Pubic enterprises establishment and privatization proclamations under review

May 25 , 2019

The government is amending the privatisation proclamation to specify which government body will oversee the asset valuation of public enterprises, bring them to public auctions, managing transactions and transfer the enterprises to buyers.

All these processes have been solely performed by the current Public Enterprises Holding & Administration Agency, formerly known as the Privatisation & Public Enterprises Supervising Agency.

The proclamation, which is under review by the Ministry of Finance and the Public Enterprises Holding & Administration Agency, with the technical support of the World Bank Group and the Tony Blair Foundation, aims at bringing transparency to the ongoing privatisation process of public enterprises, according to Brook Taye (PhD), senior adviser to the Minister of Finance.

"Since most of the state-owned enterprises have high values, the valuation and the transfer process needs to be transparent," Brook told Fortune.

Ethio telecom, Ethiopian Airlines, Ethiopian Shipping & Logistics Services Enterprise and Ethiopian Electric Power (EEP) are among the companies that the Executive Committee of the EPRDF decided to partially privatise last June. The Executive Committee has also ruled for the full privatisation of railways, sugar factories, industrial parks, hotels, energy and manufacturing plants.

The amendment process also attempts to balance a conflict of interest that may arise among government offices involved in the privatisation process.

While drafting the bill, the team involved in the process reviewed the experiences of counties that started privatisation decades ago, including some neighbouring nations, according to Brook.

Different countries applied diverse mechanisms while proceeding with the privatisation process. Some had formed commissions, agencies or departments under finance ministries, which oversaw the privatisation process.

A legal framework review co-authored by Mekdes Mezgebu and Mesfin Tafesse of the law office Mesfin Tafesse & Associates, encourages the initiative of the government to classify mandates.

"Clarity in relation to the articulation of the privatisation mandate as it applies to Ethiopian Airlines, Ethio-Telecom and EEP will ground the process on a strong legal basis," reads the review.

Before reaching the legislation stage, the bill will pass through different layers of reviews and approvals by technical committees, a steering committee and the macro committee chaired by Prime Minister Abiy Ahmed (PhD) to give it policy direction before it reaches the Council of Ministers and parliament.

The Prime Minister has also set up a 21-member advisory council to advise the government on the process of privatising state-owned enterprises.

Along with the privatisation proclamation, the team is amending another proclamation, the establishment proclamation of public enterprises, which is expected to smooth the way for any ongoing privatisation process.

The amendment of this proclamation has two major targets, according to Beyene G. Mesqel, director general of the Public Enterprises Holding & Administration Agency.

"Taking the private sector on board toward ownership of the existing state-owned entities and enabling them to be involved in the formation of new enterprises are the main targets," Beyene told Fortune.

In addressing the formation of new state-owned enterprises, the 35-page bill mandates the incorporation of a clear business case along with the social objective. The new amendment to the proclamation also calls for trigger mechanisms in the creation of new entities that can be used as a tool for supervising authority over the enterprise and reviewing its financial reports and examining its debt levels.

"This amendment will address the issues of state-owned enterprises that carry high debt loads and operate in an atmosphere of financial mismanagement," said Brook. "With the trigger mechanism, the management and the board will know the level of debt and timeliness of any needed debt restructuring before it reaches critical levels."

Selection of corporate governance board members, the composition of the board of directors and their qualifications are areas included in this bill.

The draft bill has been finalised, and it is on its way to being submitted to the macroeconomic committee, according to Eyob Tekalign (PhD), state minister for Finance.

“We expect to submit the bill to the Council of Ministers soon,” Eyob said last month in a meeting held at the Office of the Prime Minister while briefing members of the advisory council about the status of the privatisation process.

Among the enterprises slated for privatisation, Ethio telecom's process has progressed well. The bill for the formation of a telecom regulatory agency has reached parliament and is waiting for legislation. The process to hire a consultancy firm for Ethio telecom’s asset valuation, a process that is expected to take half a year, has also progressed well, according to the state minister.

To achieve the desired results of the privatisation, Mesfin and Mekdes recommend strong external support including financial, management and legal expertise for the entity in charge of the privatisation process.

PUBLISHED ON May 25,2019 [ VOL 20 , NO 995]

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