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It has been almost 25 since the privatization program in Poland was launched. However, despite of the length of the period the process is still ongoing. And it also looks like we will be involved in privatization and post-privatization transactions for many years to come.   

But the number of entities to be privatized is not the only reason why the legal and non-legal aspects of privatization are and will remain so crucial to transactional attorneys. Instead, the many elements of the Polish privatization and post-privatization process are so diverse and challenging that in Poland some say that you have not lived as an M&A lawyer if you have never done a privatization or post-privatization transaction.

There are several reasons for this, most of which relate especially to post-privatization transactions. Whatever the reason, being a true transactional lawyer requires some experience with  privatization processes.

One reason which deserves special attention is the participation of employees in the privatization process (a right ensured by Polish law). This also applies to farmers and fishermen as suppliers in cases of agricultural product processing or seafood processing enterprises.

Employees’ participation includes three substantial rights: (a) the right to acquire up to 15% of shares in the share capital of the company set up as a result of the commercialization of a State-owned enterprise (i.e., a stock option); (b) the right to appoint some of the members of the supervisory board; and (c) the right to appoint a member of the management board.

The first of these rights may be the most crucial in the subsequent transformation and M&A processes. Someone who has never gone through the management and acquisition process of former State-owner enterprises transformed into State-owned companies may not imagine challenges it brings.

Many of the commercialized state-owned enterprises (commercialization constitutes the first step of so-called “indirect privatizations” (involving a share deal), as opposed to direct privatizations (which are usually asset deals)) first undergo a restructuring. Once this process has been completed companies are offered for sale to private investors. The potential investors then have two challenges: (a) limitations on acquisition of 15% of the shares in the company; and (b) subsequent management of the process of acquiring shares from dozens or in some cases hundreds of shareholders. 

The first challenge – the legal limit on acquisition of shares – prohibits employees (including farmers and fisherman) from disposing of their shares for 2 years after the State Treasury disposes of the first portion of its shares in the company. This is a sort of non-competition clause imposed in favor of the State Treasury. This obstacle is manageable, as there are several legal instruments which may be used (individually or in aggregate) to secure the position of the investor until the right time comes to definitely purchase the shares from the employees.

Manage the second challenge – the necessity of acquiring shares from a great number of shareholders – requires both legal expertise/experience and psychological and sociological skills. The minority and at the same time numerous shareholders do not usually constitute one solid conglomerate. Various competing interests come to light in the process of acquiring shares from those shareholders. Transactional lawyers dealing with this issue often need not only basic transactional skills, but also some familiarity with inheritance regulations and family law. 

It can be difficult – but at the same time it can also be also very exciting and challenging. Either way: it is doable. 

Thus, privatization involves many aspects beyond the strictly legal. As such it also brings M&A transactions much closer to society and to everyday life. And this is the real challenge lawyers should be prepared to face.      

By Marcin Jakubaszek, Partner, Miller, Canfield, Paddock and Stone 

This Article was originally published in Issue 3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The beginning of the PPP story in Latvia can be dated to February 16, 2000, when the first Concessions law entered into force. Partnership in 70 concession projects were launched on the basis of that law until October 1, 2009, when the Law on Public-Private Partnership broadened PPP options as well as confirming decision-makers’ interest in developing that style of partnership. However, the 2009 PPP reform coincided with the start of the global economic crisis, which hit Latvia even more than other CEE countries. The subsequent international loan program for Latvia contained a prohibition on state and municipalities entering into any long term PPP relationship. In fact, all decisions on further PPP projects were frozen for three years and were allowed again only recently after closure of the international loan program in 2013. Thus a new start is awaited for PPP projects.   

