Wednesday,19 September, 2018
Current issue | Issue 1128, 27 December 2012 - 2 January 2013
Wednesday,19 September, 2018
Issue 1128, 27 December 2012 - 2 January 2013

Ahram Weekly

Re-nationalising is unrealistic

Mona El-Fiqi sees whether a final court verdict can return a privatised company to public ownership

Al-Ahram Weekly

Last week, the Supreme Administrative Court issued a final ruling that returns Al-Nasr for Steam Boilers and Pressure Vessels Company to public ownership and gives its workers their old jobs back. Experts believe that though the verdict is testimony to the failure of the privatisation programme, its application is next to impossible.

In September 2012, the administrative court suspended the privatisation contracts of three formerly state-owned companies and returned them to public ownership. The three firms were Al-Nasr for Steam Boilers and Pressure Vessels, sold in 1994, Tanta for linen, sold in 2005, and Misr Shebin Al-Kom for Spinning and Weaving, sold in 2006.

The court’s decision also cleared the companies of all debt and mortgages resulting from their privatisation, and restored the rights of the companies’ workers. The reason behind the court’s decision to re-nationalise the companies was that the selling price was far below the market price for each company. For example, Misr Shebin Al-Kom for Spinning and Weaving was evaluated at LE600 million but sold for LE174 million, according to figures from the Egyptian Centre for Economic and Social Rights (ECESR), which filed the suit after the 25 January Revolution.

Likewise, Al-Nasr for Steam Boilers and Pressure Vessels was sold for $17 million but valuations from the Central Agency for Public Mobilisation and Statistics said that it was worth double that.

In response to the first administrative court verdict, the Ministry of Investment, together with the Holding Company for Chemicals and the National Investment Bank submitted an appeal to the court order claiming that its application would be difficult to realise and will have a negative impact on the investment environment in Egypt.

However, the Higher Administrative Court ruled in favour of the previous verdict and asserted the nullification of the privatisation contract, saying that corruption was clear in the deal.

Following the passing of the final verdict last week, the Ministry of Investment announced that it was committed to implementing the court’s decision as soon as it received a copy of the verdict.

However, observers believe that implementation of the verdict is unrealistic. “The verdict is more symbolic than applicable since the court members were looking at the legitimacy of the contracts regardless of the company’s current situation,” said Hamdi Abdel-Azim, professor of economics at Al-Sadat Academy for Administrative Sciences.

Abdel-Azim explained that the government will face a big problem in applying the verdict since the company was sold many times during the past few years and split into two companies. Moreover, “The return of its workers would be impossible since there are no more factories or machines,” added Abdel-Azim.

After its sale, all the machinery of the company was dismantled and removed from the factory in Al-Manial Sheeha district in 6 October and all what is left behind the company at the moment is just the land.

Abdel-Azim suggested that it would be better if the government receives compensation from the first buyer of the company. “Keeping the ownership of the company in private sector hands in such cases is preferable while the country can recover its rights in compensation particularly at a time the government’s budget is suffering from a huge deficit and is in urgent need of money,” he said.

And while some experts believe that the court verdict would lead to a bad reputation during this investment climate in Egypt, Abdel-Azim seems to think otherwise. He explained that this is a court order aimed at correcting a corrupt deal. “Selling a company with two factories and a labour training centre for producing strategic products needed in nuclear industry such boilers and pressure vessels was a big mistake. The factory was the only one of its kind in the Middle East.”

A review of the privatisation process during the Mubarak era following the revolution raised questions about corruption, conflict of interests and a lack of transparency.

Manal Metwalli, a professor of economics at Cairo University, said that lack of transparency is an ongoing problem in the government’s policies starting from the company’s sale, and even after the issuance of the verdict it is not clear what the government will do.

“If the investor who bought the company is to pay the price for having participated in a corrupt deal, government officials should also be subject to punishment,” Metwalli added.

Since it was the government’s fault, it should reconsider reconciliation with investors for the benefit of the investment environment, according to Metwalli. 

“The application of the court verdict is expected to harm the investment environment since it would make local as well foreign businessmen lose credibility in the country’s policies relating to investment,” Metwalli said.

The government is to blame for many things — first for selling the company at less than its actual value and then the misuse of the revenues of the privatisation programme, according to Metwalli.

Moreover, Metwalli said that the government unfortunately did not play a supervisory role with the privatised companies “to prevent the new owners from destroying them.”

Al-Nasr for Steam Boilers and Pressure Vessels was established in 1962 on 32 feddans in Giza to produce boilers. In Mubarak’s time, within the privatisation programme applied by Atef Ebeid, former minister of the public sector, the company was offered for sale and nine companies came forward to buy it off. Babcock and Kooks, an international company, eventually landed the company. In 1992 an Egyptian investor bought the company which shifted from one investor to another before being currently owned by the Orascom group.

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