dc.description.abstract | THE MARMARA UNIVERSITY INSTITUTE OF BANKING AND INSURANCE BANKING PROGRAMME PRIVATISATION IN TURKEY ADVISORS Prof.Dr. İLHAN ULUDAĞ Dr. ŞÜKRÜ KURŞUNOĞLU PREPARED BY HASAN KILIÇ SEPTEMBER 1991CONTENTS Page No INTRODUCTION 76 I- THE CONCEPT OF PRP7ATISATION 77 II- PERFORMANCE OF PUBLIC ENTERPRISES 77 III- OBJECTIVES OF PRIVATISATION 78 3.1. INCREASING THE PERFORMANCE AND FLEXİBİLİTY OF THE ECONOMY VIA COMPETITION 78 3.2. FINANCIAL OBJECTIVES 78 3.2.a. Divestiture of Some Public Enterprises 79 3.2.b. Deregulation 79 3.2.c. Tendering 79 3.3. FOSTERING THE DEVELOPMENT OF CAPITAL MARKET 79 3.4. THE OTHER OBJECTIVES 80 TV- ASSET SALE TECHNIQUES 80 V- CONDITIONS FOR SUCCESS AND ORDER OF PRTVATISATION 81 VI- PRRTATISATION POLICY IN TURKEY 83 6.1. SELLING STRATEGY OF STATE ASSETS 86 6.2. PRIVATISED PUBLIC ENTERPRISES 86 6.2.1. Teletaş and Netaş 86 6.2.2. Citosan 88 6.2.3. Usaş 896.2.4. Petkim 90 6.2.5. Erdemir 91 6.2.6. Turban 92 6.2.7. M.K.E.K. 92 6.2.8. Other Enterpriser 92 VII- CONCLUDING REMARKS 93 BIBLIOGRAPHY 95INTRODUCTION The successful experiment in Britain paved the way for privatisation worldwide in order to reduce the role of public sector in national economies and to provide a larger room for private ownership and competition. Interest in privatisation is not only limited to industrialised countries, because of the poor financial results of public sector enterprises, governments of less developed countries have also moved swiftly to introduce privatisation programmes. The increasingnumber of public enterprises in the industrial and service sectors and the basic public services ie, electricity, water, telecommuni cations, transport as well, has resulted in governments being over extended financially and managerially as it is the case in Turkey. Almost all public enterprises in Turkey have shown poor results, due to lacking incentives for good performance bound by bureaucratic procedures and controls. The purphase of this research paper is to scrutinize the issue of privitisation and to analyse the Turkish privatisation experience and underline the problems Which are faced during privatisation process as well as implications of rivatisation and the prospects of widespread privatisation in Turkey.I. THE CONCEPT OF PRIVATISATION As shown in the experiences of both developed and developing countries, privatisation may take different forms, each producing different economic and political results. A transfer of publicly owned enterprises shares to private shareholders through asset sales depicts the most complete and common form of privatisation. In this case, according to the Company s Act, at least 51 percent of publicly owned shares should be transferred to the private share holders in order to describe the company s legal ownership structure as a private company. The second form of privatisation is deregulation which permits the private sector enter to the market which is under the control of public monopoly. The third form is the contrcting out some services. In this form, goverment still funds the service but transfers the provision rights to the private sector through competitive tendering under contract. By taking into account these different forms, privatisation can be defined as a transfer of ownership and/or service provision right from public sector to the private sector. II. PERFORMANCE OF PUBLIC ENTERPRISES There is a significant emprical literature on the performance of public enterprises. The majority of the studies reached the same conclusion that public enterprises had shown a relatively poor performance mainly due to factors such as a weakening of incentives associated with public ownership, rather than public ownership itself. Thus, there are some emprical evidence to support the hy pothesis that public enterprises could perform better than their private counterparts, but it is noted that inefficiency of government enterprises stems from their isolation from effective competition rather than public ownesship. However, evidence suggest that private enterprises are more subject to market discipline than their public counterparts. Market discipline, there fore forces the management of private enterprise to be more efficient in both resource allocation and productivity than management of public enterprise. The monopoly position of many public sector corporations, on the other hand, discourges the management for efficient resource use and productivity..In sharp contrast to private firms, the management and operations of public enterprices are not clearly seperated from political and strategic consid erations. Employment, investment, pricing decisions, etc. In many cases are dictated by supervising ministries or government without due consideration for their financial consequences. For example, in the Turkish case, managers78 have been politically constrained to hire additional employees. This is because public enterprises were used as a device to reduce unemplayment, leading to overmanning with adverse effect on productivity and profitability. in. OBJECTIVES OF PRIVATISATION : Despite the fact that privatisation policy in developing countries reflects the governments economic and ideologic preferences, in many developing countries appearances of privatisation on the development agenda is largely due toexternal pressures from international aid donors and banking agencies, such as the World Bank and the International Monetary Fund. Analysis of the policy objectives of privatisation are discussed below. 