Monday, March 14, 2011

To sell or not to sell

This Hamletian dilemma to sell or not to sell is well known to any post-communist government in the region that over last 20 years was left with the burden of state-owned, inefficient, outdated companies on its hands. Government attitudes over the years have been split between hectic selling at whatever price to whomever, often cementing monopolies or leading to massive layoffs and shutdowns, to a total freeze and preservation of inefficiencies at the cost of running companies into the ground. No wonder Poles, and likely many other CEE citizens, still to an extent perceive privatisation as a form of institutionalised theft or corruption.

However, the current Civic Platform (PO)-led government seems to have gotten something right in this regard. Efficiently using the financial strength of pension funds and Poles' love for the stock market, it has successfully turned a number of state companies public, listed them on the Warsaw Stock Exchange and at the same time made a few bucks, several billion to be precise.

It worked so well the government has decided it wants to take another step, but here it has hit a wall. You see, all was fine and dandy but the government's problem was...it hasn't really sold anything. True, it has turned a number of companies public. True, it has listed them on the Warsaw bourse. True, it has made money selling its stakes, but these were usually minority ones and it turned out the state is still is in control of these assets and it still has to deal with the problems of those companies.

So three years into the term and after making billions via so-called "privatisation" the government is exactly at square one, only the task is now much harder. It not only has to actually sacrifice control over these assets, but it also has to do it in a transparent way that will satisfy minority shareholders avoiding a major sell-off, legal actions, etc., in the process. That is a significantly tougher process than selling 5-10 percent stakes of Warsaw's blue chips to financial institutions.

There will also be political ramifications as investors with deep pockets from countries like Russia and China are not likely to win Prime Minister Donald Tusk many new votes. But given EU regulations and the free market element it will take a lot of his charm and flexibility to turn them down if they choose to offer the best price.

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