Local privatization auctions. Part II

In 2011 Belarus has been putting on sale small loss-making enterprises. It is possible that this small-scale privatization could be used by the central authorities as a way of reimbursement to the local authorities and directors for their falling incomes.

While the large-scale privatization in 2011 has not started, small-scale one has substantially revived, regardless of the resistance by the local authorities and directors.

Each week, out of 20 lots put up for each auction, only 2-3 are usually sold. Reasons, why companies do not find buyers are typical for Belarus: inflated costs, chronic losses and debts, not transparent accounting and high-risk business environment.

According to the privatization plan for 2011-2013 244 enterprises should be privatized and 180 in 2011. About 20 assets were sold between mid – June – mid – September. In 2009 only two companies have been privatized, in 2010 – five, therefore the process has accelerated. The majority of buyers are local Belarusian businesses. 11 auctions have been scheduled for October.

Each week, out of 20 lots put up for each auction, only 2-3 are usually sold. Reasons, why companies do not find buyers are typical for Belarus: inflated costs, chronic losses and debts, not transparent accounting and high-risk business environment. Moreover, local authorities and directors of enterprises create additional barriers during the privatization process.

Central authorities criticize the local governments for slowness of the privatization processes, while the heads of departments and the government often meet interests of local lobbyists by including the planned privatization assets into the lists of strategically important.

Local authorities try to counteract against the change of the owner by attaching unprofitable businesses to profitable ones via corporatization and subsequent resale of governmental stakes in loss making enterprises to profitable enterprises.

Brest region

During the past 8 months of 2011 a Brest-based fund “Brestoblimushestvo” [Brest Property] sold 78 enterprises at auctions, of which 54 (69%) were sold for a base value (Br 35,000). Regional budget has been replenished with Br 8.5 billion from proceeds of the auctions. Regional authorities interpret this as an unprecedented success and business recovery in the region, while comparing these data with the identical period last year, when 62 objects were sold, 34 of them (54%) for a base value and Br 2.7 billion of budget revenues. The authorities try to avoid comparing USD exchange rates in 2010 and in 2011 in this regard: regardless of the larger number of assets sold the budget revenues in 2011 equaled those in 2010 at the market USD exchange rate.

Assets put up for sale at the majority of auctions are located in the far-remote areas of the region and are not being used, including the land underneath them: former rural kindergartens and schools, pharmacies, post offices, the remaining Soviet-era military installations and camps, as well as other abandoned agricultural facilities.

Assets put up for sale at the majority of auctions are located in the far-remote areas of the region and are not being used, including the land underneath them: former rural kindergartens and schools, pharmacies, post offices, the remaining Soviet-era military installations and camps, as well as other abandoned agricultural facilities (there are about 100 objects of the kind put for sale in the region). In fact there are not many those willing to purchase those assets, therefore the regional authorities have to re-auction them with the initial price being significantly reduced. In June-August out of 13 assets put up for an auction, only three objects have been sold: a complex of buildings and structures of oil-pumping station in the agro-town Linova (Pruzhanydistrict), a complex of buildings in the village Vidibor (Stolin district) and buildings of the district veterinary clinic in the village Divin (Kobrin district). As a result, local budget revenues constituted Br 1.5 million only.

The local authorities try to counteract against the change of the owner by attaching unprofitable businesses to profitable ones via corporatization and subsequent resale of governmental stakes in loss making enterprises to profitable enterprises.

Budget revenues from the sale of these assets constituted Br 6.5 billion (Br 8.5 billion rubles from the sale of all assets in January-August in 2011).

In order to create an illusion of privatization and sale of state property located in the regions (both, Republican and municipal) the local authorities implement a so-called corporatization and privatization. In 2011 several unprofitable enterprises undergo transformation into open joint stock companies and at a later stage their shares will be bought by other profitable state owned enterprises: “Myasomolservis” [meat and dairy production], “Peskovskoe”, Industrial Unitary Enterprise “Ivatsevichistroyproekt”, “Baranovichi Car Repair Shop”, RUE “Baranovichi cotton production association”. For instance, in July 2011 the JSC “Baranovichi Milk Factory” bought 6835 shares (35.1% of chartered capital) of the JSC “Agrospetstrans”.