3.1. INCREASING THE PERFORMANCE AND FLEXIBILITY OF THE ECONOMY VIA COMPETITION The main factor behind the poor performance of public enterprises, as mantioned earlier, in comparison with their private counterparts is that the formes are less subject to competition than the latter. Moreover, there are also some evidence to support the hiypothesis that in many developing countries, under the restrictive trade regime, private enterprises had lower rates of productivity growth in comparison with the rest of the world. In many cases, such low productivity growth rates have been attributed to implementing an inward-orianted development strategy, which is characterized with a high degree of protection of domestic industries against foreign competition, in a small economy which reduces potential advantages of exploitation of economies of scale. This suggest that allocative and productive efficiencies can be achieved via promoting internal and external competition. 3.2. FINANCIAL OBJECTIVES In world bank-supperted structural adjustment programmes, the privatisation in many developing countries has been seen as one of the major policy devices for easing state-owned enterprises administrative and financial burden on the state. Privatisation could achieve its objectives mainly via three policy intstruments: (a) divestiture of public enterprises, (b) deregulation and (c) tendering.79 (a) Divestiture of public enterprises; In many developing countries public enterprises incurred large operational losses mainly as a result of a low degree of efficiency and productivity and become a heavy burden on government budgets. According to the World Bank the net budgetory payment to non-financial SOEs (State Owned Enterprises) averged more than 3 percent of GDP in a sample of twenty -seven developing countries in 1976-79, despite the fact that the real intention concerning establishing many of these enterprises was to maximize profits. This could clearly explain why many governments want to sell loss- making enterprises. (b) Deregulation : The man policy objectives of deregulation from the government s fiscal point of view is to eliminate the factors giving inse to financial problems in the Public Sector. It is believed that than in a more competitive environment the public sector s financial performance would improve through increases in (i) efficiency and (ii) productivity, implying and ending or at least a significant reduction in a budgetery transfers. Furthermore, government revenue may increase, if the enterprises are financially in surplus. (c) Tendering, Government and local authorities are at the some time buyers as well as suppliers of many goods and services in many markets. This, therefore, enables many governments and local authorities to behave as a competitive buyer of many goods and services. Through compectitive tendering firms. The main policy objective of competitive tendering is to save cost and increase the quality of goods and services which they buy and provide. 3.3. FOSTERING THE DEVELOPMENT OF CAPITAL MARKET Several studies have examined the two way interactions between economic development and financial markets, particularly the capital market, and suggested that the higher (lower) the degree of development of financial markets, the higher (lower) degree of economic development level, or vice versa, would tend to be. It is, however, the case that in many middle-income developing countries markets are under developed. This, infact, is a real constraint on privatisation. However, a very well organized privatization programme, on the other hand, may overcome such a difficuty and morever, even foster the development of capital market, if the government creates the necessary conditions. One of the main condition is the reform of the capital market before-80 privatisation takes place. This is mainly based on the Supply -leading financial system approach in which financial markets play an active role by providing a large range of productive financial assets and services in advance of demand for them. It is believed that availability of a broad range of financial assets would stimulate demand for them and increase the transfer of real resources from low productive traditional sectors to modern productive sectors of economy. Among these capital market reforms there are for example, - Introducing a legal and administrative fromework to gurantee investor protection; - Replacing the complex, buroaucratic and more expensive of equity issues with much simples and cheaper ones; - Ending the interest or divident control policies; - Introducing a system of company law setting standarts for accounting and disclosure. Under these canditions, selling off publicly owned enterprises to the private shareholders could advance the development of the capital market. 3.4. THE OTHER OBJECTIVES One of the debates for privatisation of nationalized industries is that it spreads shareholding more widely. In the UK, for example, spreading share ownership (SSO) is one of the major policy objectives of Mrs.Thatcher s Government. It is believed. That SSO would promote a property-owning democracy or in the other words popüler capitalism. There are mainly two policy approaches for SSO through asset sales : (i) Wider Share Ownership (WSO), aiming to switch more personel savings into equity investments and (ii) Employee share Ownership (ESO), aiming to increase efficiency of the firm by establishing a real identity if interest between the employee and the firm. In other words, it believed that having some assets of firms for which emplayees work would give a greater personal motivation to increase profits by increasing efficiency. IV. ASSET SALE TECHNIQUES The way of transfer of ownership to the private sector is an another important argument in the privatisation. In the literature mainly three transfer of ownership techniques are proposed, (i) offers for sale (OFST), (ii)81 tender offers (TOT) and give away. Offers For Sale : The primary distinctive feature of OFST is that shares are offered to the public at a fixed price which is set by the government in advance. The British and French gowernments have, For instance, broadly used this technique in their privatisation programmes mainly as a result of their, particularly the formers, policy objective of SSO. In the UK, for example, many of the issues have offered, particularly to the small