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In the past, foreign investment in Russia has been characterized by the use of offshore structures. Typically, foreign investment would be via a joint venture arrangement, whereby the parties establish an offshore holding company and regulate cooperation through a JVA. However, recent developments in Russia may impact the use of offshore structures going forward and force a reevaluation of existing structures.  

Broadly, the Bill introduces three key measures. 

First, controlled foreign companies (“CFC”) rules, whereby Russian tax residents are required to pay Russian corporate tax (20%) or personal income tax (13%) on attributed, undistributed CFC profits in excess of RUB 3 million, in respect of CFCs they “control” (i.e. exert or may exert a determining influence over decisions concerning CFC profit distribution), or CFCs in which their interest exceeds 10%. “CFC” is broadly defined. It can be a “foreign entity” that is not Russian tax resident and whose securities are not listed on a Russian Central Bank-approved stock exchange. It can also be a “foreign structure” (e.g. a fund, trust or other form of collective investment). However, a foreign entity will be exempt in certain circumstances; in particular, where its permanent residence is in a jurisdiction included in the list of states that exchange tax information with Russia (the “white list”), provided it also meets an effective tax rate test (15%). So far, there has been no indication of the jurisdictions to be included on the “white list”. However, as the effective tax rate test applies to gross income, the effective tax rate will most likely be lower than 15% for foreign entities receiving primarily tax exempt passive income. Consequently, a significant number of existing offshore structures may be caught by the CFC rules. 

Second, reporting obligations for Russian tax residents in respect of their participation in all foreign entities in which their participation is 1% or more or where they are a controlling person. There are also similar reporting obligations proposed in respect of foreign structures.

Third, a “management and control” test for assessing the Russian tax residence of foreign entities, whereby a foreign entity whose effective management and control is found to take place in Russia will be subject to Russian taxation, regardless of its jurisdiction of incorporation.

Significant fines are proposed for non-compliance.

In addition to increased tax exposure, the Bill may result in extensive compliance related costs and increased complexity and costs in maintaining existing offshore structures. 

Consequently, Russian business is currently lobbying the Russian Government to revise certain aspects of the Bill (e.g. reduce tax rates applicable to CFCs; increase default “control” threshold from 10% to 50% (plus one vote); increase reporting threshold from 1% to 25%; removal of “management and control test”; phased introduction of deoffshorization measures; moratorium on enforcement of penalties until 2017). Although the Russian Government has been receptive to some changes, discussions are still ongoing and it remains to be seen what form any concessions ultimately take.  

Nevertheless, participants should review existing structures and consider potential restructuring opportunities, to mitigate the effect of the contemplated measures.

If passed, the Bill may render offshore structures less attractive to Russian counterparties, making it difficult for foreign investors to insist on their future use. Tax considerations aside, foreign investor preference for offshore structures has predominantly been driven by the greater legal certainty, flexibility and protection such structures afford. However, recent amendments to the Civil Code, in force from September 2014, encourage the use of onshore structures by addressing perceived shortcomings under Russian law. In particular, the amendments clarify rules governing Russian-law governed JVAs and introduce additional flexibility with regard to the classification of Russian legal entities and corporate governance. 

In conjunction with proposed deoffshorization measures, the Civil Code amendments may result in a greater insistence on the use of onshore structures by Russian counterparties. However, until foreign investors can be confident that they are able to implement all their desired commercial arrangements comprehensibly and reliably under Russian law and enforce their rights thereunder, resistance to the use of onshore structures will remain; notwithstanding the form that any deoffshorization measures take.      

By Sebastian Lawson, Partner, and Sean Huber, Senior Associate, Freshfields

This Article was originally published in Issue 4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

This article will provide a snapshot of the major regulatory reforms in the Republic of Moldova affecting the M&A sector. Having been directly involved in assisting the Moldovan government to cope with the challenges of the reform era, our legal specialists would like to share in this brief overview just some of the actions which have influenced or will influence the M&A sector in Moldova, which is ready to start growing.  

Protection of Competition

In July 2012 the new Competition Law was approved in Moldova. The law provides for specific rules on competition clearance of economic concentrations by the Competition Council, the competent Moldovan competition authority. Thus, prior to putting an economic concentration into operation, parties involved in the transaction should take care to obtain proper competition clearance, otherwise their transaction may lead to negative legal consequences.

The new Competition Law has set out more clearly the thresholds that make competition clearance mandatory. An economic concentration is subject to notification when the combined turnover of all undertakings involved in a deal exceeds MDL 25 million (about EUR 1.6 million) for the year preceding the intended transaction, and at least two of the undertakings concerned had a turnover in Moldova exceeding MDL 100 million (about EUR 633,000) in the year preceding the transaction. The penalty for failure to notify the competent competition authority can be significant, reaching up to 4% of the turnover for the preceding year.

