CAIRO: After weeks of refusing to comment on the controversy surrounding the sale of Omar Effendi, Minister of Investment Mahmoud Mohieddin finally broke his silence in a meeting with journalists.
The minister was visibly disturbed by the accusations against him in the press, which included some personal attacks by journalists. He defended his role in the privatization process, emphasizing that the process is governed by the law and includes specific checks and balances to ensure that it is not unduly influenced by a single individual. These checks include a valuation by a professional third party, the review and endorsement of the valuation by a committee that includes representatives from various branches of government as well as academics and the approval of any offer by the general assembly of the holding company.
Mohieddin s work on the sale of state property is sometimes characterized in the press as a careless rampage. But in light of the privatization program recently approved by parliament, Mohieddin says that if anything the pace of selling is too slow. In his first year in office, from July 2004 to June 2005, the number of state-owned companies declined from 175 to 166; since this included four mergers, only five public companies were sold to private entities in that year. In the current fiscal year, which will end in June, another six state-owned companies were wholly sold to the private sector to date.
The People s Assembly last week approved a privatization plan that includes the sale of another 45 state-owned companies. If the current pace of privatization is maintained, Mohieddin says that these transactions will take another nine years to complete. This duration is too long in Mohieddin s view, and raises questions about how the privatization plan can be accomplished without intensifying efforts.
The minister also defended his record of managing public assets. Total annual profits from state-owned companies rose from LE 91 million when he took office 21 months ago to LE 604 million today; this figure excludes gains from the sale of companies. As part of the restructuring process, the top two executives in nearly half the public companies were replaced.
Meanwhile, the fate of employees is a common concern during the privatization process. Mohieddin says that a proper headcount of the staff of public companies was performed for the first time during his tenure as minister. State-owned companies currently employ 401,095 individuals, down 9,468 since July 2004. Much of this decline is due to early retirement, although the number of employees that retire early is offset by roughly the same amount of new hires. Despite the decline in staff, the wage bill has increased by some LE 300 million to LE 5.4 billion per year due to higher salaries.
With regard to Omar Effendi, the company has 5,929 employees with an annual payroll of LE 54.5 million. The headcount includes 833 temporary staff, which have in fact been employed for years with no official status. The failure to properly account for these temporary staff was one of the substantial deficiencies of the company, according to Mohieddin.
Poor profitability is another challenge in the selling of the department store. Omar Effendi made a profit last year for the first time since 2002, although income amounted to a meager LE 2.1 million on sales of LE 430.6 million.
Mohieddin reiterated that the sale of state assets is not based on the whims of any individual in the government, but on a program that was proposed to the cabinet and debated in parliament. He adds that a number of cabinet decisions since 1998 have mandated the immediate sale of Omar Effendi.
The sale to a strategic investor was necessary, says Mohieddin, because the low profitability of the company makes an offering on the stock exchange virtually impossible. The government is in the process of negotiating an offer of LE 504.9 million from the Saudi Anwal Group, but this cannot proceed until a decision is taken by the prosecutor-general on a case against the sale lodged by Yehia Abdel-Hadi, the head of one of Omar Effendi s sister companies, Benzione. If the sale to a strategic investor does not succeed, other alternatives will be considered, including a branch-by-branch sale of the company.
Mohieddin concedes that there are ideological differences on privatization. And despite his impassioned defense of his role in the process, he had a reconciliatory tone toward journalists, stating that he is willing to work with the press to increase disclosure within the limits of the law. He also underscored his belief that transparency was the only way to combat corruption in the country.