privatizations: auction and market design during a crisis · privatizations: auction and market...

Privatizations: Auction and Market design during a Crisis

Vasiliki Skreta

UCL

March 17, 2015

Vasiliki Skreta (UCL) Privatizations March 17, 2015 1 / 41

Introduction Greece’s prosperity depends largely on privatizations

Greece’s prosperity depends largely on privatizations

Why?public sector excessive

inefficient, cost mllions to taxpayers, example TRAINOSE

country is too indebted to take new loans to fund investments thatbring growth

private capital, ideas and knowhow thus essential

BUT...process must be designed and carried out with great care!


Introduction Privatizations pivotal for future prosperity

Privatizations pivotal for future prosperity

a well-designed and executed privatization program can1 generate funds2 bring investments, tax revenue3 function as a vehicle towards growth and prosperity

example: Chile (see the comprehensive study of Gutierrez et al. (2003))

a poorly designed and executed process can1 unjustifiably enrich few well-connected individuals and create

“oligarchs”examples: Russia ( Roland (2008)), Carlos Slim in Mexico

2 inhibit growth throughout high prices of essential services(telecommunications, electricity etc)

example: assigning monopoly rights for telecommunications to CarlosSlim in Mexico not only created one of the richest men in the world,but, more importantly, the high prices that prevailed post-privatizationhave inhibited Mexico’s growth ( Acemoglu and Robinson (2012))

3 bring production to a total standstillexample: privatizations of Skaramgkas Shipyards


Introduction Privatizations as a reform

Privatizations as a reform

Privatizations: constitute a central reform in Greece’s bailouts

in response Greek government formed (Hellenic Republic AssetDevelopment Fund)–a.k.a. TAIPED or HRADF for its goals seeHellenic Republic Asset Development Fund (2013)

early goal e50 bil by 2019–goal repeatedly revisited

current goal: e11.1 bil by 2016: e25bn by 2020; e50 bn (?) long run

since first bailout May 2010 GR has sold assets for e7.7 bn receivede3.1bn

HRADF’s portfolio: corporate assets 10, Infrastructure Assets 22, RealEstate 1000


Pre-Bailout Greece’s public sector

Greece’s public sector

.


Pre-Bailout Privatizations in Greece before crisis

Privatizations in Greece before crisisPre-HRADF privatizations (Source Privatizations Barometer)

Year Company Name Sector % for Sale US$ millionSale 1991 Olympic Marine SA Manufacturing 100 5.11 PS1991 Bank of Chios Finance & Real Estate Industry 100 15.8 PS1991 Elvim SA Manufacturing 100 8.86 PS1991 Minion SA Manufacturing NA 6.62 PS1991 Thraki SA Manufacturing 100 8.37 PS1992 Thessalian Paper Mills SA Manufacturing 100 2.45 PS1992 Heracles General Cement Co SAManufacturing 69.8 644.18 PS1992 Chandris Transportation Industry NA 200 PS1992 Elefsis Shipyards SA Manufacturing 100 373.8 PS1993 Bank of Athens Finance & Real Estate Industry 66.7 31.36 PS1993 Hellenic Sugar Industry Manufacturing 20 12.2 PO1996 OTE (Hellenic Telecom Organization)Telecommunications 7.6 430.9 PO1997 Thessaly Ginning Agriculture Industry 100 2.74 PS1997 CosmOTE Telecommunications 30 97.68 PS1997 OTE (Hellenic Telecom Organization)Telecommunications 12.4 1123.9 PO1997 Athens Stock Exchange Finance & Real Estate Industry39.67 78.7 PO1998 Macedonia-Thrace Bank Finance & Real Estate Industry36.98 74.33 PS1998 General Hellenic Bank Finance & Real Estate Industry 14.5 55.8 PO1998 OTE (Hellenic Telecom Organization)Telecommunications 3.5 399.9 PO1998 National Bank of Greece SAFinance & Real Estate Industry 10 87.2 PO1998 Hellenic Petroleum Petroleum Industry 23 272.7 PO1998 Bank of Central Greece Finance & Real Estate IndustryNA 58.39 PS1998 OTE (Hellenic Telecom Organization)Telecommunications 15 1019.5 PO1999 Halkis Shipyards Manufacturing 100 9.31 PS1999 National Bank of Greece SAFinance & Real Estate Industry 4 553.3 PO1999 Olympic Catering Trade Industry 25 10.9 PO1999 Athens Paper Mill SA Manufacturing 100 120 PS1999 OTE (Hellenic Telecom Organization)Telecommunications 14.1 979.2 PO1999 National Bank of Greece SAFinance & Real Estate Industry 2 302.9 PO1999 Hellenic Duty Free Shops Trade Industry 25 173.16 PS1999 Hellenic Industrial Development Bank SAFinance & Real Estate Industry 25 398 PO1999 Hellenic Petroleum Petroleum Industry 11.5 458.1 PS1999 EYDAP S.A. Utilities 25 210.9 PO2000 Hellenic Petroleum Petroleum Industry 15 355 PO2000 EPA Thessalia Utilities 49 35.13 PS2000 Greek Stock Exchange Holdings SAFinance & Real Estate Industry 60 66.8 PO2000 CosmOTE Telecommunications 11.02 403.6 PO2000 Agricultural Bank of GreeceFinance & Real Estate Industry 7 300.8 PO2001 Opap Services Industry 5.5 79.7 PO

