Soon after a court returned Omar Effendi to the public sector, a landmark court verdict last week suspended the privatisation contracts of another three companies. Mona El-Fiqi reports The Administrative Court convened on Wednesday 21 September at the State Council declared that the privatisation contracts of three companies, namely Al-Nasr Company for Steam Boilers, Shebin Al-Kom Textile Company and Tanta for Linen and Derivatives are illegal. The court decision also cleared the companies of all debts and mortgages that resulted from privatisation and restored the rights of the companies' workers. In response to the verdict, hundreds of workers gathered outside the court to express their happiness to be back to their companies. Moreover, the verdict stated that the companies' assets, branches, production units and machines are to be returned to public sector ownership. The court said the three companies had been privatised under "suspicious" circumstances and had been subject to attempts by new foreign investors to eliminate the workforce and dismantle the equipment. Moreover, the court said the selling price of these companies had been underestimated when they were privatised and that they were actually worth much more than what the new owners had paid. According to a statement issued recently by the Egyptian Centre for Economic and Social Rights (ECESR) which filed the lawsuit, Shebin Al-Kom company was sold for LE174 million even though its real value was estimated at LE600 million. Al-Nasr Company for Steam and Boilers was sold for $17 million while the estimation of the Central Auditing Agency said it was worth double that price. Tanta for Linen and Derivatives was sold at LE83 million in 2005 to Abdel-Illah El-Kahki, Saudi investor, while it was estimated at LE211 million in 1996. The ECESR statement said that the verdict to suspend the contracts is one of the centre's efforts towards restoring Egypt's public owned companies that were "illegally privatised" under the Mubarak era. The recent court verdict opens the door for 90 other companies, for which similar lawsuits have been filed, to return to the public sector. Unlike the workers who organised a celebration, experts are not in agreement in their response to the verdict. Some experts are in favour of the verdict, arguing that it returns the companies to their rightful owners, while others believe that regardless of its micro benefit, the verdict will have a list of negative repercussions on economic performance. Supporting the verdict, Heba El-Leithi, head of the Statistics Department at Cairo University explained that the court verdict is a step on the right track since it corrects a wrong situation. According to El-Leithi, the verdict makes it clear to all investors that any suspicious deals will be revised and companies could be re-nationalised. Moreover, El-Leithi said that government officials who concluded these deals should be investigated and punished. El-Leithi argued that some people fear that such verdict might lead foreign direct investments (FDIs) to flee from Egypt but she believes this would not happen. In fact, she said, FDI volume in Egypt is already small. Foreign investors usually start their projects and then ask for finance from the local banks. "Attracting FDIs is not a real reason to justify such suspected deals concluded by the government in the past," El-Leithi said. Blaming investors, El-Leithi asserted that those who bought companies at low prices participated in violating laws intentionally since they knew the real price of these companies. El-Leithi asserted that in the future, laws should include an item that gives the government the right to follow up the projects to guarantee the continuity of their activities. Although they admit that the privatisation programme was full of suspected deals, some experts find that the negative impact of such verdicts will be of great harm to the country's economy. Anwar El-Naqib, assistant professor of economics at Al-Sadat Academy for Administrative Sciences said that such court verdicts favour anti-privatisation public opinion rather than achieve economic benefits. El-Naqib said: "It gives a very negative sign to the international institutions and the global community that Egypt is going back in its intention to reform its economy and that it is returning to nationalisation." El-Naqib added that due to these verdicts, the picture is completely unclear to anyone whether the government actually intends to retrieve its public sector companies. "If so, it would be a disaster because the government's administration of these companies means more corruption," said El-Naqib. Moreover, the application of the verdict seems to be impossible since it is difficult for workers who received early pension bonus and already spent it, to pay it back and get their jobs again. According to El-Naqib, it is also difficult for the government now to inject new investments into these companies to make them stand on their feet again. To overcome some of the problems of the privatisation, such as the clear under-valuation of companies, El-Naqib suggested that the government could ask the new owners for compensation in lands, assets or cash to fill the gap between the selling price and the real value of these companies, although factories, according to Al-Naqib, should be left untouched. Contrary to El-Leithi's view relating to FDI, El-Naqib said that this verdict would be of real concern to FDI flows to Egypt. At the top of Egypt's priorities, according to El-Naqib, should be creating a friendly investment environment which is very important for both local as well as foreign investors.
