Paper by Albania
M. KERCUKU - Chairman
S. AGAJ - Methodololgy
It is known that the privatisation process is still considered to be the crucial point of the economic reform, not only because this is related to the interest of different groups of population, but also because it dynamically helps redimensioning of the role of the state in various aspects.
During the audit work our SAI has not seen privatisation as a purpose in itself, but a powerful instrument to secure a constant economic increase through the restructuring and further development of the most important sectors. Exploitation of the potential of natural resources, as well as productive capacities will be an inseparable from that of the privatisation process. This will bring about release of the budgetary means that are currently directed to non-efficient sectors of economy, by reducing the budgetary deficit.
It is not any good experience on economic regulation in our country, but we hope we will provide with some ideas concerning the audit of implementation of obligations assumed in the course of privatisation.
Given the fact that privatisation is a long term process in the future it should be developed based on a strategy that would help address the concerns of different social groups,as well as help set up and consolidate the consensus on the main objectives of privatisation and have a wide possible support by the population on this program. The splitting of the ex state owned enterprises and their sale in parts trying to fulfil certain interests,has established a number of sectors, which are abandoned and are out of the attention of the private subjects. Some of the unsold enterprises are entirely non-operational and others are operating but not making any profit. The total number of these companies is about 480, thus, the state pays for thousands of employees and guards of no use at all.
Un-verification of the financial guarantees for development and management capabilities of the buyers has caused for not few manufacturing enterprises to "fall into not safe hands" and the ex manufacturing enterprises have been closed down and turned into warehouses and awaiting for possible use. Sale without development conditions caused that manufacturing enterprises as well as non-manufacturing enterprises to be considered equally with the nonproductive ones brought about consequences in the development of the economy.
Problems with ex landowners have had a big negative impact on the privatisation process. Existence of the Law "On restitution and compensation of property to the ex landowners" and the Decisions on which bases the privatisation process was being carried out, as well as the activity of the Commissions on Restitution of
Properties have often been in contradiction with each-other. Although the Law stipulates for the preemptive rights for ex landowners, in fact they were hostages of the work of Property Restitute Commission. We have concluded that the Regulation of these relations would free the process from many contradictions and would reduce the dissatisfaction of groups that are affected for certain reasons from their legal rights.
The second wave of the privatisation program that was prepared by the Government includes completion of privatisation of medium enterprises that have not been privatised as yet,as well as privatisation of the most important (so called strategic) sectors of the economy.
The program includes 80% of the overall assets of the economy in oil; electric power; telecommunication; transport infrastructure; water resources; tourism sectors.The main factor to ensure sustained economic growth is considered attraction of private foreign capital to recover and use efficiently the electric power and mineral resources in the country. In this framework necessary step to guarantee the success of economic reform is: further liberalisation of the economy in these strategic sectors,that are still state monopoly.
Regard to the situation in the country the main aim is to have a wide political transparency to ensure the credibility needed for the completion of this process and make all necessary amendments and improvements in the legal framework.
Because of the dimensions of the internal market and because of the heritage from the structures of a centralised economy, in certain branches of economy have monopoly or oligomonopoly structures. These structures have caused deformations in the market as well as all the deteriorating impacts of these deformations. Promotion of competition for the optimal allocation of capitals will be achieved even through a series of deregulations and liberalisations of the market and the institutionalisation of regulatory bodies. These measures will not only increase the efficiency of exploitation of ownership, but more specifically will increase the service level especially regarding public services.
Also, this objective will have a positive impact in the micro and macro economic indicators of national economy and it is considered as an important instrument in attracting foreign private capital in Albania.
All enterprises or companies with state owened capital in the strategic sectors are considered privatisabled. It will be applied a variety of privatisation methods such as governance contracts, privatisation with shares, tender, auction, and different forms of concessions. Selection of privatisation methods will be considered case-by-case in line with the specific sectors, the objectives for each sector,as well as considering the experience of the othe countries. The assets will be privatised by two ways: auctions and tenders, with auctions being the preferred option. In any case, the public interest is that the value of the shares be determined by the market. This is going to be the main priority.
By this program will be covered such important sectors as: the oil and gas sectors(that is the privatisation of the "Albpetrol" company); the mines (especially Albakri and Albkromi companies; telecommunications [the AMC-Albanian Mobile Phone Company and the Albanian Telecommunications; transport infrastructure such as ports and airports; a number of important water pipelines, beginning with the Tirana water pipeline; etc.
In practical terms, in the case of the two essential sectors of the country, namely, electricity and water supplies, initially, it is to be applied management structures based on management contracts with foreign investors or companies that have the necessary management capacity and the financial resources to invest and consolidate their financial potential. Afterward, it will be decided on the privatisation of these sectors.
The two phone companies would be sold off first. The socialist-led government, however, be seeking to retain a golden share "to safeguard national and social interest".The sale would help to preparing the companies for future competition by allowing improved access to capital and streamlining management. During 1999 our SAI has audited this company and it is recommended to the Government that if the privatisation program started today, undoubtedly the sale of AMC would be the most successful. The company has been structured to work in a competitive environment and the staff is not afraid of competition. The restructuration, has been drawn up to coincide with the planned start of a three-year International Monetary Fund (IMF) structural adjustment program.AMC would gain greater independence and better access to financial resources after privatisation. AMC has over 3,500 subscribers, 80 percent of them business clients, and covers 25 percent of Albania's 29.000 square km (1 1.000 square mile) territory or 50 percent of its 3 million population. Given current rates of cash flow, AMC could cover all of Albania in the next two or three years. There is space, too, for many small-and medium-sized companies for services like paging, data transmission, e-mail and could be room for another mobile phone operator.