During the PPP moratorium period, voluminous research was carried out in cooperation between the Latvian Investment and Development Agency and the Norwegian Financial Mechanism regarding the promotion and development of PPP in Latvia and the impact of PPP on the quality and accessibility of public services. This research project lasted from 2008 until 2011, and included within its framework several different feasibility studies, including the development of procurement documentation for a PPP project on the construction and maintenance of Olaine prison, a study for a project on constructing and maintaining custody spaces in Skirotava and Kurzeme, and a study for the project to develop infrastructure and maintenance for the main state universities: the Technical University, the University of Latvia, and Riga Stradins University.

Investment in those studies was particularly significant regarding the construction of Olaine prison, where procurement documentation was already drafted. However, a last minute decision stopped further PPP progress. The principal argument for this turn was that direct and exclusive allocation of finances from the state budget would allow more transparent supervision of expenditure as well as a more predictable realization of the project than entering into a public-private partnership to implement it. In addition, that decision coincided with the unsuccessful purchase of vehicle speed traps for the state police, which was often publicly (and incorrectly) referred to as a PPP project. The conclusion has to be that a clear need exists for a win-win test case to prove not only to the public but also to decision-makers themselves that PPP is an effective tool for involving additional investment.

Currently, effort in the PPP field is being concentrated on its traditional track, in particular on infrastructure development. For example, two larger projects are in the spotlight, in particular the Kekava by-pass road project and the Riga by-pass road. Preliminary investment in these projects could start in 2017-2019. However, decisions to process them through PPP procedures have still not been made.

As mentioned above the core reason for slow progress in decision-making is very likely uncertainty and unpredictability of a project’s course. One way of simplifying the legal element of cooperation is making standard legal documentation more available, both for procurement and for entering into an agreement. Nevertheless, the rest depends on the ability of the state or municipality to follow project development through all its stages.      

By Theis Klauberg, Partner, and Esmeralda Balode-Buraka, Senior Associate, bnt Attorneys-at-Law

This Article was originally published in Issue 3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Turkey started its privatization adventure in 1984, with the transfer of incomplete facilities to the private sector for completion or establishment of new facilities in their place. Since 1985, Turkey’s privatization portfolio has included shares in 270 companies, 22 incomplete facilities, 1439 real property assets, eight highways, two bridges (i.e., the Bosphorus and Fatih Sultan Mehmet Bridges), 120 operation facilities, six ports, and the licenses for the national lottery and vehicle inspection stations. In addition, certain companies and real property assets in the portfolio were removed from the process for various reasons. In the past 29 years, more than half of the companies in the privatization portfolio have been privatized. Today, 23 companies, 565 real property assets, 37 operation facilities, two ports, eight highways, two bridges, and the licenses for the national lottery remain in the privatization portfolio.   

Overview of Legal and Regulatory Framework

Turkey’s first piece of legislation related to privatization was enacted in 1984. When the need for comprehensive and fundamental legislation became obvious, the Privatization Law was enacted. Under the Privatization Law, the Privatization High Council (the “PHC”) and the Privatization Administration (the “PA”) were established to carry out privatization procedures. While the PHC is the ultimate decision-making body, the PA acts as the executive body for the privatization process.

Major Privatizations of 2013

Although numerous real property assets were privatized (often in return for small amounts of money) in 2013, 2013 was primarily a year of energy privatizations. With the privatization of the last eight distribution companies, the privatization of all state-owned electricity distribution companies was completed and USD 7.3 billion was generated for the State. Additionally, several electricity generation assets and a significant natural gas distribution company (i.e. Baskent Dogalgaz Dagitim) were privatized in 2013. Below is a summary of major privatizations completed in 2013.

Surprisingly, none of the above privatizations represented the most important privatization news in 2013. The cancellation of a tender made more impact. The PA cancelled the tender for the privatization of eight highways and two bridges which had been held in December 2012. The highest bid was USD 5.72 billion for the operating rights for 25 years. 

Major Privatizations of 2014

As of May 2014, the total value of privatizations completed in 2014 is USD 725 million. So far, the most significant privatization of 2014 has been the privatization of Salipazari Port (Galataport), with an approximate bid value of USD 702 million. The winning bidder now has the operating rights for Istanbul’s only cruise port for 30 years. The initial tender in 2005 resulted in an offer of EUR 3.5 billion that was eventually cancelled the following year.  

