DISTRIBUTION OF VOUCHERS TO COMMON PUBLİC AS A METHOD OF PRIVATIZATION AND ITS APPLOCATION IN AZERBAIJAN

 

Dr. Muhammet AKDİŞ

 

I-INTRODUCTION

Privatization is a reality of our era. Almost all nations ranging from those countries which have adopted liberal economy with its various applications to former USSR nations have used privatization technique more or less. The nationalization movement of the 1940s gave way to privatization from 1970 onwards.

There are extremely different techniques of privatization being effected. In particular, this matter is of a special importance in the economies which adopted in the past a socialist economy system and which brought entire economic units under state property. That is because this means not only privatization of state property but a transition to a new economic system.

 

II – PRIVATIZATION TECHNIQUES THE VOUCHER METHOD

There is an extremely wide range of privatization techniques which found field of application for themselves throughout the world. However, in eastern block countries in particular the matter takes up a different shape and there may be certain differences in practice observed. One such different practices is the Voucher method.

 

A-                      THE VOUCHER METHOD CONCEPT ANN THE GOAL OF THE COUVHER METHOD

Meaning instruments, receipts or voucher and having different names in every country, the concepts refers to privatization shares certificates of documenting shares at institutions to privatized.

The system of privatization through voucher in principle is based on the logic that all people living in a given country should have equal claims of ownership over entire property to be privatized. The basic goals of practice distribution of capital to the base and accomplishment of privatization in a swift manner¹  and provision of vertain amount of the profits derived from such privatization for the public.

 

B-MODE OF APPLİCATION OF THE VOUCHER SYSTEM

To apply the voucher system, it is necessary first to determine the values of the institutions to be privatized; having vouchers printed which correspond to such values; offering common public of such printed vouchers, creation of a market where the vouchers dealings can be made; later, it is necessary to go though steps involving transformation of the institutions to be privatized into joint stock companies and sale of certain lots of their shares at auctions in exchange for voucher cum; and purchasing of given  company shares by buyers upon payment of such sums with voucher.

 

III- THE COUNTRİES WİTH THE VOUCHER SYSTEM APPLICATIONS AND THE RESULTS

Recommended by World Bank, the voucher system found itself a field of application particularly in Czechoslovakia, Lithuania and Mongolia and practiced in each country in a different manner.²

In Czechoslovakia where the voucher system was first practiced, investment funds were created in parallel with offering the common public vouchers. The funds were made available to Czech and Slovak investors simultaneously without any requirement authorization or depending any limitation and thus over six hundred funds were created. Certain of these funds however failed to fulfill their respective obligation so they had be written off. State also brought regulatory principles over the funds. Czech people had the option of transforming their vouchers to directly privatization allotments(shares) through auctions, or they, if they liked, were able to maintain as them investment fund share in order to transform them to share for those institutions to be privatized in future.

In Poland, on the other hand, there were limitations brought over transformations of such vouchers to investment funds, while in Hungary, a contrary action was assumed where it was imposed restrictions over meeting of demands for repayments of the vouchers and that practice was broadened that way.

In Czechoslovakia, approximately 8.5 million people paid an amount in cash to obtain vouchers; whereas in Lithuania the voucher records were allowed to be used for purchasing all State property; as for Mongolia, voucher owners  used such vouchers for swift and successful privatization of small enterprises.

It was in Russia where privatization with voucher was practiced in the most broad from. There, vouchers were distributed to people, sold on free markets and used in privatization of public property.

In short, together with certain problems privatization with voucher was practiced in Russia, Georgia, Azerbaijan, Czechoslovakia, Poland, Hungary, Latvia and Lithuania³ and was highly successful.

 

IV- APPLICATION OF THE VOUCHER SYSTEM IN AZERBAIJAN AND THE RESULTS

Azerbaijan adopted independent means for the small, medium and big business enterprises to be privatized, using the voucher technique in privatization of medium and big enterprises. The enterprises covered by this practice were split into five groups, by sectors, and under the headings of industry, transportation, construction, trade and service enterprises. These enterprises were further divided into three categories big, medium and small enterprises, according to the number or the employees.

 

A- GROUPING THE ENTERPRISES IN AZERBAIJAN AND PRIVATIZATION TECHNIQUES

Table 1 illustrates the sizing criteria used for grouping the enterprises in Azerbaijan.

Table 1

The Grouping Size of Enterprises

Active in Azerbaijan

Lines of Field of	Grouping the enterprises by number
Enterprises	of emloyees
	Small	Medium	Big
1. Industry	50	51-300	Above 300
2. Transportation	15	16-75	Above 75
3. Construction	25	26-150	Above 150
4. Trade	10	11-50	Above 50
5. Service	10	11-50	Above 50

 

Source: State Program for Privatization of State Property between 1995 and 1998 in Republic of Azerbaijan. 29.9.1995. Add.2, Art.9

 

According Table 1, present number of small enterprises is approximately 13621 in Azerbaijan.⁴ Privatization in these sectors on the other hand was accomplished, based on different principles separately for small enterprises and again different principles for medium and big enterprises. In addition to mass privatization where the voucher privatization was practiced, a brief mention should be made to privatization of small enterprises in the following lines.