investors, favourable terms of preference in the allocation of an oversbscribed issue. Morever, the average direct issue of stocks under OFST is likely to be synificantly higher than its cost under TOT, as British and French experience suggest. Tender Offers : In sharp contrast to OFST, in TOT the price of the share is decided to agreater extent at the market. By determining a price in advance, government invites the large investors to bid the stated minimum price. Bids offer a price which might be at or above the started minimum price and quantify the number of shares which they want to buy. The striking price is then determined once all bids have been received. The striking price in turn determines the cut off below which applicants are rejected. If striking price is above the market clearing price, this requines a system of share rationiny. If it is below, the striking price may be set at or below the market clearing price. TOT is particularly seen as a policy instrument to maximize government revenues from asset sales. V. CONDITIONS FOR SUCCESS AND ORDER OF PRIVATISATION Some vital pre-conditions are required for a successful privatisation programme, before privatisation takes place. Some of the major conditions are summorized. Below. (i) Privatisation can not be sustained unless the government committed it self to privatisation and there is a political stability. Such conditions would increase the degree of certainty that those industries will remain privatised. In this respect employing OFST would contribute this certainty by broadening the resistance to renationalization. (ii) Government should introduce measures (e.g. anti-trust law, price and entry deregulation, reforming the public enterprises to operate according to market rules, to promote competition) which will increase efficiency and productivity in the economy. (iii) The capital market should be reformed, if it is underdeveloped.82 (iv) If privatisation is to be sustained, it must reflect a shift in the preference of the public that privatisation in a more competitive economy would increase consumers benefits, and the performance of economy. Creating such an atmosphere among the public, for example, could be carried out by a special committee through, for example, publications, discussions on television programmes, in public meetings, etc. (v) Timing of the privatisation may be very important in an economy in which the agricultural sector is significant. If privatisation takes place in a time following the harvest under the relatively stable conditions in economical and political terms, the probability of success of privatisation may be higher. The main questions are which industries are going to be privatised and what the criteria should be used in the selection of industries for privatisation. Those questions could be answered by using cost-benefit analysis. As discussed earlier, gains in efficiency performance are likely to result from an increase in competition in the market. This, therefore, suggests that the main criteria should be that they should produce net gains by promoting competition or promising a competition prospect in the future. Under those circumstances, the government may begin privatising public enterprises from the most commercially oriented enterprises and continue towards lesser degree ones. In this respect, it will be beneficial for the government to begin selling off enterprises which are. under market control (commercially oriented);. financially in surplus, and. relatively small scale. The benefits of such a policy could be as follows; (a) Leaving provision of (commercially-oriented) goods and services to private sector would bring about net gains by increasing the efficiency through competition and improving the working of the market mechanism through reducing distortions in the market. (b) Being financially in surplus is expected to increase the demand for firms stocks, implying an increase in transactions in the capital market and ownership motives among the public. It should be, however, noted that this does not mean that privatise the profits and socialise the losses. Loss-making enterprises could be privatised either directly or after their performance is improved, following the profit-making enterprises asset sale. (c) Having experience with selling off relatively small scale enterprises83- may reduce the cost of making policy mistakes.lt may, therefore, make it easier for government to avoid such mistakes during the selling off larger scale enterprises. It seems that privatising natural monopolies (e.g. electricity supply, telecommunication, etc.) is, on the one hand, difficult and unlikely to produce net gains, on the other. First, there may not be enough capital accumulation in the private sector due to their capital intensive production structures. Second, even if there is, privatisation may not bring a competition and, hence, an efficiency gain. Converting a public monopoly into a private one is likely to enable it to use its monopoly power in order to increase its profit level. Even if efficiency and productivity are increased under private ownership, it is likely to be that it will not be reflected in prices. This impies larger consumer welfare losses. Third, even if there is a duplication of goods and services in the market, it, however, does not increase efficiency and productivity. In sharp contrast to efficiency and productivity objectives of privatisation policy, duplication causes large real resource wastes. Because, duplication means a competitive waste of real resources in such an industry where economies of scale are so pronounced. Despite the fact that privatisation of natural monopolies may bring some benefits by encouraging technological innovations, ending the government subsidies, etc., the cost resulting from exploitation of its monopoly power is likely to be higher than its benefits. In this respect, taking some policy measures seems more appropriate