BEnER REGULATION VII. IIISERIES

Bulgaria

EX-POST IMPACT ASSESSMENT Ifilia Act an limiting Administntive Ragulatian and AdministntiVa Cantral an Ecanamic Activitv

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WB370910Typewritten Text55728

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Report No. 55728-BG

Ex-Post Impact Assessment

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THE WORLD BANK PRIVATE AND FINANCIAL SECTOR DEVELOPMENT DEPARTMENT CENTRAL EUROPE AND THE BALTIC COUNTRIES EUROPE AND CENTRAL ASIA REGION WASHINGTON, DC

© 2010 The International Bank for Reconstruction and Development I The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org

All rights reserved

1 2 3 4 13 12 J J 10

Manufactured in the Republic of Bulgaria First printing: November, 2010

Report No. 55728-BG

This volume is a product of the staff of the International Bank for Reconstruction and Development I The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent.

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Cover design by Boris Balabanov

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, n

(Exchange rate effective July 12, 20 lO) Currency Unit=Bulgarian Lev (BGN)

EUR }=1.95583 US $ 1=1.5557 BGN

FISCAL YEAR 1 January - 31 December

WEIGHTS AND MEASURES Metric System

Vice President: Philippe H. Le Houerou, ECA VP Country Director: Peter C. Harrold, ECCU5 Sector Director: Gerardo Corrochano, ECSPF Sector Manager: Lalit Raina, ECSPF Task Team Leader: Evgeni Evgeniev, ECSPF

APC ARC BEEPS BNB BULSTAT

CEG CEM CoM CRC DCoM EC ECSPF ESC EU FSC GOP IMD 10 IPAEI LARACEAA

LEG LP MAF MEYS MC MF MJ MH MI MLSP MOEW MRDPW MSAAR MTITC NAMRB NAVET NRA NRP NRR NSRF NSSI OECD OPAC PPP RIPHPC SCEWR SG SL SMEs UK USAID WEF

Administrative Procedures Code Administrative and Regulatory Costs Business Environment and Enterprise Performance Survey Bulgarian National Bank Unified Identity Code under the Unified Register for Identification of Economic and Other Subjects in the Republic of Bulgaria Council for Economic Growth Council for Electronic Media Council of Ministers Communications Regulation Commission Decision of the Council of Ministers European Commission Finance and Private Sector Development Department at the World Bank Economic and Social Council of the Republic of Bulgaria European Union Financial Supervision Commission Gross Domestic Product Institute for Management Development Information Obligation Institute of Public Administration and European Integration Limiting Administrative Regulation and Administrative Control on Economic Activity Act Law on Electronic Governance Legal Person Ministry of Agriculture and Food Ministry of Education, Youth and Science Municipality Council Ministry of Finance Ministry of Justice Ministry of Health Ministry of Interior Ministry of Labor and Social Policy Ministry of Environment and Water Ministry of Regional Development and Public Works Ministry of State Administration and Administrative Reform Ministry of Transport, Information Technology and Communications National Association of Municipalities in the Republic ofBulgaria National Agency for Vocational Education and Training Nuclear Regulation Agency National Reform Program The Board of Swedish Industry and Commerce for Better Regulation National Strategic Reference Framework National Social Security Institute Organization for Economic Cooperation and Development Operational Program "Administrative Capacity" Public-and-Private Partnership Regional Inspectorate for Public Health Protection and Control State Commission on Energy and Water Regulation State Gazette Spatial Law Small and Medium-Sized Enterprises United Kingdom United States Agency for International Development World Economic Forum

ACKNOWLEDGEMENTS ...................................................................................................................vii

EXECUTIVE SUMMARY ...................................................................................................................viii

CHAPTER I

INTRODUCTION.................................................................................................................................... 1

1.1 Importance of the LARACEAA .................................................................................................... 1

1.2 Scope of the Assessment ............................................................................................................... 2

1.3 Sources of Information .................................................................................................................. 2

1.4 General Limitations of the Analysis .............................................................................................. 3

1.5 Structure of the Report .................................................................................................................. 5

CHAPTER II

BACKGROUND OF THE ASSESSMENT ........................................................................................... 6

2.1 Policy Framework ......................................................................................................................... 6

2.2 Goal and Objectives of the Act ..................................................................................................... 9

2.3 Performance Indicators of the Assessment ................................................................................. 10

CHAPTER III

EX-POST IMPACT ASSESSMENT OF THE LARACEAA ............................................................ 13

3.1 Government Measures and Initiatives ......................................................................................... 13

3.1.1 Administrative and Regulatory Burden~Reduction Measures ........................................... 13

3.1.2 Institutional Initiatives ....................................................................................................... ]6

3.1.3 Conducted Impact Assessments, Analyses and Trainings ................................................. 18

3.1.4 Legislative Initiatives ........................................................................................................ 19

3.2 Status and Dynamics of Quantitative Indicators ....................................................................... 19

3.2.1 Outcome Indicators ........................................................................................................... 19

3.2.2 Output Indicators ............................................................................................................... 24

3.2.3 Results Indicators .............................................................................................................. 25

3.3 Status and Dynamics of Qualitative Indicators ........................................................................... 29

3.3.1 Achievement of the LARA CEAA Objectives: Results from Survey Findings .................. 29

3.3.2 Case Studies of Regulatory Regimes at the Local Level... ................................................. 30

3.4 Summary of Quantitative and Qualitative Analyses ................................................................... 31

CHAPTER IV

MAIN PROBLEM, DRIVERS AND EFFECTS OF THE PROBLEM, AND RECOMMENDED

AMENDMENTS TO THE LARACEAA............................................................................................. 34

4.1 Underlying drivers of the problem ("roots of the tree") .............................................................. 34

4.2 Effects of the problem ................................................................................................................. 36

4.3 Key Recommendations for Amendments to the LARACEAA ................................................... 37

REFERENCES ....................................................................................................................................... 39

APPENDICES ........................................................................................................................................ 41

Appendix 1: Licensing Regimes' Compliance with the Requirements of the LARACEAA .................. 41

Appendix 2: Information on the Status of Regimes under the Better Regulation

Program (2008-1 0) ................................................................................................................................... 43

Appendix 3: Implementation of the Measures Under the

Better Regulation Program (2008-10), as of April 2009 .......................................................................... 47

Appendix 4: Survey Questionnaire to Stakeholders ................................................................................ 51

Appendix 5: Analysis of Stakeholders' Replies to Survey Questionnaire .............................................. 56

Appendix 6: Review of Regulatory Regimes at the Local Level... ......................................................... 59

Appendix 7: Licensing Regimes and Existing Registers as per LARACEAA Requirements ................ 66

Table 1: Performance Indicators of the LARACEAA's Ex-post Impact.. ........................................... II

Table 2: Improvement of Bulgaria's Doing Business Ranking Since 2004 ......................................... 21

Table 3: Achievement of the LARACEAA Objectives (in percent) ................................................... 30

Table 4: Allocation of Reviewed Regimes by Municipalities ............................................................. 31

Table 5: Summary Matrix of State and Dynamics of Quantitative Performance Indicators ............... 31

Figure 1: Escalator of Regulatory Regimes ....................................................................................... 6

Figure 2: Small number of licensing regimes amended since 2003 ..................................................... 15

Figure 3: A few licensing regimes introduced and very few abolished since 2004 ............................. 15

Figure 4: Bulgaria's Global Competitiveness Index ranking is low and not improving ...................... 20

Figure 5: Bulgaria's ranking by the Competitiveness Index of IMD slightly improved ..................... 20

Figure 6: Bulgaria's relative ranking by the Doing Business Index improves ..................................... 22

Figure 7: Bulgaria takes 44th position as per Doing Business 2010 ranking ....................................... 22

Figure 8: Bulgaria's Product Market Regulation Index compares well with EU-average ................... 23

Figure 9: Bulgarian Firms do not rate Business Licensing and Permits as one of the top

constraints in 2009 (in percent) ............................................................................................................. 23

Figure 10: Share of companies showing regulation as the most significant restraint to business

in 2009 (in percent) ............................................................................................................................... 24

