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Al-Ahram Weekly 11 - 17 May 2000 Issue No. 481 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 11 - 17 May 2000 Issue No. 481
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Books Features Interview Travel Living Sports Profile People Time Out Chronicles Cartoons Letters Privately, it's a snail's pace
By Sherine Abdel-Razek
"With the exception of recent cement company transactions, the pace of law 203 affiliate company sales has slowed," reads a report of the Privatisation Coordination Support Unit (PCSU), formed by the American management consulting group Carana to advise the Egyptian government on privatisation.
Besides the sales of Assiut Cement to Cemex, and Alexandria Cement to Blue Circle, only one other privatisation deal -- the complete divestment of Industrial Gases -- took place in the fourth quarter. These three sales, all to anchor investors, added LE1.9 billion to privatisation proceeds. But the report says that this should give little cause for jubilation, since out of the 42 companies announced for sale in the third and fourth quarter of 1999, these were the only three sales which were actually finalised.
The report, which focused mainly on the fourth quarter of 1999, attributed the slow pace of privatisation to the fact that the companies remaining in the portfolios of the ministry of public enterprise are mostly loss-making or troubled companies.
Apart from state regulations, which lead to technical and procedural complications, holding companies' lack of in-house experience in successfully privatising enterprises, in addition to their attitudes towards investors' advisors, have been cited as problems. Even the most experienced holding companies have problems with promoter selection and transaction management skills resulting in lengthy and often fruitless negotiations, while the best-performing holding companies shared problems related to poor enterprise preparation and packaging for potential investors,and over-optimistic valuations of enterprises.
The report assesses privatisations in all the related ministries. The fourth quarter added the sale of joint venture companies to the ministry of economy's portfolio of responsibilities that includes divesting state owned banks and insurance companies.
While in early 1999 the government announced it would sell stakes in four joint venture banks -- Misr America International Bank, Misr Iran Development Bank, Al-Togarioun Bank and Cairo Far East Bank -- and set October as a deadline, nothing has happened beyond awarding the evaluation contract for Misr Iran Development Bank to EFG Hermes.
"The GOE appears to be missing out on an opportunity to rationalise the Egyptian banking system" comments the report. It attributes this seeming reluctance to the fact that public sector banks find their joint venture equity holdings have a better risk/return ratio than alternative investments such as commercial and consumer loans. This perception is strengthened by the lackluster performance of the stock market and income tax law changes which have made investment in government securities less attractive.
The report stresses that Egypt must ensure the insurance sector's liberalisation before 2003 to comply with international trade agreements, since failure to do so will negatively affect its ability to renegotiate the terms of its international debt. Expansion of this sector is vital if domestic savings -- currently only 0.8 per cent of GDP compared to 2.5 in the ASEAN members and seven per cent in EU countries -- are to be increased.
The report also highlights current privatisation efforts in the electricity, telecommunications and transportation sectors, shedding light on the efforts of the ministry of electricity and energy, analysing the chronic problems that have been obstructing the privatisation of the sector's companies. One early result of these efforts was the plan to restructure the Alexandria Electricity Company so as to improve its market performance during the first quarter of 2000. The Cairo Electricity Company's 10 per cent share flotation was postponed for an eight month period, following a report by Merrill Lynch estimating the value of the company at LE7.3 billion, a third of the government estimate.
Merrill Lynch's estimate took into consideration a number of shortcomings in the seven electricity generating and distribution companies. Topping the list was the absence of a regulatory mechanism to balance the companies' business interests with consumer rights .
The delay in forming such an entity is due to estimated operating costs of around LE2 million annually. Equally important is the LE9.2 billion of due receivables owed to the seven by public companies and municipalities. On the other hand, the Egyptian Electricity Authority (EEA) has accumulated debts of around LE22 billion owed to both local and foreign banks and financial institutions.
BOOT agreements were also signed in October to build two new power plants, one in east Port Said and the second at Suez Gulf. Moving to the telecommunications sector, the report describes the listing of Egypt Telecom on the stock market as a preliminary step towards the 10 per cent issue due to take place in the second quarter of 2000.
The recent reduction in international telephone charges by 25 per cent was criticised by the report as still leaving such calls higher than international levels, and Egypt Telecom was admonished for banning international phone calls via the Internet -- "an example,: the report concludes, of the monopolistic power that ET has over the telecoms market due to its being the operator and regulator."
