|
|
|
II. Privatization Process: Making Privatization Work - Key Issues & Approaches |
With all the factors discussed above in mind, certain specific steps have emerged as most likely to achieve success. This section discusses what these steps are, why they are taken, and how they are advanced.
|
|
G. The Sale Process |
3. Two Phases: Pre-Qualification and Bid Preparation/Submission
As noted above, typically and preferably, the bid process is carried out in two phases:
(a) pre-qualification, followed by (b) bids from qualified investors. The reasons for this two-staged timing are multiple. First, it allows the privatizing country to assess interest in the first round, without wasting the time and resources. It allows assessment of interests and investor needs, along with an opportunity to modify the process, repackage the assets, revise the schedule, and work on improving the background situation to address investor concerns.
Second, the pre-qualification round can separate out the investors who are truly capable of purchasing, improving and operating the tendered assets, so that the privatizing country can educate and focus on this smaller group of investors in the second round.
Thus, the first round should include professionally prepared information for strategic investors sufficient to attract interest. It should contain pre-qualification requirements sufficient to ensure that the second round is limited to qualified potential purchasers. Pre-qualification criteria are critical and should be clear, strict and difficult to circumvent by unqualified companies and politicized Tender Committees. The criteria should address at a minimum financial resources and management, operational and technology capabilities, demonstrated successful past experience to ensure that the investor has the capability of paying a reasonable sale price and, even more important, performing well after the sale.
Performance standards set by the autonomous regulatory process are generally preferred over rigid investment commitments established in the privatization tender and purchase agreement. Hence, instead of requiring a buyer to invest a fixed amount of capital into the purchased business, the buyer should be required to meet reasonable performance standards, such as a limited number and duration of power outages. The buyer -- the private entity with management and operational expertise - will know how to achieve performance standards at least cost. The Government and consultants may not accurately estimate the appropriate size and timing of investments.
Allowance for investor flexibility in operations and management should be maximized in every area, to the extent possible. For example, if employee retention is part of a bid requirement, the buyer should be allowed options to address this requirement. Instead of mandating that a fixed number of employees must be retained, the buyer should be permitted the option of offering voluntary severance packages. The retention or severance packages required could vary based on a country's economic situation. Simply providing back pay may be sufficient in countries where employees have not received their salary for a significant period of time. In other countries, multiple-month pay packages may be and have been offered. Or, contributions may be required to fund re-training of downsized employees. In imposing such retention or severance requirements, however, the privatizing country must remember that the costs of' meeting these requirements will be taken out of the purchase price, and that a large retention requirement with no time limit can eliminate investor interest entirely. This issue is usually worked out in the sale-purchase agreement between the investor and government.
After bidders are pre-qualified, a period of due diligence is critical for the investor to gather information and prepare the bid. It is important for the Government, investment bank and power companies to provide information to the potential bidders during this period. Among other things, the bid package should be clear about assets and liabilities: what exactly is the investor buying? Whether the state or the buyer assumes existing debt will often be a key issue in the sale. The package should also be developed so that the buyer purchases the assets it needs to function. For example, if in selling a distribution company, a piece of a transmission line is needed for the company actually to operate, then that line should be a part of the sale package. Similarly, the bundle of assets being sold should include the land on which the equipment is located if that land is needed in order to operate the equipment effectively.
Enough time should be given in the second round to allow these bidders to do their due diligence. As with the development of a strong legal and regulatory background, this due diligence process is a risk reduction step to the investor with no downside to the privatizing country. The country's cost of reducing this risk is minimal. Particularly now, after strategic investors have gained experience, they will not invest in a project in which they do not have confidence. They need to see the books of the company being sold. Their questions need to be answered fully and candidly, or they will either reduce their purchase price or not bid. Pre-qualified bidders should have open access to the assets being sold and to current employees. There is no advantage to be gained in trying to hide a cost associated with the assets being privatized. With no information provided on that cost, the potential investor will either discount its price, thinking that the situation is even worse than it is in reality, or will not bid.
When answering bidders' questions, the answers should be available to all bidders, not just the one that asked the question. Each bidder should be treated equally, and should perceive that it is being treated the same as all the others.
|
|
Source: |
|
|
|
Table
of contents |
|
|
|
I. Power Sector Privatization |
|
|
|
II. Privatization Process |
|
|
|
Conclusion |
|
|
