HISTORIC OVERVIEW OF PRIVATISATION PROCESS IN LITHUANIA

Privatization process was launched in Lithuania in September 1991 and
since then it has constituted an integral part of Lithuania’s economic
reforms. The entire privatization process may be divided into three
major stages:

The first stage covers the privatization that took place from September
1991 until July 1995. This phase may be called a mass privatization for
vouchers with some elements of cash sales. The voucher method was chosen
as the most effective way of transferring the ownership of the
state-owned enterprises. The privatization of state assets in Lithuania
during that phase has been based on the Law on Initial Privatization of
State Property passed in late 1991 and amended in 1993. As a result of
that phase, Lithuania has become a country with a majority of the GNP
generated in the private sector.

The second phase of privatization started in July 1995 with the
introduction of a new Law on Privatization of State and Municipal
Property. A State Privatization Agency and a State Privatization
Commission were established in late 1995 to administer the process.
According to the Law, the second phase will call for cash privatization
of remaining state and municipal property at market prices. Local and
foreign investors will have equal rights in purchasing the companies
offered for the privatization in Lithuania. During the second phase of
privatization the government will have to decrease its control in the
sectors of economy generally recognized as the state monopoly through
the cash sales. According to the Law on Privatization all bidders have
equal rights in the privatization process. Previously existing
concessions for the employees and management have been eliminated from
the new Law. During the second phase of privatization the amount of
investment into Lithuania was comparatively small. Investors had to
lodge documents with many different institutions, and therefore the
privatization procedure took some time. Individual ministries were not
interested in preparation of objects for privatization. Besides, legally
the former privatization institutions had no right to transfer
obligations of enterprises to the purchasers because they were not real
managers of enterprises.

New laws of privatization and State Property Fund (SPF) were passed in
November 1997. According to the aforementioned Law restructuring
Lithuanian Privatization Agency established the SPF and other related to
privatization and property management institutions. SPF holds in trust,
uses, disposes and privatizes securities and other state-owned property
transferred to it by the Government of the Republic of Lithuania.

There are several possible methods of privatization:

public subscription for shares;

public auction;

public tender;

direct negotiations;

lease with an option to purchase;

transfer of the state or municipal control of an enterprise controlled
by the

state or municipality.

THIRD PHASE OF PRIVATISATION, 1998 TO DATE

A new, amended privatisation law has been approved in the Seimas
recently, November 1997. The law amends the current privatisation law.
The proposed changes into the law are following:

to establish the State Property Fund (SPF) as the successor to the
enterprise founder found in the current law;

to bring certain procedures of the current law into line with operation
of proposed SPF and;

to do technical changes (but not substantial) to the current law.

The key policy change, proposed by the new law, is the replacement of
the role of enterprise founder and many of responsibilities of the
Privatisation Agency by the SPF. SPF holds in trust, uses, disposes and
privatises state-owned property. As time showed, the branch ministries
had too many conflicting policy objectives and wished to keep
enterprises that the Government has decided to sell, so, in brief,
privatisation process by new law is made less bureaucratic. The SPF
co-ordinates the privatisation process in Lithuania and directly
organizes privatisation of largest state-controlled entities in industry
and infrastructure. Privatisation of these enterprises is carried out
through transparent competitive procedure of international tenders
prepared and executed by internationally renowned advisors and
arrangers. First of all, public tender is announced to prepare the
privatisation program for the company by retaining a leading adviser.
During the tender, consultants having an extensive experience of
privatisation in the relevant sector are selected to prepare an
attractive privatisation program and provide financial, technical and
legal advice for the Government of Lithuania concerning the enterprise
to be privatised. When the program is to be approved by the
Privatisation Commission and the Cabinet of Ministers a tender is to be
announced for the privatisation of the company where the object shall be
sold.

Recently Public Limited Companies Lithuanian Telecom («Lietuvos
Telekomas») and Hotel Lietuva (Vie?butis «Lietuva») have been
privatised. Privatisation of these enterprises is carried out through
transparent competitive procedure of international tenders prepared and
executed by internationally renowned advisors and arrangers. For the
enterprises which have a strategic importance to the Lithuanian economy,
the Government has devised a special procedure of two stages for their
privatisation and some of them are already privatised. Public Limited
Companies Lithuanian Telecom (Lietuvos Telekomas) has been purchased by
the strategic investor — Consortium «Amber Teleholding» of Sweden
«Telia» and Finnish «Sonera». The Government accepted sale option of 60
per cent shares. In the energy sector, the oil refinery AB «Ma?eikiu
Nafta» is also being prepared to privatisation. Using the International
tender, a consortium of financial and other advisors, led by Banque
Paribas, has been selected as the winner of tender. At the moment it is
under the negotiations with potential investors. The Government of
Lithuania is also privatising two airlines: «Lietuvos avialinijos» and
«Aviakompanija Lietuva». Recently, the companies have been consolidated
so that «Aviakompanija Lietuva» became a subsidiary of a major airline.
The privatisation of the company is foreseen in 1999.

Privatisation of these entities is expected to achieve the following
goals:

to increase the efficiency of management and operation by introducing
new technologies, investing additional funds and exploiting the
experience of investors in the relevant area;

to promote the development of enterprises and markets;

to liberalize monopolistic markets.

Institutions taking part in the privatisation of strategic objects are
as follows:

the Property Fund, the role of coordinator; prepares companies for
privatisation and carries out the technical work,

the Privatisation Commission is responsible for the approval of final
decisions and control of the privatisation process.

International tenders for privatisation of strategic objects are carried
out by specially appointed Public Tender Commissions for the sectors
of energy, transport and telecommunications.

Public Tender Commissions determine the criteria for the preparation of
privatisation programs based on the Government policy as well as
practice and experience of other countries. The main priorities of
privatisation include not just maximising the revenue from the
privatised objects, but also attracting potential investors and their
contribution to Lithuania. Privatisation of the largest objects in
Lithuania is carried out in an open, transparent, efficient and rapid
manner.

Sources:

Lithuanian Development Agency. Website: http:\\www.lda.lt

»Lietuvos Rytas» Nr. 8 (360)/ 1999 m. sausio 30 d; » Valstyb?s turto
fondo veiklos ap?valga». p.16;

Republic Of Lithuania Law On The State Property Fund.
Website:http:\\www.lrs.lt

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