Privatization process in Lithuania

HISTORIC OVERVIEW OF PRIVATISATION PROCESS IN LITHUANIA

Privatization process was launched in Lithuania in September 1991 and since

then it has constituted an integral part of Lithuania's economic reforms.

The entire privatization process may be divided into three major stages:

. The first stage covers the privatization that took place from September

1991 until July 1995. This phase may be called a mass privatization for

vouchers with some elements of cash sales. The voucher method was chosen

as the most effective way of transferring the ownership of the state-

owned enterprises. The privatization of state assets in Lithuania during

that phase has been based on the Law on Initial Privatization of State

Property passed in late 1991 and amended in 1993. As a result of that

phase, Lithuania has become a country with a majority of the GNP

generated in the private sector.

. The second phase of privatization started in July 1995 with the

introduction of a new Law on Privatization of State and Municipal

Property. A State Privatization Agency and a State Privatization

Commission were established in late 1995 to administer the process.

According to the Law, the second phase will call for cash privatization

of remaining state and municipal property at market prices. Local and

foreign investors will have equal rights in purchasing the companies

offered for the privatization in Lithuania. During the second phase of

privatization the government will have to decrease its control in the

sectors of economy generally recognized as the state monopoly through the

cash sales. According to the Law on Privatization all bidders have equal

rights in the privatization process. Previously existing concessions for

the employees and management have been eliminated from the new Law.

During the second phase of privatization the amount of investment into

Lithuania was comparatively small. Investors had to lodge documents with

many different institutions, and therefore the privatization procedure

took some time. Individual ministries were not interested in preparation

of objects for privatization. Besides, legally the former privatization

institutions had no right to transfer obligations of enterprises to the

purchasers because they were not real managers of enterprises.

. New laws of privatization and State Property Fund (SPF) were passed in

November 1997. According to the aforementioned Law restructuring

Lithuanian Privatization Agency established the SPF and other related to

privatization and property management institutions. SPF holds in trust,

uses, disposes and privatizes securities and other state-owned property

transferred to it by the Government of the Republic of Lithuania.

There are several possible methods of privatization:

. public subscription for shares;

. public auction;

. public tender;

. direct negotiations;

. lease with an option to purchase;

. transfer of the state or municipal control of an enterprise controlled by

the

state or municipality.

THIRD PHASE OF PRIVATISATION, 1998 TO DATE

A new, amended privatisation law has been approved in the Seimas

recently, November 1997. The law amends the current privatisation law. The

proposed changes into the law are following:

i) to establish the State Property Fund (SPF) as the successor to the

enterprise founder found in the current law;

ii) to bring certain procedures of the current law into line with

operation of proposed SPF and;

iii) to do technical changes (but not substantial) to the current law.

The key policy change, proposed by the new law, is the replacement of

the role of enterprise founder and many of responsibilities of the

Privatisation Agency by the SPF. SPF holds in trust, uses, disposes and

privatises state-owned property. As time showed, the branch ministries had

too many conflicting policy objectives and wished to keep enterprises that

the Government has decided to sell, so, in brief, privatisation process by

new law is made less bureaucratic. The SPF co-ordinates the privatisation

process in Lithuania and directly organizes privatisation of largest state-

controlled entities in industry and infrastructure. Privatisation of these

enterprises is carried out through transparent competitive procedure of

international tenders prepared and executed by internationally renowned

advisors and arrangers. First of all, public tender is announced to prepare

the privatisation program for the company by retaining a leading adviser.

During the tender, consultants having an extensive experience of

privatisation in the relevant sector are selected to prepare an attractive

privatisation program and provide financial, technical and legal advice for

the Government of Lithuania concerning the enterprise to be privatised.

When the program is to be approved by the Privatisation Commission and the

Cabinet of Ministers a tender is to be announced for the privatisation of

the company where the object shall be sold.

Recently Public Limited Companies Lithuanian Telecom ("Lietuvos

Telekomas") and Hotel Lietuva (Vie?butis "Lietuva") have been privatised.

Privatisation of these enterprises is carried out through transparent

competitive procedure of international tenders prepared and executed by

internationally renowned advisors and arrangers. For the enterprises which

have a strategic importance to the Lithuanian economy, the Government has

devised a special procedure of two stages for their privatisation and some

of them are already privatised. Public Limited Companies Lithuanian Telecom

(Lietuvos Telekomas) has been purchased by the strategic investor -

Consortium "Amber Teleholding" of Sweden "Telia" and Finnish "Sonera". The

Government accepted sale option of 60 per cent shares. In the energy

sector, the oil refinery AB "Ma?eikiu Nafta" is also being prepared to

privatisation. Using the International tender, a consortium of financial

and other advisors, led by Banque Paribas, has been selected as the winner

of tender. At the moment it is under the negotiations with potential

investors. The Government of Lithuania is also privatising two airlines:

"Lietuvos avialinijos" and "Aviakompanija Lietuva". Recently, the companies

have been consolidated so that "Aviakompanija Lietuva" became a subsidiary

of a major airline. The privatisation of the company is foreseen in 1999.

Privatisation of these entities is expected to achieve the following

goals:

1) to increase the efficiency of management and operation by introducing

new technologies, investing additional funds and exploiting the

experience of investors in the relevant area;

2) to promote the development of enterprises and markets;

3) to liberalize monopolistic markets.

Institutions taking part in the privatisation of strategic objects are as

follows:

1) the Property Fund, the role of coordinator; prepares companies for

privatisation and carries out the technical work,

2) the Privatisation Commission is responsible for the approval of final

decisions and control of the privatisation process.

3) International tenders for privatisation of strategic objects are carried

out by specially appointed Public Tender Commissions for the sectors of

energy, transport and telecommunications.

Public Tender Commissions determine the criteria for the preparation of

privatisation programs based on the Government policy as well as practice

and experience of other countries. The main priorities of privatisation

include not just maximising the revenue from the privatised objects, but

also attracting potential investors and their contribution to Lithuania.

Privatisation of the largest objects in Lithuania is carried out in an

open, transparent, efficient and rapid manner.

Sources:

I. Lithuanian Development Agency. Website: http:\\www.lda.lt

II. ''Lietuvos Rytas" Nr. 8 (360)/ 1999 m. sausio 30 d; " Valstyb?s turto

fondo veiklos ap?valga". p.16;

III. Republic Of Lithuania Law On The State Property Fund.

Website:http:\\www.lrs.lt