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Al-Ahram Weekly 8 - 14 July 1999 Issue No. 437 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 8 - 14 July 1999 Issue No. 437
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Profile Features Focus Books Travel Living Sports Time Out Chronicles People Cartoons Letters Privatisation drive cash-strapped
By Gamal Essam El-DinThe government's privatisation programme, which did not have much success over the last six months, gained fresh momentum this week when the Cabinet Privatisation Committee (CPC) decided to try to recapture businessmen's interest by offering more and larger companies for sale.
The CPC's decision, which gives the green light to floating the shares of six public sector companies over the next few weeks, also calls for accelerating the privatisation of the other companies periodically and according to a strict timetable.
According to Talaat Hammad, minister of cabinet affairs, different methods were adopted by the committee for the new privatisations. In the case of Tora Portland Cement and the Eastern Tobacco Company, Hammad said underwriters will be contracted to cover the entire sale of 67 and 11 per cent of their shares respectively. "Besides, 10 per cent of the shares in both Ameriya Cement and Helwan Cement and 25 per cent in Kafr El-Zayat Chemicals and Pesticides will be privatised through bidding on the stock market with the highest price winning. Finally, 20 per cent of the Nile Drug Company will be privatised through direct sale on the stock market," Hammad said.
Hammad also announced, as evidence of renewed investor interest in the privatisation programme, that the cabinet approved this week the sale of Beni Suef Cement Company for LE1.4 billion to the giant French Company Lafarge. The sale contract was signed Sunday.
Upon instructions from Prime Minister Kamal El-Ganzouri, a follow-up watchdog committee was formed to address problems which might face the newly decided privatisations and find quick solutions for them, Hammad explained. "This committee will meet on a weekly basis in a serious attempt to accelerate the privatisation process and avoid any unexpected delays," he said.
The government's periodic statements on privatisation plans, however, have not always been enough to either spark investor interest in the remaining companies or accelerate the selling process. Following the CPC's meeting this week, Public Sector Minister Atef Ebeid said a report, explaining in detail the major problems standing in the way of privatisation, has been submitted to the prime minister. Topping the list of these problems, most privatisation insiders agree, is the shortage of funding.
According to official statistics, privatisation deals struck over the last six years have so far generated receipts of LE9.2 billion. However, statistics also show that out of this total, only LE7.8 billion was collected by the government. The difference of LE1.4 billion is due to the fact that part of the proceeds from privatisation sales is paid by company employees (through the Employee Shareholders' Association) in long-term instalments over eight to 10 years.
Amin Mubarak, Chairman of the Peoples' Assembly Industry Committee, argues that lack of funding is the major hurdle which led to a slow-down of the privatisation programme over the last six months. "During this period, in which only eight privatisation deals were concluded, the government has been in desperate need of cash to fund the early retirement and debt rescheduling programmes necessary to make the remaining companies on the privatisation list more enticing to investors," said Mubarak.
In a recent report submitted to the People's Assembly, Minister Ebeid said that in the early stage of privatisation, it was decided that the entire proceeds of sell-offs should be allocated to rectify the unsatisfactory financial, administrative and technical conditions of public sector companies. Later, Ebeid's report added, it was decided that two-thirds of privatisation proceeds should go to the Finance Ministry, while one-third would be allocated to pay for the early retirement and company reform programmes.
Commenting on this, Mubarak said the change in the system of distributing privatisation proceeds created a funding gap. "The Finance Ministry claimed two-thirds of the proceeds to settle part of the government's internal debts, estimated at LE127 billion. This, however, came at the expense of the money needed to trim redundant labour and reach final debt settlement deals in the remaining public sector companies slated for privatisation," he said.
Out of the LE7.8 billion the government collected, it set apart LE2.8 billion to pay off debts owed by public sector companies to banks, official statistics show. No figures are available, however, on the exact total of debts owed by these companies to the banks. But government sources indicated that it is close to LE60 billion. "Debt is the most serious problem facing the government in attracting investors. It is no secret that in many cases, investors were discouraged by the huge size of debts in public companies," said Mubarak.
To tackle the problem of labour, the government has so far earmarked LE1.5 billion of the proceeds of privatisation to underwrite an early retirement programme in 41 public companies. Ebeid's report, however, shows that this programme will cost the government a staggering LE6 billion (representing 2.5 per cent of GDP) if it is to be able to persuade roughly 350,000 state employees to accept early retirement.
In an attempt to close the funding gap, the prime minister approved the earmarking of proceeds from the sale of divested assets and lands for the companies themselves to cover part of their debt rescheduling and early retirement programmes. In most cases, however, the proceeds of these divested assets are insufficient. Ebeid's report to parliament said, "In the Egyptian Iron and Steel Company, for instance, there is a desperate need for LE1 billion to tackle the problems of debts and redundant labour. In more specific terms, the company needs LE200 million to persuade 5,000 workers to accept early retirement and LE800 million this year to settle part of its debts, estimated as a whole at LE3 billion, to banks. This means that the government's intervention, in financial terms, is inevitable if the remaining public companies are to find their way onto the privatisation list."
Explaining the Public Enterprise Ministry's position, Mokhtar Khattab, an adviser to Minister Ebeid, said, "The funding gap should not blind us to the positive side of the government's financial reforms. The payment of debts valued at LE2.8 billion means that companies will no longer be obliged to pay an annual interest rate of LE900 million, while the payment of LE1.5 billion to implement the early retirement programme means that the state budget will be relieved of LE550 million, the value of annual salaries."