Figure 11: Decreasing values ofWEF's Burden of Government Regulation and Efficiency

of Legal Framework since 2003 and Transparency of Government Policymaking since 2007 ............ 26

Figure 12: Bulgaria's Burden ofRegulation is falling as per WEF relative ranking, while Bulgaria's

Efficiency of Legal Framework and Transparency of Policy making are somewhat constant .............. 26

Figure 13: IMD Indices for Bulgaria of Bureaucracy, Ease of Doing Business and

Starting a Business are somewhat similar in 2009 compared to 2006 .................................................. 27

Figure 14: IMD's Bulgaria Ranking ofBureaucracy is Worse Than Starting a

Business and Ease of Doing Business ................................................................................................... 27

Figure 15: Time Spent by Senior Managers of Manufacturing Firms in Dealing with requirements of

Government Regulations in Bulgaria dropped substantially in 2009 compared to 2007 ...................... 28

Figure 16: Bulgaria has better standing vis-a-vis other countries in Europe and Central

Asia Region regarding Days to Obtain Operating License in 2009 (in percent) ................................... 29

Figure 17: Problem Tree ...................................................................................................................... 37

Box 1: Establishment of a Pilot Integrated System of an Electronic Region ........................................ 16

This report is prepared within on-going World Bank's Analytical and Advisory support in the area of regulatory reform to the Bulgarian Government in collaboration with the Ministry of Economy, Energy and Tourism. The World Bank team was led by Evgeni Evgeniev, Private Sector Development Specialist, Finance and Private Sector Development Department (ECSPF) and included experts from Club 'Economika 2000' (think tank, based in Sofia), consisting of Spartak Keremidchiev, Stefan Ivanov, Borislav Tafradjiyski, and Maria Georgieva (all Economists), and Val chin Daskalov (Lawyer). Julian Nikolov, Director of the Economic Policy Directorate at the Ministry of Economy, Energy and Tourism (since December 2009) and Eli Anavi, former Director of the Enterprise Policy Directorate and now Head of the Innovation, Entrepreneurship and Business Environment Division at the Ministry of Economy, Energy and Tourism and their team, collaborated closely with the Bank team since inception of the task and provided strategic guidance at all stages of the work. The World Bank team would like to thank also the participants at the Better Regulation Group Working Meeting in January 2010 who provided useful feedback to the preliminary findings of this report. Anne T. John, Marga O. De Loayza, Nikolinka Ivanova and Vessela Stambolyiska, all from the World Bank, provided precious technical support. Thank goes also to John Felton, who provided edits to previous versions of the report. This report is also a result of the devoted work of the translator, Maria Georgieva, who made its final Bulgarian version possible.

The report was prepared under the general guidance of Theodore O. Ahlers (Country Director for Bulgaria since May 15, 2009) and Peter C. Harrold (Country Director for Bulgaria since January 25,2010), Fernando Montes-Negret (Sector Director, ECSPF until December 21,2009), Gerardo Corrochano (Sector Director, ECSPF since February 15, 2010) and Lalit Raina (Sector Manager, ECSPF). Florian Fichtl (Country Manager for Bulgaria) provided strategic guidance to the team during the process of consultation with public and private actors and contributed with valuable comments on earlier drafts.

The team would like to specifically thank John Daniel Pollner (Lead Financial Officer, ECSPF) for reviewing earlier drafts of the report and providing helpful comments and suggestions. Sereen Juma (Sr. Country Officer, ECCU5), Rosalinda Quintanilla (Lead Economist) and Stella llieva (Senior Economist) from the World Bank have also been supportive with their comments on an earlier draft.

The World Bank team is also appreciative of the feedback received during the July 6,2010 public meeting of the Council for Economic Growth, chaired by H.E. Traycho Traykov, Minister of Economy, Energy and Tourism, and of the support of colleagues from line ministries and public agencies in Bulgaria, of their willingness to share information and valuable insights.

Peer reviewer of the report was Marc Reichel (international expert on administrative barriers).

The Ex-post Impact Assessment of the Limiting Administrative Regulation and Administrative Control on Economic Activity Act (LARACEAA) is part of the World Bank's support to the Government of Bulgaria through on-going Analytical and Advisory work in the area of regulatory reform. This is the fourth report in the course of three years of World Bank Analytical and Advisory support to the Government of Bulgaria on regulatory reform. The first joint World Bank and Ministry of Economy and Energy report analyzed administrative procedures in three sectors of the economy--tourism, food, and road transportation-calling for reduction and simplification of certain administrative regimes that are burdensome. It emphasized superfluous regulation at the municipality level as well. Another report, Bulgaria's Policy for Regulatory Reform in the European Union: Converging 'with Europe's Best Regulatory Environments, recommended a national nine-step strategy that was approved by the Council for Economic Policy on October 19, 2007. These two reports, and the consultation process with other line ministries, business associations and think tanks, actually paved the way for the Better Regulation Program 2008-2010, approved by the Bulgarian Government in April 2008. Another World Bank report from June 2009 called for a systematic, fair, and transparent regime of state fees. The World Bank has also prepared a report on Administrative and Regulatory Barriers to Business in Bulgaria.

The purpose of the present ex-post impact assessment of the LARACEAA is to: (i) assess how the Act has been enforced, (ii) identify and estimate the impacts of the Act, and (iii) provide recommendations for amendments to the Act. Chapter I emphasizes the importance of the Act as part of the Bulgarian Government's role in advancing regulatory reform and improving the business environment; gives the scope of the assessment and presents the sources of information utilized; and delineates general limitations of the analysis. Chapter II outlines a policy framework by discussing coherence with the Governmental and European Union (EU) policies, as well as touching upon relevant documents on regulatory reform, followed by analysis of the goal and objectives of the Act, and identification of performance indicators for the measurement of the impact of the Act. Chapter III depicts the results of the ex-post impact assessment, while the final Chapter IV identifies the main problem; discusses underlying drivers and effects of the problem; and proposes recommendations for amendments to the Act.

Main Findings

Major Problem Identified: Broad state intervention in economic activities as manifested by the presence of a large number of regulatory regimes introduced by special laws that result in reduced transactional efficiency and competitiveness of the economy.

The Assessment is based on quantitative and qualitative analyses. This report uses a set of quantitative indicators to measure the impact of the Act and the achievement of its goal and objectives for the period after its entry into force in 2004 until end-2009. General limitations of the analysis are identified, including the specificity of the Bulgarian legal system, the lack of an ex-ante assessment of the Act, impact of the EU accession process, and the lack of a performance monitoring system of the regulatory and administrative burdens. The study is complemented by a qualitative analysis to overcome the hurdles in performing the assessment (e.g. case studies of regulatory regimes at the local level; survey of public officials and other stakeholders; and analysis of the institutional, legal and policy environment).

Results from Quantitative Indicators:

• Indicators showing the least improvement: Efficiency of the legal framework (e.g. in settling disputes or in challenging regulations) and transparency of policy-making.

• Indicators showing progress: Overall burden of regulation (e.g. time spent by the senior management in dealing with regulations), bureaucracy (e.g. paperwork, unnecessary queuing or submission of documents by business), ease of doing business (e.g. business legislation in terms of openness, competition and regulations, labor regulations), among others.

• Indicators showing the most improvement: Share of firms identifYing business licensing and permits as major constraints, product market regulation index, number of regimes proposed for abolition or simplification, average number of days needed for the issuance of an operating license, among others.

Results from Qualitative Indicators:

• Transposition of ED regulations added additional administrative and regulatory burdens. Bulgaria's accession to the EU and the rapid introduction of regulations stemming from the acquis communautaire during the period of analysis and evaluation exerted an influence over the condition and dynamics of business regulation. The regulatory and administrative burdens for businesses have increased as a result of the transposition of EU regulations in the Bulgarian legal system.