When it said that the above sectors are going to be privatised, it does not mean that the entire state-owned is going to be privatised. The state may hold a share of assets in different sectors, which may vary from one sector to another. In specific cases, the state is also going to keep the golden share in order to retain its decision-making right in case of major problems. This share has been conceived in such a way as to allow the state to intervene when national interests are at stake but not in problems of ordinary company management, even so, the right to use this share might be limited in time.
Related to country's circumstances during audit work we have expressed the opinion that consultation with international industrial and financial experts from various West European countries and Eastern Europe, who have outstanding experience in the process of privatisation is indispensable.
Throughout this process it is judged to have a ratio between the state package, strategic investments and employees.This formula includes a strategic investors package, which is also going to be the controlling package in general, the state package and the participation of the employees of the given sectors through their privatisation vouchers. The important thing is that this formula provides guarantees first, to the strategic investors, and second, to the workers who have contributed in real terms to the creation of these values, to take part through their vouchers in the privatisation process.
In the other hand the state package constitutes a value, a percentage of the shares that the state will keep, which may be either above or under 50 %. In special cases, when privatisation or the sale of shares may be very advanced, the state may retain the right to decision making through its golden share. The main criteria in selecting strategic investors will be their business plans and their financial ability to implement them.
As we have underlined at the sixth meeting of Working Group,the privatisation with privatisation vouchers has been considered a failure. Such a view has been accepted also by ex officials of the Government, that had promoted it.
In the course of the debate about the privatisation in the framework of the transition's reform, one of the most sensitive issues was to decide the value of the vouchers and the eventual participation of the population in this process through the vouchers.
The large-scale privatisation has failed, but it is inherited a large bill,to take into consideration in respect of the sectors to be privatised. Under these circumstances,the privatisation vouchers are going to be used to the maximum extent of 20 %, which is an indispensable threshold to guarantee potential investors.The participation of the population in this process by means of their vouchers will be greater under such conditions, but should and new ones will not be distributed.
There are people who bought large quantities of privatisation vouchers at 2-3 % of their value and want to use them now,it is just important not to guarantee such a use of these vouchers,not to allow speculators to benefit from them. On the other hand, a privatisation process that is based mainly on privatisation vouchers has not turned out to be very successful and effective in Albania and in the other countries of Eastern Europe.
However,to protect the public interest,our opinion is that the use of privatisation vouchers by the population and by investment companies must be established on a currently valid legal basis.
Another subject of privatisation is the state capital of joint ventures (with foreign partners).
We have identified a grave reality today, namely that all the joint ventures at a national level have a passive balance.
The bad situation and their priority development needs require big investments, which currently the Government and the emerging Albanian private sector can not provide. Attraction of foreign capital is an important factor for the economic growth. The demand in the selection of foreign investors will be for concrete development programs by the foreign party. These should ' be credible programs and based upon the relevant financial and banking structures.
It is always considered the participation of potentially powerful investors in the Albanian economy very important. Judging by the interest foreign investors have displayed so far, it should be optimistic about the future. To date, big investors have signed a couple of agreements with us, in the sectors of oil, chrome, energy, and telecommunications. The privatisation strategy is one of the greatest guarantees to foreign investors, with the state having no monopoly and with several operators competing on the basis of the rules of the market and the regulatory bodies. This accounts for the investors' growing interest in investing in Albania.
We have underlined that a market based on a complete legal framework constitutes the greatest guarantee foreign investors to come in Albania.
Foreign investments do not mean simply monetary means, but they carry managerial capacities, access to foreign markets, strategic alliances in the world market, as well as accesses to the financial markets.
Accomplishment of such targets is closely related to the establishment of conditions for the development of capital market. Although the capital market is one of the most important dimensions of a market economy, in Albania this market is being represented by the Tirana Stock Exchange, which has not still started its concrete activity related to quotation of trade companies. The privatisation process will aim to set up premises to start and revive the capital market, to attract and mobilise the internal or external financial means and to direct them towards investment.For that purpose, we have presented comments to complete the legal and regulatory framework for the functioning of joint-stock companies, pre and post privatisation process, and for the collaboration with Tirana Stock Exchange on the development of the securities market as a pre condition to make this market efficient.
The reform of Albania's financial system, in particular the Banking system as a important aspect of the reform in general, has progressed in very low steps.The effects of this delayed privatisation were perhaps best reflected by the widespread popularity of pyramid schemes.
The most pressing challenge is the swift and complete restructuring of the banking system, and the establishment of an effective financial system. Such a system would regulate, mobilise and safeguard private and commercial savings,as well as support economic stability through providing credit and sound banking services.
Experience from recent years has shown that, before all else, a sound banking system requires a solid legal foundation to regulate activity in this sector. New legislation on the banking system will create a stronger foundation for the construction and efficient functioning of a primarily private banking system in the future.
International institutions in our country,are working to create and regulate small non-profit financial institutions to meet the smaller scale credit needs of that segment of the population which cannot be supported by the banking system.
Attempts to make the banking system functional,flexible,and efficient have established the necessity of privatising banking system. Currently, the state is the primary owner of the banking system,and it is clear that this ownership should be reduced as much as possible. Actually the state largest bank of second level, Savings Bank holds 80% of citizens deposits.
The strategies for this type of transformation must be adjusted to the specific conditions of the country, such as the current level of the sector's development and status of banks' balance sheet. The fact that Albania's second-tier banks consist entirely of state-owned capital presents the dilemma: privatise or liquidate?
The debate has included discussion of both the positive and the negative points of liquidation and as a conclusion the privatisation is considered the final solutiond. It is commonly accepted that restructuring the banks and resuscitating their negative balance sheets before privatisation would be the most positive solution. Based on the law,our Institution has given its suggestions on the fast privatisation of banks as a way to curing financial system in the country.
March 2000