.

2001 OTE Leasing Services Industry 100 20.94 PS2001 Thessaloniki Port Authority Transportation Industry 25 15 PO2001 Thessaloniki Water Utilities 25.45 14.4 PO2001 Hellenic Shipyards SA Manufacturing 51 5.3 PS2001 Public Power Corporation SAUtilities 15.09 391.7 PO2002 OTE (Hellenic Telecom Organization)Telecommunications 8 627.8 PO2002 Opap Services Industry 19 437.9 PO2002 Olympic Catering Trade Industry 58 15.75 PS2002 Public Power Corporation SAUtilities 13.2 323.9 PO2003 Hellenic Petroleum Petroleum Industry 16.65 384.19 PS2003 Opap Services Industry 24.6 710.4 PO2003 Piraeus Port Authority Transportation Industry 25.5 61.5 PO2003 National Bank of Greece SAFinance & Real Estate Industry 11 577.1 PO2003 Public Power Corporation SAUtilities 15.7 714.3 PO2004 General Hellenic Bank Finance & Real Estate Industry50.01 154.62 PS2004 Hellenic Petroleum Petroleum Industry 8.21 237.13 PS2004 National Bank of Greece SAFinance & Real Estate Industry 7.46 725.5 PO2005 Opap Services Industry 16.4 1518.58 PO2005 OTE (Hellenic Telecom Organization)Telecommunications 10 1036.9 PO2006 Agricultural Bank of GreeceFinance & Real Estate Industry 7.23 421.3 PO2006 Postal Savings Bank Finance & Real Estate Industry 35 793.03 PO2006 Emporiki Bank Finance & Real Estate Industry36.56 2233.99 PS2007 OTE (Hellenic Telecom Organization)Telecommunications 10.7 1485.99 PO2007 Greek Postal Savings Bank Finance & Real Estate Industry 20 701.1 PO2008 OTE (Hellenic Telecom Organization)Telecommunications 3 684 PS2008 Port Of Piraeus (35-year concession)Transportation Industry 100 4300 PS2009 Olympic Airlines Transportation Industry 100 255.27 PS2009 Olympic Fuel Co SA Services Industry 64.06 8.7 PS2009 OTE MTS Holding BV Telecommunications 100 250.86 PS2009 OTE (Hellenic Telecom Organization)Telecommunications 5 970.96 PS2009 Alpha Bank Finance & Real Estate IndustryPreferred Shares1354.16 PS2011 Hellenic Postbank Finance & Real Estate IndustryPreferred Shares301.3 PS2011 Attica Bank Finance & Real Estate IndustryPreferred Shares136 PS2011 OTE SA Telecommunications 10 585.05 PS2011 Agricultural Bank of GreeceFinance & Real Estate IndustryNA 1778 PO

total revenue 33699.9 mil $

.