• Partial achievement of the LARACEAA's objectives. Survey analysis indicates that the LARACEAA's objectives have been only partially achieved. Among the achieved objectives this report finds: (i) "Clear definition of the types of regimes regulating economic activity," (ii) "Protect free economic initiative", and (iii) "Clearly define the limits of administrative intervention in economic activity at central and local level." However, a number of important objectives set out in LARACEAA have not yet been achieved, including: (i) "Increase transparency in the introduction of regulatory regimes," (ii) "Reduce sources of corruption by limiting the discretionary power of administration," (iii) "Secure publicity of the work of administrative bodies in applying normative acts related to administrative regulation and control on economic activity, as well as of the reasons for their change," (iv) "Restricting and reducing publicly unjustified burdening of economic activity," and (v) "Eliminate normative requirements that may reduce competition."

• Bulgaria's Better Regulation Policy has not been carried out consistently and systematically; improvements have been slow. Therefore there are peaks and valleys in the results of regulatory reform. The level of national competitiveness is still low compared to other EU members and developed countries. However, the dynamic of most indicators displays slow tendency toward improvement.

• Local authorities enforce unnecessary burdens on business and they do not make use of public registers. The case studies' review of regulatory regimes enforced at the local level indicates that many ofthem evolve form national legislation, and thus do not constitute special initiatives by local authorities. The local authorities, however, collect available information and additional requirements that are not directly related to the decision for issuing a permit. The municipalities do not make use of public registers, which are required by the Act to publish decisions relating to the regulatory regimes. Some municipalities also enforce an illegal commercial establishment registration regime.

LARACEAA's Main Issues

Limited scope of the Act. The Act stipulates the main principles of regulatory impact by distinguishing between two types of regulations: (i) licensing and registration regimes, and (ii) separate deals or single actions that refer to individual deals. However, most regulation of business remains beyond the scope of the Act and is covered by the Administrative Procedures Code and other special laws.

Limited application of the principle of ··silent consent". Art. 28 of the Act provides that this principle (which means that a business application is presumed to be approved unless it is denied within a certain period from an administrative body) relates to the issue of permits and certificates for individual deals or actions, unless otherwise provided by another law. The research found that, in general, special laws avoid the application of the principle of "silent consent." In fact, only six laws apply this principle.

Failure to perform ex-ante impact assessments of proposed regulatory regimes. No ex-ante impact assessment is ever made during the drafting and submitting of licensing and registration regimes. Such assessments are required by Art. 3, para 4, 5 and 6 of the Act. The Act also provided that the impact assessment should be published on the Internet or made public in another adequate way; this also is not the practice. Most of the 16 amendments to the Act refer to the introduction of new regulatory regimes and ex-ante impact assessments related to them have not been conducted.

Inadequate institutional enforcement framework for the Act. The Act does not have an adequate institutional framework because it lacks an efficient sanction and control system to enforce compliance with it by the bureaucracy. Also, there is no united Administrative Register of regulatory regimes, and no administrative body "owns" the Act and has overall responsibility for its implementation and success.

The Act's Weak Enforcement has Negative Impacts

High business costs. This is related to the procedures for businesses to apply for and obtain licenses, registrations, permits and certificates. It is also related to administrative regulation and control. The costs are both in terms of money paid in higher fees and time spent dealing with bureaucratic requirements. The high share of the informal economy is one result of heavy burdens imposed by administrative regulation and control. This implies losses in public welfare and demands greater public resources for control and sanctions on companies in the shadow economy.

Non-transparency of administrative procedures. Companies that apply for licenses, registrations, permits or certificates do not receive adequate information on the course and progress of the procedures. In some cases, applications are not processed in the order they are received; some companies are given a decision before others who applied earlier. This creates possibilities for corruption.

Worsened business climate. The weak enforcement of the Act discourages improvements in the country's business climate; this is reflected in opportunity costs in terms of otherwise nimble investment activity and competitiveness of the economy.

Key Recommendations for Amendments to the Act

To address the inherent weaknesses of LARACEAA and the need to realize larger benefits from the Act, several recommendations for its amendment are put forward. A total of eleven amendments to the Act (see Table below) are recommended to: (i) improve its administrative provisions (instrumental amendments); (ii) strengthen its institutional support (institutional amendments); and (iii) introduce new rules for calculation of administrative fees (economic amendments).

Instrumental amendments 1 Introduction of new key principles of administrative servicing in the Act (e.g., avoidance of

Iduplication ofsubmission of identical documents to both central and local authorities) relevant to I. all relationships between businesses and the administration .f 2_~lkation of the j>finciple of"silent consent" for re~tration reJlimes3l Broad implementation of declarations of compliance by applicants, along with suitable . i mechanisms for verifYing those declarations, instead of requiring official documents issued by a . . court or other administrative bodies

L,

4 Establishment of a minimum time period during which an applicant for a license or permit can correct mistakes on the application

5 Improved oversight and control of the sanctioning mechanism within the administration and reduction of the burden on controlled entities

I .. . ..

Introduction of instruments enabling an analysis of whether proposed regulatory regimes comply 6 I with the three groups of criteria under the LARACEAA (national and personal security. human I andpropert;y~jsl!ts. and environment) .. ..

Institutional amendments 7 : Establishment of a unit within the Council of Ministers Administration that would oversee

11m lementatJon ofthe Act and Impose sanctIOns when pubhc admmlstratJon offiCIals VIOlate It 8 Establishment ofa uniform Administrative Register of regulatory regimes to provide easily

accessible information and advice on all rocedures and re uired documents to all clients Economic amendments

9 Introd~~7additiO~~s~ing charges for administrative services I. 10 Regulation of the amount gfthe charges on the basis of adopted rules _ 11 Introduction of the principle "one procedure - one charge." Surcharges should be prohibited when 'I·

additional actions are required for an applicant to correct mistakes or as an incentive for . I administrative officials to perform their jobs .. ._____-'

The recommendations listed above may help the Bulgarian authorities use the LARACEAA to further advance regulatory reform. But they should proceed in parallel with other actions under the Better Regulation Program and related initiatives. An improved Act can become a powerful means of reform only if it is part of those broader efforts and has political support at the highest levels.

I

INTRODUCTION

1.1 Importance ofthe LARACEAA

Policymakers consider that the adoption of the LARACEAA is a significant step forward in the process of regulatory reform in Bulgaria. The Limiting Administrative Regulation and Administrative Control on Economic Activity Act (LARACEAA) was adopted in 2003 to facilitate and encourage economic activity by defining and placing publicly justified limits on the regulations and controls imposed on businesses by national and local government bodies. Policymakers consider that the LARACEAA is a substantial step forward in the process of regulatory reform in Bulgaria. In its current version (as of January 2010), LARACEAA is the result of sixteen amendments. 1

Although the 2003 Act was modified from its initial draft, majority of experts and business leaders consider that the Act created the basis for a more conducive regulatory environment in Bulgaria. The initial draft of the Act was prepared by a team of lawyers and economists from the Bulgarian Small and Medium Enterprises Promotion Agency, the Institute for Market Economics, the Bulgarian Chamber of Commerce and Industry (BCCI), the Bulgarian Industrial Association, the Commission on Economic Policy to the National Assembly and the Ministry of Economy. The idea was to adopt rules restricting the unjustified intervention of state and local authorities into the activity of entrepreneurs and commercial companies. Some proposals in the initial draft were not included in the adopted version of the Act. These included such matters as, (i) considering the option of not introducing a regulation; (ii) the requirement for official exchange of information and documents among the institutions2; (iii) applying the principle of "silent consent" to regimes with no expedience (registrations); (iv) the possibility for the administration to authorize business associations to perform self-regulation, among others. Even so, the majority of experts and business leaders considered LARACEAA to be a statutory Act laying the basis for a more conducive regulatory environment in Bulgaria.

LARACEAA stipulates two types of regulations. The Act specifies two types of regulations: (i) regimes regarding the performance of overall economic activity, and Oi) regulations regarding separate deals and the execution of single business actions. Some activities stipulated by the Act can be subject to a licensing regime, and other activities can be subject to the more liberal regime, defined by the Act as a "registration" regime.

