Privatization in Ukraine Macroeconomic Analysis icon

Privatization in Ukraine Macroeconomic Analysis




НазваPrivatization in Ukraine Macroeconomic Analysis
Дата29.06.2013
Розмір445 b.
ТипДокументи


Privatization in Ukraine

  • Macroeconomic Analysis,

  • Topic 6


Central Idea and Keywords

  • Purpose:

  • The initial decision about privatization method determines post-privatization efficiency of a company.

  • Keywords:

  • Privatization certificates versus compensation certificates

  • Investment trust versus investment company

  • Commercial versus non-commercial tenders



Lecture plan

  • Privatization in Ukraine: an Overview

  • IMF and Privatization in Ukraine

  • Privatization Stages:

    • Insiders’ Privatization
    • Outsiders’ Privatization


Literature:



Lecture plan

  • Privatization in Ukraine: an Overview

  • IMF and Privatization in Ukraine

  • Privatization Stages:

    • Insiders’ Privatization
    • Outsiders’ Privatization


Privatization: Major Outcomes



Privatization Emphases

  • Privatization Emphases:

  • Rapidity (lack of a strategic privatization plan)

  • “Social justice” (dispersed ownership)

  • During 1991-1999:

  • More than 60,000 state companies were privatized

  • Quantity of people employed by state companies flagged from 13mln (1992) to 5mln (1999)



Warning!

  • Concentrated investor was out of the scope of privatization (since “social justice” was among the major preferences)

  • Lack of legislative rules regulating

  • Privatization itself

  • Property rights (e.g. expropriation of profit by the government is nor regulated yet)



  • Summary:

  • Privatization in UA was chaotic and unbalanced

  • Lack of a clear strategic privatization plan was extremely harmful

  • However:

  • It was anchored to IMF requirements

  • Ukraine perfectly fulfilled requirements of each stand-by tranche



Lecture plan

  • Privatization in Ukraine: an Overview

  • IMF and Privatization in Ukraine

  • Privatization Stages:

    • Insiders’ Privatization
    • Outsiders’ Privatization


IMF and Privatization in Ukraine

  • IMF in 1995-1996:

  • Determined quantity of firms that is to be privatized

    • at least 70% of shares of 3000 small and medium companies (SMC)
  • Outlined quantity of firms that is to be excluded from the “black list”

    • 1250 SMC
  • IMF in 1998:

  • Sell at least 70% of shares of 9500 SMC till the end of 1998

  • Privatize 70% of 443 grain traders till June 1999

  • Privatize “Ukrtelecom”

  • Exclude elevators from the “black list”

  • Conduct “transparent” tenders



IMF in 2000

  • Quality rather than Quantity emphasis

  • Transparent Tenders (short list of requirements):

  • Minimize information asymmetry

  • Prevent collusion between participants of tenders

  • Prevent collusion between participants – managers – government officials



IMF in 2000

  • Transparent Tenders (extended list of requirements):

  • Provide the public with comprehensive information about an ongoing tender

  • Assure that tender conditions would not be changed as the information is announced

  • Safeguard the equality of all participants

  • Sell at least 50%+1 shares

  • Assure potential investors full excess to a candidate firm (ability to meet the managers, full excess to financial information etc.)

  • The one & only criteria of the best buyer – ability to offer the highest tender price



Summary: Privatization of SMCs

  • Major characteristic of SMC privatization

  • (or 1990s privatization):

  • Lack of a well developed and well analyzed strategic plan

  • Rapid privatization; Chaotic choice of candidate firms

  • Quantity rather than Quality emphasis



Lecture plan

  • Privatization in Ukraine: an Overview

  • IMF and Privatization in Ukraine

  • Privatization Stages:

    • Insiders’ Privatization
    • Outsiders’ Privatization


Major Problems:

  • The emphasis on insider privatization

    • The most efficient companies were privatized by insiders
  • Dispersed rather than concentrated investor (“social justice”)

    • Financial intermediaries
    • Dispersed external investors


Insiders Privatization: Leasing

  • Since 1986 employees were allowed to lease their companies

  • In 1992 employees were allowed to buy their companies out (compensate the government by firm’s profit)

    • Shares were distributed according to employees position (uncontrolled managers)
    • Outcomes:
    • Till the end of 1992 the majority of leased companies were bought out
    • 14% of all SMCs were privatized via leasing


Insiders Privatization: Privatization Certificates

  • In 1992 – privatization accounts (privatiz. certificates PSs)

    • equal to 1/52mln. of the book value of the property that is to be privatized
  • PSs – privatization of “your own” company

  • Exception: (i) family members, (ii) veterans of the World War II

  • Outcome:

  • 21% of companies were privatized using PSs



Insiders Privatization: Summary

  • 35% of companies were privatized using Insider Privatization methods

  • The most efficient companies (e.g. leased firms) were sold via insiders privatization

  • Peculiarities:

    • Special “offers” for managers
    • Virtual remuneration schemes used (e.g. PSs)


Outsiders Privatization: Privatization Certificate Auctions

  • Purpose: to attract concentrated investor using privatization certificates

  • Types of Financial Intermediaries:

  • Warning: Only limited quantity of shares of the same firms could be bought by the same investor

  • Outcome:

  • 18% of companies were privatized using this method



Outsiders Privatization: Compensation Certificates

  • Issued in 1994 as a compensation of savings lost due to 1992 hyperinflation

  • CS could be traded! (possible to buyout a firm)

  • However, a market for CS was not created (CS were invested in financial intermediaries)

  • Outcome:

  • 7% of companies were privatized using CSs



Outsiders Privatization: Read yourself

  • OTC trades

  • Privatization centers



Outsiders Privatization: Tenders

  • Outcome:

  • 7% of companies were privatized using tenders



Outsiders Privatization: Summary

  • Virtual money are widely used (PSs, CSs, Non-Commercial tenders)

  • The “real money” were totally expropriated to the State budget (e.g. firms didn’t get additional funding used for modernization)



Read yourself

  • Major drawbacks of UA privatization

  • Major results of privatization

  • Be ready to apply theory to the real life situations. Prepare your examples.



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