-owned recreational
facilities continue to lag behind, at least in terms of quality of service offering, and operate under
limited budgets and with minimal capital investment; instances of pooling of resources, shared
back and front office services, coordination among government-owned recreational facilities is
rare. Below are examples of private sector approaches, which the Government may wish to
consider.
Hotel owners and property management companies have developed different operating models to
increase service quality, as well as profitability.
In the hotel business a lease agreement is typically an agreement between two parties where the
hotel company leases land, property and sometimes equipment from the owner of the property.
Leasing, first and foremost, removes owners from day-to-day operations for an extended period of
time. Operating an accommodation property through a lease agreement offers a variety of
advantages and limitations for owner and operator.
Lease advantages and limitations

Party Advantages Limitations

Owner Limited experience required Stable and predictable returns
Easier to predict returns Lack of appetite from brands and operating
Lower market/operating and financial risks companies
assumed No control over hotel operations
Defined term Less control over hotel positioning
Appealing to institutional investors Potential loss of upside business

Lessee Enables brand growth (if a brand) Higher market/operating risks assumed
Potential benefits from upside Responsible for operating loss risk and rent
Control over quality of product and capital
payments
expenditure investment to strengthen brandTermination and exit might be difficult
Potentially stronger rights in the event of
Liability on balance sheet
foreclosure Potential impact on credit rating, debt
capacity, share price
Adapted from: Collins, S., (2015). Which hotel operating model is right for you? HVS Retrieved from
https://hvs.com/StaticContent/3672.pdf.
In contrast, a management contract is an agreement where a brand or a lodging management
company takes responsibility for hotel operations in exchange for a fee. In this case, the financial
burden is entirely on the owner. This model is especially popular in emerging markets utilizing
tourism as an economic development tool since affiliation with international hotel chains often

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brings such advantages as brand name recognition, established reservation systems and
professional operational expertise.92
Management contract advantages and limitations
Party Advantages Limitations
Owner Limited experience required No control over hotel operations
No operations team or management effort Higher market/operating risks assumed
Easier to finance with strong brand and Operating loss risk +fees payable
operating company Lack of control over brand reputation
Access to development, design and Bound to brand –imposed global initiatives
operations support from brand
Solid upside potential after fees

Brand Brand growth with minimal investments Earnings limited to fees

Company Growth of operating structure Incentive fees subject to higher market risk
Brand + management revenues with Dependence on ownership for project
minimal investment development and capital expenditure –
Opportunity to earn incentive fees potential brand risk
Lower market risk
Adapted from: Collins, S., (2015). Which hotel operating model is right for you? HVS Retrieved from
https://hvs.com/StaticContent/3672.pdf.
Franchising in the lodging sector has become a useful vehicle for owners to capture brand benefits
while reducing financial investment. A franchise is “an agreement between a hotel-motel company
(usually a national or regional chain) and an independent hotel owner in which the owner pays a
fee to use the name, trademarks, and various services offered by the chain”.93
Choosing the franchise affiliation impacts the property’s profile and ability to compete in the local
market, generate profits, manage a particular image or market orientation, and benefit best from
referrals. This has become a popular model in many markets globally. Franchising remains the
most popular mode of operation in North America (85%) and Europe (50%).

92
Gee, C.Y. (2008). “International Hotels Development and Management” Second Edition (p. 219-221). Lansing,
MI: American Hotel & Lodging Educational Institute.
93
Rushmore S., & O’Neil J.W., & Rushmore, Jr., S. (2012). “Hotel Market Analysis and Valuation” (p. 15).
Chicago, Illinois: Appraisal Institute.
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 Franchise advantages and limitations
Party Advantages Limitations
Owner Full operational control within brand Experienced operating team or third-party
standards operator required plus management effort
Instant market presence and access to Higher market/ operating risk
global distribution systems Operating loss risk +fees payable
Access to development, design and Lack of control over brand reputation
Operations support from brand Bound to brand – imposed global initiatives
Management assistance
Stronger upside potential for profits after
fees (5 -9% of rooms revenue)
Group purchasing
Loyalty programs
Procedure manual
Brand Growth of the brand Risk of quality of operation, guest and
Company Allied expansion employee satisfaction, and brand image
Increased brand fees with minimal Fees limited to franchise fees
investment and effort Does not contribute to the growth of the
Low market risk and no operating risk operating structure
Ability to terminate if non-compliance
issues
Source: Collins, S., (2015). Which hotel operating model is right for you? HVS Retrieved from
https://hvs.com/StaticContent/3672.pdf.
In summary, owners of accommodation and hospitality assets have a choice of operational models.
Each has advantages and limitations. These are weighed by owners when determining which
model is best for their situation and summarized below.

