BizCLIR

The Privatization Law, while outside of the statement of work for this task in some respects, nevertheless intruded regularly into discussions of the commercial legal regime. Three issues were significant.

First, the success of privatization will be affected by Company Law considerations. The existence of "social capital" reduces the value of any company by more than just the 30% of the value of the shares represented. Uncertainties over the nature of the ownership also has a negative economic impact. While the government is committed to elimination of social capital over the next three years, many of the more important privatizations are scheduled to take place prior to expiration of social claims. This may be a political cost that has to be paid, but policy makers should be advised on what it is costing them in revenues or investment quality.

Second, the draft Privatization Law is very aggressive in its overall approach, but is insufficiently regulated. The criteria for awarding bids are not properly defined or developed. Unless scoring clear and transparent, the quality of bids and bidders will be compromised, and awards will be subject to unwanted challenges.

Third, the quality of privatization is also subject to the quality of the investment climate. It is essential that the government establish property rights effectively and the mechanisms for ensuring those rights. Thus, the Law on Property, Company Law (with emphasis on minority rights, corporate governance, and registration), Collateral Law, the fiscal regime and other areas must be addressed either previously or in concert with the privatization program in order to attract and maintain the highest quality investment.