to improve their performance. Contracting-out of some services through competitive tendering, imposing cash limit system of expen diture control, reforming the pay structure by relating with financial performance of firms etc., can be mentioned among those measures. VI. PRIVATISATION POLICY IN TURKEY Prior to the privatisation policy adapted in 1955, the State-Economic enterprises (SEEs) had managed to increase their profits by exhorbitant price increases rather than by increasingtheir efficiency, tt is estemated that in 1985 their profits increased by 390 percent; while this was 50 percent in 1986 and 35 percent in 1989. These very high levels of profits on the part of the SEEs could only be explained by arbitrary price increases in areas whire they engojed a menopoly power. Continual price increases introduced by the SEEs in the post-198384- have excessivelly contributed to the rampant rate of inflation in Turkey. A report on the SEEs by High Board of Supervision affiliated to the Prime Ministry not only repeated the notorious ills of the SEEs but particularly emphasised their efficiency and their inadequate modes of operation. These developments supported by the economic ideology of the present government. Which has been commited to free market economy, have led to adaption of a privatisation policy to the SEEs. The policy of privatisation of the SEEs was first mentioned in the Fifth Plan (1985-1989) and the initial step was to study three sectors, namely cement, textiles and fertilizers. By the end of 1985 the State Planning Organisation (SPÖ) was eager to sell seven as yet incomplete plants in the three areas mentioned. Howover, the firms in the private sector were not very enthustastic because they had obsolote technology and were established in the less developed regions of the country. The work on privatisation continued in May 1986. It was reported that the shares of the Tee Company (CAY-KUR) held in Tea Bank (CAYBANK) were being considered for sale. In addition, about five incomplete plants in cement, textiles and fertiliser sectors were sold for 8.3 billion TL.by the Housing and Public Participation Fund (HPPF). In May 1985, the SPO invited some foreign consulting firms to tender their bids for a study of 32 SEEs a possible candidates for privatisation. The State Planning Organization before contracting the consulting firms demanded that the first priority should be to determine the objectives of privatisation and went on to lay down those objectives. a) To improve the quality of the SEEs goods and services; b) To tip the balance in industry from the public to private sector; c) To make the private sector responsible for the management of eco nomic enterprises so that public officials could concentrate on regulatory activities and policy making. d) To reduce the amount of transfer payments from the treasury to the SEEs; and. e) To obtain additional revenue for the government. The Morgan Cuarantee Bank (USA) was selected as the consulting firm to work jointly with the Turkish Industrial and Development Bank (Türkiye Sınai Kalkınma Bankası). And to determine the objectives of privatisation which would obuviously reflect the goals of the government of Turkey. The Morgan Bank prepared a long list of possible privatisation goals after receiving views of relevant officials including the SPO,the state Investment- ÖO - Bank, the Undersecretariat of the Treasury and Foreign Trade, the Housing and Public Participation Fund (HPPF), the ministers for the SEEs and the team of advisors to the Prime Minister. The conlusion which emerged from the Morgan Team Survey was that the most important aims of the privatisation programme were to increase the industrial efficiency and growth in economy, develop the capital markets in Turkey; reduce the financial support (budgetery and Central Bank) for the SEEs by the Treasury; and to facilitate a wider distribution of share ownership. Surprisingly, the lowest ranked objective of privatisation was to raise revenue for the treasury. The final decision of the Morgan Bank was that there were no serious obstacles to the Commencement of a privatisation programme. It should be noted that the thirty-two SEEs which are examined by the Morgan Bank were divided into the followiny categories. First Priority : I Entre Company Saleab II Majority saleable III Large ports saleable Second Priority IV Parts are salable, remaining ports require rehabilitation or shut down. V Candidates for creeping privatisation VI May be saleable VII Saleable with government support. Third Priority VIII Public service comparies. HOUSING ANP PUBLIC PARTICIPATION FUND (PPF) Public law 3291 which was enacted in 1986 defines the procedures and responsibilities for the privatisation process. According to this law, the authority to take decisions related to privatisation is granted to the council of ministers in the case of SEE s; and in the case of participations to the Board of the Housing and Public Participation Fund (PPF). The PPF board consists of eleven ministers under the chairmanship of the Prime Minister. By this law, once the appropriate council decides that a SSE or participation is to be privatized, then that institution automatically becomes a corperation and its. shares are transfered free of charge to the PPF. In addition PPF was granted all decision making powers for the privatisation and the management of the SEE or the Participations. Moreover, the proceeds of sales or dividends are chanalled by the Board of the Public Participation Fund.86- 6.1. SELİNG STRATEGY OF STATE ASSETS The selling decissions are taken on a case by case basis. It is stated that on SEE considered for privatisation can be sold entirely as partially a orforeign or a domestic buyers. However, where strategic products one involved or where monopolies would be created, the government can set specific restrictions and limits an potential purchasers. The sellingofthestateassetswillbefirstby