Magyar Hírlap, 1992. július (25. évfolyam, 154-166. szám)
1992-07-03 / 156. szám
XII 1992. július 3., péntek — Pénz Plusz Piac N ew Laws Privatisation Law Package At the last spring session the Parliament passed the Privatisation Bill Package. Its first part contains a list of companies remaining permanently in state ownership and concentrated in the State Asset Management Co. (SAM). Second section of the package is about the sale, utilisation and protection of temporary state assets. The third part is comprised of rules in connection with state enterprise management laws. What to Go Into SAM? A fundamental issue of the privatisation process is which state assets, that is companies, should stay in permanent state ownership. The principle is that those assets remain in state ownership which are considered important from economic strategic, national economic or any other underlying point of view. Among energy industry companies managed by SAM the state will retain 50 percent plus 1 vote shareholding in Mol Co., the Hungarian Electricity Works Co., Mineraiimpex Co. and the regional gas distributors. It will have the same ownership share in the regional water works, Mahart, Malév and Matáv as well. In the basic material and processing industry the state is generally pleased to hold the qualified minority of shares. Hence, it wishes to keep 25 percent and 1 vote shareholding in Hungalu, Dunaferr, Rába, Ikarus and the pharmaceutical factories. Equity of SAM comprises of the shares of the permanently stateowned companies, but its operation can also be financed by the government. Its tasks include the transformation of state enterprises into public limited companies. SPA Regulation The second and third sections of the bill package regulate tempo- < rary state assets and the State Property Agency. Basically, the SPA i keeps the assets it was allocated until it finds a buyer for them. These assets include state-owned companies (trusts, trust companies), their subsidiaries and shareholding in public limited companies fully owned by the state. A whole section deals with asset protection regulations. State- \ owned companies under the supervision of the SPA cannot themselves conclude contracts above a certain value. Should such a company wish to sell its shareholding in a business venture whereby the shareholding exceeds 30 percent the company's equity or Ft 20 million, the company has to declare its intention at the SPA. Leasing Technique The law states that only such state-owned assets or shareholding . can be sold on leasing which has already been tried to be sold directly but was unsuccessful. The lessee can only be an individual. This technique also falls under the principle of the law applicable to temporary state assets, namely that sale can occur only via tender. Lease can be granted for a maximum period of 10 years, but it must be stated in the tender specification issued by the SPA. Fourth Compensation Act ; 9 u 1 |j The fourth Compensation Act will speed up the implementation of the compensation acts already in force mainly for those who wish to acquire agricultural land. The new Act allows all farmers to start cultivation on their own land this year or at the latest next spring. What is the core of the Act? Everyone entitled to compensation and wishing to buy agricultural land with his compensation notes has to register his demand with the local municipality’s lord major’s office. The form to be filled in is provided by the Országos Kárpótlási és Kárrendezési Hivatal (National Compensation and Adjustment Bureau). Demands have to be indicated before 15 August 1992, 5 October 1992 and 30 October 1992 by those entitled to compensation according to the Compensation Acts I, II and III, respectively. The application will be evaluated by the compensation bureau concerned before its turn, at the latest within 60 days after receipt of the application. Then the compensation note of the applicant will be deposited with a bank. I He will use the bureau’s valid decision and the acknowledgement of deposit receipt when bidding at an auction. In order to parry out the law’s regulations the local municipalities will set up Land Settlement Committees before 31 August. But bidding is not compulsory. If the auction participants come to an agreement where the base price is Ft 1000 per gold crown, no auction is necessary. In this case the procedure to be followed is the same as at an auction. Both at an auction and in the case of out-of-auction agreement the compensation notes can be used at their face value only. This option is available to anyone entitled to compensation either due to the Compensation Act I, II or III. Why was this law created? If the applicants register their demands for agricultural land, a clear picture will evolve by autumn about who wishes to cultivate land. Hence, the uncertainty threatening the continuity of agricultural production at present will diminish. Privatisation of state farms can then commence. The other advantage of the law is that in case the parties come to an agreement no bidding is necessary. Can we help you? Trust and connections are essential in a business... We can help you. M&H Communications Public Relations/Consulting phone: 140-85-90/82, 06-60-18-119 Commercial Bond in Telecommunication Investel Co., the investment subsidiary of Matáv, is to issue Ft 2 billion worth of commercial bonds. This is the first time that such a commercial bond, known as Commercial Paper in the international financial market, will appear in Hungary. The issuer is a Hungarian-Irish joint venture, Investel Hungarian Telecommunications Investment Co. Its equity is Ft 1 billion with 75.1 % Matáv, 20.1 % Irish Telecommunications shareholding, the