Additionally, the privatizations of (i) Kemerkoy TPP, Yenikoy TPP and Kemerkoy Port Area for USD 2.671 billion; (ii) Catalagz? TPP for USD 351 million; and (iii) Fenerbahce-Kalam?s Marina for USD 664 million, are all still in the approval phase. In the past few weeks, the final bids for many privatizations were submitted to the PHC. Among these are the following:

The PHC has announced the closing dates for submission of final bids for the following privatizations:

Transfer of operating rights

According to the Turkish Statistical Institute, over the past decade, Turkey has experienced stable economic growth with an average annual real GDP growth rate of 5%. One of the main drivers behind this economic success is privatization. Considering that there are still many significant items in its portfolio (especially the package of eight highways and two bridges), and that this portfolio is expanding each year, it seems that Turkey’s privatization agenda may continue to be active in the upcoming years..      

By Okan Demirkan, Partner and Burak Eryigit, Associate, Kolcuoglu Demirkan Kocakli Attorneys at Law

This Article was originally published in Issue 3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Almost one year since the Slovenian National Assembly gave a “go-ahead” to the sale of state equity investments, the privatization procedure in the country is generating critical reactions from experts. While the majority of European countries are still struggling to recover from the economic crisis, the success of current privatization in Slovenia is being called into question, especially in light of recent affairs connected to the sale processes and political turbulence in the country.   

Uros Cufer, the Minister of Finance, recently stated that the last two of these companies are included in the current plan for the sale of state assets, which has not yet been passed by the National Assembly. According to unofficial information, the government is now preparing to sell state equity investments in 80 different companies.

The largest profit is to be expected from the sale of Telekom Slovenije, the largest provider of communication services in Slovenia. Although the sale of a 75.5% stake of the company will open the Slovenian market to foreign investors, the government’s decision to sell the equity investment in Telekom Slovenije has sparked controversy, as Telekom Slovenije is among the biggest tax payers in Slovenia, with an annual profit of several million EUR even in times of recession, and is also among the least indebted European telecommunications companies. Regardless, the announcement of the privatization of Telekom Slovenije had a major effect on the stock market, as the sale of company’s shares increased significantly. Deutsche Telekom is expected to be the most likely buyer of Telekom Slovenije.

Twenty potential investors showed interest in buying Aerodrom Ljubljana, the company operating the largest airport in Slovenia. Another company to be privatized is Elan, one of the top manufacturers of skis and snowboards in the world. The biggest controversy with respect to Elan is the recent entry of the Finn Jari Robert Koivula into the sales process, interrupting the key stage of sale coordination with the American financial fund WAB Capital. Koivula introduced himself as an interested party and was given permission to conduct due diligence of Elan. Shortly after being given insight into company’s proprietary and confidential documentation, Koivula disappeared without submitting an offer and is supposedly being sought by the police.

Many potential buyers of state-owned companies, from financial investors to strategic buyers, became worried by the recent resignation of the Slovenian Prime Minister, Alenka Bratusek, under whose leadership the privatization process was approved. The Minister of Economic Development and Technology, Metod Dragonja, reacted immediately and assured the investing community that all privatization processes will remain intact and will be carried out as planned, regardless of political perturbations.

Closely monitoring the privatization process are Slovenian workers’ unions, which draw attention to a common pitfall of privatization – layoffs after company acquisition. Such consequences unfortunately are not rare, and are reported to have happened in one of the recent sales, despite the buyer’s promises that layoffs would not happen.

Considering the current high unemployment rate in Slovenia, this concern is certainly not negligible and increases the lack of trust in foreign investments, which at the same time appear to be one of Slovenia’s most convenient emergency exits from the economic crisis and indebtedness.

