PRIVATISATION AND GOLDEN SHARE

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Getachew Beshawred

Ethiopia is embarking upon an ambitious program of the privatisation of some of the largest publicly held companies. Apparently, although there is general support for the policy of privatisation amongst the business community, there is also understandable concern and even opposition to some aspects of the policy and the program especially in respect of Ethiopian Airlines and Ethiopian Telecommunications. I agree that there is no justification (economic or otherwise) for the privatisation of the hugely successful Ethiopian Airlines, but there may be a case for part privatisation of Ethio Telecom. However, this should only be carried out after detailed analysis, careful consideration and after all other alternatives are ruled out. The government should not be troubled by its own self-imposed deadlines. It is better to take time to get it right rather than doing it in a hurry and getting it wrong.
Privatisation is a long and complex process, with many players that have varying and sometimes conflicting interests, which would require careful and wide-ranging analysis of all factors, both financial and non-financial.
Privatisation, in simple terms, is the transfer of ownership of a company from the government to the private sector. The identity of the seller is clearly known. It is one. However, the buyers would be most probably more than one and the initial buyers of the shares may not be the ultimate owners or ‘controllers’ of the company. The new owners could be private individuals, private companies, public companies, associations, trusts, pension funds etc.
In some cases, privatisation could lead to the transfer of ownership to a foreign government which would have serious economic, cultural and security implications.
In the United Kingdom many of the privatised companies in the water, electricity and rail sectors are now owned and controlled by non-UK companies which are either owned or controlled by foreign governments.
‘The energy market is owned by the French Government (in the main), railways are owned by the Dutch Government and Royal Mail is part owned by the German Government, so they are state owned, it is just not Great Britain that owns them’. BBC Question Time audience member 25th January 2018.
Though, there is no evidence that the German Government owns Royal mail, French, Dutch and German Governments do control and own UK former publicly held companies in the water, power and rail sectors. In fact, British Airways is owned by IAG, a Spanish conglomerate which is 20% owned by Qatar Airways. EDF energy which is the UK’s biggest supplier of electricity by volume and which operates several power stations is owned by French EDF Group which in turn is 83% owned by the French Government. Arriva Trains, Wales Trains, Chiltern Railways, Cross-country, Grand Central and Northern Railways are owned by Deutsche Bahn, the majority shareholder of which is the German Government.
For the United Kingdom, a nuclear power, a standing member of the U.N. Security Council and a mature democracy, such ownership should not matter much. However, for a country like Ethiopia it has huge implications, especially in respect of national security, and it has to be handled wisely. Even the UK government was so concerned about such ownership in some of the most critical sectors of the economy, it introduced the concept of a Golden Share. The UK government still holds 49% plus a Golden Share in NATS (National Air Traffic Services).
A Golden Share is a type of share that gives its holder a VETO power, mainly over changes to its constitution and to stop UNWANTED takeovers and mergers. It could give the holder power to block others from acquiring shares in the company from both the primary and secondary markets. Though rarely used this was an effective tool. Other countries in Europe, the Soviet Union and Brazil followed suit. However, the European Union does not allow Golden Shares.
I suggest Ethiopia should also follow suit and issue and hold Golden shares, starting with the possible privatisation of Ethio Telecom. This would be the biggest privatisation so far for Ethiopia and it has attracted wide interest from all corners of the world. Unless proper care is taken it is possible that Ethio Telecom could fall into the wrong hands. To avoid this: –
The government should first consider all options other than privatisation (please refer to my article entitled, Privatisation: Tread Carefully, Capital 6th October 2019)
If privatisation is the preferred option, at it seems to be, sell only 49% or less of the shares.
The government should, if necessary, by legislation, hold a Golden Share in the company which should give the holder wide ranging powers. Yes, this could have a negative impact on the value of the shares. However, it has huge advantages and it is an important tool against unwanted and dangerous takeovers in a hugely critical company and industry.
Most importantly the government should take its time and consult widely. It should not be pressured by self-imposed deadlines. If there are third party pressures on the timing, they should be addressed. As stated above, it is better to take time and get it right rather than doing it quickly at a huge risk of getting it wrong.

Getachew is the Managing Director of GB & Co Limited, Chartered Accountants and Management Consultants, London. He can be contacted at getachew@gbandco.co