European countries are currently faced with heavy burdens of sovereign debt that some are finding increasingly difficult to service. As part of the "austerity" measures that these countries are being forced to take, the sale of state owned assets has inevitably been considered.
We have looked at the situation in the UK, Ireland, Portugal and Greece and we have set out in a series of appendices to this note a shortlist of assets in each of these countries which the relevant government has explicitly identified for sale or which are part of ongoing assessment by the relevant government to form part of a privatisation programme.
We have left out of the shortlists those assets which are already at an advanced stage of sale such as the Tote Horse racing betting entity in the UK and also those which are purely speculative or for which such opposition to their sale exists as to make a sale unlikely. However, there remains a large number of significant assets either currently for sale or likely to come on the market for sale very shortly.
In short there is perhaps an unprecedented investment opportunity in Europe within the short to medium term.
In the UK, the coalition (Conservative/Liberal Democrat) government is keen to press ahead with the programme of asset sales first announced by the Labour government in October 2009. The latest budget delivered by the Chancellor, George Osborne, in March 2011, identifies a number of specific proposals, for which plans are advanced. The sale of the Tote and of the government's stake in National Air Traffic Services (NATS) are two such examples. Not only is it intended that such disposals will help to "shore up" government finances, but it is also hoped that they will help to fund new initiatives, such as the new Green Investment Bank, which it is envisaged will invest heavily in low-carbon technology. We have not included the Tote in the list because the sale is at such an advanced stage.
However, the programme of planned or proposed sales is much wider than that described in the most recent budget and a paper prepared by The Adam Smith Institute in October 2010 contains a comprehensive overview of the current possibilities and recommendations for privatisation across all sectors, including those which are in the preliminary stages1.
Although some plans for privatisation, such as the sale of some forestry assets, have stalled for political reasons, others, such as the future of the Land Registry, are very much in progress and numerous proposals are currently subject to review. Although it is uncertain precisely what form disposals may take (i.e. whether full or partial privatisation will be sought), it seems clear that the private sector will play a more prominent role.
The position in Ireland is less far advanced, although a programme of disposals of government assets now seems inevitable. Plans for a sell-off of “non-strategic” state assets feature heavily in the current political agenda, especially following the recent general election and change of government in Ireland. A review group chaired by economist Colm McCarthy, has recently been charged with considering the case for privatisation of state-owned assets. The findings of the review group (hereafter, the “McCarthy Report”) were published on 20 April.
The central recommendation of the McCarthy Report is that core assets should be retained in state ownership, but that rights to use or reap the benefits of those assets should be transferred to the private sector. In order to prepare for the proposed disposals, the Report makes clear that state-owned companies must first be restructured and that regulatory arrangements should be strengthened ahead of any sale.
The Portuguese government committed in the memorandum of understanding of 3 May 2011 with the European Central Bank, The European Council and the IMF to accelerate and deepen its privatisation plans. The memorandum refers to a programme to deliver upfront receipts of 5.5bn Euros and for the Portuguese government to divest itself entirely of certain state owned companies. The programme covers transport, energy, communications and insurance.
The MoU text reads:
"the existing plan, elaborated through 2013, covers transport (Aeroportos de Portugal, TAP, and freight branch of CP), energy (GALP, EDP, and REN), communications (Correios de Portugal), and insurance (Caixa Seguros), as well as a number of smaller firms. The plan targets front-loaded proceeds of about €[5.5] billion through the end of the program, with only partial divestment envisaged for all large firms. The Government commits to go even further, by pursuing a rapid full divestment of public sector shares in EDP and REN, and is hopeful that market conditions will permit sale of these two companies, as well as of TAP, by the end of the 2011."
The information on the attached list has been provided by CS Associados.
The economic position of Greece has been widely reported in the world media and it is perhaps no surprise that the potential value of assets the government is considering for sale is very high. In order to facilitate the latest 12bn Euro loan from the EU George Papandreou announced that the government will implement the wide ranging programme of privatisation (designed to bring receipts to the Greek government of 50 Bn Euros by 2015) that had been set out in a paper issued by the Hellenic Finance Ministry earlier this year.