Post-Bailout What is for sale? (source HRADF)

What is for sale? (source HRADF)

Source Hellenic Republic Assets Development Fund: Putting the Greek ...

www.hradf.com/ Portfolio LAND DEVELOPMENT Hellinikon International Broadcasting Center Kassiopi, Corfu Afantou, Rhodes Astir Vouliagmenis Sale & Repo 28 Buildings Ministry Of Culture Secretariat General of Information Systems (GSIS) Hellenic Police Forensic Science Division Hellenic Statistical Authority (ELSTAT) Secreteriat General of Mass Media Police Headquarters, Thessaloniki Immigation Attica Serres Police Headquarters Tax Authority Xanthi (A&B) and Xanthi Chemical Laboratory Athens A’ Tax Office 'IZ' Tax Office Korinthos B' Tax Office Chalkida B’ Tax Office Tax Authority, Stavroupoli




ches

Tax Authority, Alexandroupoli Tax authority Agioi Anargiroi Pallini Tax Office ATHENS ‘IΘ’ Tax Office Glyfada Tax Office Cholargos Tax Office Kifisia Tax Office Ministry of Internal Affairs Main Building Athens Police Headquarters Ministry of Justice Ministry Of Health General Chemical State Laboratory of Greece Ministry of Education Ministry Of Culture (Bouboulinas) Real Estate Properties Abroad Camping & Xenia Paliouri Thermal Springs Ermioni Xenia Hotels St. Ioannis - Sithonia Voras Cluster Motorway Supporting Areas (rolling ahead) Motorway Supporting Areas (in progress)




ches

INFRASTRUCTURE Hellenic Motorways “Egnatia Odos” Motorway Thessaloniki Water Supply and Sewerage Company Athens Water Supply and Sewerage Company Public Power Corporation Small Ports and Marinas Regional Airports South Kavala Natural Gas Storage OLP, OLTH, 10 Regional Ports TRAINOSE Athens International Airport Digital Dividend CORPORATE State Lotteries License Public Gas Corporation Hellenic Horserace Betting Organisation Hellenic Football Prognostics Organisation Hellenic Petroleum LARCO Hellenic Post Hellenic Defense Systems Mont Parnes Casino Hellenic Vehicle Industry Hellenic Football Prognostic Organisation VLT Licences


Post-Bailout Outcomes so far (source HRADF)

Outcomes so far (source HRADF)

Immense infrastructure work is in motion that will safely lead the development of privatisations to the next level

More than 40 privatisations have either been completed or been put on track

More than 80,000 properties have been initially assessed, 3,000

preselected for development and c. 1,000 already transferred to the Fund

Large number of regulatory, administrative and technical barriers, slowing

down privatisations, have been lifted. Implemented electronic auction e-publicrealestate.gr for medium and small real estate assets

key achievements at a glance




October 2014

Granting of rights

of use of Radio Frequencies (800MHz & 2600 MHz)

to

for a total consideration of

€380 m

September 2014

Granting of

Horse-betting License

to OPAP S.A


€40 m

July 2014

Sale of

Afantou Rhodes

to Angeliades IncS.A,

Aegean Sun Investments for a total consideration of

€42 m

2013-2014

Sale of other assets including real estate properties

(Paliouri, Xenia Skiathos, Ag. Ioannis, e-auction etc.) and shares

in listed companies for total considerations of

€190 m

March 2014

Sale of

Hellinikon S.A

to LAMDA Development


€915 m

November 2014

40 year concession of 14

regional airports

to Fraport-Slentel

for a total consideration of €1234 m upfront payment €23 m annual payments 28.5% EBITDA sharing

total transaction value of €7,7bn(*), out of which already received €3,1 bn

* Not Including 28,5% EBITDA Sharing from Regional Airports




August 2013

Sale of 33% stake in

to EMMA DELTA LTD

for a total consideration of €712 m

November 2013

Sale and Leaseback of 28 governmental buildings

to NBG PANGAEA and Eurobank Properties


€261 m

December 2013

Sale of

Astir Palace

to JERMYN STREET REAL ESTATE


€400 m

August 2013

Sale of 66% stake in

to SOCAR S.A.


€400 m

July 2013

Granting of a 12-year License to operate the Hellenic Lotteries

to a consortium of OPAP, Intralot, Scientific GGG for a total consideration of

€770 m






November 2011

Granting of a 10-year License to

operate 35,000 VLTs to


€560 m

December 2011

Granting of a 10-year extension of exclusive right to operate 13 games

to


€375 m

November 2011

Granting of mobile telephony

license to


€381 m

June 2011

Exercise of the put option for the

sale of 10% of

shares to DEUTCHE TELECOM

for €392 m

December 2012

Leasing of International Broadcasting Center

for a 90-year period to LAMDA DEVELOPMENT

for a total consideration of €81 m




Overview Goals

Goals

Offer insights and practical advice about Greece’s privatization program topractitioners and policy-makers based on state-of-the-art academicknowledge and grounded to reality. Answer the following:

Which are the main challenges of privatizing during a fiscal crisis?Which are the main advantages of privatizing during a crisis?What is the best way to privatize during a crisis? In particular,

How can we maximize the value of the assets for sale during difficultcircumstances?How can we increase the number of bidders for each sale and makethem bid a lot?

