A new boost for privatisation

By Gamal Essam El-Din
Government plans to accelerate the privatisation of public-sector companies gained momentum last week as the Cabinet Privatisation Committee (CPC), headed by Prime Minister Atef Ebeid, decided to transfer from public to private hands a number of companies engaged in a variety of lucrative activities.
The list includes companies involved in tourism and maritime transport as well as enterprises for the production of tobacco, cement and fertiliser. Five-star hotels and the stake in Eastern Tobacco Company are viewed as the most attractive investments on the block.
Since the privatisation programme was initiated in 1994, the government has sold 155 companies of the 314 slated for the private sector. A variety of methods were used to effect the transfer of assets to the private sector. For 37 of these, the majority of shares were floated on the stock market while strategic investors picked up 24 companies. Majority stakes in 30 organisations were sold directly to the companies' employee shareholders' associations (ESAs), while another 36 companies had majority stakes sold as assets.
The remaining 28 companies are still controlled by the state although they are slotted into the sold category. For 16 of these, a minority of shares were sold, while the assets of the remaining 12 organisations were leased to investors under renewable agreements.
In total, privatisations have netted slightly over LE15 billion in revenue.
While the government and public sector officials welcomed last week's privatisation move, some observers and analysts questioned whether the government would be able to abide by its proposed schedule. Although Ebeid's government set itself an ambitious target early this year for the privatisation of 45 companies in 2000, so far only 13 companies have been sold. And, as sceptics note, the government has even scrapped its plans to privatise Telecom Egypt and the Cairo Electricity Company.
Particular emphasis is now being placed on the sale of hotels. The CPC decided that all state-owned hotels, with the exception of historical ones, should be sold during the next two years.
Compared to other sectors, in which many companies were either entirely or partially sold, the privatisation of hotels has been particularly unsuccessful. The major obstacle has been differences between potential investors and the government regarding the value of hotels' assets. Investors accuse the government of inflating the value of the hotels. For their part, government officials assert that the hotels slated for privatisation are highly profitable and it is only natural that their prices reflect such a strong financial position.
In an attempt to surmount this barrier, the CPC has decided to resume negotiations with Egyptian and foreign investors. The system of setting fixed prices for the assets will be scrapped. Instead, investors will be encouraged to purchase 51 per cent of the shares in a given hotel -- shares which are currently owned by the Holding Company for Tourism, Housing and Cinema and the Misr Hotels Company. By privatising controlling interest in a number of state-owned hotels, investors have the opportunity to effectively possess some of Egypt's most luxurious hotels, including Cairo's Nile Hilton and Shepherd, Aswan's Amoun and Oberoi, and Alexandria's Romance.
The CPC's decision on hotels, however, was criticised by some members of parliament. Ragab Hilal Hemeida, the sole representative of the Liberal Party, told Al-Ahram Weekly that the decision reflects CPC's failure to privatise companies through the stock market. "Selling to strategic investors is now their only option and we have repeatedly warned that such a practice could lead to monopolies," Hemeida said.
For shipping companies, the CPC decided that the optimum method for privatising these is through long-term leases of at least 25 years to strategic investors. Heading the list of these organisations are the state's container handling companies in Alexandria, Damietta and Port Said. "The leasing contracts for these companies will give investors all the required managerial and operational rights," Information Minister Safwat El-Sherif said.
Going hand in hand with this step, the CPC approved selling the Egyptian Maritime Transport Company (EMTC). This company, which is in possession of 17 vessels, will be sold entirely to Egyptian investors. Minister El-Sherif noted that this decision will end the monopoly by a public-sector company on the transportation of the state's foreign purchases.
The CPC hailed the Ministry of Public Enterprises' work in preparing the Alexandria Shipyard Company (Al-Tarsana Al-Beheiriya) and the Egyptian Ship Repair Company for privatisation. El-Sherif noted the successful streamlining of manpower needs in each company. These two companies will be sold to the Egyptian Armed Forces.
MP Hemeida praised the decision to sell maritime transport companies to Egyptian investors and the armed forces. "We have said repeatedly in the People's Assembly that there is considerable public sensitivity over the sale of these companies to foreign investors because of their strategic importance to national security," said Hemeida. He insisted, however, that container companies would be better left in the hands of the state, noting that such companies are state-owned in most countries.
The only company the CPC decided to privatise through the stock market is the Eastern Tobacco Company (ETC). The CPC decided that the percentage of ETC's shares floated on the market be increased from 11 per cent to 49 per cent. "At another point, an additional 15 per cent of ETC's shares will be sold to strategic investors in an attempt to streamline its management systems and upgrade it technically," El-Sherif said.
In the cement sector, the CPC recommended that the five cement production companies slated for privatisation be sold primarily to Egyptian investors. "Privatisation in this field should be pursued carefully to ensure that Egypt will always have a competitive cement market," El-Sherif said.
In the area of fertilisers, the CPC has determined that Aswan's Chema Fertiliser Production Company should be liquidated. According to El-Sherif, Chema's use of natural gas, rather than electricity, has proven too expensive. He said that Chema's workers will be compensated.
A number of members of parliament announced this week that they plan to direct an interpellation to Minister of Public Business Mukhtar Khattab on loss-making public sector companies. Hemeida asserted that these total 160. "There are no reform plans for these companies in spite of their importance to the national economy," Hemeida said.
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