1.                        Privatization of Small Enterprises

Privatization of the establishments regarded as a small enterprises by their number of employees was deemed as compulsory according to State privatization program.

 

Table 2

Small Enterprises Privatized In Azerbaijan

Item	Bussiness	Number	Initial	Starting		Price of Selling
No	Category		Value(100$%)	Price(85%)	Thousand	ABD
			Thousand	Thousand	Manat	$
			Manat	Manat
1	Service	7380	28434404	24232310	24169243	616720
2	Trade	614	47652075	40504264	40504264	1033536
3	Social Needs	146	6940469	5899399	5899399	150533
4	Fuel Oil Fill Stations	316	50796544	43177062	43177062	1101737
5	Bread Selling Stores	360	10933018	9293065	9293065	237128
6	Bread Barkery	140	6809788	5788320	5788320	147699
7	Industrial Enterprises	242	16792294	14273450	14273450	364212
8	Construction Enterprises	27	3416761	2904247	2904247	74107
9	Enterprises with
	Uncompleted Construction	22	1926724	1637715	1637715	41789
10	Transportation Enterprises	371	142281	120939	120939	3086
11	Enterprises offered to let	54	2631788	2237020	2237020	57081
12	Enterprises offered to let but
	not domiciles themselves	51	3520869	2992739	2992739	76365
13	Other Enterprises	8	55059	46800	46800	1194
	Total	9731	180052074	153107330	153044263	3905187

1$=3919 Manat (Official currency)

Source: State Property Committee

  

In privatization of these establishments, it was aimed transferring 15% of enterprises to employees on privileged prices, and selling the remaining part though public actions⁵. Privatization of fuel supply stations and bread selling kiosks which are spread nation wide and considered as small business corporation category in continuing. Table 2 illustrates information on the enterprises privatized in Azerbaijan until 15^th October 1997.

As it is apparent by Table 2, total of 9731 small business enterprises were privatized and a profit of about US$ 4 millions was derived thanks to the efforts made up to date. Number of the privatized establishments constitutes about 70% of total enterprises. The number is increasing every day. As of January 1998, the number exceeded 13000⁶, reaching 90% of the total number.

2- Privatization of Big and Medium Size Enterprises (Mass Privatization)

Privatization of big and medium scale enterprises (mass privatization) in Azerbaijan is being carried out in different manner. These enterprises were transformed to joint stock companies prior to privatization and their capital were divided into shares. It is envisaged on these shares that subsequently.

-15% being used in form of privileged sale of the enterprises to their employees.

- 50% voucher public auctions,

- 10-20% pecuniary public auctions,

- while the remaining, in pecuniary public auctions or creation of investment funds⁷; thus, completion of the privatization process. Law orders that all privatization transactions shall be materialized using Manat which is the national currency unit⁸.

However, there is also another application called Gold Share Clause(Kızıl Semih) in privatization of medium and big size enterprises in Azerbaijan. During privatization process of the enterprises deemed as strategic and the enterprises in field  of public health and security. State can make such privatization conditional on gold share clause. The golden share requirement makes State to be entitled to the right of vetoing the resolutions adopted by a three quarter majority by Boards of Directions of enterprises.⁹

 

A-                      PRIVATIZATION OF GIB ENTERPRISES AND THE VOUCHER METHOD IN AZERBAIJAN

In Azerbaijan, some 65 percent of the medium and big size enterprises was planned to be privatized though the voucher method. To be in compliance with the plan, provision were made for the years of 1997 and 1998 and these were put into practical action as well. Carrying out this practice within the framework envisaged was deemed as necessary also by IMF, in term of harmonization programs and loans support.¹⁰

Practised in Azerbaijan, in addition to Russia and certain former eastern block countries, the voucher system is finding itself different application modes in various countries. The following lines describe  the application of the system Azerbaijan.

   1- Relevant Institutions With Regard To Privatization in Azerbaijan

The institution called State Property Committee(SPC) is the responsible body for privatization efforts in Azerbaijan. This institution and establishment to be privatized, and determines privatization modes of them and practices such privatization.¹¹

SPC was entrusted with the task of carrying out the voucher system in its entirety. That is to say, field of activity of the Committee covers issuing vouchers, offering to common public, determining values of the institutions to be sold through the voucher public auctions, and sale of such institutions though auctions.¹²

SPC was also entrusted with missions pertaining to the taking necessary measures to make sure that the voucher system runs trouble free, and the bodies to be established. In this respect, both establishment and operation of institutions and establishments such as National Stock System (NDS), Voucher Investiya (Investment) Funds(VIF), and Voucher Stock Exchange (VSE).¹³ NDS will be an institution where commercial papers, privatization vouchers are dealt, vouchers are recorded and their circulation is regulated. Likewise, VSE will be composed of a series of centers where voucher prices are regulated on free market, and their dealings are made. As to what constitutes the goals of VIFs, these are anticipated to be established as joint stock companies open to common public, sale of their shares in exchange for vouchers; maximize the shares held by the common public to possible extent and use of such shares in purchasing lucrative enterprises to be privatized; subsequently, distribution of net profit derived through such companies to VIF partners. What was intended by application of the voucher system with such organization was to prevent property from being los