All in all, shares of 16 JSCs have been auctioned during the summer period with the overall initial price of more than Br 49.26 billion, however only three were sold (JSC “Agrospetstrans”, JSC “Kobrin-textile” and JSC “Kosovo MPO”). Budget revenues from the sale of these assets constituted Br 6.5 billion (Br 8.5 billion rubles from the sale of all assets in January-August in 2011).

Gomel region

In 2010 the privatization of municipal property in the Gomel region intensified and almost reached the level of 1996, when over a hundred objects was privatized. The most popular spheres of privatization were: industrial sector of the economy and catering. 228 state-owned trade organizations have been transformed into JSCs (only 2 enterprises remained in the municipal ownership). Of the 33 institutions of public services 31 were privatized. The majority of these organizations have been put up for auctions.

During the first half of the year 13 assets have been sold located in Gomel, Mozyr, Rechitsa and rural areas. September auctions concerning the sale of 13 other objects have been declared invalid due the lack of applicants for participation.

During the first half of the year 13 assets have been sold located in Gomel, Mozyr, Rechitsa and rural areas. September auctions concerning the sale of 13 other objects have been declared invalid due the lack of applicants for participation. It was the second unsuccessful attempt to sell shares in consumer services enterprises. The price of shares put on sale has been reduced by 20%. If there is another auction, the price will become even cheaper, up to 50%.

Due to the low efficiency of the privatization in the region in 2011, assets are being put up for auctions for a symbolic price. For instance, on September 14 a Fund “Gomelregionproperty” organized an auction for the sale of municipal and republican properties. Two objects of municipal and one republican property have been sold. The initial price of all objects constituted one base value (Br 35,000).

Privatization of large enterprises in the Gomel region has slowed down too. The state privatization plan for 2011 envisages privatization of large enterprises, such as JSC “Coral”, JSC “Gomel repair plant”, JSC “Rechitsa textiles”, JSC “Elegant”, RUE “Gomel Plant of Measuring Equipment” and others. The implementation of the plan is being delayed however it could still be fulfilled by the year-end. In particular, on 30 September an auction will be held for the sale of more than 90% of the shares of the JSC “Rechitsa textiles” and on 12 October of the shares of the JSC “Gomel car repair plant”.

Vitebsk region

On 30 September 26.5% of the state-owned shares of the JSC Vitebsk “Ceramics” will be put on sale at an auction, the initial price of shares is Br 14.91 billion.

In October, state-owned shares (from 36.6% to 99.5%) of five companies of the region will be put on sale at an auction. All assets put on sale without any additional preconditions, typical for Belarusian realities (i.e. the preservation of workplaces and major activities for a certain time period after the purchase).

In October, state-owned shares (from 36.6% to 99.5%) of five companies of the region will be put on sale at an auction. All assets put on sale without any additional preconditions, typical for Belarusian realities.

Namely, the state owned 36.5% of the shares of the JSC “Vitebsk Instrument Plant” with their nominal value of Br 12 500 per share. The company employs 383 workers, including 79 managers. The state also owns 88.1% of the shares of the JSC “Vikko”. The package consists of 76 736 shares with a nominal value of Br 3600 each. The company employs 81 people.

On 12 October the state-owned package of 243 444 shares or 91% of the JSC “Mechanized column number 43” will be put up for an auction. The nominal value of a share is Br 150. The company employs 107 people. In 2010 the profitability of the company was 16.4%.

The JSC “Vitebskles” has 99.1% of the shares in the state ownership. There are 43,455,579 shares in the package with the nominal value of Br 100 per share.

Also the JSC “Scientific and Production Engineering Design Bureau” will be put up for an auction. The initial price of the package is Br 8.488 billion (99.5% of the shares).

Employees of all of the listed above enterprises are not provided with favourable conditions for the purchase of the shares of the enterprises they work for.