3rd wave of privatization. Info-Prim Neo economic commentary

The wave of privatization in Moldova, shaping after the Government has updated the list of state assets to be sold off, a list containing luring companies for investors, could bring to an end an incoherent and controversial process lasting for 15 years. The first wave failed lamentably, because they tried the impossible, to make all the citizens owners of state-run companies against vouchers, some papers without value. In 1993-1999, more than 850 large and medium companies were thus privatized. Experts from the World Bank and other international financial entities assessed the first stage of the privatization as a failure. The vouchers were not an investment that would have led to the development of production and to renewing technologies. In addition, after the privatization, the companies discovered they have hundreds and thousands of masters and, consequently, hard to manage . Moldova borrowed the Chech privatization model. You'd better say – a part of it: the so-called vouchers. The then leadership avoided to to perform the privatization against money. They considered, through vouchers, they realized social equity. That, this way, the people, having received miserable salaries for years, now will obtain some property. Finally, the expected dividends proved to be tiny, while the citizen does not take part in managing the property, as they used to state in 1993. Even more, a big part of them, after waiting to be paid dividends in vain, yielded their stocks for pennies. The delay of the money privatization, which started only in 1995, had negative effects. The flow of foreign capital in the early 90s, eager to come on a new market – the CIS – passed by Moldova. Moreover, the stammer and the behind-the-curtain games related to the Chisinau Tobacco Processor and to Moldtlecom cut the appetite of some large western investors. The stake of the Tobacco factory was wooed by the German Reemstma and British American Tobacco. The national operator of Greece participated in the contest to privatize Moldtelecom. Those attempts failed. The following years saw the same inconsistency in privatization, and as a result the Government failed to sell off some 400 companies, which remained owned by the state. [The target - 282 companies] The updated list contains companies assessed by officials, and some experts, as attractive, as Banca de Economii and the national fixed telephony operator Moldtelecom, in which the state has a stake of 56.13% and, respectively, 100%. It looks like it is worth investing in Viorica–Cosmetic (95.51% of stocks belong to the state), Glass Container Company (31.42%), Zorile (60.26%), Combustibil Solid (78.03%), the Unic store (85.45%), Tutun CTC (90.81%), as these companies have an important market share. The list contains more processors of agricultural produce, agriculture services providers, tobacco fermenting facilities, companies maintaining and building roads, drug-stores, hotels, culture and leisure companies etc. It is not for the first time when the state tries to sell some these societies, as for example, Moldtelecom, which has been put up for sale at least four times, however, because different reasons, all the attempts failed. Another example is Tutun CTC tobacco processor, which had the chance to attract investments of $48 million in 1995, announced by BAT, but failed. After 2000, the Government vehemently opposed to privatize this profit-making company, which is deemed to be put up for sale in September 2008 at a starting price of 200-250 million lei. The privatization project of the Zorile footwear company was unsuccessfully proposed to some foreign companies, and in 2004 the Government decided to transform the entity into a “people's enterprise”. “We have analyzed what has happened to the state's assets the last years: their either were rented and the budget received nothing, or the company is methodically brought to insolvency and bought at a small price. We don't even know what happened to some important assets. It is impossible to re-build their road map. Being included into the list means any transactions with these entities are forbidden. We believe they are going to find their real masters, the Moldovan private sector is not stagnating, it is developing and the demand for assets is large,” said first deputy premier Igor Dodon, the minister of Economy and Trade. Yet, if companies as Banca de Economii (BEM), Moldtelecom, the Unic store, Tutun CTC really are attractive, from the first start it seems lamentable to try to sell small stakes in some companies, because, as a rule, the investors want to get the majority stake to control the enterprise. [Selecting advisor to privatize BEM has started] “We've launched the process of selecting advisor for the privatization of Banca de Economii and hope the strategic investor will buy not only the state's stake of 56%, but will focus the rest of the stocks, in order to preserve the social character of this bank," premier Zinaida Grecianai recent announced at a meeting with a senior official of Morgan Stanley, John Hyman. According to the Memorandum of Economic and Financial Policies for 2008, The Government committed to sign the contract with the advisor for the privatization of Banca de Economii till 30 September 2008, as the latter one will have 6 months to put up the bank for sale. Till March 31, 2009, the contest of selling BEM to a strategic investor is to be announced. “As a first step toward privatizing Banca de Economii (BEM) to a strategic banking investor, by December 31, 2006, we will select one of the foreign companies participating in the tender announced on April 28, 2006, to conduct an independent assessment of the market value of BEM. Although it could take somewhat longer, we hope the evaluation will be completed by September 30, 2007. We intend to solicit the support of international financial institutions to prepare to bring BEM to market shortly after completion of the evaluation. In the meantime, the government and the NBM will continue to refrain from providing preferential treatment to the bank, including as regards taxation, prudential regulation, or access to resources," reads the Memorandum signed in February 2008. [A new trial for Moldtelecom] Till the end of September 2008, on the basis of an open contest an advisor will be selected to assess “the modalities of the possible privatization of Moldtelecom”. The idea of privatizing the national operator of fixed telephony is resumed six years after the failure of the last attempt. The fourth attempt to privatize Moldtelecom in 2002 had bad luck. The foreign companies the Government counted very much on did not even make bids, while the only bidder, Moscow's City Telephone Network, proposed too small a sum ($20 million) compared with $150-200 million expected by the Government. Those figures were not pointed out in the contest conditions, but are expected. Some time earlier, in June 2000, the privatization process was halted at the stage of selecting the financial advisor. Although many reasons to cancel the contest were not disclosed then, the most credible seems the opinion that the Government pulled back when it realized it was not going to get, for a stake of 51% of stocks, those $150 million it counted on and that in general the market conjecture was not favorable.The company OTE Hellenic Telecomuncations Organization from Greece offered, in 1998, for 51% of stocks $46.4 million. The Government asked $102 million. ”It would be mistaken to try to gain huge profits from privatizing Moldtelecom. Much more important is its reorganization and attracting investments,” think experts. Anyway, for the last two years, Moldtelecom is one of the most prosperous companies in Chisinau, while some goals, as the penetration rate, figuring among the targets some 4-7 years ago, have been attained long time ago. The national operator annually invests hundreds and millions of lei in development. However, both officials and experts are unanimous that sooner or later, the national fixed telephony operator, with its domineering position on the market, will have to be privatized. [A new auction starts today] On June 16, a new auction starts, as the state's assets in 40 companies will be put up for sale. The initial price of all the assets is 270.8 million lei, the par value- 236.9 million lei. At the last auction of this kind, in March 2008, they sold off stakes in 16 companies out of 53 auctioned, at a total price of 62 million lei, twice larger than the initial price. In 2008, they expect incomes of 90 million lei from privatization, a goal already exceeded, as the incomes went beyond 120 million lei.