2. Standardized accounting and financial reporting

The Uniform System of Accounts for lodging and hospitality operations is the standardized tool
for tracking lodging operations financial data such as departmental expenses, income before fixed
charges, and general administration. Further, it enables accounting for the asset’s depreciation.
Adoption of the uniform system of accounts is not only useful for internal tracking revenues and
expenses, but also enables comparisons with similar operations within a portfolio and across
portfolios through creating profit and loss statements.94
Further operational sustainability is achieved through revenue management techniques similar to
those first pioneered by airlines. Demand fluctuations, seasonality and service intangibility all

94
For valuation of properties, investors and lenders typically require and use financial performance stated following
the uniform system of accounts.
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contribute to the need for lodging operators to use revenue management techniques in order to
make timely decisions and increase profitability.95
Due to the unique characteristics of lodging operations such as seasonality, the daily perishability
of lodging room inventories and the many consumable goods a lodging operation sells, systematic
financial reporting is a priority. Lodging expenses have one component that is fixed and variable
expenses that varies directly with hotel occupancy and the use of the facility. Fixed expenses are
typically not directly dependent on the hotel occupancy. In contrast, variable expenses such as
laundry operations or management fees depend directly on the business volume.
It is crucial for lodging operators to track the profitability of daily operations in order to efficiently
run a property. The profit and loss (P&L) or income statement is the main document that measures
hotel operations for a specific period of time. The statement provides information on operation of
different departments and compares actual monthly operations to the budget established for the
month, year and longer forecasts. 96

3. Operational efficiency indicators

One of the main operational efficiency indicators is revenue per available room (RevPar). RevPar
is considered to be the most important day to day indicator of operations because it serves as a tool
for the hotel management to maximize room revenues. RevPar is used by owners, operators and
investors for forecasting and determining cash flows needs. It measures both rooms sold
(occupancy) and the ability to achieve the highest average daily rate97. This key performance
indicator is contained in the Profit &Loss statement and annual financial reports.
While effective revenue management, in general, requires specific training and software tools,
calculating RevPar is widely used to compare performance of similar hotels within the same
market area (i.e. within a competitive set). It also enables comparison of the property’s
performance to the current budget and previous years’ performance.

95
Legoherel, P., & Poutier P. (2013). Revenue management for Hospitality and Tourism (pp.6-19). Woodeaton,
Oxford: Goodfellow Publishers Limited.
96
Hales J.A. 2005. “Accounting and Financial Analysis in the Hospitality Industry” (pp.68). Burlington, MA:
Elsevier Inc.
97
Total room revenue divided by the total number of available rooms. See Room Revenue, Rooms Available.
Average Daily Rate (ADR) -A measure of the average rate paid for rooms sold, calculated by dividing room revenue
by rooms sold. Occupancy (Occ) -Percentage of available rooms sold during a specified time period. Occupancy is
calculated by dividing the number of rooms sold by rooms available. (https://www.strglobal.com/resources/glossary)
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4. Shared services in lodging operations
Many hotel chains use a shared services model to increase productivity and revenues. Hotel
corporations use an integrated back-office software that allows for managing rooms and function
space inventory; accounts and purchasing. This model can significantly increase productivity
across lodging operations and ensure efficiency within budget.
The use of computerized property management systems. Property Management Systems (PMS)
have proven useful not only for managing guest check-in/check-out, but also for hotel distribution
management, hotel revenue management, managing customer data, etc. Improved technology in
back-office systems, such as guest accounts and financial transactions, has helped to increase
operational efficiency, and, in turn, decrease labor costs---all enabling increased financial viability.
Some hotel chains have started to share not only services, but also buildings. Developing dual–
brand hotels is becoming very popular among large hotel chains: hoteliers combine different
brands under one roof and share back-office operations, recreation facilities and sometimes even
the front-desk. Combining back-office operations offers many benefits to hoteliers such as sharing
staff and space and, thus, reducing expenses.

