How privatization of state-owned enterprises is going on,  what should be done to improve an enterprise in investors’ eyes and how a natural person can participate in privatization – these are the issues which were discussed at Radio TUT.BY in the program “The Letter of the Law” by  Natalya Zhernosek, head of the State Property Fund of the State Property Committee, and Denis Aleinikov, Law Group “Argument” senior partner.

What are the methods for foreign and national investors to participate in privatization in Belarus presently?

Belarusian legislation implies several such methods. An investor can take part both in privatization an enterprise as a property complex and acquisition of share holding by competition (bidding) or by auction. An investor can come to an enterprise in the course of additional share issue at already established joint-stock companies, and can also come at the stage of establishing of a joint-stock company during reformation of a state-owned enterprise into a joint-stock company. In this way, 49 joint-stock companies were established to which investors came. For example, last year such joint-stock company was established on the base of Moscow clothes factory. Today, the investments made by the investor already bear fruit:  new equipment has been delivered, new workplaces have been created. So this project is being implemented quite successfully.

The same approach was used for three enterprises included in privatization plan for this year, namely, furniture factory ‘Voskhod’, Minsk industrial complex ‘Veras’, transport enterprise ‘REMID’. At all of them investors were elected at the competitions and establishment of joint-stock enterprises will be completed before the end of the year.   

Our listeners ask about the number of enterprises in the country which have already been privatized? 

For the whole period  since 1991, 4322 enterprises have been reformed which is a little more of than 50% of the whole number of state enterprises subject to privatization. From 2008 to 2011 about 900 enterprises will be privatized in our country and by the beginning of 2011 there will remain 2700 state enterprises which can become potential objects of privatization. A law has been prepared on amendments which may be introduced into the legislation concerning objects which are owned only by the state.  It is aimed at optimization the number of objects owned exclusively by the state which, in addition, will make possible to increase the number of potential objects for privatization.

Most enterprises have been reformed in trade, catering, domestic service, which come to 85%. More than 80% of reformed enterprises belong to chemical and petrochemical complex; about 87% of enterprises have been reformed in woodworking industry, 70% in light industry. Considerable number of enterprises, more than 50%, have been reformed in mechanical engineering, and agro-industrial complex, approximately 40%  in building and transport.        

Presently, the Council of Ministers approved  three-year plans according to which certain figures for each year have been confirmed. How are these plans being fulfilled? What can be said about intermediate results even now?

Last year we fulfilled the planned figures: 156 enterprises of republican property and 37 enterprises of communal property have been reformed. This year we plan to reform and privatize 176 enterprises of republican property and 128 enterprises of communal property. Right now,     52 enterprises have been reformed and on their base 46 joint-stock companies have been established.  A joint-stock company can be established on the base of two or more enterprises. Two enterprises of communal property were sold by competition, one enterprise of republican property is ready for sale, that is ‘Sport’ hotel in Minsk. The Head of the State took the decision to give over ‘Dialek’ enterprise to ‘Ferein’ joint-stock company in exchange for 25% of this company’s shares.           

Were there any sales of state-owned share holdings by competitions and auctions this year?

We didn’t achieve any great results here. Of 160 enterprises shares of which are planned for sale in this period, the Head of the State gave orders regarding seven joint-stock enterprises. Auctions and competitions were announced for them but, unfortunately, they didn’t take place.  On the 26th of November we have announced an auction for sale of shares of ‘BorisBytService’ and we hope that it will take place. On the 23rd of December there will be another auction, for sale of  shares of ‘Prodmash’. While preparing draft orders on sale of shares we proceed from availability of an investor who is interested in purchase of shares of this or that enterprise. But, unfortunately, the crisis also influenced privatization transactions, that is why potential investors have to cancel such transactions because they reviewed their own investment capabilities. Some of them don’t accept the price: in particular, regarding trust ‘SpecSelStroy’ which we put up for sale this year, the investor said that the price is rather high.             

Your organization closely cooperates with the Polish body on privatization. In Poland they also have privatization plans for 2008 – 2011. What can you say about progress of privatization in Poland this year?

In Poland three-year plans of privatization were adopted which included a little bit more than 800 enterprises out of which more than 50 enterprises are quite important for economy. According to the information of our colleagues, to this very day there was not a single completed transaction as regards share holding of these enterprises: enterprises are expensive, the conditions don’t suit investors. Negotiations are going on with investors, possibility of their participation are discussed but still there are no results, not a single transaction has been completed.      

I think that the time is not right for transactions with strategic enterprises where emphasis can be placed on arrival of a strategic investor as well as on getting maximal earnings to the budget.  In my opinion, now is the time of mid-marketable, possibly, unprofitable enterprises, where moderate investments can come, but positive results can be achieved quite quickly and they can considerably exceed the amount of  possible earnings at the stage of concluding the transaction.