Which challenges are idiosyncratic to Greece’s privatization program?Which advantages are idiosyncratic to Greece’s privatization program?

Topic complex and task humbling...


Background Objectives of Privatizations

Objectives of Privatizations

In order to speak about good privatization design, and more fundamentally,about why privatizations are desirable, one has to specify the objectives:

1 reduce budget deficits and debt

2 attract investment

3 improve productive performance

4 introduce competition into the hitherto monopolistic sectors of theeconomy

5 develop capital markets

6 reduce the state’s involvement in the production process


Background But Why Privatize?

But Why Privatize?

Aforementioned goals can be achieved by other means... incentives,taxesUltimately, whether privatizations are a blessing or a curse is anempirical question.summary of main findings:1. Impact on corporate productivity and performance: Megginson

and Netter (2001) almost unanimous support that privatizationincreases output, efficiency, profitability and capital investment. Moststudies underscore the role of competition in enhancing quality,efficiency and low prices.

2. Impact on capital market development: Privatizations have had asignificant impact on the development of capital markets. Boutchkovaand Megginson (2000) find that large public offerings of privatisedcompanies are associated with rapid growth of market capitalisation asa proportion of GDP.


Background But Why Privatize?

But Why Privatize?

findings continued

3. Employment: ambiguous effects that vary greatly by sector(Megginson and Netter (2001), Mahoobi (2003)).

4. Social Justice: Birdsall and Nellis (2002) ambiguous: "privatisationappears to have worsened the distribution of assets and income at leastin the short run– this has been observed more in transition economiesthan in Latin America."

5. Fiscal objectives: Barnett (2000) finds that privatisation proceedstend to be transferred to the budget and saved, and that privatizationsseem to have a positive link to improvement in the macro environment.National Economic Research Associates (NERA) in 1996 examined 31privatised infrastructure companies and found that the revenues [..]contributed to government finances.


Background Other Issues and Findings

Other Issues and Findings

how to privatize? (auction, IPO, negotiation, book-building...)what is the effect of identity of acquirers (foreign versus domestic,strategic etc) Frydman et al. (1999)sell the entire asset or a fraction? most works say sell in one piece butPerotti (1995) offers a good argument why notwhat about timing? (all assets at once, sequentially, before or afterreforms...)

findings mixed...it dependsthe comparative study by Brown et al. (2006) of privatizations inHungary, Romania, Russia and Ukraine eye-opening...


Background Ingredients of success and failures

Ingredients of success and failures

SuccessesTransparent processGood Design of processCommitment to sale reformsThoughtful post-sale regulatory framework

DisastersLack of transparency, corruption, favouritism (Russia and Mexico)Corrupt "implementation" of the rules (Latin America, Former SovietUnion)Lack to account for post-sale excessive market power (CaliforniaElectricity, Bogota Water....)


Greek Idiosycracies Challenges of the Greek Privatization Program

Challenges of the Greek Privatization Program

weak macroeconomic conditions

global budgetary problems

tax/legal framework uncertainty

domestic political uncertainty

currency uncertainty

→ worried investorsextremely high yields on government bonds as an alternativeinvestment.....

devalued stock market

real estate market collapse (in some areas) caused by recession anderratic taxation


Greek Idiosycracies Challenges of the Greek Privatization Program

Challenges of the Greek Privatization Program

Lack of credibilityreputation takes time to build

recent re-nationalizations by Argentina and other countries might raiseconcerns

Rent-seeking cultureSome SOE’s for sale natural monopolies

imperative to design appropriate regulatory framework

electricity especially tricky (California), water (Bolivia and other southamerican countries)

environmental issues: natural beauty is Greece’s most uniqueasset

balance extremely delicate especially when unique coastal areas for sale


Greek Idiosycracies Advantages of Greek Privatization Program

Advantages of Greek Privatization Program

Potential efficiency gains enormousvery weak performance of SOE - Piraeus port concession to Costcoimproved performance by almost 50% is few months!high levels of politicizationlack of professional management and knowhowpoor quality of service

Privatization is accompanied by structural reformstax code, labor marketthe eyes of the world are on Greece (free publicity for the assets forsale)

There is a long list of lessons we can draw from past sales......