The European elections of May 25, 2014, will probably be an indication for the national parliamentary elections to be held later on (currently the date is not yet set). The latter will however be decisive and will surely set the pace and direction for future developments in the field of privatization in Slovenia.      

By Mojca Muha, Partner, and Dalia Cerovsek, Attorney Trainee, Miro Senica and Attorneys 

This Article was originally published in Issue 3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Privatization was a high priority for new-born Ukraine in the early 1990s. The first Ukrainian privatization act was adopted within the first months of independence of our country. The privatization process underwent a great deal of review and scrutiny and faced issuance of “privatization certificates,” a mass sale of state-owned objects, forming of industrial and financial groups, etc.  

The chief governmental authority responsible for the privatization process in Ukraine is the Fund of State Property of Ukraine (the FSPU). The FSPU overviews and participates in privatization processes, manages state property, and protects and represents the interests of Ukraine in  companies with a State share. 

Privatization in Ukraine is conducted in line with the three-year State Privatization Program. Yearly reports on the execution of the program are delivered by the FSPU and approved by parliament. The State Privatization Program defines the goals and expected results of privatization, as well as the methods by which they are to be achieved.    

The Privatization process in Ukraine has been political-driven and reflected changes in the power elites of the country. One of the most illustrative cases is the double privatization of ArcelorMittal Kryvyi Rih (former Kryvorizhstal), in which the new government cancelled the sale of the company to the son-in-law of the former President.

The company was privatized for the first time in 2004 when it was purchased by two Ukrainian tycoons (the son-in-law of the President and another oligarch with substantial support in the government). In the result of the purchase agreement more than 93% shares of the company were sold for USD 800 million. Following the Orange Revolution that year the privatization and its results were cancelled by the new government, and the money returned to the unsuccessful purchaser. Return of Kryvorizhstal to State ownership and then re-sale were among the key promises by new President Victor Yushenko and his “comrade-in-arms” Yulia Timoshenko. The new government kept its promise and re-sold Kryvorizhstal at an open auction to Mittal Steel Germany GmbH for USD 8 billion (10 times more than the price paid by the first “investor”).

Unfortunately, in 2010-2013 Ukraine faced another difficult period of business history related to the governance of criminal President Yanukovich and the concentration of key business assets in the hands of the President, his family, and other close associates. 

The privatization processes during this period were mostly unfair, unclear, and heavily corrupted. The most prominent case was the privatization of the Ukrainian telecommunications giant Ukrtelecom. Notably, the process was restricted to those companies in which a state had more than a 25% stake and those companies which already had a substantial share in the Ukrainian telecommunications market. As a result the company was sold to the only participant – the Austrian company EPIC – that then indirectly re-sold Ukrtelecom to the oligarch supporting the former President.

The expected result of privatization for the State is an additional boost to the budget, and the benefits to the privatization object include development and modernization. By signing a privatization sale-purchase contract the purchaser undertakes to preserve the main activity types of the target, to conduct technical modernization, to settle any debts of the company, to ensure social guarantees of the employees, etc. Grounds for the termination of such contracts include non-payment of the purchase price within 60 days following execution of the agreement, non-execution or improper execution of the privatization conditions for the development of the privatization object, and non-fulfillment of contractual obligations due to insolvency of the object or the purchaser. 

Ukraine is now facing difficult economic and financial times due to the plunderous policy of the former President and his cronies, and the annexation of Crimea and unrest in the East of Ukraine fueled by the hostile actions of Russia. According to information from the official web-site of FSPU there are 560 companies in which Ukraine holds stakes of different sizes. Privatization of State-owned objects may serve as a good source of budget revenues. Privatizations of many small and middle-size objects are almost complete, and a number of large strategic state-owned companies are expecting their turn to be sold to potential investors. Among them are the Odessa pre-port plant, a huge machine-building complex in Mariupol (Azovmash), a chemical giant in Sumy (Sumykhimprom), the Kharkiv turbomachinery producer Turboatom, and others. Large-scale privatization (including privatization of coal mines) is among the IMF’s demands to Ukraine in exchange for substantial financial support to our country.