Overall, LARACEAA is a common Act setting clear rules for administrative bodies in exercising regulation and control of economic activity. The Act sets up clear rules related to

both the legislation and responsibilities of administrative bodies in exercising regulation and control on economic activity. In its most important provisions, the Act:

1. Sets up the guiding principles of legislation and administrative procedure related to economic activity. Among these, the principles of economic freedom (proclaimed by Art. 19, Constitution), proportionality and legitimate expectations are of particular importance;

ll. Provides that all regulatory regimes and requirements for permits, certifications and notifications of separate deals and actions must be authorized by a law. It defines two types of regulatory regimes: licensing and registration;

iii. Introduces the requirement that regulations at all levels must be motivated by a clearly defined necessity (from the viewpoint of national security, environmental protection, or the personal and material rights of individuals), thus limiting the discretionary power of regulators;

iv. Introduces compulsory ex-ante economic analysis and impact assessment for each regulation, which must be made public, as well as a requirement for informing in advance those persons (stakeholders) who will bear obligations or restrictions by virtue of a new regulation;

v. Limits the power of administrative bodies to require applicants to submit proof of circumstances which are certified before another administrative body and which are properly entered in a register;

vi. Defines the obligations of the administration in exercising its powers; vii. Introduces the principle of "silent consent" for issuing permissions and certificates;

viii. Constitutes the main rules for executing control on business activities; IX. Adopts a list of economic activities covered by a licensing regime.

1.2 Scope ofthe Assessment

This report is a result of collaboration between the Government of Bulgaria and the World Bank. The ex-post LARACEAA report is part of a World Bank support to the Government of Bulgaria through an on-going analytical and advisory work in the area of regulatory reform. This collaboration contributed to Bulgaria's recent progress in the field of Better Regulation.

The purpose of this Assessment is to assess ex-post the impacts of the Act. The assessment determines the extent of effect on target groups, institutions, economic environment and the legal system. It also answers the question of whether and to what degree the realized impacts resulted directly from the adoption and implementation of the Act. The period covered for this report is from January 2004 when the Act entered into force through the end of2009.

The Assessment used both quantitative and qualitative methods of analysis. Data and information from different national and international sources has been collected and processed, coupled with a survey addressed to researchers, business representatives, and experts from public agencies and state institutions applying the Act. Results from analysis of the implementation of four exemplary regulatory regimes in three municipalities are provided as well.

1.3 Sources ofInformation

This report draws on international best practice guidelines. This ex-post assessment foHows the January 2009 Impact Assessment Guidelines of the European Commission (EC). Best practices in impact assessment applied by international institutions and organizations, such as the Organization for Economic Co-operation and Development (OECD), the World Bank, the United States Agency for International Development (lJSAID), etc., were also studieo_

Given that the EC guidelines are relevant mostly to ex-ante impact assessments, this study also considered the 200 I Guidelines of SIGMA (a joint initiative of the GECD and the EU, principally financed by the EU).3

The team also considered Regulatory Impact Assessment (RIA) guidelines, manuals and instructions developed in Bulgaria on the basis of international standards and best practices for the assessment of regulatory impact.4

Consultations were carried out as well. There were also consultations carried out for this assessment, involving a broad circle of representatives of interested parties, including the National Assembly, central and local government institutions, bodies of local self-governance, business associations, non-governmental organizations (NGGs), and academia.

Empirical studies were conducted, but the analysis relied mostly on data and information from other sources. The present Assessment made empirical studies (e.g. survey and analysis of enforcement of local regulatory regimes in three municipalities), but mainly relied on information and data published in official documents from national and international sources, as well as from additional sources.5

1.4 General Limitations ofthe Analysis

This report presents an ex-post assessment on the overall economic activity in Bulgaria but there are general limitations for the assessment. The report presents an ex-post assessment of the impact of LARACEAA on the overall economic activity in Bulgaria and on all legal subjects who take part in it. There are, however, certain barriers of the analysis thatalong with the presence of a number of informational, institutional and statutory impediments-constitute limitations for the assessment.

Specificity of the legal system. The general nature and comprehensiveness of the Act make it difficult to determine whether and to what an extent the observed impacts resulted from the action of LARACEAA itself, or from the action of other interventions, legislation and factors. In the Bulgarian legal system, the legislation hierarchy consists of the Constitution, laws and regulations. The Bulgarian legal system does not recognize the so-called "constitutional laws" that would hierarchically stand above common laws (LARACEA is a common law) and could regulate the general principles that common laws have to conform with. In logical sequence, common and special laws should specify the legal norms of the Constitution from general to specific provisions, while special laws, in turn, should specify and operationalize common laws. Quite often, however, logical contradictions arise among the laws. In such cases, an interpretation of the will and intention of the legislature is required. Where there is a conflict between a common and a special law, the rules of the special law shall be applied (lex spetialis

3 According to SIGMA (2001, p.19), the impact of operative regulations is assessed to evaluate whether: (i) the intended objectives were met in an efficient way; (ii) unwanted side effects occurred and to what degree; (iii) the instrument has proven to be easily implementable; (iv) a high degree of compliance has been reached; and v) benefits and costs were distributed in a justifiable manner.

4 Those materials include Bulgaria Impact Assessment Guidelines, Council of Ministers (CoM), 2009; Regulatory Impact Assessment Manual, Institute of Market Economics, 2007; Regulatory Impact Assessment Manual, Association of Management Monitoring (in co-operation with USAID), 2007; and Impact Assessment, Ministry of Economy and Energy, April 2006.

5 Such information included, among others: documents and papers of the National Assembly, the CoM, and sectoral ministries (including programs, strategies, reports, laws, ordinances, decisions); comparative and national studies, ratings, reports, and databases of international organizations such as the World Bank, the OECD, the EC, the World Economic Forum and the Institute for Management Development MTITC; Studies and positions of the Economic and Social Council of the Republic of Bulgaria, the Bulgarian Industrial Association (BIA), the Q"lcf!>rin f'hilmher of Commerce and Industry, Bulgarian Industrial Capital Association, other business

derogat generalis). This allows for special laws to contain provisions that contradict the principal rules contained in common laws, and actually to revoke them. Regarding regulation, LARACEAA is a common law setting the most general principles of regulation. The particular application ofthese principles in different economic branches- for example energy, commerce and manufacturing, etc.-is subject to other special laws. For instance, the Law on Energy provides a licensing regime for energy producers with over 5 MW of installed capacity. In this case, the licensing requirements under the Law on Energy shell comply with the provisions of LARACEAA. Practically, though with lower legal status, the Law on Energy's regulations can revoke LARACEAA's general provisions (e.g. by containing rules that contradict LARACEAA's general principles).

Ex-ante Assessment of the Act is missing. An ex-ante assessment of the Act was not done. This is the reason why the goal, objectives and the related performance indicators were not initially articulated in a clear way. The base values of indicators were not determined, either. In the ideal case, the ex-ante assessment contains a set of goals, objectives and performance indicators by which progress is measured, as well the base values to which impact effects are compared. In the current case, the set of goals, objectives and indicators is constructed subsequently and serves as a basis for determining and estimating the effects and benefits of the Act.

ED Accession had a special impact on the Bulgarian economy as it required introduction of many new regulations. The LARACEAA ex-post impact assessment covers a specific period of development of the national economy, notably its transition from associate to full EU membership. On the one hand, an adjustment had to be made of a great number of regulatory regimes, stemming from Bulgaria's integration with the EU and its acquis communautaire. It is well known that the EC requirements play a significant role on the amount of the administrative costs.6 On the other hand, however, there was a strong pressure and growing demand for optimizing the role of the public administration in economic activity and reducing the regulatory burden on businesses. During the analyzed period, therefore, the regulatory environment framework and the public administration were subject to the influence of mutually contradicting factors, which inevitably resulted in inconsistency of the achieved results.