sales to the public by an offer for sale. That is to say, the government will invite applications for shares at a set price and individuals and institutions will dully apply for shares. If the issues are oversubcribed, they will then be allocated according to a rationing scheme of the government. The other form of sale will be by tender offer. In this case the government invites bids for shares above a given minimum tender price. Of course, in the event of oversubscription shares will be allocated to those who entered the highest bids. If, on the other hand, a tender offer is undersubcribed, bidders demands are satisfied at the minimum tender price originally set by the government. It is pointed out that one of the highest objectives of privatisation is to promote development of capital markets in Turkey and to ensure wide distribution of shares. Therefore, during the sale of the SSEs shares priority will be given to the private individuals and employees working in that particular corporation. 6.2. PRIVATISED PUBLIC ENTERPRISES 6.2.1. TELETAŞ and NETAŞ (Switchboard Equipment Companies) At the end of 1986, the governement decided to speed up its privatisation process by transferring shares of PTT (postal-telecom enterprises) in two participations to the Public Participation Fund (PPF). It is reported that PTT has 40 per cent shares in Teletaş and 49 per cent in Netaş. The first privatisation experience in Turkey commenced in 1988 with the sale of Teletaş through an offer for sale inviting applicants for shares at a set price. Cengiz İsrafil, Deputy Director of PPF stated that Teletaş was chosen as the first enterprise for privatisation because it had high profitability and it embodied modern technology which has made telecommunication- industry look very promising candidate for privatisation. He also added by saying that Teletaş is not only a profitable enterprise, but it is also run by extremely successful management, Therefore, contrary to other public-87- enterprises it did not require rehabilitation before it was privatised. Within the framework of privatisation programme the main charter of Teletaş was redesigned, and work towark the sale of 40 per cent of State shares was initiated. According to its main charter four types of share holders were identified. Group A: Foreign shareholder : 39 % (Belgium Bell Co) Group B: Domestic shareholders : 21% (PTT Saving Fund, STFA Foundation and Ray Insurance) Group C: Shares sold to public : 20 % Group D: Golden share : 18 % (owned by Public Participation Fund (PPF) Prior to privatisation 40 per cent of State shares were transferred to PPF and only 22 per cent of this was offered for sale on the Istanbul stock market and the remaining 18 per cent was kept as golden share to be owned by the Public Participation Fund. Cengiz İsrafil declared in January 1989 that the remaining 18 per cent of golden share might be sold specifically to domestic shareholders who happen to enjoy right of privilege. During the process of Teletaş privatisation for the first time in Turkey the government used underwriters for selling shares on the stock exchange. In February 1988, the government issued.a prospectus offering shares in Teletaş for sale at 5000 TL. and individuals and institutions duly applied for shares. The issue of Teletaş were oversubscribed-three and a hall times as many shares were applied for as were available and they were allocated according to a rationing scheme of the PPFs choosing. It is reported that between 29 February and March 1988, Teletaş shares had created a demand which was virtually sixfold of the trade volume of the Istanbul stock market. Within five days of flotation the number of shareholders in TELETAŞ increased to 42.000. TELETAŞ share were sold at 5000 TL. at Istanbul stock market, but for a long time they were traded for 6000-6400 TL. The proceeds from thesaleofTELETAŞshares was TL.14.1 billion, of which TL 8.2 billion was derived from sale of shares to the public andTL. 5.9 billion from sales to workers of TELETAŞ and PTT.88 Evidently a new loan scheme was also introduced for the employees in order to lend them up to TL.3 billion so that they could buy TELETAŞ shares. The repayment of the loan was to be within a year at equal instalments. The largest part ofTeletaş products at present are being boutght by the PTT, but it has been indicated that serious studies have already been introduced in order to examine the possibility of selling Teletaş products to other customers as well and explore the potential available for increasing. 6.2.2. ÇİTOSAN (Cement Plants) After concerted efforts the PPF has determined the market value of CITOSAN-owned Afyon, Söke, Balıkesir, Ankara and Pmarhisar cement plants as TL.256 billion. In December 1988, it was reported that 50 per cent of shares of these cement plants would be sold for cahs payment rather than by instalments. According to a special report on the privatisation ofÇITOSAN which was submitted to interested bidders, the value of each cement plant was determined as follows. Societe Ciment Francais, a French company, Sabancı Holding Co, and Koç Holding were among the bidders for ÇİTOSANs sale of cement plants. On 17 January 1989, it became clear that 90 per cent shares of the five cement plants owned by ÇİTOSAN was bought by Societe Ciment Français. Societe Ciment Francais which is considered as one of the largest cement produfcing groups in Europe made on offer of $105 million (TL 195.8 billion) te be paid in cash for the ÇİTOSAN s five cement plants which were estimated to value TL 256 billion by the PPF, However, the French company was also expected to undertake the following commitments: (i) it would quarantee undertaking an investment of $75 million (TL 139 billion and 835 million) over the next 4 years; (ii) Societe Ciment Français would own 90 per cent of shares ofÇITOSAN s five plants: The remaining 10 per cent would be retained as golden shares owned by the state (the government would be able to influence all future decisions by using its golden share rights); (iii) The management of the five cement plants would remain with Societe Ciment provided that the shares of the acquired cement plants would be sold to the public at later stages; (iv) after three years 39 per cent of the shares of CITOSAN s plants would be sold individuals and in particular 10 per cent to the employees of the acquired plants. In contrast to the TELETAŞ case, CITOSAN was privatised by a foreign company without giving priority to individual shareholding which is hardly compatible with the spirit explicitly announced in the privatisation09 programme. The basic goal of wider share owneship envisaged by the PPF authority has been overlooked in the case of CITOSAN. 