remaining 4.8 % of shares are divided among three commercial banks. The company was established in June 1991 in order to raise financial resources on the domestic and international money markets to finance Matáv ’s development programme and to manage Matáv’s debts. Guarantee is provided by the Hungarian Telecommunications Company (Matáv), and Citibank Budapest Co. implements the programme. Incomes serve to finance current assets of Matáv. The security itself is a short term one with fixed interest and repayment period usually varying between 1 week and 1 year. The bonds of Ft 5, 10 and 50 million par are issued for a certain group of potential buyers. The bonds are available solely to residential legal entities. The group of potential investors count already 80 members including the six underwriting banks. It is worth noting that the six banks undertook guarantee for a total of Ft 700 million. Bonds are sold to investors at auctions held not more frequently than every two weeks. A single issue cannot exceed Ft 300 million. The bonds are issued at a discount, its earnings are to be between that of the Treasury bond and current interest rates on loans. Taking investment aims and the current market situation into account, repayment period, amount and minimal issuing discount price will always be determined just before the actual issue. First issue is expected to take place first week of July. N ew chairman:János Latorczai Changes at Rába The State Property Agency’s Board reviewed the situation and privatisation of Rába Co. last week. Since there was no progress in privatisation the Board decided 51 percent of the shares would be given to the Magyar Befektetési és Fejlesztési Rt. (Hungarian Investment and Development pic) so that it develops the company. 25 percent plus 1 vote shareholding will be retained by the state permanently. That is when the State Asset Management Co is set up it will be this organisation that will deal with the company. Rába Stadium is to be bought by the municipality probably at 50 percent of its gross book value (at Ft 114 million), with payment being in Rába shares. János Latorczai, head of department in the Ministry of Industry and Trade) has become chairman of the Rába Co. Board. Pannónia Expects Bids Individual sale of catering units separated from Pannónia hotel chain by the SPA last November hasn’t proved successful. From the 16 hotels one in Agárd and 6 hostels at Lake Balaton were offered for sale in February but no acceptable purchase offers were received even though the State Property Agency, the owner, hadn’t set high prices. However, a hotel expert believes that it is not really fortunate that the ultimate objective of the SPA is to get rid of the catering units at any price. Let’s take the example ofyhe three-star, 70-room Silvanus Hotel at Visegrád. According to our information it will be sold for Ft 70 million although the land with the unique view itself is worth this amount. Experts estimate Ft 100 million to be given for the 100-room Hotel Wien; this amount would be enough for not more than three family houses to be bought on the Rose Hill. In spite of all this Zoltán Takács, associate at Merkantil Bank with responsibility for preparing sale and assigned by the SPA, said that the tenders were very successful. In the four rounds held so far 33 of the 60 catering units separated from HungarHotels and Pannónia were offered for sale and 30 has already been sold. SPA’s privatisation proceeds haven’t reached Ft 22 billion this year yet but the sale of these units has already contributed Ft 1.5 billion to it. The bank representative also argues with our information saying that the tender submission date on the hostels at Lake Balaton has just passed and it is clear already now that three of them can be •soldi ico entrepreneurs utilising their E-credit facility. Hostels not sold now will be on offer in autumn again. Talking about Silvanus he said that its heating system needs complete restructuring which incurs large expenses. He also added, Tn vain has the hotel a unique view if there might not be any tourist who will be interested in a hotel facing the destroyed Danube bend. And if someone buys Hotel Wien at Ft 100-150 million he will still have to spend at least Ft 200 million on it to provide bathroom with every bedroom. And in these days that is a basic facility tourists expect.’ Concerning the privatisation of Pannónia, which was transformed into a public limited company last December, investors’ negotiations are underway. The name of the actual investor is expected to be published early August. The Role of the West The following article was written by Mr. Hardy, a Canadian born management consultant specialised in strategic planning, currently resident in Budapest. Hereforth he will be writing a weekly economic commentary for English speaking readers. Last week’s editorial discussed the problems with the role of the West in the economic transition of Hungary. In this week’s editorial, using consumer protection regulation as an example, the potential role the west could play is discussed. Regulations are necessary in order for a free market to function properly. The assumption that the market will eventually determine which producers are honourable and which products deliver what they promise works in a small hermetic environment such as a village. If someone gets food poisoning from the food in a restaurant or is swindled by a lawyer, the entire village would know about it instantly and loss in future business would far out weight the short term benefit of a sloppy or dishonest transaction. Howewer, in a large urban environment the market is large the mobility of the population is high, there are a