Following the money trail
After 15 years, the opposition is suspicious about where proceeds from the privatisation programme go, writes Gamal Essam El-Din
Although currently facing a hostile press campaign from both leftist and liberal political parties, the government's privatisation plans gained strong momentum in the last few weeks. Not only do the plans include transferring from private to public hands a dozen public sector companies, but also luring private and foreign investors to buy national banks and tapping such long-time government monopolies as road and rail transport and irrigation projects.
In a meeting held on Friday with editors and board chairmen of state-owned press organisations, Prime Minister Ahmed Nazif boasted that "privatisation helped rectify the financial positions of loss- making public sector companies, now registering profits of LE1.2 billion per year -- up from a mere LE90 million in 2004." Nazif was also jubilant that the proceeds of privatisation were enough to fund vital development plans and reduce public debts.
At the same time, Nazif launched a scathing attack against the opposition, insisting that the government no longer is sensitive towards foreign investments. "In the age of globalisation, Egypt can never turn its back on the world," asserted Nazif, adding that "foreign investments have proved highly successful in such vital areas as telecommunications, cement and natural gas."
Nazif's enthusiasm about the privatisation programme has, however, left the opposition in an uproar. For some time, opposition parties have been crying foul claiming that the government does not have a transparent policy about privatisation proceeds. The opposition's fury intensified after the government made a surprise decision last month to sell 80 per cent of Banque du Caire. Investment Minister Mahmoud Mohieddin told the People's Assembly that he expects the sale of the bank to generate LE15 billion.
Overall, Mohieddin predicted Egypt would earn at least LE30 billion (or approximately $5.25 billion) over the next two fiscal years from the sale of public assets, about 50 per cent more than in the last two years. The government, he revealed, expects to make LE15-18 billion from sales in the year ending June, 2008, adding that insurance companies, container handling companies and textile firms are all slated for privatisation.
In response, opposition and independent members of parliament voiced their doubts about the government's financial figures regarding public assets and where the proceeds end up. "The government of Ahmed Nazif was appointed primarily to sell Egypt," said Ashraf Badreddin, a deputy of the Muslim Brotherhood's parliamentary bloc. "As a result, it is now too late to put the brakes on the privatisation programme or say that it should exclude such long-time taboos as national giant banks."
But more importantly, argued Badreddin, is to scrutinise the proceeds of asset sales. "The government's figures about the exact revenue from privatisation sales are always contradictory and do not show whether they include the proceeds of public sector companies only or those of the sales of other public assets too," he noted. For example, the government received LE17 billion for land sales in uptown Cairo: "The government is ambiguous about whether the sum of LE17 billion is included in the overall figure of privatisation proceeds or not, and what its plans are for spending these proceeds," stated Badreddin.
During the parliamentary session, many MPs cited a report by the Central Auditing Agency (CAA) as stating that since its successful launch in 1992, the privatisation programme has generated LE50 billion in proceeds. This, they added, contradicts government figures showing that privatisation proceeds did not exceed LE33 billion. Alaa Abdel-Moneim, an independent MP, wondered why ACC's figures do not match those of the government. Abdel-Moneim pointed out that even if the government's figures are correct, they show that many public assets were sold at underestimated prices.
"When the government embarked on the privatisation programme in 1992, it said it expected to generate LE500 billion from sales," noted Abdel-Moneim. But now, the actual proceeds do not exceed one-fifth of the initially targeted figure of proceeds. "I am sure that most of the sales were rife with corruption and that privatisation sales led more to lining the pockets of some officials than to generating cash for the state treasury," accused Abdel-Moneim.
In a hasty response to these attacks, Mohieddin issued a statement describing the CAA report as correct because since 1992 the privatisation programme has netted slightly over LE50 billion in proceeds. Out of this amount, the government has already received LE48.1 billion. "The remaining LE1.9 billion is being collected in the form of instalments," the statement read. Out of LE48.1 billion and until 30 June, 2006, it continued, LE16.6 billion was set aside for the Finance Ministry, LE2.8 billion was allocated to the "restructuring of companies fund" and LE9.4 billion for holding companies. Besides, the sums of LE17.4 billion and LE1.5 billion were earmarked for banks and insurance companies, respectively, as value of divesting their assets in joint-venture businesses.
The statement also said that LE71 million was paid to the Central Bank of Egypt and LE278 million was earmarked to governorates. "In total, this makes LE48.1 billion, a figure that is in agreement with CAA report," asserted Mohieddin's statement.
Addressing other criticism by opposition and independent MPs, the statement noted that privatisation proceeds helped reduce government debts and budget deficits. "The Finance Ministry received LE16.6 billion to achieve these two objectives," said the statement.
Turning to the issue of the privatisation of banks, Mohieddin said Italy's Sanpaolo IMI took over Bank of Alexandria in October, 2006, for $1.61 billion, turning it into the country's largest private- sector bank. The minister indicated that proceeds of banking sales are primarily earmarked to development plans and improving public services. "As for Banque du Caire," added Mohieddin, "the expected sale money will be used to rid the bank of its mountains of non-performing loans and fund giant projects, especially drinking and drainage water stations in different governorates."
Even if agreeing with the above figures, the opposition continued to show strong objections to earmarking privatisation proceeds to slashing public debts and reducing the budget deficit. "Earmarking privatisation proceeds to settle government debts means squandering the Egyptian's people money in non-productive areas," charged MP Abdel-Moneim. "Not to mention that most government debts are largely due to corruption and bad policies."