INTOSAI Working Group on the Audit of Privatisation
External audit on the Course of Public Property Privatisation
Based on Audit Law, State Supreme Audit should audit in the following areas of the Privatisation sector:
The first law on privatization was approved by the Albanian Parliament in August 1991. This law established the main principles of property transformation, allowing for a wide range of methods such as auctions, bids, direct sale, free distribution of shares, and others.
The procedures to evaluate and privatize factories and other assets were specified in detail by decisions and regulations approved by the Council of Ministers.
Albania, like the other countries in similar circumstances, chose the alternative of fast privatisation. Initial attempts to institutionale the reform of state-owned enterprises however, were initiated and financed by the World Bank. These resulted in the establishment of the State Agency for Restructuring Enterprises. These efforts failed to yield the desired results due to the contradiction between the stated goals for reform and the selection of enterprises with poor economic indicators. |
The phases of privatization in Albania are similar to those of transitional countries. These phases or steps are :
The privatization of small units was conducted quickly. By the end of 1992, 75% of the commercial network and service units were transferred to private ownership.
These privatized units were retail stores, restaurants warehouses, and small manufacturing facilities. Statistics indicate 30,199 small businesses and equipment privatized through April 1997. From July 1993 through April 1997, when the process is partially interrupted due to the crisis 11,504 small and medium factories joined the privatization rolls . Thirty - two percent of them were given to employees, 23% were given to land owners and the rest were sold to other investors.
Initially, the methods used for privatization were direct sale and auction. The former is used for cases in which the object is sold to its employees, or to the landowner, or in case of favoring special requests. These decisions were made by the Privatization Boards established in 1995. Foreign investors, though much sought after, did not take part widely in this process. The legal frame work that regulates the privatization process treats Albanian and foreign investors alike. In general, foreigners showed a preference for entering into direct relations with a private owner rather than with the state.
In Albania, the old state-owned enterprises underwent a fragmentation that not only changed their number and size, but management and purpose as well. This evolution was not tracked properly, making it difficult to estimate the exact number of privatized properties at a given time.
The programme for large scale privatization began in April 1995. The programme's structure included provisions to evaluate the assets of enterprises and the mechanism by which the allocation of state's shares would go to private subjects.
The total value of money and privatization vouchers to be used in the privatization process is 90,7 billion lek.
The programme for massive privatization includes 97 shareholder companies, partially or completely privatized, usually representing the construction, mechanical, or food industries also, the major shares of another ten companies were privatized via auction in favor of single investor ownership. Each privatized 30% of their capital.
Based on statistics provided by the National Agency of privatization, only 16% of the vouchers have been used to privatize large scale, medium and small industries, while only 107 companies and smaller enterprises have been privatized partially or completely. The absence of a preparatory phase,an imbalance between supply and demand in massive privatization,and low public awareness of the process have affected the value of the privatization vouchers. They are currently worth 3% of their initial value.
The massive privatization process is justified by the contribution of multiple generations and their hard work in building public property. Certainly, it is difficult to measure the contribution of individual Albanians to the creation of the public wealth. In an attempt to do so, the privatization vouchers were distributed among three age groups of citizens over 18 years old. Despite the fact that 1.2 million Albanian citizens received vouchers in this process, only 22,000 of them have applied the vouchers directly toward the privatization.
Perhaps the most difficult task of national importance is the privatization of strategic sectors of the economy . Considering the nature of these sectors, their present economic and financial situation and the monopoly which most of them enjoyed, it is not surprising that their organizational chart is far from that of a private company. These basic differences, along with the incomplete legal basis for privatization represent serious difficulties for the process. One of the greatest obstacles to progress will be the technological restructuring required at a time when the state lacks financial resources, expertise, and the necessary motivation. Given this situation, the state-owned enterprises' lack of technology prior to the start of privatization could be balanced by a privatization strategy favoring the best potential investor able to guarantee sufficient capital for technological upgrades.
In March 1998, the Albanian Parliament, reflecting on past problems and responding to the need for a new phase of privatization, approved the Law for the privatization of Sectors with Special Importance to the Economy together with a privatization strategy for these sectors.
The main objectives of this law are:
This Law specifies that all the important sectors can be privatized. The legislation does not present privatization as a goal, but rather as an optimal solution. As such, it opens the road to new progress. The privatization of key sectors such as telecommunications, oil and natural gas, the chrome industry, water supplies, sea ports, airports and others will first be pursued by identifying strategic investors. The selection of these investors will be made based upon criteria specified for each sector. Investors will use cash to privatize the main share to be negotiated individually. The remaining share will be sold to employees of these objects,or to the population through a massive privatization plan. For the first time, the state has decided to keep the lion's share in strategic sectors, retaining the power to make decisions regarding important social and economic issues.
To this end, Privatization has increased significantly the private sector's contribution to the GDP. At the end of 1996 this contribution accounted for 75% of the annual GDP.
Along the course of the audit of privatisation we have found many infringements as low price evaluation of state owned property to be privatised, applying wrong criteria and approaches of sale in favour of certain privileged people or social groups at cost of state budget revenues. Since 1994 majority of rules on privatisation of public property are issued by Government (not by Parliament). This is accompanied with the lack of the indispensable indicators of depreciation and inflation as well wrong evaluations of assets, etc.
These cases were pointed out and needed measures against people in charge were required to be taken by the government authorities.Thus, the SAI has denounced corruption of government administration officials in charge with the implementation of the privatisation reform where it was the case.
In this material we would like to emphasise that during this year by the audits carried out on privatisation of the state property, there are identified financial breakings with a loss on State Budget and wrong evaluations of the public property to be privatised, by 1.2 billion leks (about 10 million USD), which is a considerable revenue for the state budget.
In reference to the findings of our auditors, some of the wrong evaluations are adjusted during the audit work by the audited organisations as well as each year SAI has informed regularly Parliament and Government and there are made recommendations concerning these audits.
The approval of the privatization strategy for strategic economic sectors represents another chance for a sound, well-studied perspective as well as new tasks for Audit Work of our SAI.
Sali AGAJ
Foreign Relations and Methodology
Albanian SAI