High Level Meeting of the State Ownership Authorities

1. High Level Meeting of the State Ownership Authorities State as an owner – ownership policy, execution of state interests and fostering public-private dialogue Albanian Case 5 – 6 September 2011

2. Transition Reforms • Radical Political and Economic Transformation in early 90`s: • 1) change of regime, free market economy policies – “shock therapy” , liberalization of the prices etc. • 2) Restructuring of the public sector – lifting up subsidies and fostering free market entrepreneurship. • 3) Privatization of the economy – mixed privatization through transfer of the ownership from public to private hands aiming at upgrading living standards and ensuring social justice by abandoning inefficiency and low productivity of state ownership. Whereas widely in the western world privatization has been considered as a “restructuring process”, in Albania as in many ex post-communist countries privatization has been perceived as “systemic transformation” of the whole society.

3. Why state entities were unable to serve the needs of the new economic system? • Old technology and lack of investments. • Blocked market and large debts. • Lack of adequate management and inability of bankruptcy. • Unclear financial objectives. • A strong political influence damaging the economic activity of PSE. • No practices of corporate governance. • The difficult situation in all sectors of the economy in early 90`s required structural reforms, liberalization and deregulation policies associated with privatization. • Due to above reasons and mainly competitive imported products most of PSE were forced to fail.

4. Short Legal Story on PSE Sector in Albania • In 1995 by means of a Parliamentary Act all PSE-s must be transformed in state commercial companies-mostly like joint-stock companies - complying with relevant provisions of the then in force “Law on Commercial Companies” (1992). • Ministry of Economy (now Ministry of Economy, Trade and Energy- METE) was designed by Law as exclusive legal representative of the State ownership and the only state authority responsible for the implementation of the strategy of transforming the state enterprises into joint stock companies. (e.g., METE appoints supervisory board, financial statements approval, approval of business and investment plan • On the other hand, Albania has adopted a" decentralized model” where other Ministries, various state departments and institutions, local authorities, are responsible for the management of the property or state companies that fall under their legal functions.

5. Short Legal Story on PSE Sector in Albania con`t • Thus, from the legal point of view each ministry is responsible in determination of strategic goals for the state companies which they oversee. These ministries are now responsible for achieving state companies goals through wide participation of their representatives in Board of Directors by drafting, approving and enforcing the state companies objectives. • With the new law on commercial companies which entered into force at the end of 2008, the state companies are qualified as companies with public offer . This has enhanced the legal mechanism for exercising the State control related to the management aspects (privatization of OSSH)

6. The process of Privatization in Albania • This process has encompassed transferring of 3 main rights from the state to private sector: • 1) ownership rights – state is relinquished from all the risks associated with management of enterprises. • 2) exploitation & development rights – state reserves the right of monitoring of concession agreements with or without financial risks involved (e.g., BOT, BOOT, ROT etc).

7. Privatization strategy has aimed mainly the following objectives as: • 1) Revitalization of economy through efficient exploitation of human and natural resources – e.g., job creation and income increase. • 2) Ensuring economic growth and sustainable development – e.g., reducing public debt and budget deficit. • 3) Supporting and Enhancing private sector in production of goods and services (currently private sector comprises 85% of economy) – increasing competition in the market and quality of goods and services. • 4) Attracting strategic investors in priority sectors (both domestic and foreign). • 5) Improving business climate and boosting the creation of capital markets.

8. The process of Privatization in Albania con`t • From 1991-1999 privatization of SME-s took place (e.g., direct sale, public auction, liquidation). • From 1999- onwards privatization of “strategic sectors” has been in agenda of all governments. • Strategic sectors: Telecommunication, Energy, Infrastructure & Transportation, Banking, Mineral industry, oil and gas…etc • The main “driver” behind all these privatization was to : raise new capital and heal the financial problems of the enterprise, improve production level & service quality associated with price reduction for the consumers, apply new technologies and know-how - all these under the premise for a better management…

9. Public - Private Partnership • Corporate Governance & Good Governance – continental Europe model (e.g., auditing, board and management structures, corporate responsibility and compliance; financial transparency and information disclosure, ownership structure and exercise of control rights etc..). • The case of Privatization of Distribution company by CEZ. a.s. • As major privatizations in key sectors of economy have taken place, Public-Private Partnership Schemes are gaining momentum… • New role of the government – great reforms aiming at improvement of business climate (e.g.., flat – tax regime, one-stop-shop, e-public procurement etc…). • New role of the private sector – active contribution on public investments and services (e.g., concessions in energy (hydro), transportation (TIA), oil-gas (Bankers Petroleum) etc…).

10. THANK YOU FOR YOUR ATTENTION !