At the moment, only three economic concentrations have been cleared and authorized by the Competition Council. However with the improvement of the economy and an increase in the efficiency of the Competition Council, we expect to see growth in M&A deals next year. 

Simplification of the corporate reorganization procedure

M&A deals as a rule lead to corporate reorganizations which are subject to proper registration by Moldovan competent authorities. The legal formalities related to corporate reorganizations have been rather lengthy and bureaucratic in Moldova, sometimes exceeding six months prior to formal entry of changes in corporate documents. Companies involved in reorganization were required to publish an announcement on their reorganization in two consecutive issues of the Official Gazette of the Republic of Moldova. Upon being informed of reorganization, any creditors could request that the company being reorganized provide additional guarantees for their claims within two months of the announcement’s publication. 

a) The term for creditors to request additional guarantees was reduced from two months to one month from the moment of publication of the announcement in the Official Gazette of the Republic of Moldova or from the date of other notice to the creditor.

b) The number of notifications required to be published was reduced from two announcements to one.

c) The term for submission of reorganization documents for registration was reduced to thirty days after proper notification of creditors, while prior to reform it was three months.

d) Finally, all notifications published in the course of the reorganization process will be also placed free of charge on the official website of the Moldovan registration authority, which will reduce the costs of informing the creditors.

Alternative dispute resolution mechanisms in M&A deals

One of the major challenges to foreign investments in Moldova is the quality of the judicial system and enforcement of judgments. As a prevailing practice foreign investors insist that a foreign law governs M&A deals involving Moldovan entities and that potential disputes be settled in a foreign forum (the usual choices are the arbitration courts of Hague, Stockholm or Paris). Still a number of aspects in an M&A deal are subject to Moldovan legislation, a fact which requires the close attention of Moldovan counsel preparing a legal opinion on any transaction. It should be noted that a choice of Moldovan law and venue in fact may offer decent comfort to foreign investors, at a much lower cost. Of course, there’s little doubt that a better legal framework and more transparent dispute resolution process would significantly improve the current situation and increase the attractiveness of the Moldovan dispute resolution mechanisms which are more affordable to Moldovan companies.

To boost this sector the Government has undertaken to reform both arbitration and mediation legislation to reflect the best and most efficient practices. We await a major shift in ADR which will definitely smoothen some of the issues affecting the M&A sector as well.    

By Cristina Martin and Andrei Caciurenco, Partners, and Carolina Parcalab, Senior Associate, ACI Partners Law Office

This Article was originally published in Issue 4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Croatia has gained a reputation for being an overly regulated, bureaucratic, and non-investor- friendly market. The steady decline of foreign direct investments is often cited as being the result of this perception. However, with some recently enacted legislative changes, the long process of removing barriers has hopefully started and will reverse this trend.  

A particularly good example of this is the struggle of a reputable US-based fund to proceed with a residential development in Dubrovnik, just below the old Napoleon fortress and next to the proposed Dubrovnik golf course (which has been facing similar obstacles). Unfortunately, the development became entangled in the very protective (and political) local zoning regime, as the County (the second level of regional government in Croatia) denied its consent to the detailed urban plan proposed by the City of Dubrovnik. Despite the fact that a number of mandatory public debates had taken place during the process of the urban plan adoption, in which architects’ associations, citizens’ groups, local land-owners, and other interested parties voiced their opinions and finally supported the plan, County officials persistently blocked adoption. The County did this by doing such things as requesting documents not required by the applicable regulations and requesting additional studies.They even went as far as refusing to accept express clarifications of the relevant legislative act from the Ministry of Construction and Physical Planning confirming that the City’s (and investor’s) proposal was in accordance with all applicable regulations.

The Wolf Theiss team, led by Zagreb-based Partner Luka Tadic-Colic, assisted by Senior Associate Silvije Cvjetko and Split-based Counsel Dora Gazi Kovacevic, has been assisting the investor since 2010 in removing a number of hurdles that the project has faced over the course of its development (such as land registration issues and obtaining approvals and consents required in the zoning process), and has supported it in numerous discussions with the relevant authorities, including the Minister of Construction himself. As a measure of last resort, we are now developing a strategy for the final legal battle, including filing damages claims before Croatian courts, claims before European courts, investment arbitration tribunals, and even bringing criminal charges against the relevant officials.

