State asset management and its institutional framework in Hungary

State asset management and its institutional framework in Hungary

OECD Advisory Group on

Privatisation

Dr. Péter SzékácsDr. Péter Székács

Hungarian Privatization and State Holding Company ÁPV Rt.

19th September, 2000

Slide 1

The commercial assets of the Hungarian state

Institutions of state asset management in Hungary

ÁPV Rt.’s asset management principles, objectives and tools

Possible alternatives for managing commercial state assets

The topics of this presentation:

Slide 2

The commercial assets of the Hungarian state

the Privatisation Act regulates the scope and extent of the commercial assets of the state

assets may remain in long-term state ownership in:•national public utility service providers•companies of strategic significance in the national economy•companies carrying out defence or other special duties or services•company shares needed to guarantee state ownership or voting rights

Long-term state ownership cannot be less than 50%+1 vote.

In exceptional cases this can be reduced to a 25%+1 vote blocking minority, or a special priority voting share

Organisations managing long-term state assets: 93 companies by ÁPV Rt.

74 companies by ministries

Slide 3

Commercial state assets in ÁPV Rt.’s portfolio(31st December, 1999)

long-term state ownership306 bn HUF

Total: 768 bn HUFagricultural land

69 bn HUF

goods, real estate26 bn HUF

cash and govt. bonds 97 bn HUF

balance of obligations and receivables

- 138 bn HUF

assets to be privatised409 bn HUF

Slide 4

No. of companies general level of long-termstate ownership

_____________________________________________________________________________

state-owned forestry companies 19 100%state-owned agriculture companies 27 75%Volán group of bus companies 24 50%+1companies of strategic importance 15 25% - 100%companies of strategic importance 8 1 priority voting share

Slide 5

Categories and levels of long-term state ownership

in ÁPV Rt.’s portfolio

treasury assets

Treasury Asset Management Organisation (until 1996)Treasury Property Directorate (since 1.1.96)TreasuryCentral organisations with delegated powers (e.g. ministries)

commercial assets

State Property Agency (ÁVÜ, 1990-1995)State Holding Company (ÁV Rt., 1992-1995)The Hungarian Privatisation and State Holding - Company (ÁPV Rt., since 1995) MinistriesContracted external asset management companies

assets of separate state funds

Separate fund management organisations

assets of the Social Security Fund (wound up 1998)

Pension Fund (until 1998)National Health Fund (until 1998)

Slide 6

Institutions of state asset management in Hungary

Slide 7

Institutions of state asset management in Hungary

The Hungarian Privatization and State Holding Company (ÁPV Rt.)

•established in 1995 by Act XXXIX of 1995

•one-man, state-owned, holding-type company limited by shares

•supervised by the Government via the minister in charge of privatisation

•organisational and operational rules passed by government

•duties stipulated in the privatisation act, prevailing budget act and governmental resolutions

•tasks are market-based management and sale of the assets in its portfolio

•headed by a 8-11 member Board of Directors and a CEO

•activities supervised by Supervisory Board, independent auditor and State Audit Office

•in 1999 asset management and privatisation activities were separated to ease the adoption of the future asset management institutional framework

Slide 8

S upervisory Board

In te rnal C ontro llingD epartm ent

M anagementCom mittee

B oard S ec re ta riat C on trolling D epa rtm ent

In te rna tiona l A ffa irs and Com mun ica t ionsD epartm ent

E conom icsD epartm ent

F inanc ial and A ccoun tingD epartm ent

E nv ironmen t P ro tec t ionD epartm ent

E x terna l A ud itD epartm ent

P riva tisa t ion Accoun tsD epartm ent

D eputy C EOFinance

A gricu ltu ral A sse t Managm entD epartm ent

E nergy and Infrastructu reD epartm ent

F inanc ia l Ins t itut ionsD epartm ent

C ap ita l M arke tsD epartm ent

D eputy C EOA sset m anagem ent and capita l m arke ts

Transpo rtD epartm ent

Indus tria l and T radeD epartm ent

Ind ividual P rojec tsD epartm ent

D eputy C EOTransactions

H um an R esourcesD epartm ent

P roperty M anagem entD epartm ent

S ecurity and M a in tenanceD epartm ent

In fo rm ation Techno logyD epartm ent

M oveab le A ssetM anagem en t G roup

D eputy C EOO pera tions

Lega lD epartm ent

D eputy C EOLega l

Chairm an-CEO

Board of D irectors

State Audit Office

Auditors

Minister supervising privatisation

Organisational chart of ÁPV Rt.

Slide 9

•ÁPV Rt.’s objectives for the forthcoming years:

To assert the state’s service obligations with strategic assets, implement state policies in asset management activities.To operate and manage the state’s commercial assets in harmony with the principles of economic policy.To achieve the best possible economic performance from assets and to use resources to develop well-operating companies and pay dividends to the state. To employ the same up-to-date management techniques used by companies in the private sector so enable state-owned companies to compete in the market. To exercise a governing role without being involved in every aspect of company operations, but by setting the framework and conditions for their operation according to tough market demands. To privatise quickly but not just for the sake of it. Companies should be ready for it. To sell assets competitively under the best possible conditions and with the state undertaking the least amount of guarantees. Increasing transparency and openness in asset management and privatisation within legal and business limits.

Slide10

ÁPV Rt.’s asset management duties:

issuing mandates at shareholders meetings (decisions on the articles of a company, annual reports, business plan, use of dividends, employee shares etc.)carrying out asset protection transactions (withdrawal, assets brought into the business)making owners decisions on reorganisation and crisis managementcarrying out bankruptcy, liquidation proceduresraising and reducing a company’s capitalselling and buying ownership stakes in companiesproviding (non-interest) loans, financial supportundertaking guaranteesfounding new companies, developing existing companiestaking human resource decisions (the appointment, replacement, remuneration and bonus payment etc. of the board of directors, supervisory board, CEO, managing directors)establishing controlling and supervisory systemsvaluation of assets, company evaluation, record keepingexercising ownership rights

Slide11

ÁPV Rt. can exercise its will and decisions through:

shareholders and members meetingsdelegates on the board of directorsdelegates on the supervisory boardanalysis of regular controlling reportsowner supervisionexamining targets and issuesnominated auditors

Slide12

ÁPV Rt.’s supervision of the companies in its portfolio deals with the following:

ownership structurecapital situation, financing, liquiditymarket (buyer-supplier connections)debt level credit (returns) repaymentscompetitors, examination of product structuremanagement of reservesmodernity of technology useddevelopment needs, examination of developments underwaystructure of business interestsevaluating business achievements

Slide13

Points for consideration regarding the future management of the state’s commercial assets:

the role of the state in the economythe level and scope of long-term state ownership the targeted objectives and outcomesthe institutional framework for managing state assets, selection of asset managers and transferring ownership rights to themthe state’s supervision of the asset management and how it should be integrated into the public administration systemthe tools and methods of asset management putting the required legislation into place

Slide14

option commercial assets treasury assets______________________________________________________________________ 1 relevant ministries Treasury Property Directorate

(winding up ÁPV Rt.)

______________________________________________________________________

2 built on the existing Treasury Property Directorateprofessional organisation(reworking the Privatisation Act)

______________________________________________________________________ 3 new asset management holding

and new state priv. office Treasury Property Directorate

______________________________________________________________________

4 new asset management Treasury Property Directorateand privatisation holding(new unified asset law)

Alternatives for the future management of the state’s commercial assets