1.Introduction

The present report should be the basis for a discussion on the above theme planned for the 1999 meeting of the INTOSAI working group on the audit of privatisation in Warsaw. The paper gives a brief summary of the past and present situation in Austria and tries to identify some key issues which might be important for SAI audits.

2.Historic background

Most big state-owned enterprises were grouped together in the Austrian Industrial Holding (ÖIAG), an umbrella stock-holding company with main interests in mining (which is gradually being phased out), production of iron and steel, technologies, electrical engineering and electronics, oil and chemical industries.

According to an act of December 1993, ÖIAG should sell several companies as a whole and privatise others in part, but more than 50%. Between 1993 and April 1997 ÖIAG sold off minority interests in two companies and completely privatised seven companies. More important in terms of earnings, media coverage and development of the Austrian capital markets was the sale of shares of four major companies to institutional investors and through the stock market. As a result of these transactions ÖIAG reduced its shares in all but one enterprise (mining) to levels between 25% and 39%.

After ÖIAG had more or less completed its original privatisation programme it was decided by the goverment that their experience should be used and ÖIAG should act as privatisation agency for other projects in the future. Consequently it has taken over several other state owned companies from the Republic in order to privatise them. It also took over the state-shares of two companies (Austrian Airlines and Vienna Airport) that have already been partly privatised in the past.

3. Legal and political framework

The relevant act regarding privatisations of December 1993 obliges ÖIAG to sell the majority of the companies belonging to her within a reasonable timeframe.

There is no other act or comparable declaration defining how many shares ÖIAG should keep. Therefore ÖIAG itself developed two privatisation concepts defining in more detail its future plans. In the second concept ÖIAG defines itself as key shareholder in the major companies and states that it will not sell further shares during the time covered by the concept (1997 - 1999).

These concepts were formally accepted by the ministry of finance which acts as representitive of the Republic and which also obtained approval from government.

The Austrian Court of Audit audited the period covered by the first privatisation concept. One of the major recommendations in this report, published in December 1996, was that it should be decided which companys shares should be kept by ÖIAG in the long run and to what percentage. This recommendation has not yet been fulfilled.

4. Current situation

As ÖIAG took over the direct ownership of more and more state owned companies the political discussion about the future role of ÖIAG started again. Since it acts as representative of the Republic, it is in fact a discussion about the state as minority shareholder.

One reason that no act or comparable document regarding the ownership theme exists might be that the two parties forming the government in a coalition since 1986 have different ideas about the state as owner of companies. This is also reflected in the newly started discussion which covers a broad spectrum of opinions between "the state should completely withdraw" and "the state should remain a major shareholder".

It must be said that the need for a strategy is relatively new as privatisation only started seriously in 1993. Although it would be a clear advantage to have a goal set by government, until recently ÖIAG

could live relatively well without. The reason is that in those cases where ÖIAG still holds shares it is by far the largest single shareholder. Nevertheless this can not be guaranteed for the future as shares can be freely traded. There is no such thing as a "Golden Share" in the Austrian legal system.

As of May 1999 ÖIAG holds minority shares (between 17% and 41.1%) of seven major companies with a combined turnover of 2.7 billion Euros and some 60 000 employees worldwide.

A decision about the future strategy might be needed in the near future as some of the partly owned companies plan to issue new shares. ÖIAG at the moment does not have enough capital to buy them and and the percentage of shares might fall below a level that guarantees substantial influence. According to the Austrian law at least 25% plus one share are needed if no other contracts (syndicates) secure influence.

5. Why is it important to have a clear strategy

5.1 Influence

Only influence makes it possible to implement a certain strategy. If no influence on the decision of the respective companies is guaranteed the shares would be reduced to mere capital investments. But it is quite universal understanding that states are no capital investors.

5.2 Macroeconomics

Those companies where ÖIAG is a major shareholder are among the bigger ones in Austria. Therefore many business decisions affect not only the companies themselves but the Austrian economy as a whole as well. Especially decisions about investments, research and development, and employment levels.

Although direct influence from the state or ÖIAG on the management of the companies is forbidden by Austrian law it is clear that the intentions of major owners have always to be taken into account by the management as long as they want to remain in position.

5.3 Stock market

Some analysts in Austria say that even a part-ownership of the state has an adverse effect on the performance of the shares of those companies on the stock market. They argue that investors mistrust companies whose business decisions might be influenced by the state.

Although there is no proven evidence of that fact it is obvious that investors prefer owners or owner groups whose intentions are easier to calculate and are less vulnerable to possible political changes.

6. Key issues for SAI audits

The principal decision wether the state should be (part)owner of companies is without doubt a political one. But assuming the state decided to keep a substantial amount of shares I have tried to identify some key issues which should be kept in mind if the SAI intends to audit the role of the state as minority shareholder:

6.1 Is there a clear strategy and are goals defined by government for a time span of at least three or five years ?

6.2 Which institution is responsible for the implementation of the strategy ?

6.2.1 Does this institution have enough experience for the management of that task?

6.2.2 Is the institution free of direct political influence (apart from the general strategy) ?

6.3 Is the state willing to keep up its influence and does it provide the means for future capital raises ?

6.4 What financial risks does the part-ownership have and are possible dividends worth the risk ?

6.5 Is the market position and the influence on macroeconomics of the respective company important enough to justify state ownership ?

Wolfgang Raschendorfer
Rechnungshof
May 1999