6.2.3. USAŞ (Airline Service Co.) USAŞ which was been transferred to the PPF according to principles of the privatisation programme, was privatised by selling 70 percent of its shares of the SAS Service Partner (Scandinavian airlines). Accordingto the agreement reached; (i) 70 per cent of USAŞ s TL.10 billion nominal capital value will be transferred to the SAS Service Partner for $14 million: (ii) The SAS Service Partner, will guarantee to pay 21 per cent of its pre tax profits to the PPF for the 10 year period 1989 to 1988. (iii) In addition. 30 per cent of the nominal capital after a certain period (not exacitly defined) will be sold to private individuals, the first priority to be given to employees of USAŞ (Gültekin: Jan 1989). USAŞ, a majority holding affiliated to THY, was originally included in the privatisation programme according to the decision of the PPF council in April 1987 and it was therefore, transferred to the PPF for privatisation. Initially USAŞ had a nominal capital of TL 2 billion butlaterit was raised to TL 10 billion according to its main charter. Its main duties are as follows: (a) to operate restaurants, cafeterias and coffee-bars at airports and affiliated terminals; (b) to provide airport and catering services to domestic and foreign airlines, aircrafts; and (c) to carry on the sale of air tickets at home and abroad and open and operate travelagencies. It was stated by Professor Bülent Gültekin. Head of the PPF that one of the goals in the USAŞ privatisation was to bring this enterprise up to international standards in its services extended to THY and other airlines, and to enable it to acquire new technology and know-how to develop its structure. It was believed that USAŞ with its present features was not suitable for sale to private individuals. It is however, believed that the SAS Service Partner, after improving its organisation and management and raising its profitability, as assured, will be able to prepare USAŞ for its partial sale to private individuals in the very near future.- yu - 6.2.4. PETKİM (Petro-Chemicals) In 1987 the Public Participation Fund (PPF) announced the most suitable candidates of public enterprises which would be privatised in due course. Therefore following Teletaş, Çitosan and USAŞthe government has intended to examine the possibility of a measure of privatisation in the petro chemical industry, namely Petkim which was initally included among the selected public enterprises. The original timetable called for the drafting of the main charter of Petkim was completed by the end of 1988. The mtroduction of the main charter, reaffirmed the governments intention to proceed with the Petkim privatisation. The proposal was put into effect by providing managerial privatisation at Petkim, by which Petkim was made more independent and enabled to have a new and more effective management to have the way to privatisation. Dr.Faruk Yağız the General Director of Petkim pointed out that by the renewal of the main charter, a new board of directors was appointed; the authority of the board was increased and statutory obligations previously imposed upon Petkim were removed. At present, the new board of directors are have to set or alter the sale prices of theirown products after taking into account current changes in the world prices and imported input prices. However, in the case of Petkim, exemption from tariffs, customs tax and duties which are applied for imported raw materials and chemicals has been contiuning. In the meantime Petkim s new management has been preparing itself for competitive market conditions in which there would be no benefits from imports protection or tax exemption. It should be noted that Petkim in contrast to other public enterprises has a formidable monopoly power in the petro-chemicals industry. Because of the government s reaffirmed trade liberalisation and elimination of protection, it has been asserted that Petkim cannot resolve its financial problems simply by raising prices. For this reason, the Petkim management has been showing concerted efforts in order to achieve effective management, utilise its existing capacity and increase productivity by modernising its factories and providing rehabilitation for its major plants. It was until the second half of 1990 that the PPF authority took a final decision about partial privatisation of Petkim. It was discovered by the PPF that there was a sizeable market and arising demand favourably to warrant the sale of Petkim shares. About 8 percent of Petkim stocks which had a nominal capital of up to TL 2 trillion was offered for sale to the public through various local-91- branches of İŞBANK throughout the country. The proceeds from the public sale Petkim shares, amounted to TL.398.1 billion. On the other hand, while the number of domestic shareholders increased to 75.933 shares worth TL 22.5 billion were bought by the employees working at Petkim plants. Onwards, there has been some effort to sell shares of Petkim in the Tokyo and London stock-exchanges and later in the New York stock market. Evidently, after the partial privatisation of Petkim, the proportion of the PPF shares at Petkim fell from is orginial level of 99.9 percent to 91.9 percent. 