By Sam Vaknin
Author of "Malignant Self Love - Narcissism Revisited"
In a rare accord, both the IMF and independent analysts, have
cautioned Bulgaria in early 2002 that its insistence on keeping
golden shares in both its tobacco and telecom monopolies even after
they are privatized - will hinder its ability to attract foreign
investors to these already unappealing assets. Bulgaria's $300
million arrangement with the IMF - struck in late 2001 by the new
and youthful Minister of Finance in the Saxe-Coburg government - was
not at risk, though.
Golden shares are usually retained by the state in infrastructure
projects, utilities, natural monopolies, mining operations, defense
contractors, and the space industry. They allow their holders to
block business moves and counter management decisions which may be
detrimental to national security, to the economy, or to the
provision of public services (especially where markets fail to do
so). Golden shares also enable the government to regulate the prices
of certain basic goods and services - such as energy, food staples,
sewage, and water.
But, in practice, golden shares serve less noble ends.
Early privatizations in Central and Eastern Europe were criticized
for being crony-ridden, corrupt, and opaque. Governments were
accused of giving away the family silver. Maintaining golden shares
in privatized enterprises was their way of eating the privatization
cake while leaving it whole, thus silencing domestic opposition
effectively. The practice was started in Thatcherite Britain and
Bulgaria is only the latest to adopt it.
The Bulgarian golden share in Bulgatabak is intended to shield
domestic tobacco growers (most of them impoverished minority Turks)
from fierce foreign competition in a glutted market. Golden shares
are often used to further the interests of interest groups and
isolate them from the potentially devastating effects of the global
market.
The phenomenon of golden shares is not confined to economically- challenged states selling their obscure monopolies.
On December 1989, the Hungarian Post was succeeded by three firms
(postal, broadcasting, and a telecom). One of the successors, MATAV,
was sold to MagyarCom (currently owned by Deutsche Telekom) in
stages. This has been the largest privatization in Hungary and in
Central and Eastern Europe. The company's shares subsequently traded
in Budapest and on NYSE simultaneously. MATAV embarked on an
aggressive regional acquisitions plan, the latest of which was the
Macedonian Telecom. Yet, throughout this distinctly capitalistic and
shareholders-friendly record, the Hungarian government owned a
golden share in MATAV.
Poland's Treasury maintains a golden share in LOT, its national
carrier, and is known to have occasionally exercised it. Lithuania
kept a golden share in its telecom. Even municipalities and regional
authorities are emulating the centre. The city of Tallinn, for
instance, owns a golden share in its water utility.
Hungary's largest firm, Hungarian Oil and Gas (MOL), was floated on
the Budapest Stock Exchange (1994-1998). The state retains a "golden
share" in the company which allows it to regulate retail gas prices.
MOL controls c. 35% of the fuel retail market and owns virtually all
the energy-related infrastructure in Hungary. It is an aggressive
regional player, having recently bought Slovnaft, the Slovak oil and
gas company. Theoretically, Hungary's golden share in MOL may
conflict with Slovakia's golden share in Slovnaft, owned by MOL.
Contrary to popular economic thinking, golden shares do not seem to
deter foreign investors. They may even create a moral hazard,
causing investors to believe that they are partners with the
government in an enterprise of vital importance and, thus, likely to
be bailed out (i.e., an implicit state guarantee).
Moreover, golden shares are often perceived by investors and
financial institutions as endowing the company with preference in
government procurement and investment, privileged access to decision
makers, concessionary terms of operation, and a favorable pricing
structure. Golden shares are often coupled with guaranteed periods
of monopoly or duopoly (i.e., periods of excess profits and rents).
The West, alas, is in no position to preach free marketry in this
case. European firms are notorious for the ingenious stratagems with
which they disenfranchise their shareholders. Privileged minorities
often secure the majority vote by owning golden shares (this is
especially egregious in the Netherlands and France).
The European Commission is investigating cases of abuse of golden
shares in the UK, Spain, Portugal, Germany, France, and Belgium. The
Spanish government possesses golden shares in companies it no longer
has a stake in. As American portfolio investors pile in, corporate
governance is changing for the better. But some countries of the
former Soviet Bloc (such as Estonia) are even more advanced than the
rest of the European Union.
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AUTHOR BIO (must be included with the article)
Sam Vaknin ( http://samvak.tripod.com ) is the author of Malignant
Self Love - Narcissism Revisited and After the Rain - How the West
Lost the East. He served as a columnist for Central Europe Review,
PopMatters, Bellaonline, and eBookWeb, a United Press International
(UPI) Senior Business Correspondent, and the editor of mental health
and Central East Europe categories in The Open Directory and
Suite101.
Until recently, he served as the Economic Advisor to the Government
of Macedonia.
Visit Sam's Web site at http://samvak.tripod.com