There’s a question from one of the listeners: “How can I, an ordinary citizen, can take part in privatization, investing my moderate means in the shares of a certain enterprise?”

There is article 4 of the Law of Privatization in accordance with which both citizens of Belarus and the Russian Federation are subjects of privatization. Such rights are given to them within the framework of the Union State. This also include non-governmental legal persons, persons without citizenship, and foreign investors.

A citizen can participate  in privatization in the following way. Being an employee of the enterprise to be privatized, he can take part in preferential sale of shares that is he can buy them with 20% discount or get them in exchange for his ‘Property’ cheques. This period can last up to eight months after establishing of a joint-stock society. A citizen with ‘Property’ cheques can come to the branch of Saving Bank where he has a nominal privatization account, look through the list of joint-stock enterprises which exchange their shares and invest his cheques in exchange for shares.

Presently, in the Saving Bank branches of the republic shares of 332 joint-stock companies are available which completely secure unused ‘Property’ cheques. As for their profitability, these are different enterprises but lack of dividends today does not mean that this enterprise will not become profitable in the near future.

Besides, a Belarusian citizen as a natural person can participate in competitions and auctions for purchase of shares by auction. We put up for sale small share holdings of enterprises with minor stocks enterprises situated in different localities. There were already cases when natural persons were purchasers of share holdings and partition in statutory funds.

Since July, 2008, we began stage-by-stage lifting of moratorium for shares owned by natural persons. In this period securities market has noticeably become more active, therefore, having concluded an agreement concerning purchase of shares  with a professional participant of the securities market, a citizen can purchase these shares at the exchanging market.   

One more question from a listener: “Will profitable enterprises be privatized for ‘Property’ cheques? For example I’d like to purchase ‘Beltelekom’ shares”.

I think this is a good wish but, unfortunately, acquisition of  ‘Beltelekom’ shares’ is not possible. For this enterprise an IPO has not been done and besides, this enterprise needs arrival of a strategic investor. But in future, part of the shares, probably, will be in demand at stock markets and you will be able to purchase them.  

A user of our portal asks: “Can I, with my ‘Property’ cheques’,  take part in privatization of  such leading enterprises as ‘Naftan’ and ‘Polimir’?

In the course of IPO for petrochemical complex the decision was taken that their shares would not be exchanged for ‘Property’ cheques. I think that this is quite just and correct decision. Besides ‘Naftan’ and ‘Polimir’ there is a number of other enterprises where one can use his cheques.

Can a Belarusian citizen take part in privatization using for this 100% of credit resources received in a Belarusian bank?   

Yes, he can.  State privatization program contains only several limitations concerning the possibility of using credit resources. They refer to impossibility of using credit resources for buying-out of leasehold and impossibility of using the credit by natural persons during preferential sale of shares. Besides, one can’t use resources made available to commercial banks by the National Bank.   
In all other cases usage of credit resources of other banks is allowed.  

We have progressive legislation which makes possible to purchase ineffectively used real estate objects, owned by the state, at reduced prices. What about practical implementation of the above possibilities?

Indeed, our legislation allows to give over unused property for gratuitous usage against implementation of  an investment project with subsequent handover for ownership and sale of such property by auction at the token price of one basic value.  Besides, there is Decree No 77 which allows reducing the price to 80% inclusive.

Together with the sale of real estate, including at the price of one basic value, the right to rent a certain ground area is sold. Talking about the results of such sale, we can say that this norm is in force since 2007 and in this manner we have sold almost 1200 objects of republican and communal property. 

Where can we see the list of real estate objects and how can a private person purchase ineffectively used real estate objects?

The list is at the site of the State Property Committee. There you can also get information on sales in the regions and in the republic as a whole, on actions planned for the current month, on  results and prices of these sales. 

There are no limitations as for participation in these competitions. Token prices  can attract a considerable number  of participants but at the same time one must remember that having acquired an object the investor takes the responsibility  to involve it in business activities.  

What is the procedure of valuation of state property for privatization? Who does it and is it objective?

In 2006 the Decree by the President was adopted on valuation activities in accordance with which the procedure was established, orders were given to work out standards and methods of valuation, requirements to qualification of appraisers. Already by May, 2007, the State Committee on Standardization approved system of standards for valuation of business, real estate, transport facilities,  equipment, and since April, 30, 2007, we started certification of appraisers. Presently, about 900 independent appraisers work in the republic. They can work both independently and in valuation bodies.

In the process of privatization we form the statutory fund of a joint-stock company in accordance with the balance, during the sale of share holdings we are guided by the legislation and can estimate either its market price, or its sale is done at its balance cost  or nominal value.  For the period of searching of our own place in the field of valuation activities much was done but we can’t say that we did everything possible. Perhaps, the most optimal method will be determination of market price without any reservations as for the price of this or that property with consideration of all revaluations.