Performance monitoring system with concrete indicators to evaluate the administrative and regulatory burden in Bulgaria is missing. Discussions about the reform of the regulatory regimes started about a decade ago. Projects of the Department for International Development of the UK and the World Bank on reducing the administrative barriers to business were initiated at that time. In fact, the adoption of the LARACEAA has been one of the performance benchmarks of the World Bank's Second Programmatic Adjustment Loan to the Government of Bulgaria, which observed Government accomplishments by end 2003. The establishment of the first entrepreneurs' desks in the municipalities of Vidin and Pazardjik is a result of the efforts of the UK Agency. However, the performance monitoring system is still underdeveloped in Bulgaria. That makes it difficult to assess the impact of the Act since 2004. For instance, a number of estimations of overall regulatory burden have been provided annually by different sources. Sometimes the measurements differ due to different methodologies used to estimate the same phenomenon? In addition, there are no estimations of the administrative

6 By applying the Standard Cost Model, the Swedish Agency for Economic and Regional Growth calculated that this impact consists in 99 percent regarding the administrative cost in the food industry and 73 percent in agriculture (see NRR, 2008). 7 For instance, one World Bank study shows that proceeding from the "least favorable" to the "most favorable" quartile on a ranking of the regulation of business activities leads to an additional annual growth of 2.3 points of GOP (see Ojankov, S., et.al., 2006). European Commission studies show a smaller impact on GOP growth resulting from reduced regulations. According to a research by the EC, if measures to reduce the administrative burden by 25 percent were applied in all EC counties (as per Lisbon objectives), the GOP would increase between 1.1 percent and 1.9 percent, depending on applied models. A simulation of the model QUEST shows an increase of the GOP by 0.3 percent in 2020, and this increase could be as much as 0.7 percent if markets are sufficiently . .

burden on economic activity in Bulgaria based on accepted methodologies, like the Standard Cost Model.s Therefore, it is very difficult to evaluate the impact of the Act on the level of administrative burden in Bulgaria since 2004.

1.5 Structure ofthe Report

The following Chapter II of the report presents the background of the LARACEAA and the assessment. It defines a policy framework, a goal and objectives of the Act and it presents a set of performance measurement indicators used. Chapter III depicts the results of the ex-post impact assessment. The first subsection provides additional analyses on government measures for limiting administrative burden on businesses, various institutional initiatives, Impact Assessments (lAs) and training, as well as legislative improvement. The chapter combines quantitative and qualitative methods for the analysis. The supplementary qualitative methods are based on: (i) a survey of key stakeholders on the accomplishment of LARACEAA's goal, objectives and main tools for attaining the objectives, and (ii) a unique study on implementation of four regulatory regimes at the local level. The second subsection presents status and dynamics of outcome indicators, output indicators and results indicators. Main findings of the IA are summarized at the end. Based on the ex-post impact assessment of LARACEAA, the final Chapter IV identities the main problem, discusses underlying drivers and effects of the problem and proposes key recommendations to improve the Act in three particular areas: instrumental, institutional and economic.

assessments of the impact of the reduction of the administrative burden on businesses. According to the first assessment, the reduction of regulatory burden by 20 percent will result in an increase of 0.72 percent of GDP until 2025, and the respective figure of the second assessment is 1.44 percent. In the more distant future, to 2055, as per NRR study (2009), it has been calculated that the increase of the GDP over the period will be 1.6 percent. Still, others have calculated that " ... companies in member states which have not implemented comprehensive programs for reforming their regulatory frameworks-such as Bulgaria-would incur direct costs of 1 0-15 percent of GDP" (see Jacobs & Associates and Institute of Market Economics, 2009). This estimate. however, does not include reduced effectiveness of the economy.

t

BACKGROUND OF THE ASSESSMENT

, . ft

2.1 Policy Framework

The better Regulation Policy is a major priority of the EU, as it is an important factor for reaching the targets of the Lisbon Strategy. Improvement of regulations aims to promote the public interest in a way that supports rather than hinders the development of economic activity. Regulatory frameworks and conditions created for business development by the state are among the main factors affecting business activity and economic growth. In 2002, the EC started a large-scale program for improving administrative regulation. The EU member-states initiated a series of activities and measures to improve business environment and the quality of new legislation to raise the competitiveness of the European economy.

Reducing interference of the state are what the EU countries' legislative programs encourage. The principle underlying the legislative programs of the EU countries is the reduction of interference by the state; if interference is inevitable, regimes are graduated in direction from the "heavier" to the "weaker" (see Figure I).

LFigure 1: Escalator of Regulatory Regimes "-~"'~.-"'"-"-'.---~-~.~'~'--'---"'---".'---"~.-"-j -= licensing ~ ::r::

permlaston

regiStration

notmeation

Control Freedom

State Intervention

Source: Authors' graph.

The heaviest regime (in terms of state interference) would be licensing whereas the weakest regime would be notification (see Figure 1). Within the EU, alternative forms, such as "coregulation" and "self-regulation" by business are also considered as "Better Regulation."

The EC launched a new ambitious program for reducing unnecessary burden. In 2006,

later, the European Council approved a Community target of reducing administrative burdens by 25 percent until 2012.

To meet the target of the new EC program, Bulgaria developed national programs with measures to reduce administrative barriers and to facilitate creation of supportive business environments. Bulgaria developed two particular programs to address the new EC initiative in the area of Better Regulation, namely the National Reform Program (2007-09) and the Better Regulation Program (2008-2010) discussed below.

The National Reform Program (2007-09) was a main strategic document of the Bulgarian Government, having an impact on measures to improve the business environment. The document aimed at systemizing the efforts of public administration, the NGOs and social partners in reforming the Bulgarian economy to achieve sustain ably high rates of economic and employment growth. This was the first National Reform Program (NRP) for Bulgaria presented to the EC and the other member-states in March 2007. The starting points for the program were the Integrated Guidelines for Growth and Employment recommended by the EC in formulating policies and measures to achieve the targets of the Renewed Lisbon Agenda. In fact, the NRP was developed in response to the challenges posed to the EU member-states by the Renewed Lisbon Strategy. The NRP is a strategic document defining a medium-term framework of measures and priorities in the fields of macro- and micro-economic development, the labor market and human capital development. In fact, improving the business environment was one of the specific priorities of the NRP. Actions of the Government were directed at setting and strengthening good governance principles by finding the optimum ratio between administrative regulation and simplification of certain administrative regimes. The objective was to reduce the time required for issuing business licenses and permits. The NRP envisaged improvement of the business environment in two main areas: good governance in public administration and reducing administrative and regulatory barriers to entrepreneurship.

Another more specific program is the Better Regulation Program (2008-10). In 2008, the Council of Ministers (CoM) approved the Better Regulation Program 2008-2010, directed at achieving sustainability of the process of building a good regulatory environment. The goal of the program was to reduce administrative barriers to business and to improve administrative regulation. It was expected that the program results in building an environment of better regulation in Bulgaria, in the context of the EU Lisbon Strategy, through the National Reform Program (2007-2009), the Investment Encouraging Strategy (2005-2010), and the National Small and Medium Enterprises Promotion Strategy (2007-2013).

The measures of the Better Regulation Program aimed to contribute to developing a regulatory system with low expenses and small risk, thus supporting the national competitiveness and at the same time efficiently protecting public interests. To attain this objective, Bulgaria needed to build the required capacity in compliance with best European regulatory practices.

To reduce administrative barriers to business and to improve administrative regulation four objectives were specified by the Better Regulation Program 2008-10, namely:

• Abolition or simplification of administrative regimes; • Establishment of an institutional structure for implementation and control of Better

Regulation Policy; • Acceleration of the dialogue with interested parties; • Regulatory improvement at the municipal level and strengthening of regional and municipal

capacity for good regulatory practices.

Concrete measures were developed to attain the program's objectives. Regarding the first

stakeholders. As an initial step in this direction, concrete administrative regimes are identified to be abolished and simplified after proposals by business associations.

The program also envisaged a measure related to Bulgaria's commitment to the EC Action Program for reducing unnecessary administrative burdens stemming from the existing legal structure of the EU. Abolition or simplification of administrative regimes, implementation of alternative regulation and reduction of administrative burdens had to take into account the role of the state in protecting national security and public order, and its explicit and sovereign rights stipulated by Art. 18, para. 1-4, of the Constitution of Republic of Bulgaria, as well as the necessity for protecting the personal and property rights of citizens and legal persons, and of the environment. Part of the measures under the Better Regulation Program regarded activities related to the integration of administrative services on the principle of "episodes of life" and "business events" so as to ease and simplify access to and delivery of complex services.