Country desperately needs investments which will bring jobs


How to sell an SOE? How to privatize?

How to privatize?

sell entire firm or break into pieces?

selling in one piece might be better for revenue, but excessive post-salemarket power may hurt consumers

lease? concession?

good options during a crisis where assets are devalued

do an IPO?

might not be best if stock market weak

if selling, how?

which procedures maximize profits? auctions? negotiations?

when is one better than the other?

how about efficiency? post-sale market structure?


How to sell an SOE? Auction Design 1/3

Auction Design 1/3

Assume asset value for buyer i , vi (T ), T vector of signals (can becorrelated), risk neutrality, number of buyers exogenous and fixed.

revenue: auctions ALWAYS better than negotiations Bulow andKlemperer (1996)expected increase profits from extra bidder larger than reserve price andnegotiating power...efficiency: standard auctions without reserve prices are efficient–mildassumptions

Assume entry is costlyWhich one is better auction or sequential search? Bulow andKlemperer (2009)seq search more efficient, but profits are lower because pre-emptivebids discourage entryauction is more conducive to entry, always generates higher revenuebut maybe inefficient


How to sell an SOE? Auction Design 2/3: Investment & Uncertain Cash Flows

Auction Design 2/3: Investment & Uncertain Cash Flows

Asset requires investment X , generates ex-post verifiable cash flow forbuyer i , Zi , expectation private info zi , risk neutrality, number ofbuyers exogenous and fixed.

auctions with contingent payments (equity, debt, call options, royaltiesetc) always generate more revenue than auctions with a flatpayment, DeMarzo et al. (2005), Skrzypacz (2013)

caveats

adverse selection when X is not constantmoral hazard (also selling incentive contracts)seller privately informed and common values, security design


How to sell an SOE? Auction Design 3/3: Other Issues

Auction Design 3/3: Other Issues

Is it better to sell the entire firm or a fraction?

What kind of auction to use? Open, sealed bid? Reserve prices, entryfees? Scoring auctions....

If auctioning natural monopolies sell as one or break into piecesDepend on government goals (efficiency versus revenue)

Post-sale regulation and its impact on sale price

When is leasing preferred to selling?


How to sell an SOE? Recipe: How to raise most money from a sale:

Recipe: How to raise most money from a sale:

1. Maximize company value–value of SOE is endogenous

Potential acquirers’ due diligence accesses value of assets, futureprofitability, costs of firing, litigation costs etc.

To increase price

1 reform tax codes, labor laws and signal commitment to the reforms

2 sell when macroeconomic uncertainty is low–if not possible lease (good forreal estate)

3 eliminate regulatory uncertainty

4 maximize commitment through legal status of sale


How to sell an SOE? Recipe: How to raise most money from a sale:

Recipe: How to raise most money from a sale:

2. Attract many potential buyers and use a well-designed AUCTIONadvertise sale

clear timeline

facilitate due diligence by offering valuations, forecasts etc

3. StrategizeExploit market rivalries (firms may be willing to pay more to preventtheir competitor from acquiring the asset)

Geopolitical circumstances


Evaluation and Specific Recommendations Accountability: Background

Accountability: Background

Clear from HRADF organisation, views and statements of purposethat the Fund recognises the importance of transparency, competitionand accountability

long of list of approvers and external evaluators is important insafeguarding the integrity of the process

leaders of HRADF have legal immunity (which is probably useful asotherwise no serious person would have been willing to the risk of afalse accusation)

Council of Experts, the Court of Auditors, the Hellenic Parliament andthe EU have to approve sales

recent legislation deprives third parties of the right to file injunctionsagainst positive decisions by the State Audit Council


Evaluation and Specific Recommendations Accountability: Proposed reforms

Accountability: Proposed reforms

Make mandatory for political parties and politicians to fully disclosetheir financing sources and business involvements.

Mandatory disclosure of all potential conflicts of interests of allparties, authorities in the privatisation process (Investment bankers,Accounting firms, Lawyers).