In the meantime, Croatia has undertaken certain steps in the right direction to assure a more favorable climate for foreign investors. For example, recent changes in zoning legislation have removed the need to obtain certain consents at the regional government level, which would help in resolving situations such as the one described in Dubrovnik. Another important milestone is the recent adoption of the Strategic Investment Act, aimed at expediting the realization of strategic national investments and projects. Unfortunately, many private projects will not meet the relatively strict criteria to qualify under the Act in terms of: (i) the value of investment (generally, projects must exceed 20 million Euros), and (ii) a focus on specific sectors or activities. Also, qualifying for the status of a strategic project does not automatically occur when the conditions are met, as a discretionary decision of the Government is also required. This may not provide foreign investors with a sufficient level of security in planning their investments. However, for projects that eventually succeed in qualifying as strategic investments, the relevant construction permits will be decided upon at the central government level and cannot be torpedoed at the local level.

Finally, the Croatian prosecutor’s office has recently emphasized its commitment to combat the arbitrariness of local “sheriffs” and corruption on the local level in general. We strongly believe these are steps in the right direction and that, once undertaken, they will result in a better investment climate in general.  

By Luka Tadic-Colic, Partner, Dora Gazi Kovacevic and Silvije Cvjetko, Attorneys, Wolf Theiss

This Article was originally published in Issue 4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

1) Are there any special laws regarding privatization in Moldova or are ordinary private M&A laws applicable?

Similar to all post-Soviet countries, Moldova adopted privatization laws to facilitate the transition from a planned to a market economy. The first regulation of the early 1990s allowed for privatizations to be carried out in all economic sectors, including the social sector.    

Today, all privatizations are regulated by the Law on Administration and Divestiture of Public Property of 2007, with the exception of the privatization of public newspapers, which is regulated by a law specific to it. 

2) What are the most important past privatizations of Moldova?

Despite countless efforts at demonopolization, the gas sector is still dominated by a single supplier. In 1995, the major public company Moldova Gaz was converted into a joint-stock company. Later, since gas prices did not reflect the high costs of gas provision, the state offered company shares on the basis of its public debt – a novel privatization approach. As a result, the Moldo-Russian company MoldovaGaz SA emerged in 1998, with 51% of shares owned by the Russian  Gazprom and 35% by the Moldovan state.  

Recently, state minority stakes in Hotel Jolly Alon (34.96%) and the meat manufacturer Carmez SA (0.110%) were sold.  

3) What are the assets that the state is not willing to privatize?

The Moldovan Government has established a list of assets excluded from privatization. The list, which is subject to amendments by the Parliament, includes the national Cricova SA wine manufacturer (100% state ownership), the Franzeluta SA bakery (52.51%), the MoldovaGaz SA gas supplier (35.33%), the Moldexpo SA international exhibition center (100%), the Moldova-Film SA film production studio (100%), and the Chisinau heating power stations (100%), among others.  

Notably, in February the Government suspended the privatization of 13 of the largest companies, citing a lack of transparency in the process of privatizing sizable companies. These included the national airline Air Moldova, the Moldtelecom telecom monopoly, the Tutun-CTC tobacco company, the Aroma and Barza Alba spirits companies, and the national circus Circul din Chisinau. 

4) What are the current efforts of the state in Privatization?

Large-scale privatization is over. The state currently focuses on PPPs and on developing a list of goods, services, and works to be supplied through public-private partnerships. Such projects are already underway in the healthcare sector (equipping the radiology, hemodialysis, and rehabilitation sections of medical institutions with modern technology), sports (building a multi-functional national stadium with a capacity of about 30,000 seats), new technologies (creating a technological park with at least three local companies by the end of 2014, which is to become a “smart city”) and public transportation (modernizing the bus station services offered by the public enterprise “Garile si Statiile Auto”).  

5) How can an investor keep track of privatization opportunities in Moldova?

Privatization opportunities are announced by the Agency of Public Property (“APP”) on its website: www.app.gov.md  

6) How can an investor engage in a privatization?

Foreign investors may participate in local privatizations as long as they fulfill customary legal criteria and provide the requisite information. An investor would first submit a request for participation alongside a registration certificate and the incorporation documents and financial statements for the previous year, the offered price and commitments to be undertaken, as well as a detailed investment program. In addition, the bidder must provide a bank guarantee of at least 50% of the initial price, which, for investment tenders, must cover at least 25% of the total investment value. There is also a participation fee of MDL 200,000 (about EUR 10,600) for each property/asset bid for.

The investor is entitled to carry out full financial, legal, and technical due diligence of the target. The investor also has the right to receive access to privatization documentation, visit the company, and request that management discloses all material information.  