Reforming regulatory regimes was/is given particular attention in other national strategic documents as well. Such strategic documents are the National Strategic Reference Framework (NSRF) 2007-2013, the Convergence Program 2009-2012, Operational Program "Administrative Capacity" (OPAC) (2007-2013), the Electronic Government Strategy, the Medium-term Fiscal Framework 2010-2013, Bulgaria Investment Encouraging Strategy (20052010), and the Government's European Development of Bulgaria Program (2009-2013). These documents also envisage measures and activities aiming at improving the business climate and reducing administrative barriers to economic activity. For instance, Priority 3 of the NSRF 2007-2013 is "Promotion of entrepreneurship, favorable business environment and good governance." Strategic priorities set by NSRF are further developed in seven National Operational Programs. In fact, part of the funds under Operational Program "Administrative Capacity" (OPAC) are planned to cover the fulfillment of Priority 3. It needs to be further specified that achieving the targets of NSRF is envisaged by a set of measures grouped into four priority axes. Priority Axis III is defined as "High-quality administrative services and development of electronic governance." Beneficiaries under the program include central, regional and municipal administrations; the judicial system; NGOs; and structures of the civil society. Further, by adopting the Strategy on the Electronic Government9 in 2002, the Government undertook to provide 20 main administrative services electronically, including 12 services for the citizens and 8 services for business. The same are approved by the EC as indicative for the development of electronic government. The strategy was updated in 2006. 10

The current Government continued working on regulatory reform. The present Government undertook measures on optimizing the administration and reducing the administrative burden. This is discussed by the World Bank (20 lOb) report on Administrative and Regulatory Barriers to Business. II Particular measures to improve the business environment are envisaged also in the Program of the new Government, entitled European Development of Bulgaria (2009-2013).12

As envisaged by the Convergence Program 2009-2012, the current Government plans to undertake an elimination of 136 administrative obligations, thus contributing to a saving of EUR 13 million by business. Moreover, a 20 percent reduction of administrative burden, which is targeted, would result in a 1.44 percent growth in GDP by 2025. 13

9 Decision N~ 866/ on December 28, 2002 of the CoM (2002a).

10 Decision N!! 48212006 of the CoM.

II See more details about current government measures in World Bank (20 lOa)

1>

http:2009-2013).12

The Medium-Term Fiscal Framework 20 10-2013 14 adopted by the CoM also contains measures on improving business environment, creating favorable conditions for development of business and encouraging investments in Bulgaria. Measures related to the business environment include:

• Review and bringing into compliance of all existing regimes with regard to their lawfulness and appropriateness;

• Review and determination of real rates of fees paid for licensing, permission, etc.; • Reduction of quasi-taxation burdens through liberalizing product market regulations as a

precondition for diminishing corruption and the influence of special interest groups; • Increase the productivity of public expenditures and the quality of goods and services

delivered by the state.

Overall, Bulgaria follows the EU policy on Better Regulation Agenda, and as a result has adopted several strategic and specific programs to address the issue since 2004. However, impact of the regulatory reform policies is yet to be seen. In recent years, the Bulgarian Government has adopted several national and more specific programs, targeting reduction of the administrative burden and relief of regulatory barriers for firms to address the Lisbon Strategy of the EU. But implementation of the provisioned measures is ambiguous. The current Government has also planned activities to improve the business environment. However, results from the impact of these policies are yet to be seen.

The next subsection discusses in brief the goal and main objectives pursued by the Act in order to provide the ground for the selection of performance indicators used to assess the impact of the Act both in qualitative and quantitative terms.

2.2 Goal and Objectives ofthe Act

LARACEAA establishes the general rules of limiting administrative regulation and administrative control of economic activity. The Act's goal (or general objective) is to place publicly justified limits on administrative regulation and control of business and to raise the national competitiveness.

LARACEAA is the first significant legislation in Bulgaria that aims to define the acceptable limits of administrative regulation and control on business. So formulated, the rational of the Act stems from the liberal idea of the "limited" state which, as laid down in the motives of the Act, "limits and controls itself in favor of business and public society.,,15

The Act identifies a public interest in three major areas of regulation of economic activities (Art. 2, LARACEAA), namely:

• National security and public order (sovereign rights of the state); • Personal and property rights of individuals and legal persons; • Environmental protection through regulated economic activity.

Going beyond these limits means overregulation and over-control (Le. publicly unjustified burdening of economic activity), according to the Act.

This self-limitation of public power represented by public authorities and local governance bodies is in full conformity with the spirit of Art. 19, para. I of the Constitution of Republic of Bulgaria. It proclaims the right to free economic initiative as a basis of the national economy.

This means that freedom of economic activity is the rule and any kind of restriction is an exception to the rule. The socio-political as well as the legal-and-regulatory logic demands that exceptions to the rule are regulated, interpreted and applied restrictively and not extensively. Imposing limits on intervention by public authorities in business activity does not mean such interventions are abolished; it does mean that interventions must be precise, reasonable, and acceptable from the viewpoint of modern society. In addition, it should be taken into account that LARACEAA does not cover the whole range of relationships between the business community and the state administration. This Act cannot be identified as an administrativeeconomic code. As underlined above, the Act's goal is to establish clear principles for introducing and implementing restrictive administrative regimes in economic activity. Therefore, all daily administrative relationships regulated by the Administrative Procedure Code and many other special laws remain beyond the scope ofLARACEAA.

Several major objectives pursued by the LARACEAA are identified:

• Protect free economic initiative; • Clearly outline the limits of administrative intervention in economic activity at central and

local levels; • Restrict and reduce publicly unjustified burdening of economic activity; • Provide clear definition of the types of regimes regulating economic activity; • Increase transparency in the introduction of regulatory regimes; • Limit the informal economy by reducing the administrative burdens on legitimate

economic activity; • Limit the enactment of new regulatory regimes (licensing or registration) by requiring

evidence of the necessity for such a regulation and advance notification of affected persons;

• Eliminate normative requirements that are likely to reduce competition; • Reduce the sources of corruption by limiting the discretionary power of administrative

agencies and officials;

Ensure publicity in the work of administrative authorities in applying regulations and controls on economic activity, as well as of the reasons for such actions.

2.3 Performance Indicators ofthe Assessment

The definition of performance indicators follows the division of the objectives in two groups, namely: goal and a set of objectives. The goal represents the long-term effects and impacts of the regulation on the direct target groups and other interested parties (see Table 1). The specific objectives represent the more immediate results and effects of intervention on the respective target groups. That is why the specific objectives have a more apparent and measurable nature compared to the broader goal. Another substantial difference between the two groups of objectives is that while reaching the objectives is related to a particular intervention resulting from a concrete law or specific programs, the attaining of the goal is influenced by a much wider set of laws, programs or an aggregation of special interventions.

Due to the different contents and role of the goal and objectives, there are essential differences in selecting and formulating indicators for their measurement. Indicators for measuring the goal are related to the general state-of-affairs and estimations of the country's competitiveness, ease of doing business, and administrative burden. The indicators identified in Table I represent an ideal set that might be modified in every concrete situation and country as per availability and reliability of statistical information. In a more uncertain situation it would be better to complement quantitative indicators with qualitative analysis mainly gathered from surveys, case studies, and interviews, as demonstrated in this report.

--

I

I Table 1: Performance Indicators of the LARACEAA's EX·J.()..~t~...::.~_._,~

r--c:-0 A L

0 B J E C

T

I

V

E

S

I

Objective

To establish publicly justified limits on administrative regulation and control of business and to raise the national competitiveness.

1. To protect free economic initiative 2. To clearly outline limits of administrative intervention in economic activity at central and local levels 3. To restrict and further reduce publicly unjustified burdening of economic activity 4. To provide clear definition of the types of regimes regulating economic activity 5. To increase transparency in the introduction of regulatory regimes 6. To limit the informal economy by reducing administrative burden on economic activity 7. To limit the enactment of new regulatory regimes (licensing or registration) by imposing the requirement for evidence of the necessity for such a regulation and advance notification of affected persons 8. To eliminate normative requirements likely to restrict competition 9. To reduce corruption by limiting the discretionary power of administration to. To ensure publicity of the work of administrative authorities in applying normative acts related to administrative regulation and control of economic activity, as well as of the motives for their change.