number of outside visitors who are likely one time customers and thus the „perceived” long term costs of unethical trade practices are minimal. Consequently making a fast buck from a quick swindle becomes very tempting. When this prevailing condition is coupled with the present Hungarian business environment where high taxes and interest rates, and the economic and political instability inherent to a transitional period, induce business to maximise returns in the short run, dishonest business practices will be the natural consequence. For this reason it is paramount that regulations should be introduced which control the quality of the goods or services offered for sale and protect the consumer. Fór example, last week I purchased a jumper Cable for my car in a small automotive shop in the fifth disctrict. When I attempted to boost my car’s battery using the cable, the Cable soon overheated and I was unable to start the engine. This could happen anywhere with a defective product, however in this castte the design of the pro- 1 duót was defective, the wire width being inadequate for the amperage, and in no way could it serve its function. The shop then sold a product which it knew to be defective and relied upon the fact that the potential market is large, its membre do not communicate with one another and that the buyer has no legal recourse. This auto shop’s owner is not meant to be depicted as a villain but as a representative example of an entrepreneur operating under the conditions found in Hungary today. This could be controlled by either introducing testing standards for auto products and requiring shop owners to confine their product selection to ones which are certified, or by forcing owner to guarantee their products and subjecting them to stiff fines in cases similar to the one just described. An alfernative approach would be to have the auto shops form a professional association to which membership would be compulsory and which set standards and provide a policing function. In the West there are excellent working models of professional association which maintain standards and protect consumers. In forming such an association the government could send experts abroad to study and evaluate various alternatives and then implement the model or hybrid ofmodels which they felt best suited the situation. Foreign experts then could be employed to assist with the implementation. The role of the western expertconsultant is of critical importance. The degree of power he enjoys in being able to ensure that his recommendations are correctly implemented is a determining factor in his ultimate effectiveness. Very often a consultant’s responsibility is limited to preparing a report which contains a number of recommended courses of action. Implementation and review are left to the clients’ discretion and means. This is analogous to the enormous airlift of relief supplies for the Italian earthquake victims which were distributed by the Mafia instead of by the relief agencies themselves.' Just as the Mafia can be relied upon to have a hidden-agenda which extends beyond providing food to starvätion victims, so too, the powers in Hungary often have a vested interest in maintaining the status quo and may obstruct the implementation of recommendation which would erode their power. Though it is unrealistic to propose that foreign consultants should dictate terms to Hungarian civil servants and politicans, monetheless they should be provided some veto power to ensure recommendation are not „twisted by knaves to make a trap for fools” — implemented in a way which is inconsistent with the spirit of the recommendation. On the surface consumer protection for the buyers of jumper cables appears insignificant when placed besides issues such as compensation bonds and the national debt. Nonetheless a healthy functioning economy, like a good business, owes its success to a multitude of tiny elements which work together in a cohesive harmony. This harmony is developed time through trial and error, and legislation and consultants alone may shorten the learning curve, but the transition still requiers time. The role of government is to provide a system of checks on power which sets the framework within which a healthy economy may develop. The real burden of the transition rests upon the entrepreneurs who create niches for themselves in the market place by providing something better, less expensive or different that what is presently available. The West has a positive role to play in ensuring that events develop in a way which assists this to take place. Requiring Hungary to comply with the IMF austerity measures is not enough. The government must be pressured into éxcepting amuch more detailed recipe for a free market economy, one which will have substance as well as form. John Hardy Belgians to Organise SAM The Belgian IBF consulting firm won the tender for the State Asset Management Co.’s organisation. Seven, mainly foreign, organisations were invited to enter the tender. The decision was made after evaluating the bids from several aspects. A two-year working relationship will be set up with the Belgians in whose framework the public limited company is to be set up by October and future managérs and key personnel are to be trained in public holdings abroad at the same time. ECU 1.3 million (approx. USD 1.6 million) is provided by the PHARE programme to cover the costs of the consulting firm. Ft 2 billion will be available for the establishment and this-year operation of SAM, allocated from privatisation proceeds, should asset policy principles be approved. Who’s Who? Tamás Uzonyi — General Manager of Hungária Insurance Co. The general Manager of one of the biggest domestic