Tuesday, February 25, 2014

Privatization of State Owned Enterprises Requires a Steady Hand and a Clear Eye

Privatization of State Owned Enterprises Requires a Steady Hand and a Clear Eye
China Times editorial (Taipei, Taiwan, Republic of China)
A Translation
February 25, 2014

Summary: The NDC is the cerebrum of the Executive Yuan. The CEPD's role is more important than in the past. The National Development Council plan for privatization and the issuance of public shares must be financially sound and carefully planned. It must be executed as soon as possible, in order to save Taiwan's economic future.

Full text below:

The National Development Council will report to the Executive Yuan on the economic feasibility of the privatization policy and shares issuance plan. The nation needs long-term competitiveness. The privatization of state-owned enterprises is painful but inescapable. The public has long been skeptical of SOE privatization and share issuance. The NDC must be cautious. It must not plunder the national treasury and enrich the conglomerates. It must not result in a chilling effect.

First, we must point out why the public is so unhappy with government policy. Two years ago, hikes in gasoline prices and electricity rates provoked intense public resentment. Last year, electricity rates were hiked yet again. The government claimed that 80% of households and businesses were unaffected. But the knock-on effect was widespread. This is why the government's approval rating is down to single digits. Another cause was the first hike in gasoline prices and electricity rates. The government vowed to conduct a thorough review of Taipower and China Petroleum. But it failed to deliver. This led to the second rate hike and intensified public dissatisfaction. The government must of course act. The government dispatched two vice ministers of economic affairs to assume the chairmanship of Taipower and the chairmanship of China Petroleum. After serving as chairmen of the two SOEs, the two mean repeatedly said the SOEs should be privatized. They even drafted plans. But these never got beyond the planning stage. They failed to take any real action. They failed to implement any state-owned enterprise reform. As a result, the public lost faith in the government.

The NDC mentioned the issuance of public shares. The government intends to retain control over most of the shares, which exceed the number of shares issued. They will be non-voting shares. The legislature will not decide who has priority. Shares will be issued to the public. The assets were obtained from the public. The benefits will be returned to the public. This will avoid suspicions about conglomerates monopolizing the shares. The government intends to completely divest itself of all shares. But it has adopted a phased approach to share issuance. The government is reducing its interference in the private sector to a minimum. This is basically the right direction. But a problem persists. How will future privatization be conducted? For the moment the National Development Council has no answer.

We suggested a better way to privatize SOEs and improve operational efficiency in a previous editorial. Transform them into "publicly held but privately operated" enterprises, by issuing shares on the market. We suggested clearly calculating the cost of operating state-owned enterprises. They must all becomee profit centers. Let business be business. Let the market be the market. Let authority and responsibilities be clearly defined. This will provide incentives and boost performance. Those parts to be privatized should be dissolved. Shares should be issued, allowing them to compete with similar companies. The state-owned enterprises that are privatized will no longer be a burden. They will become cash cows. They may even generate sustainable financial returns that enrich the treasury.

Market competition is the most important concept in economics. Manufacturers want to maximize profits. But competition forces them to redouble their efforts and reduce costs. Otherwise they will not survive. In a competitive market, consumers may pick and choose as they wish. They may choose the products they are most satisfied with. Societies allocate resources more efficiently. Nations grow more rapidly.

So how should shares be issued? Actually, over the past several years, the government has been in the red. Every year share dividends become income for the National Treasury. But the price is often high and the turnover limited. Therefore the government must not sell the stock too cheaply. But there is another problem. Fair market value is currently 1.7 trillion. When the public shares are all sold, the government will cease receiving revenue.

Unions for state-owned enterprises argue that selling off state-owned enterprises sells off our national heritage. They equate it with the euphemistic "second financial reform," which made a present of national assets to well connected conglomerates. They say it will result in future electricity rate hikes and gasoline price hikes. But these concerns have solutions.

We propose that the government incorporate shares issued into a new fund. The fund may make additional investments and profits to cover the budget deficit. In other words, the income from the issuance of shares must not be treated as disposable income for the national treasury. The state-owned enterprises should receive private blue chip stocks in exchange for their shares. This will enable them to continue generating revenue.

Privatized state-owned enterprises must issue stock. Allowing every citizen to purchase shares will prevent conglomerates from monopolizing ownership. But state-owned enterprises such as China Petroleum and Taipower affect people's livelihood. The government should sell only a portion of the shares, and retain control over the companies. The government need not appoint the chairman or general manager. These duties can be handed over to professional managers. Companies must be able to withstand the test of the market. Their finances must be transparent. Those parts of state-owned enterprises that cannot be isolated and sold off, must abide by government policy. Pricing must be clear. Budgets must cover them. No ambiguity, corruption, opacity, or lack of accountabilty is allowed.

The NDC is the cerebrum of the Executive Yuan. The CEPD's role is more important than in the past. The National Development Council plan for privatization and the issuance of public shares must be financially sound and carefully planned. It must be executed as soon as possible, in order to save Taiwan's economic future.

社論-國營事業民營化 須行穩致遠
中國時報 編輯部 2014年02月25日 04:10











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