Election of the new President of Ukraine, as well as the shift in foreign policy of Ukraine from Russia to the EU, brings a hope that foreign and national investors will find Ukrainian State-owned objects attractive and will participate in fair and competitive privatization processes in Ukraine for the mutual benefit of all parties.  

By Timur Bondaryev, Partner, Arzinger

This Article was originally published in Issue 3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Like diamonds in the rough, the finalists of the 2014 Top Sites awards for the Russian and Hungarian markets stand out from their peers. And the winners – the websites of Lidings in Russia and Jalsovszky and VJT & Partners in Hungary (in a tie) – demonstrate that there’s more than one way for a law firm to effectively communicate its mission and capabilities online.

TopSite Award – Russia

 

The Lidings website is colorful and busy, effectively identifying the firm’s clients and capabilities by both sector and practice group with attractive design, perfect English, and full contact details for all its lawyers. The firm also presents a full component of press releases and thought-leadership articles in a creative way, allowing visitors to sort the information by practice area or industry sector. 

Julia Zhabina, Lidings’ Head of Business Development, claims that when creating the site in summer of 2012 the firm “aimed at a simple yet bright and eye-catching interface.” She explains that, “our website is an essential source of information for both internal and external users, and we invest significant time and resource to ensure that the information it offers is the most up to date and is presented in a logical and visually attractive manner.” 

Zhabina believes that the substantial thought-leadership articles and the provision of full contact details for all the firm’s lawyers are distinguishing factors in the firm’s marketing efforts. “At Lidings we believe that sharing information rather than purely accumulating it is what truly distinguishes leading law practices today. Thought leadership is one of the top priorities for our website content. The other thing that distinguishes Lidings is the effort we put into personal branding and marketing of our key employees.”

 

The Goltsblat BLP professional and technologically impressive website ranked a close second to that of Lidings. Though the firm is proud to declare its association with the international Berwin Leightner Paisner firm, the Russian office did not settle for its mother ship’s website but instead created its own, which nicely breaks down the Goltsblat BLP partners into their respective areas of expertise and includes an unusually thorough and impressive client and deal list.

TopSite Award – Hungary

 

Two firms share the Top Sites Award for Hungary, as the websites of Jalsovszky and VJT & Partners impressed the judges equally. Both sites are more restrained and sober than those of the Russian winners, and though neither site provides news of recent deals or transactions, they are undeniably competent, elegant, and polished.

The Jalsovszky website has an unusual interface on its team page, which provides a group black and white photo of all the lawyers at the firm, with each individual identified and illuminated into color as the cursor hovers over his or her image. The firm’s site is elegant and restrained.

Pal Jalsovszky was pleased to be informed of his firm’s award. He explains that Hungary’s Allison Group designed the website for his firm in 2010, and that, “with the website we tried to reflect our core values: we are, on one hand, young and dynamic but on the other hand deeply professional.” The restrained professionalism of the site was no accident, Jalszovsky says, as “we wanted to be informative but without using the ‘general bullshits’.”

 

The VJT & Partners website is similarly restrained, though in contrast to Jalsovszky’s professional photos of lawyers and the office, VJT instead provides whimsical photos of penguins, a feather, and other metaphors of the firm’s focus and capabilities.

Like the Jalsovszky site, the VJT & Partners’ website provides a focused and easily negotiable recitation of the firm’s capabilities and the profiles and competencies of its lawyers, along with the requisite thought leadership articles. Alone among this issue’s four finalists, the site does not provide contact details for the firm’s associates, though it does identify them by name and image.

Janos Tamas Varga, the firm’s Managing Partner, responded enthusiastically to the news of the award. He explains that: “This award is a great honor for us. It recognizes our efforts to express our values in every tiny detail. We are not satisfied until every sentence, every image, every color and the layout of the website are in accordance with our values. This is the very simple way in which we made our website and how we work in our day to day legal practice.”