Source: Prepared by the authors.

Effect

0 U T C 0 M E

I N p U T,

0 U T P lJ T,

&

R E S U L T S

Type of Indicators

Quantitative Indicators

----~

I. GDP growth rate 2. Competitiveness indices 3. Ease of doing business indices 4. Administrative burden indicators

I-

Qualitative Indieators

, Perceptions of key stakeholders on achievement of the goal

Quantitative Indicators

L Regulatory burden 2. Legal framework efficiency 3. Level of bureaucracy 4. Ease of doing business 5. Share of time spent in dealing with

regulations 6. ,Financial expenses of the business

to cover administrative burden 7. Share of firms identifYing

regulatory regimes as major

constraint

8. Number of regulatory regimes total and by type

9. Share of informal economy 10. Corruption level indices 11. Number of electronic services 12. Number of regulatory regimes with

public registers 13. Number of abolished regulatory

regimes

14. Number of simplified regulatory

regimes

15. Number of Lt\s of implemented

regulatory regimes

16. Administration work transparency

indices 17. State and municipal taxes collected

for business services 18. Costs of regulation performing

administration

19. Number of employed in

administrative services.

Qualitative Indicators

.-~

Perceptions of key stakeholders on achievement of the objectives.

..--'--.----~-------~.

Source of Information

-,

NSI, World Bank Doing Business, WEF, IMD, OECD, Standard Cost Model

----.-~-

I

Survey

National Statistical Institute, Business Environment and Enterprise Performance Survey (BEEPS) and World Bank Enterprise Survey, Doing Business, OECD, CoM, MF, National Assembly, Register of Regulatory Regimes

Survey, Case Studies, Interviews and Discussions .

-~"~--~---

Outcome indicators

The outcome indicators relate to the achievement of the goal. They concern the wider effects of the policy and go beyond the direct and immediate influence on target groups. They comprise long-tenn effects on the economy, social activities and ecology. Such indicators are as follows: (i) Indicators of economic impacts (GDP growth rate, indices of competitiveness, ease of doing business indices, administrative burden indicators); (ii) Indicators of social impacts (employment and labor markets, social involvement, indices of good state governance and administration, publicity and awareness, and civil control of the activity of public authorities); and (iii) Indicators of ecological impacts (regulatory regimes related to environmental protection and sustainable development).

Depending on the logic of intervention, indicators for measuring the specific objectives can be grouped as follows:

Input indicators

These indicators provide information on the financial, human, material, organizational or regulatory resources necessary to implement the policy. This group of indicators includes, for example, costs of central and local administration involved in regulation, the number of people employed in administrative services, etc.

Output indicators

These indicators relate to the immediate results expected to be produced (or, services to be delivered) by implementing the policy. Such immediate results include:

• number of abolished regulatory regimes; • number of simplified regulatory regimes; • number of regimes abolished at the municipal level; • number of implemented electronic services;

• others.

Results indicators

These indicators reflect the immediate effects of policy on target groups, beneficiaries and those who are directly addressed by the policy. This group of indicators includes:

• financial expenses paid by businesses to comply with regulations; • time spent by businesses to comply with regulations; • administrative burdens; • time needed to deliver administrative services to businesses;

• others.

11

EX-POST IMPACT ASSESSMENT OF THE LARACEAA

3.1 Government Measures and Initiatives

Since 2004, the Bulgarian Government has initiated a number of actions to modernize business regulation. However, these actions have had only partial effect and they have not guaranteed orderliness and stability of the process of creating a better regulatory environment. Undertaken initiatives in the area of Administrative and Regulatory Reforms can be systematized in the following groups:

• Administrative and regulatory burden-reduction measures; • Institutional initiatives; • Conducted impact assessments, analyses and training; • Legislative initiatives.

3.1.1 Administrative and Regulatory Burden-Reduction Measures

According to the first annual report for the implementation of the Better Regulation Program for the period 2008-2010, a total of 25 administrative regimes were proposed for abolition and simplification until April 2009. In co-operation with the interested parties, another 17 administrative regimes have been identified to be abolished or simplified. To improve regulation at the local level, a review of introduced administrative regimes has been done as well. As a result, 167 municipal regimes were abolished within one year. Specific information about the status of the regimes under the Better Regulation Program and Implementation of the Measures under the Better Regulation Program by April 2009 can be found in Appendix 2 and Appendix 3.

Accomplishments of the Better Regulation Program 2008-2010 on Abolition and Simplification ofAdministrative Regimes:

Results regarding simplification and removal of unnecessary regulatory regimes are mixed. During the period under consideration, reviews have been done of administrative regimes and barriers to economic activity in cooperation with interested parties (employers' organizations, branch associations, etc.). As a result, a list of regimes for simplification and abolition has been drafted. On the approved list of 16 out of 17 identified administrative regimes, the CoM has adopted the simplification of twelve regimes and five regimes for abolition, but the national parliament has not yet approved these proposals. In addition, the "Registration of a commercial establishment" regime introduced illegally in 140 municipalities, was dropped in 110 of them by March 2009; and 30 municipalities continue to apply this regime. Two of the identified regimes shall not be simplified, since it is considered that they are related to stringent regulation. These regimes are "Licensing of activity as commodity exchange" and "Permission to organization on waste utilization." Another regime, "Licensing of operators of airport ground operations," will not be simplified, since consultations with the EC have confirmed the necessity of the regime. Three other regimes, including "Permit of performance of activities including collection, transportation, temporary storage, preliminary treatment, utilization and/or rendering harmless of waste," "Permit of performance of taxi transportation" and "Permit of performance of occasional transportation" are envisaged for consideration by the CoM.

Consultations with business associations have been conducted, but more needs to be done. For the time being, only consultations with representatives of business associations have been used in identifYing regimes for further simplification. A more precise hands-on alternative method to this practice is the suggested analysis of the compliance of regimes with the main criteria stipulated by LARACEAA (see Appendix I). By applying this method, this study identified nine regimes that do not meet entirely the requirements of these criteria. This group includes the following regimes: customs agent activities; manufacturing of compact disks (optical disks) and/or matrices for them; industrial processing of tobacco and production of tobacco products; and production of alcohol, distillates and alcoholic beverages. This analysis may be very helpful in determining priority regimes to be considered and suggested for simplification in the future work of the Better Regulation Program.

Limited number of alternative forms of regulation has been introduced. An alternative form of regulation was introduced in practice in early 2009, when the Ministry of Interior implemented a provision that road accident findings can be filled-in by citizens without the interference of police authorities. Another example is related to adoption of the Law on Independent Evaluators. 16 The regulation of the activity of independent evaluators has been transferred to a professional organization, the Chamber of Independent Evaluators. This action is part of a measure on transferring certain regulatory functions, such as license regimes, to branch organizations. The constituent assembly of the Chamber was held in March 2009.

Licensing regimes slightly increased since 2003. In spite of undertaken measures, licensing regimes increased during the analyzed period from 39 to 42 (see Figure 2), which resulted from the implementation of five new regimes and the abolition of two regimes. Seven amendments and supplements have been made to six regimes throughout the period. Most intensive was the establishment of new regimes in 2009, when three regimes were implemented, while abolished regimes (one in a year) refer to 2004 and 2007, respectively (see Figure 3).17

16 Promulgated SG 981 November 14,2008.

17 In 2007, the Bulgarian Industrial Association has conducted a study on the illegal enforcement of regulatory

1 • {1' t • • (T t'prr:~ao 1-.. ........ t...~__"11 ft

http:Evaluators.16

i Figure 2: Small number of licensingr!!I!!':!"=s amended since 2003 45

40

35

30

25

total number 20

• amended

~5

~o

5

o 2003 2004 2005 2006 2007 2008 2009

Source: Authors' estimates, based on the amendments of the LARACEAA.

Figure 3: A few licensing regimes introduced and very few abolished since 2004

3

2

new

• abolished 1

II ... 2008 2009

o

21 2005 2006 2°1 -1

Source: Authors' estimates, based on the amendments of the LARACEAA.

