The privatisation programme will not be sidetracked come rain or shine, writes Niveen Wahish The deadline for submitting the technical proposals for the purchase of 75 to 80 per cent of the Bank of Alexandria is fast approaching. 13 European, Arab and Egyptian financial institutions are expected to submit their proposals by the first week of July, so the Central Bank of Egypt (CBE) can short list the bids in four to six weeks. After that bidders will proceed to submit their financial offers, and the winner will be announced by November. The remainder of the bank's shares will be sold to the employees and a tranche will be sold through the stock market, but not necessarily on the same timeline as the transaction to the anchor investor. The government has proceeded with the sale of the Bank of Alexandria despite the fact that recent privatisation transactions have not been smooth sailing. The two issues plaguing the privatisation process in recent months are evaluations and labour issues. It started with the conflicting evaluations of the Egyptian American Bank in the sale to French-based Calyon Bank, but the transaction went through. It was followed by the contradictory estimates of the value of Omar Effendi shops, whose fate remains to be decided this week. In the case of Yassin factory, which makes glass and crystal, it was labour issues that proved more problematic. Whenever there was conflict, the Ministry of Investment was in the line of fire; but that will no longer be the case. A ministerial committee, comprising of the ministers of investment, trade and industry, finance, planning, labour and manpower as well as the governor of the Central Bank of Egypt, has been created to approve all privatisation sales including final evaluations. And although some observers initially concluded that the committee was formed to limit the authority of the minister of investment, experts believe the committee in fact provides the minister with needed political support. And as one expert, who preferred to remain anonymous, noted, "Why keep the minister of investment accountable when the sales decision involves other ministers as well?" Since coming to office two years ago, Minister of Investment Mahmoud Mohieddin has been very ambitious in running the asset management programme. Some 28 transactions took place in the fiscal year 2004/05, worth LE5.6 billion, which is double the total proceeds of the previous four years put together. These transactions included the sale of public enterprises as well as government stakes in joint venture companies. The Asset Management Programme, which is overseen by the Ministry of Investment, involves selling state-owned companies and assets, as well as divesting public shareholdings in joint-venture companies. It also includes under its umbrella the implementation of specially tailored restructuring programmes of public enterprises in preparation for their eventual sale. And it takes it upon itself to ensure that corporate governance principles and practices are adopted by state-owned enterprises. The policies adopted by the Ministry of Investment received a further boost this week when the economic committee of the People's Assembly approved the sale of Omar Effendi, according to the procedures adopted by the government. The committee said that the evaluation technique used by the holding company was appropriate if Omar Effendi was to continue its activities and retain its labour, especially since the company had only made LE410,000 in profits over the past four years. To avoid the reoccurrence of the uproar over the Omar Effendi sale, the government has decided to explain what it is doing, particularly the valuation process. Recently, it sponsored a seminar for economic journalists on evaluation techniques. Speaking at the seminar, John Glover, senior manager at Bearing Point, showed that valuation does not provide a definitive, scientific answer but is an estimated range of values. Glover, who works for a US consultancy firm contracted by the US Agency for International Development to provide services to the Egyptian government, added that assessment is not based on historical performance but expected future performance. Moreover, he said that the value of an enterprise could vary from one buyer to another, and that valuations which do not result in a sale are bad ones. "If valuations are there to deter sale, why waste your time?" he stated, noting that appraisals which leave the buyer insufficient funds to invest are best avoided. Glover also highlighted the importance of speedy execution, because if the process is lengthy the investor could lose interest and look elsewhere. The science of valuations is relatively young, according to the economic expert, only perhaps 35 years old. During that time, the number of assessment techniques has increased from three to 18. The government has to put itself in the buyer's shoes, and since "price is not everything" what is more important is that the company stay in business and the buyer invests more money and retains the labour, he said. In fact, according to the expert, the government has prioritised labour interests, and labour is an important factor in determining the price of the company. The minister of investment had said that, for the sake of encouraging buyers to retain labour, the government provides very favourable terms. The expert added that despite fears for labour rights, the past two years have witnessed the smallest number of layoffs at privatised companies. He said that in 2004, when Mohieddin took over the ministry, there were 410,000 employees in the companies under the portfolio of the ministry. Last January, that number had only fallen to 401,000 employees, an average of 6,000 employees annually. On the other hand, when the privatisation programme began in the early 1990s it had some 1.3 million employees on its payroll. That figure fell in the first 12 years of privatisation by around 57,000 annually. The ministry has also worked to reform its early retirement package, which has been an option for employees since 1997. According to the Ministry of Investment report for 2004/05, the system which gives workers better severance packages if they voluntarily asked to retire early, was criticised for failing to keep pace with the rise in the cost of living. Moreover, many employees used early retirement compensation for consumer items rather than investment purposes. "About 40 per cent of those who took early retirement were at poverty line a year later," said the economic expert. To tackle the problem, a new early retirement scheme was introduced whereby the early retiree receives 25 per cent of his compensation in cash and the remainder is put on deposit in a bank. But regardless of what the government does, the asset management programme is likely to continue to come under scrutiny. Just this week, more than 100 members in the Shura Council questioned why the government would sell 50 per cent of the profitable Alexandria Mineral Oils Company (AMOC) to a strategic investor. Some 20 per cent of AMOC had already been floated on the stock market at end of 2005.