insurance companies has been heading the business since its establishment in 1986. Now 59 years old with one child, he got his first job in the insurance profession after graduation at the University of Economics. He started his career at Állami Biztosító (State Insurance Company), then in a monopoly position, and moved gradually towards the top to become a head of department and then managing director. When Hungária Biztosító (Hungária Insurance Company) was set up on 30 June 1986 .Tamás Uzonyi was appointed to head the business. He then had three decades of experience in the profession. Hungária was one of the very first insurance companies to have been privatised. At present it is an insurance group with the biggest European and most significant international network; the German Allianz Holding has majority shareholding in Hungária. Last year was rather tough for the insurance company, it suffered a loss of Ft 6.5 billion due to great losses in car insurances. Forint Devaluation — 1.6% Within its own authority the National Bank of Hungary has devaluated the domestic currency by 1.6 percent as of 24 June. Imre Tarafás, vice president of the NBH, the issuing bank, is of the opinion that such a devaluation was necessary even though average price increase this year was much slower than in the corresponding period last year or that projected for this period. Although price movements are rather favourable, they still go up and the foreign exchange policy has to reflect this. ‘A major influencing factor in decision-making was that the interest of exporters also has to be considered. Of course, not limitlessly’, stressed Imre Tarafás. That is the reason for introducing this T.6 percent exchange rate adjustment which has actually been a compromise. The vice president added that the 1.9 percent devaluation in March and the current 1.6 percent depreciation more or less follow the price movements, and this is not accidental, The aim is to stop the obviously real appreciation policy. Whilst last year 10 percent real appreciation occurred, what the issuing bank would like to see this year is that the forint doesn’t get revalued compared to convertible currencies. Forint appreciating policy was needed last year because the country suffered considerable deterioration in terms of trade due to the Ruble trade collapse, and the decreased profitability of the business sector. This required a real appreciation foreign exchange policy in order, to allow recovery. Economic conditions have changed this year and therefore a more balanced exchange policy is sought. In future no major, sudden exchange adjustments are expected. NBH wants to avoid that the entrepreneurs await forint depreciation due to sómé gossips and a great number of exporters refuse the payment for their exported goods to be transferred to Hungary. Future forint devaluation is up to domestic and foreign price movements and, of course, to cross exchange rates as well. HUNGARIAN ECONOMY OTP — 4 Percent Interest Rate Fall The National Savings and Commercial Bank (OTP) has reduced interest rates, on individuals’ savings by gros# 4 percent on average, more than expected earlier. The new interest rates come into force on 1 August. The only exception is the certificate of deposit which will suffer a 4 percentage point fall in interest rate already on 1 July. Interest rate reduction will also affect credits such as consumption credits, personal loans and hire purchase loans with 4,5 and 3 percentage points less interest rate charged, respectively. These interest rate cuts are enforced as of 1 August. . Government Decisions Inter-bank Currency Market As Of 1 July As of 1 July the commercial banks aren’t compelled to offer foreign currency bought from business ventures to the National Bank of Hungary, but are free to trade it among one another. The exchange rate in such transactions can deviate .5 percent from the rate set by the NBH according to current regulations. After the daily trading the bank can hold open positions, that is so much currency which doesn’t exceed 30 percent of its underwriting capital. Frigyes Hárshegyi, vice president of the National Bank of Hungary, said that exporters’ obligation to deliver currency stays in force for the time being, though, the range of exchange rate flotation might be expanded later. Alongside the inter-bank currency market starting to operate now the usual currency purchase and sale service by NBH will still be available for banks which aren’t prepared for free trade yet.The vice president believes the new currency trading method won’t have a major impact either on exchange rate movements or the size of currency reserves. It won’t have a great impact on the latter especially because the positive balance of current payments and working capital inflow seem to remain rather stable until the end of the year. In the first six months both the surplus of the account of current payments and the working capital inflow may reach USD 600 million. Currency reserves amount to about USD 5 billion, which equals six-month imports and might reach USD 5.5 billion at the end of the year. Energy Policy Concept The government discussed the energy policy concept after asking for a rapid and extraordinary procedure from the Parliament. In order to provide stable energy supply the government wishes to use diplomatic channels for the Adria oil main to be reopened and operated safely. It also wants to take diplomatic steps to ensure oil is transported on the Barátság (Friendship) II pipeline in the appropriate amount and on the long term. The Cabinet intends to further examine the feasibility of integrating the Hungarian, Austrian, Czech-Slovak and Croatian oil mains into one system.