Close monitoring of the entire process by the outside observesappointed by the EU.

Greece is a small country and the circle of politicians, media andbusiness people is small. Independent observes familiar with the Greekreality should be checking all steps of the process.


Evaluation and Specific Recommendations Transparency: Proposed reforms

Transparency: Proposed reforms

Even though a lot of information is available on HRADF’s site more can bedone:

Post more details of the assets-future receivables, debts, technicalcharacteristics etc.

Describe precisely the auction rules and the timing of the sale

Describe in depth the criteria used to qualify bidders–this is key, sinceif there is opaqueness here, it may artificially appear that there are notmany interested buyers and this may drive down the price.

What is disclosed about bidders willingness to pay–their indications ofinterest–should be thoughtfully designed. So far HRADF announcesthem.


Evaluation and Specific Recommendations Auction procedure: Proposed reforms

Auction procedure: Proposed reforms

Clear Auction Procedure: Assets are assigned to the highest bidder,but what are the exact rules?

timing

reserve price

For example a higher reserve price might have been helpful in thesales of State Lotteries and in OPAP’s sale, as well as for the case onthe real estate assets sold onhttps://www.e-publicrealestate.gr/–sale prices at, or close tothe reserve price suggest that there is little competition.For the case of state lotteries HRADF writes: The Hellenic Lotterieswas sold for e190 mil. The value is estimated to be e1.5bn over a12-year concession period.

payments contingent on future proceeds or future levels of stockprice


https://www.e-publicrealestate.gr/

Evaluation and Specific Recommendations Other reforms/suggestions

Other reforms/suggestions

More publicity: How many people interested in buying a house orland in Greece know the auction sitehttps://www.e-publicrealestate.gr/? This website should beprominently advertised.

More details: assets for sale should be better described–for one–morepictures would be great

Format like professional intermediaries–real estate agents

In addition to the e-auction site, list properties on major internationalreal estate agents in Europe, America, Asia etc.

For companies already in the stock market–e.g. OPAP–use asecondary market offering. Make Payments contingent on theasset’s future performance indexed on stock price or grossrevenues


https://www.e-publicrealestate.gr/

Evaluation and Specific Recommendations Risks of not improving the process

Risks of not improving the process

Critics may have legitimate ammunition....

OPAP was sold at a e6.19 per share. The day the sale closed the shareswere being traded at e9.13 on the Athens Stock Exchange.

The day 33 % of its stock was sold off it was valued at nearly e1 bn.However, the Greece got only e652 m: e30 m of which will be paid over10 years.


Evaluation and Specific Recommendations Other reforms/suggestions

Other reforms/suggestions

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Evaluation and Specific Recommendations Consult Other Scientists

Consult Other Scientists

for assets crucial for urban and environmental systems consultspecialists

e.g. the type of construction that takes place at "Hellinikon" possiblypivotal for the entire city dynamics

beaches and natural treasures (mines, springs) are unique assets andtransferring ownership to private hands should be accompanied withcarefully designed rules about their development


Inform Public: E.g. Water Some Water Privatizations

Some Water Privatizations

France 9,000 municipali0es Concessions and leases 1853 England En0re country Full priva0za0on 1989 United States 73 million people, including through PPPs

14% of water revenues without PPPs Investor-‐owned and 2,000 PPPs 1772 in Providence[

Armenia Yerevan and others Lease (1) and management contracts (2) 2000 Brazil 65 ci0es in 10 states Concessions 1995 Chile All urban areas Full priva0za0ons and concession (1) 1998

China Shenzhen, Fuzhou, Lanzhou, Wuhu City and 23 others Concessions (22), full priva0za0ons (3) and management contracts (2) 2001

Spain Barcelona and more than 1,000 other municipali0es Mixed-‐ownership companies and concessions 1867 Germany Berlin Mixed-‐ownership company (1) 1999 Mexico Cancun, Sal0llo and Aguascalientes Mixed-‐ownership company (1) and concessions (2) 1993


Inform Public: E.g. Water Chile

Chile

privatization was carried out in stages, beginning with 5 largest of 13regional water companies serving more than 75% of users–because ofthe staging, it is possible to compare the performance of the privatizedand public utilities at that time.

comparison shows that from 1998 to 2001, private companies investedsubstantially more than public companies and–unlike the publiccompanies–increased their labor productivity significantly. Tariffsincreased for both types of companies, but more so for the privatizedones.