As of 2008, a sale and purchase agreement cannot be negotiated directly. The sale of public assets, irrespective of the method of privatization, is subject to competitive bargaining that takes place in the presence of all participating investors. Nonetheless, the APP may end the process at any stage without selecting a winner if the offered price is unsatisfying. The sale and purchase agreement shall be signed within 30 days after a winner is designated.      

By Octavian Cazac, Partner, and Diana Ichim, Junior Associate, Turcan Cazac Law Firm

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 energy sector in Macedonia has been one of the areas where privatization has progressed with the most difficulty. Up to 2004, the vertically-integrated and state-owned JSC Macedonian Electricity Company (MEC) exclusively provided the generation, transmission, distribution, and supply of electricity, as well as imports, transits, and maintenance of the integrity of the electricity system. In 2004, MEC was split into two independent new joint-stock companies. Its legal successor MEPSO assumed the transmission function, while ESM assumed the electricity generation, distribution, and supply functions. In 2005, ESM was further unbundled into two independent joint-stock companies:  Macedonian Power Plants (MPP), which assumed the electricity generation part of the company, and ESM, which retained the electricity distribution and supply parts. In 2006, ESM was privatized by Austria’s EVN AG and was rebranded into the EVN joint-stock company. As a result of the restructuring and privatization process, therefore, the key players in the electricity market currently are three separate and regulated monopolies: (i) generation – the state-owned MPP; (ii) transmission – the state-owned MEPSO; and (iii) distribution and supply – the privately owned EVN.  

Privatization of MPP

Recently, the Government has announced its intention to privatize the 100% state-owned MPP by increasing its share capital and offering private investors the opportunity to purchase up to 49% of newly issued shares. The process for hiring a privatization consultant is underway, and it is therefore likely that the international public call for the privatization will be published in 2015.

Why is the privatization of MPP important?

MPP generates more than 90% of the nation’s electricity. It owns and operates the main national generation facilities: (i) the thermal power plants in Bitola and Oslomej, with a total installed capacity of 800 MW; and (ii) seven large hydropower plants, with a total installed capacity of over 500 MW. It also acts as the wholesale electricity supplier for the retail supplier EVN. The estimated value of 49% of MPP’s shares is approximately EUR 750 million. Therefore, this will be the largest privatization in Macedonian history (the largest Macedonian privatization to date was the EUR 388 million sale of Makedonski Telekom to Hungarian Matav in 2001). For now, the largest privatization in the energy sector remains the sale of EVN’s shares in a transaction of EUR 225 million and an investment obligation amounting to EUR 96 million in the three-year period following the sale.

How will the privatization be organized?

The key legislation that governs the privatization process in Macedonia is the Law on Transformation of Enterprises with Social Capital (OJ 38/93) and the Law on Privatization of State-owned Capital (OJ 37/96). Both laws provide foreign investors with equal rights to domestic investors in the tendering and privatization process for sale of Government’s shares in state-owned enterprises. It is very likely that the privatization will be organized similarly to the sale of EVN, which  was organized through an international public call for a trade sale in a one-round bidding process. The ranking criteria for the received bids were the purchase price and a three-year investment commitment. In the case of MPP, it is reasonable to expect that the Government will also apply an investment commitment criterion, as it has announced that it expects the successful bidder to make additional investments in the development of electricity generation facilities.

What will be the main legal concerns?

Any attempts by the Government to “clean” or restructure MPP prior to its sale (e.g. write-off state debt, debt-to-equity conversion, and capital increases before privatization) will in many instances constitute state aid if they are not compliant with the “market economy investor principle” (i.e. if a public authority invests in the enterprise on terms and in conditions that would be acceptable to a private investor operating under normal market economy conditions, the investment is not considered as state aid). The Government’s enthusiastic efforts to attract foreign investment by providing various incentives to international corporations are well known. Therefore, it is of critical importance for the Government to organize the privatization through a well-publicized, transparent, unconditional, and competitive tendering process, to provide prospective bidders with access to all relevant information for valuation of the share package and to ensure that there is no discrimination based on the nationality of the prospective bidders.

The Government will remain the majority shareholders in MPP (51%) and will therefore retain control of management. The successful bidder will want to ensure that it has a voice in MPP’s management and that there is an effective dispute resolution mechanism in place. The memory of the dispute between the Government and EVN AG in connection with EVN’s sale is still fresh. In 2009, EVN was ordered by the Macedonian courts to pay EUR 200 million to MPP on the basis of a debt deriving from unpaid electricity bills from consumers, before the privatization. Not long after EVN AG filed a claim for arbitration against the Government alleging a breach of the Bilateral Investment Treaty between Macedonia and Austria, the parties settled.      

By Gjorgji Georgievski, Partner, ODI Law Firm

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.

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.