5. Training and professional development

Inadequately trained staff can operate lodging facilities. However, specifically trained staff,
certified in lodging operations accounting and management can grow returns, protect physical
assets and take pride in their facilities. Adequately trained staff are integral to efficient and
productive operations; their skills and experience directly affect financial performance and
determine success of each lodging property. Technology utilization continues to influence the
lodging industry requiring employees to have digital skills and to be competent with Property
Management Systems.
Higher level positions, such lodging revenue manager and food and beverage managers, requires
analysis of financial and operational reports in order to make strategic decisions. This variety of
responsibilities and diversity of jobs requires far more than “on-the-job” learning. For a viable
lodging operation, appropriate levels of operational specific education, training and experience are
needed.
There are different technical and vocational levels of education in the hospitality industry such as
university degrees, certifications, trainings and short courses. Hospitality associations such as
American Hotel and Lodging Educational Institute (AH&LEI)98 offer a variety of programs and
certifications online.

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and staff
Adapted from: Capterra Hotel Management Blog. (2017, August 15) “The top 9 Online Hospitality Courses to
Kickstart Your Career”. Retrieved from http://blog.capterra.com/the-top-6-online-hospitality-courses-to-kickstart-
your-career
6. Real time property management systems
Property management software provides the basic functions of an information system that enables
guests to make reservations; support staff with check-in and check-out procedures; tracks financial
transactions, etc. When introduced as an integrated system, it enables separate departments such
as food and beverage, housekeeping, sales and catering, front desk and others to be linked and to
140
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Европейския съюз чрез Европейския социален фонд.
contribute information to financial and accounting systems.99 A study from 2017 compared the
most popular property management systems based on number of users, customers and social
platform popularity. Opera PMS and Maestro, identified as top systems, are summarized below.

Table 6: Examples of Property Management Systems’ advantages and disadvantages

Advantages Disadvantages
Opera Property • Profile management • Outdated online interface for some
Management • Accommodation management • Can be slow during check-in/check - out
System by Oracle • Housekeeping management process
• Multi-property configuration
• Multi-language and global currency
support

Maestro • Can be hosted on the cloud or installed • It was noted that there is a steep learning
on Windows curve with the software
• Lots of features are available a la carte,
which is good for smaller hotels with
unique needs
• Maestro PMS provides excellent
support, according to reviews
• Integrated mobile housekeeping
application
Source: http://blog.capterra.com/the-5-most-popular-hotel-management-software-solutions-for-small-hotels-
compared/

7. Setting quality of service standards

Quality control of lodging operations and services is fundamental to financially viable operations.
Carefully defined quality of service standards and the regular monitoring of operator compliance
with these standards is the tool used to determine actual performance. While most major hotel
chains define their own standards, governments also assign hotel grades. International best practice
shows that the most typical quality of service standards should be included in the service level
agreement between the owner and the operator of a property under a performance-based property
management model. The standards should be applicable to any operator public/private. Examples
of such standards include room cleanliness paired with example how this is to be measured and
controlled; typically, customer satisfaction is measured by the number of customer complaints.

99
Biederman, P. S. & Lai, J. & Laitamaki, J.M & Messerli, H. R. & Nyheim, P. D. & Plog, S. C. (2008) Travel and
Tourism an industry primer
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Проект №BG05SFOP001-2.001-0009 „Въвеждане на принципа на споделените услуги в организацията и работата на
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Европейския съюз чрез Европейския социален фонд.