6.2.5. ERDEMIR Erdemir (Iron-Steel enterprise) was also included within the scope of the master privatisation programme and, therefore, some share of ERDEMIR were sold to the public in the Istanbul stock market in April 1990. The number of share holders increased to 33.954 where the proceeds from the sale of public assets amounted to TL.132.6 billion. In the meantime shares to the value of TL.925.9 million were also sold to 113 foreign investors. Following the privatisation implemented by the government, the shares owned by the PPF at Erdemir fell from its original level of 51.5 percent of 46.3 percent which means that only about 5 percent of the state shares has been sold to the public. According to the statement made by the board of Erdemir, the decision regarding the increase of capital of the corporation will be implemented before the end 1990. It is conceived that the nominal capital of Erdemir which is now TL 384.5 billion may be raised to TL 2.5 trillion; however this to be accomplished over three phases. The decision of increasing the capital and consequently the sale of more shares may take place in October or November 1990. It is speculated that new issues of shares may require at least 2 months, particulary for obtaining both the approval of the general council of Erdemir and the Capital Market Board. Meanwhile, the rehabilitation of Erdemir which began a few years ago, is still continuing in order to improve its production and efficiency. As an integral part of the modernization drive, a specific scheme, KAM (expansion and modernisation) comprising nine different projects, has been launched. KAM scheme which has been put to bidding by the international firms aims to expand hat iron-steel production from 2 million tons to 3 million tons. This is estimated to require an investment of $7 billion (approximately TL 4.6 trillion.92 6.2.6. TURBAN (Hotel Chains) Turban which is owned by the Tourism Bank of Turkey operates hotels, motels and yacht marinas. Turban was first mentioned in the master privati sation programme in 1986 as one of the most suitable candidates for privatisation; however it was not until 1990 that it was seriously considered. It is reported that privatisation work conducted by the PPF on Turban tourism A.Ş. and especially on its Bodrum. Kuşadası, Antalya Kaleiçi, Kemer marinas and Kemer marina hotel has been finally completed. PPF declared that as a first step joint stock companies will be setup for marinas and hotels and they will then be sold either to private corporations or individuals. Participating partners maybe permitted to hold 51 per cent of the total shares, while the remaining 49 per cent will be sold to the public and employees working in the yacht marinas and hotels. 6.2.7. MKEK (Machine and Chemical Corporation) Another public enterprise which operates in the monopoly market and enjoys great market power is MKEK. State machine and chemical industry. In 1989. Seven plants of MKEK were converted into a joint-stock company paving the grounds for privatisation, it was envisaged that 20 per cent of government shares would be sold to employees working in these plants. The final decision for the public sale of this corporation will be taken by the PPF. It is contended that, to preclude underpricing of assets the valuation and sale of shares should be conducted by the MKEK management because it possesses accurate data and wider experience than the PPF. It is urged by the General Director that proceeds from the sale of stocks to the public should be especially used to meet deficits of the MKEK and to improve its technology and internal efficiency. 6.2.8. OTHER ENTERPRISES The State shares at Arçelik Co. were sold by the PPF between 30 April and 1 May 1990 where proceeds from the sale of public assets increased to TL 50.1 billion the, number of shareowners being 12.618. Evidently. 14 foreign investors were also allowed to purchase stocks. The proceeds from sellingto them reaching TL 141 million. Consequently the state shares at Arçelik which are presently owned by the PPF authority fell from 15 per cent to 7.4 per cent. Smilarly, after the partial privatisation carried out for the Bolu cement plant the Government share at has also fallen from 35 percent to 23.8 percent; while the public shares in Çelik-Halat (steel- wire plant), a public participation were also sold to the general public in mid- 1990 where the State shares dropped-93- / to 4.6 percent from its orgiinal level of 29.2 percent. GIMA, food store, a public enterprise which has been included within the the scope of privatisation programme) decided to increase its nominal capital in October 1990 from TL.2 billion to TL 10 billion. Apparently this increase of capital was initiated in order to resolve GIMA s financial liquidity problems. ThePPF authority wishes to sell 51.2 per cent of GIMA s shares to the public when the economic conditions become more lavourable. At present, the most recent offer has come from GIMA personnel foundation. Although the PTT (the postal telecommunication service) has not yet been included in the privatisation programme serious studies on its privatisation have been initated duer to some attractive offers received by the PPF. According to one spokesman of the PPF unless the monopoly power of PTT is eliminated or restricted its privatisation does not seem possible. Nevertheless, it is not yet clear that the PPF is keen to take some serious steps to resolve this issue. VII. CONCLUDING REMARKS Despite the fast that public enterprises and for corporations have been established in order to fulfill the gap coming from market failure to achieve Pareto efficiency, to overcome constraints, on, (particularly of the early stage of), economic development in many developing countries and to provide cheap goods and services. Increased inefficiencies in those industries, however, brought a hevay burden on many