Over the years there have been an increasing number of countries that decided to privatise their public-owned enterprises. In general it is argued that the main aims of privatisation are to improve efficiency, reduce public sector borrowing requirements, reduce government involvement in enterprise decision-making, decrease public sector wage determination, increase share ownership and aid government bodies gain political advantage.On the other hand, privatisation implies great change in a country’s market and can prove unsuccessful if the necessary measures are not taken by the government pre-privatisation and the firm’s board of directors post-privatisation.
In an attempt to understand the privatisation process and its affects on a company’s structure and management procedures, we firstly analyse the various privatisation objectives and techniques. Moving on, we will perform a P. E. S. T. L.
E.analysis in order to evaluate Greece’s market environment and a S. W. O.
T. analysis on the Greek Public Power Corporation (PPC) PPC in order to pi-point an appropriate privatisation technique. Finally, we recommend a strategy to change for the post-privatised firm based on microeconomic theory and an appropriate leadership approach.
The main method of privatisation which governments choose to privatise state-owned firms is through stock market Initial Public Offerings (IPO).According to OECD Proceedings (1999), this method’s objectives meet most governments’ goals which are to maximise revenue, increase share ownership as well as government credibility and maintain effective corporate governance of post-privatised firms. In addition, most of the profits from the assets sold in the stock market are used in order to reduce the debt of the public sector. On the other hand, in order to meet each objective and avoid neglecting secondary goals set by the company’s board of directors, governments need to follow diverse techniques when privatising a public corporation.Bortolotti et al.
(2004) define these techniques as method of sale, price stabilisation, part payment and staged sales. In order to understand how each technique could affect a company’s objectives we could use Table 1 presented below. Table 1: Privatisation objectives and techniques (Source: OECD Proceedings, 1999, p.
107) Method of sale: 1. Public offers involve the sale of shares directly to small shareholders. The advantage of this technique is that it allows the widening of share ownership.On the other hand it has no effect on the government’s credibility and a negative affect on both revenue maximisation for stockholders as well as the company’s corporate control. This method also requires that share prices are set by regulation. 2. According to Bishop et al.
(1996) by following the Tenders technique the company’s shares are split into two percentages (usually 75% and 25%) where the large percentage is sold directly to small shareholders, and the small percentage is sold at a tender offer to private shareholders.This technique can result to profit maximisation since tender offer buyers have to bid in order to obtain the shares. As a result the government is able to choose the highest bids for each share. On the other hand, some disadvantages of this technique are that share ownership is reduced and corporate governance might be altered depending on the shareholders with the biggest percentage.
3. Book-building requires that future investors in co-operation with the government’s book-building coordinators shape a demand curve according to the demand for the shares available as well as their bidding price.In addition, book-building operators derive an accurate price of the shares based on the result of the demand curve. Although this method has a negative affect on the number of share owners, it can result to a significant increase on profit maximisation and corporate governance, since it allows the government to choose the buyers of the firm’s shares. Price stabilisation: 1. According to OECD Proceedings (1999) by using Over-allotments the government is able to sell more shares than the prearranged offer at the same or reduced issue price.In general the volume of shares that is sold through over-allotments is between 10%-15% of the originally purchased shares. This technique has no significant effect on the number of share owners, government credibility or corporate control.
On the other hand, it such a procedure is usually profitable within the early stages of privatisation since it increases the volume of purchased shares. 2. Price Guarantees are mainly used in situations where share prices start dropping.Companies set a fixed reduction percentage as a guarantee of investment in order to provide insurance to their invertors. If for example the shares of a public monopoly drop by a certain percentage then the post-privatised company is obliged to pay the same percentage to any affected shareholders. The advantage of this technique is that it can imply an increase in share owners as well as the credibility of the government. On the other hand, this method might decrease profits depending on the level of reduced share process.Part-payment: OECD Proceedings (1999) argue that when a government uses this technique it allows investors to buy shares through a series of interest free instalments.
This method’s main beneficiaries in the short run are the shareowners due to the rate of return compared to the money spent so far on buying the share. On the other hand, in the long run this unrealistic increase in turnover is equal to the money spent for the purchase of the share.Also this approach has a negative affect on revenue maximisation since the company’s shares are exposed to staging schemes since it offers free leverage to its investors. Staged Sales: According to Bishop et al (1996) this is one of the most commonly used methods of privatisation. By using this method, governments sale the state-owned firm’s shares in stages/tranches. This is achieved by establishing a price for the first tranche during the early stages of privatisation and then set up accurate prices for the last parts sold.
By following this procedure revenue can be increased dramatically during the first steps of privatisation and has a positive effect on the number of share owners. On the other hand, OECD Proceedings (1999) argue that this technique has a really important disadvantage since the later trenches are sold at a discounted price which allows the owners to sell their existing shares for the original price and then buy them back at a reduced price.Due to the discounts on share prices revenue can be significantly reduced in the long-run. In order to decide which privatisation technique, or techniques, could be used by the Greek government to privatise the PPC we should analyse the country’s market structure.
According to Wall et al (2004) the best way to perform such an analysis is by evaluating it Political, Economic, Sociocultural, Technological, Legislation and Environmental environments.In other words, perform a P. E. S. T. L. E.
analysis on the Greek energy market. Political Environment: As a member of the European Union, Greece has no restrictions towards foreign investment. The government tries to encourage as many foreign trade activities within its borders as possible. Labour laws, on the other hand, are quite inflexible, leading to significant difficulties in successfully managing the Greek workforce, as well as increasing operations costs.