PRIVATIZATION TECHNIQUES EMPLOYED BY
THE AUTHORITIES
|
Privatization
Agency
|
Ministry of
Trade
|
Ministry of
Industry
|
Ministry of
Agriculture
|
Ministry of
Construction
|
Others
|
Negotiations
|
47.8
|
15.3
|
70.8
|
29.4
|
15.8
|
75.0
|
Auction
|
-
|
22.2
|
-
|
23.5
|
10.5
|
-
|
Tender
|
30.3
|
62.5
|
29.2
|
47.1
|
73.7
|
25.0
|
Public Sale of Shares
|
0.3
|
-
|
-
|
-
|
-
|
-
|
Others
|
21.6
|
-
|
-
|
-
|
-
|
-
|
Total
|
100.0
|
100.0
|
100.0
|
100.0
|
100.0
|
100.0
|
Source: Privatisation Agency.
Note: December, 1994.
Negotiations with potential buyers are the
most frequently used technique in the sale of large-scale objects.
The changes in the Privatisation Law in June, 1994 introduced
additional privatization techniques with the aim of facilitating
the process and providing new possibilities for the participation
of the small business such as leasing for a term of 25 years with a
buy-out clause, management with a buy-out or sale clause, sale by
installments with subsequent transfer of ownership, sale with
non-financial conditions of deferment or termination, and
others.
One of the chief problems of the enterprises
in the process of privatization is the lack of know-how and
information about the procedures, techniques and legislative
framework. It is important to launch an information campaign for
the popularization and clarification of the content, advantages and
disadvantages of the various privatization techniques. This would
be of considerable help to the potential participants and would in
many cases actually generate interest in privatization.
Another problem of the privatization
transactions concluded up to now is that the financial conditions
for participation in the privatization of similar or comparable
objects tend to vary significantly. The case studies suggest that
this is not so much due to the different market value as determined
by the character and location of the particular objects, but
rather, depends on the authority carrying out the privatization and
the privatization technique implemented by the respective
authority.
The different prices at which similar from a
market point of view objects may be bought from the different
authorities and under the different privatization techniques are a
cause for segmentation and disturbances on the market. They deter
certain buyers by encouraging expectations for "cheaper" deals.
However, this problem is difficult to
overcome owing to the large number of privatizing authorities and
possible techniques, as well as to the lack of established
tendencies on the real estate, corporate and security markets.
The presence of non-financial conditions in
privatization transactions has been common practice up to now. In
the studied cases those include commitments to make additional
investments, preserving and/or increasing the number of jobs,
ecological activities and commitments, etc. (See Table 4.)
Table 4.
Case
No
|
Initial Value (BLV
million)
|
Investment Intentions (BLV
million)
|
Jobs
|
Trade
Unions
|
Debts
|
Payment
|
Case No1
|
18
|
7
|
20 new jobs
|
none
|
none
|
paid
entirely
|
Case No2
|
19
|
9
|
preserved 113
jobs
|
2
|
rescheduledby
bonds
|
paid etirely
|
Case No3
|
1.4
|
2.8
|
preserved 9 jobs; 25 new
jobs
|
none
|
none
|
paid ent-irely, by bank
loan
|
Case No4
|
10.789
|
11
|
preserved 150; new
150
|
none
|
4 mln
|
paid entirely
|
Case No5
|
71
|
|
500 made redundant out of
750
|
2
|
4 mln
|
paid entirely
|
Recently, one of the privatisation policy
debates is that to what extent the inclusion of non-price
conditions in the contracts is justified. One view is that the
inclusion of commitments for additional investments, preservation
or increase of the number of workplaces, retaining the principal
activity, and others, complicates the privatization procedure and
in this way impedes the speeding up of the process. Another
argument used to back that view is the fact that additional
conditions require subsequent monitoring involving considerable
administrative expenses.
Without disputing these shortcomings of the
inclusion of additional conditions in the privatization contracts,
it should be stressed that their presence is related to the general
strategy of privatization. It does not only seek to achieve a price
effect, i.e. immediate revenues from sales, but also the
restructuring of the enterprises and improvement of their market
positions, which undoubtedly calls for investments. Certain social
objectives are also pursued through privatization, i.e. it is
necessary, where economically justified, to guarantee the
employment of the workforce, to create conditions for normal
ecological development, etc. The most important aspect of non-price
conditions is, of course, that they are a factor drawing public
support for the process and above all the support of the employees,
for whom access to privatization under capital privatization is
relatively more difficult. Last but not least, the commitments
related to investments and jobs reassure the state authorities
regarding the good faith of the buyer with respect to the
motivation of the purchase and limits possibilities for purchase
for the purpose of reducing production and limiting competition,
especially in the case of foreign buyers.
All of these advantages of the non-price
conditions make them an important element of privatization policy.
It is true, however, that this practice should be regulated and
brought under control. There also arise logical problems with the
value of the negotiated investments. Those agreed in leva are
obviously not equivalent to those in foreign currency due to the
high inflation.
The study has shown that privatization is
not completed with the conclusion of the transaction. There emerges
a tendency towards prolonging privatization both on account of
problems arising with already concluded transactions and owing to
the transition to methods of payment requiring subsequent transfer
of ownership. Experience has shown that a number of actual
circumstances and problems are not regulated efficiently enough in
the contracts for the privatization of enterprises, such
as:
- subsequent finding of unknown prior to the
conclusion of the transaction defects in the respective
privatization objects - in facilities, equipment, infrastructure.
This is largely due to imperfect preparation and conclusion of the
privatization transaction;
- deterioration of the property and
financial state of the enterprises subject to privatization.
Experience has shown that this process is nearly always present and
develops extremely rapidly, especially in the period from the
conclusion of the contract until the new owner actually assumes
possession;
- finding of undisclosed as a result of poor
financial and legal discipline liabilities and legal obligations
(mortgages, property put up as security, etc.);
- nonfulfillment on the part of the buyer of
certain stipulations of the contract for financial and
non-financial commitments of the new owner.
The privatisation of state owned enterprises
turn out to be middle-term process. The procedure for all five
cases was prolonged from 8 to 4 months. The employed privatisation
technic auctions, tenders, negotiations with a potential
buyer. (Table 5.)
Table 5.
Enterprise
|
Procedure
Instituted
|
Procedure
Completed
|
Bought
by:
|
Final Privatization
Technique
|
Other Privatization
Techniques
|
Case 1
|
Jun 93
|
Oct 93
|
employees
|
tender
|
2 tenders
|
Case 2
|
16 Aug 93
|
Mar 94
|
employees
|
negotiations with potential
buyers
|
-
|
Case 3
|
Jun 93
|
Dec 93
|
Sole Merchant
|
auction
|
conducted 3
times
|
Case 4
|
Oct 93
|
-
|
2 partners
|
tender
|
-
|
Case 5
|
n.d.
|
used
preferences
|
sale of
shares
|
-
|
|
|