government budgets and economies as a whole. The policy objectives of supplying goods and services and efficiency, therefore, conflicted with each other. Many studies found that the main reason behind their large operational losses resulted from those industries exemptions from market discipline which is related with public ownership. For a successful privatisation programme, some vital preconditions, such as taking measures to promete competition, political commitment to privatisation and stability, reforming of the capital market, changes in public preference in favour of privatisation etc, should be met, before privatisation takes place. Privatisation of more commercially-oriented enterprises promises substantial gains, where as privatisation of natural monopolies is unlikely to bring net gains as a result of the high possibility of using their monopoly power in the market. It seems that taking some alternative measures would be more appropri ate policy for improving their performance.-93- / to 4.6 percent from its orgiinal level of 29.2 percent. GIMA, food store, a public enterprise which has been included within the the scope of privatisation programme) decided to increase its nominal capital in October 1990 from TL.2 billion to TL 10 billion. Apparently this increase of capital was initiated in order to resolve GIMA s financial liquidity problems. ThePPF authority wishes to sell 51.2 per cent of GIMA s shares to the public when the economic conditions become more lavourable. At present, the most recent offer has come from GIMA personnel foundation. Although the PTT (the postal telecommunication service) has not yet been included in the privatisation programme serious studies on its privatisation have been initated duer to some attractive offers received by the PPF. According to one spokesman of the PPF unless the monopoly power of PTT is eliminated or restricted its privatisation does not seem possible. Nevertheless, it is not yet clear that the PPF is keen to take some serious steps to resolve this issue. VII. CONCLUDING REMARKS Despite the fast that public enterprises and for corporations have been established in order to fulfill the gap coming from market failure to achieve Pareto efficiency, to overcome constraints, on, (particularly of the early stage of), economic development in many developing countries and to provide cheap goods and services. Increased inefficiencies in those industries, however, brought a hevay burden on many government budgets and economies as a whole. The policy objectives of supplying goods and services and efficiency, therefore, conflicted with each other. Many studies found that the main reason behind their large operational losses resulted from those industries exemptions from market discipline which is related with public ownership. For a successful privatisation programme, some vital preconditions, such as taking measures to promete competition, political commitment to privatisation and stability, reforming of the capital market, changes in public preference in favour of privatisation etc, should be met, before privatisation takes place. Privatisation of more commercially-oriented enterprises promises substantial gains, where as privatisation of natural monopolies is unlikely to bring net gains as a result of the high possibility of using their monopoly power in the market. It seems that taking some alternative measures would be more appropri ate policy for improving their performance.-93- / to 4.6 percent from its orgiinal level of 29.2 percent. GIMA, food store, a public enterprise which has been included within the the scope of privatisation programme) decided to increase its nominal capital in October 1990 from TL.2 billion to TL 10 billion. Apparently this increase of capital was initiated in order to resolve GIMA s financial liquidity problems. ThePPF authority wishes to sell 51.2 per cent of GIMA s shares to the public when the economic conditions become more lavourable. At present, the most recent offer has come from GIMA personnel foundation. Although the PTT (the postal telecommunication service) has not yet been included in the privatisation programme serious studies on its privatisation have been initated duer to some attractive offers received by the PPF. According to one spokesman of the PPF unless the monopoly power of PTT is eliminated or restricted its privatisation does not seem possible. Nevertheless, it is not yet clear that the PPF is keen to take some serious steps to resolve this issue. VII. CONCLUDING REMARKS Despite the fast that public enterprises and for corporations have been established in order to fulfill the gap coming from market failure to achieve Pareto efficiency, to overcome constraints, on, (particularly of the early stage of), economic development in many developing countries and to provide cheap goods and services. Increased inefficiencies in those industries, however, brought a hevay burden on many government budgets and economies as a whole. The policy objectives of supplying goods and services and efficiency, therefore, conflicted with each other. Many studies found that the main reason behind their large operational losses resulted from those industries exemptions from market discipline which is related with public ownership. For a successful privatisation programme, some vital preconditions, such as taking measures to promete competition, political commitment to privatisation and stability, reforming of the capital market, changes in public preference in favour of privatisation etc, should be met, before privatisation takes place. Privatisation of more commercially-oriented enterprises promises substantial gains, where as privatisation of natural monopolies is unlikely to bring net gains as a result of the high possibility of using their monopoly power in the market. It seems that taking some alternative measures would be more appropri ate policy for improving their performance. | en_US |