"...in Chile, a social consensus emerged that has made the higherwater rates acceptable given the improvements in service quality andthe addition of new services such as wastewater treatment."

Socialists maintained the basic institutional structure of the sectorbased on private service provision; means-targeted subsidies; andregulation by a public, autonomous regulator


Inform Public: E.g. Water Bolivia, Argentina, Albania

Bolivia, Argentina, Albania

in Bolivia privatization process did little increase access; increase inwater prices following such measures was met by an approximate 2%increase in levels of poverty

Following two popular uprisings against water privatization, the first inCochabamba in April 2000 and the second in La Paz/El Alto inJanuary 2005, the two concessions were terminated.

But public water utility came under some criticism in 2008 due towater shortages, accounting errors, tariff increases and preparedness.


Inform Public: E.g. Water Bolivia, Argentina, Albania

Bolivia, Argentina, Albania

In Argentina water privatizations were associated with increased accessto water, lower mortality, and higher prices

In Albania water privatisation lead to better quality, increased accessto water

Recent denationalizations in Paris and in Berlin

Berlin’s case highlights the social and monetary costs of privatizatingthrough an opaque process.


Conclusion Key Lessons from the past

Key Lessons from the past

1. TRANSPARENCYthere should be nothing private about privatizations

2. GOOD AUCTION DESIGNrevenue from spectrum auctions greatly varied across different designs

3. POST-SALE MARKET DESIGNfor competitive industries, encourage entry, competitionfor natural monopolies: design well-thought regulatory framework

4. ENSURE GOOD GOVERNANCEeliminate politicizationmake sure laws and rules are enforced uniformly and justice is swiftprivate sector should not be dependent on government business("kratikodiaitos")


some sources

Acemoglu, Daron and James A. Robinson, Why Nations Fail: The Origins of Power, Prosperity, and Poverty, CrownPublishing Group (NY), 2012.

Brown, J David, John S Earle, and Almos Telegdy, “The productivity effects of privatization: Longitudinal estimatesfrom Hungary, Romania, Russia, and Ukraine,” Journal of political economy, 2006, 114 (1), 61–99.

Bulow, Jeremy and Paul Klemperer, “Auctions Versus Negotiations,” The American Economic Review, 1996, 86 (1),pp. 180–194.

and , “Why Do Sellers (Usually) Prefer Auctions?,” American Economic Review, September 2009, 99 (4),1544–75.

DeMarzo, Peter M., Ilan Kremer, and Andrzej Skrzypacz, “Bidding with Securities: Auctions and Security Design,”American Economic Review, September 2005, 95 (4), 936–959.

Frydman, Roman, Cheryl Gray, Marek Hessel, and Andrzej Rapaczynski, “When does privatization work? The impactof private ownership on corporate performance in the transition economies,” The Quarterly Journal ofEconomics, 1999, 114 (4), 1153–1191.

Gutierrez, Rodrigo, Pablo Serra, and Ronald Fischer, “The Effects of Privatization on Firms and on Social Welfare:The Chilean Case,” Technical Report, Inter-American Development Bank, Research Department 2003.

Hellenic Republic Asset Development Fund, “Management report of the Şhellenic republic asset development funds.a. (hradf)Ť for the period 01/10/2012 Ű 31/12/2012,” Technical Report 2013.

Mahoobi, Ladan, Privatising state-owned enterprises: an overview of policies and practices in OECD countries, Vol.961, OECD Publishing, 2003.

Megginson, William L. and Jeffry M. Netter, “From State to Market: A Survey of Empirical Studies onPrivatization,” Journal of Economic Literature, September 2001, 39 (2), 321–389.

Perotti, Enrico C., “Credible Privatization,” The American Economic Review, 1995, 85 (4), pp. 847–859.

Poggioli, Sylvia, “Privatization Of Greek Assets Runs Behind Schedule,” NPR, Feb 7 2013.

Roland, Gérard, Privatization: Successes and failures, Columbia University Press, 2008.

Skrzypacz, Andrzej, “Auctions with contingent payments - An overview,” International Journal of IndustrialOrganization, 2013, (0), –.

The Economist, “Less haste, more freed – Experience suggests GreeceŠs privatisation plan is too fast,” TechnicalReport Jul 7 2011.


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