In Russia for raising the price of an enterprise subject to privatization the government uses professional consultants to carry out pre-sale preparation. Maybe, we also should do something like that?  Can such preparation increase demand and raise the price?

The government has already made one step in this direction: this year Decree No. 413 has been adopted which established a new category of consultants – investments agents who will render services as regards attraction of investments as well as negotiating with potential investors.

Preparatory activities need a high level of competent knowledge, qualification, means for meeting and negotiating with potential investors.   
This decree has already come into force, two governmental provisions regulating this project has been adopted. These agents can give recommendations on pre-sale preparation of enterprises.

Pre-sale preparation of enterprises is important. For example, a professional consultant can advise what assets are non-specialized and how to take them out of the enterprise. Such restructuring of the enterprise make them more attractive for investors.    

A user of our portal asks: “Why on the eve of privatization Unitary Enterprise ‘BZAL’ is trying its best to get rid of basic assets – operable equipment and machine tools are cut to scrap metal? Who is interested in doing so?"

Baranovichi Plant of Automatic Lines is under the jurisdiction the Belarusian Railway of Ministry of Transport. The Plant is included in the three-year privatization plan. In the list of activities during the pre-privatization period we include inventory of all assets and liabilities of an enterprise, their evaluation for possibility of usage in the work of a future joint-stock company.

But when we say that an enterprise should prepare for reformation we don’t  give advices to get rid of assets in a barbaric way.   I can’t comment on this particular situation as I don’t know its details.

International Monetary Fund recommended to our country to begin the active phase of privatization and launch a number of pilot projects. Are they already known and when will they be launched?

We have prepared draft decree of the Head of State on the sale by auction of seven such enterprises of various fields of activity: two enterprises of mechanical-engineering direction – Bobruisk machinery plant, Lida foundry and mechanical plant, two enterprises of light industry – Zhlobin firm ‘Belfa’, Soligorsk clothes factory ‘Kupalinka’, two enterprises of concern ‘Belneftehim’ – Baranovichi factory of household chemical goods and shares of ‘Rechicky textile’, one enterprise of  food industry – ‘Krasny mozyrianin’. As such, these enterprises are middle-sized both for number of workers and for their cost. Conditions of sale of these enterprises have been developed. Presently, this document is under consideration of the Head of State.     
As for importance of these enterprises, of course, they are not strategic for the country’s economy. But, nevertheless, investors show interest in them. Market of cleaning agents in Belarus is rather underdeveloped, we hope for imported raw materials and goods, though we are quite able to produce such things at the factory in Baranovichi.      
‘Rechicky textile’ enterprise is quite interesting as well, German investors show interest in it.

In my opinion, a good pre-sale preparation of these enterprises can contribute to success of these transactions. Of course, it will be an open sale by competition.   
Now our privatization procedure is quite transparent. All necessary information is available at our site.

Especially for investors we have translated main provisions of our legislation into English. There are extracts from the legislation, lists of objects proposed for sale, a list of enterprises proposed for reforming.   

A new revision of the Law on privatization is being worked out now. What amendments shall we expect?

The Law on privatization was adopted in 1993 and, naturally, during subsequent lengthy period  much changed in economy and in legislation. Besides, we still have a principle of gratuitous privatization which is of no use either to the state, or to private persons.  Our citizens had enough time to make use of the cheques which they received. In the new draft we propose to cancel the gratuitous privatization principle and proceed to onerous privatization for financial means only.  At the same time we propose to give to our citizens the possibility to invest their cheques in those joint-stock companies which were established before the new revision of the Law was adopted.

Besides, in the draft it is envisaged to expand privatization field by such methods as sale of shares according to the results of public offer, asset management. Amendments are introduced into the procedure of establishment of joint-stock companies, approach to valuation of the state property is being improved, guarantees to the workers of enterprises subject to privatization are being defined more clearly. We hope that totally all these norms will make the Law more liberal and more aimed at intensification of the privatization process. 

Presently, in international practice there are two main approaches to privatization: sale by auction (aimed at getting maximum amount of money) and investment/competition (aimed at attracting an investor-partner for joint development of an enterprise). In your opinion, which one is more important for Belarus now?

Presently, there are almost one thousand and five hundred joint-stock companies in our country in which the state has a portion, about three thousand of enterprises which can be privatized. These are different enterprises and different joint-stock companies. The method of privatization of this or that enterprise depends on many things: its type,  its financial stability, whether it is a strategic one, and whether it is important for regional development. So one can’t give the direct answer to the question which method should be taken – auction or competition. In each particular case you should look at the purpose of the concrete object.