Study on the Law on Privatisation

Lithuanian Law Should Stimulate Efficient Privatisation

The Lithuanian Free Market Institute has presented for legislative and public consideration analytical material “Weaknesses in the Law on Privatisation of State and Municipal Assets, Conceptual Means to Remove Them and Proposed Legal Amendments”. The authors of the study are LFMI’s policy analysts Elena Leontjeva and Remigijus Šimašius. The following presents a summary of the study.

Private ownership is the basis of sound economy. It stimulates efficient allocation of resources and inspires people to adjust to changes occurring on the market. An appropriate transfer of state-owned property to private owners signifies a successful economic transformation.

The Lithuanian Free Market Institute has observed that most of the problems confronting the privatisation process stem from the Law on Privatisation of State and Municipal Assets. Some of the weaknesses in the law have already shown. Others will manifest themselves in the near future.

LFMI’s policy proposals

· To provide by law for an automatic release of property for privatisation, first of all, of those assets in which the state has a negligible share as well as those which serve clearly commercial purposes. So far only unattractive entities have been offered for sale, with those that should be privatised as immediate priorities being retained by the state.

· To redesign the system of privatisation authorities. The establishment of the privatisation commission should be influenced by professional considerations rather than representation of interests. Supervising the legitimacy of privatisation should be the central task of the commission. It is important to invalidate the role of enterprise founders in the decision-making process, specifying explicitly the functions of the privatisation agency. A controlling authority should be established under the Department of State Control.

· To provide more opportunities for private initiative by involving in tender-based privatisation selected private firms that would be materially interested to sell the assets at the best price possible. This measure would privatise the privatisation process itself.

· To expand the concept of privatisation by including in it a decline in state shares in enterprises by way of boosting authorised capital.

· To allow privatisation entities to initiate direct negotiations, whose results would become a bid to auction.

· Not to apply public tender as a form of privatisation, for it rests on subjective criteria and does not allow selling entities at a top price. To conduct public share sales and public auctions instead.

· To specify the application of different forms of privatisation, to privatise shares only at the Stock Exchange and to employ auctions as the main form of privatisation of other assets. The discretionary right of founding ministries and municipalities to release property for and select the form of privatisation has been an open invitation to arbitrary decisions, corruption and discredit on the idea of privatisation.