Regarding the implementation of electronic services, analyses show that these may be an efficient tool for reducing administrative burdens. However, the practice in implementing electronic services has demonstrated weaknesses, as follows:

• Services are developed according to the internal rules of individual institutions, making it difficult for them to become an integrated part of a single e-service environment.

• Working processes of services are designed to be comfortable for the administration, not for the consumers;

• There is a lack of a nation-wide model of rules for working with electronic documents.

190 registration regimes applied by the central administration and about 370 registration regimes by local administrations, whereas about 750 permission regimes were applied illegally by local administrations. However,

. ,,- -~!-- ~4' ro,,"..ltnrv r~(Jjmes is lackimr. Therefore. this reoort uses information onlv about

To overcome these weaknesses, the Government has undertaken the following steps:

• The adopted Law on Electronic Governance (LEG)18 provides for automatization of administrative procedures, transparency of processes in state administration, reduction of possibilities for corruption as well as reduction of administration costs. LEG stipulates the single creation and multiple uses of data, the obligation for interinstitutional exchange of e-documents, mutual compliance of information systems and information security. The Law also aims to reduce the time of delivering administrative services to citizens and business. The LEG has created grounds for a substantial reform in administration's use of new information technologies and joint use of hard-copy and electronic documents;

• An integrated system of e-government is being built with the aim of providing a model for integrated e-governance at regional and central levels. The e-government portal has been created, www.el!ov.bg.This is the contact point for access to all e-services delivered by central administration. The system offers a centralized approach to managing documents, operation processes, contents and policies. A special chapter contains a catalogue of regulatory regimes by type;

• A pilot integration system of electronic region (PISER) has been initiated which aims to build infrastructure for assisting the institutions in three regions (Bourgas, Dobrich and Stara Zagora) to more efficiently manage their activity and deliver administrative services electronically (see Box 1 ).Standardization of services and processes has been introduced to improve public access to administrative services. State authorities created a single place for access to administrative services on the principle of "one-stop shop." "One-stop shop" services have been introduced by 77 percent of central administration structures, 96 percent of regional and 82 percent of municipal administrations. 19

t Box 1: Establishment of a Pilot Integrated System of an Electronic Region In accordance with the project Pilot Integrated System of an Electronic Region (PISER). three electronic regions have been established in Burgas, Dobrich and Stara Zagora. The so-called "regional portals" are the basis of the project; they provide opportunities for citizens and business to electronically request and receive services, provided by their regional and municipal administrations. This opens a "door" toward an administration capable of operating 24 hours a day, 7 days a week.

The developed program solution provides opportunities for the establishment of a connection between the different administrative services and the different sources of information on the basis of a standardized interface.

On the three pilot regional portals, the citizen and business can frod information about 100 services provided by their regional administrations, accompanied by a detailed description of the normative framework, the procedures and execution terms as well as the necessary templates and forms. Each municipal administration included in the project provides five services via its regional portal.

Over 200 transactions have been carried out between the start of the three regional projects in September 2006 and the end of March 2009. On average, the portals are visited by 350 users daily.

Source: MSAAR (2009),

3.1.2 Institutional Initiatives

The Council for Economic Growth (CEG) became an important consultative forum on Better Regulation. The CEG, established during the analyzed period and presided over by the Minister of Economy, became an important public-private consultative forum. The Council, together with experts from the Ministry of Economy, has developed measures for implementation of the principles of Better Regulation adopted by the CoM on August 3, 2006.

18 Promulgated SG 46, 12.06.2007

www.el!ov.bg.This

One of the key measures was the introduction of a clear relationship between the executive agencies and the business associations in the implementation of the Better Regulation Policy. The measures would introduce the practice of analyzing and monitoring-through ex-ante and ex-post regulatory impact assessments---Iegislative drafting and enforcement issues that would create problems for economic entities.20

Close cooperation between the Bulgarian Government and the World Bank resulted in Bulgaria's recent progress in the area of regulatory reform. The World Bank supported the Bulgarian Government through analytical and advisory work in the regulatory reform area. The first joint World Bank and Ministry of Economy and Energy report analyzed administrative procedures in three sectors of the economy--tourism, food, and road transportation-calling for reduction and simplification of certain administrative regimes that are burdensome. It emphasized superfluous regulation at the municipality level as well. Another report, Bulgaria's Policy for Regulatory Reform in the European Union: Converging with Europe's Best Regulatory Environments, recommended a national nine-step strategy that was approved by the Council for Economic Policy on October 19, 2007. These two reports, and the consultation process with other line ministries, business associations and think tanks, actually paved the way for the Better Regulation Program 2008-20 I 0, approved by the Bulgarian Government in April 2008. Another World Bank report from June 2009 called for a systematic, fair, and transparent regime of state fees. The report noted that there is no policy in place regarding the setting of state fees; this is one reason for the "wild" development of tariffs that include state fees, additionally burdening business, especially small and medium businesses. The report further indicated that the legal framework for the regime of state fees is insufficient, and there is weak institutional framework to monitor the setting and approval of state fees. Implementation of key recommendations is yet to be seen.

Better Regulation Unit was created. The Better Regulation Program 2008-20 I 0 provided for establishment of the Better Regulation Unit, which was also advised by the World Bank. With amendments to the Rules and Procedures of the CoM and its administration, adopted in February 2009,21 the Strategic Planning and Management Directorate assumed the functions of coordinating the implementation and reporting of the Better Regulation Program, and the Directorate began to execute the functions of a "Better Regulation Unit." Few months later, after the new government came in power, the new Rules and Procedures of the CoM and its administration assigned these functions to the CoM's Economic and Social Policy Directorate, as of October 2009. A second review of the Program is forthcoming with the purpose of taking into account the new realities and new governmental priorities.

Internet portal for consultation was launched by CoM Administration. Responding to the needs and the understanding that the dialogue with stakeholders is of key importance for the successful implementation of most of the measures in the Better Regulation Program, immediately after the adoption of the Better Regulation Program an internet portal was launched for public consultations: \Vwvv.strategv.bg. The requirement was adopted for all draft legislation related to administrative regulations to be uploaded to the site at least 30 days before their inclusion in the agenda of a meeting of the CoM.

Even before the internet portal for consultations, an Administrative Register was established. Before the portal, a Register of Administrative Structures and Acts of the Public Authorities has been created.22 Although still accessible, this Register is no longer updated. Another newly established Register (w\~'Y.egov.bg) has been developed, as mentioned above. It is much better organized technically, but there are many issues in terms of its updating.

20 For more information about the role of the CEO and other policy initiatives. see World Bank (2008) or Policy Note on Private Sector Development in World Bank (20 lOb). -. , no. __ ..l,,_~~ ~~rI it~ "r\mini'ltration. SG. No. 10/2009.

http:w\~'Y.egov.bghttp:created.22http:Vwvv.strategv.bghttp:entities.20

The new Government maintained the reform. An Administrative Reform Council was set up to deal with Administrative Reform, including reduction of the administrative burden. An Administrative Reform Council has been established by CoM decision in August 2009?3 The Council is headed by the Deputy Prime Minister and Minister of Finance, and the Deputy of the Council is the Minister of Labor and Social Policy. In November 2009, the Government adopted a Regulation on the organization of the activity of the Council. The goals of the Administrative Reform Council are to: (i) contribute to the governmental policy on strengthening and developing the public administration; (ii) propose strategic directions; and (iii) coordinate draft regulatory acts on establishment, reorganization and termination of administrative structures, administrative reform at local and district levels, administrative services, e-government, status of civil servants and human resource management in the public administration.

The new Bulgarian Government continued cooperation with the World Bank in the area of regulatory reform. The CoM Administration continued working with the World Bank on a study to analyze administrative and regulatory barriers to business. The report will come out in July 20 I 0 and is based on a survey of over 300 firms in Bulgaria; it has been commissioned by the Bulgarian counterpart, using a survey methodology devised by the World Bank.24

3.1.3 Conducted Impact Assessments, Analyses and Trainings

EU supported the Better Regulation Agenda in Bulgaria through funding an initiative by the CoM Administration. Th