Popular government’s document on transformation to the privatization sector

Markers of the Desired Conditions

• To promote the performance of economic enterprises and to utilize the human, financial and technological resources;
• To increase the role of the private and cooperative sectors in the national economy;
• To reduce the financial and management burden of the government’s incumbency regarding economic activities;
• To spend the profits from the transfers in the capital investments, developmental activities, and elimination of poverty.

Transformational Turns

• From ordered transfers for debt clearance to competitive privatization to find the best buyer;
• From focusing on privatizing the ownership to prioritizing the assignment of management and ownership in exchange for productive management;
• From privatization in providing the current expenses of the government to privatization for providing the resources needed for the development and infrastructure;
• From a passive approach of choosing a buyer to an active and intelligent identification of real persons and legal entities as buyers.

Challenge No. 1: The Continuation of the Financial and Managerial Burden of the Public Sector in the Economy

Contributing Factor 1: The lack of a large and able private sector to purchase state enterprises

Solution 1: Diversifying the privatization processes

Major Measures

• Utilization of management assignment procedure to reduce the cost of privatization through proposing amendment in implementing the general laws of the Principle 44 of the constitution (midterm- Ministry of Economic Affairs and Finance, Vice-president of Economic Affairs, Vice-president of Legal Affairs)
• Utilization of incentive measures in transfers, by granting ownership as an incentive and reward for ideal management (midterm- Ministry of Economic Affairs and Finance)
• Utilization of the financial and supervisory capacity of the banking system and the capital market through the development of infrastructure required for the leveraged buyout of companies, by selling bonds or receiving bank facilities by the buyers instead of installment purchase from the Privatization Organization (midterm- Ministry of Economic Affairs and Finance, the Central Bank).

Contributing Factor 2: Interference by the Supervisory Entities

Solution 1: Correction of Supervisory Measures

Major Measures

• To design a homogenous supervision model with the cooperation of the three branches of government and their relevant entities, for the purpose of a specified division of labor and creation of unity between the supervisory entities and understanding the challenging issues such as pricing, competency, the advantage and benefit of the government and the dominance of the treasury (short term- Ministry of Economic Affairs and Finance, Vice-president of Economic Affairs)
• To arrange for a single and specific procedure in addressing objections and cancellation of the transfers, and to assign an authority, through the proposition to amend the law pertaining to implementing the general policies of Principle 44 of the constitution (midterm- Ministry of Economic Affairs and Finance, Vice-president of Legal Affairs)
• Process forecasting to stress on investigating the objections against privatization, prior to the amendment of the law (short term- Ministry of Economic Affairs and Finance, Vice-president of Economic Affairs)

Solution 2: Evaluation by Specialized Entities

Major Measures

• To benefit from the authorities in the capital market rather than official experts of the Justice Administration to evaluate enterprises through proposition to amend the laws pertaining to implementing the general policies of Principle 44 of the constitution (midterm- Ministry of Economic Affairs and Finance, Vice-president of Legal Affairs)

Solution 3: Changing the Public’s Mindset and Supervisory Entities in Pricing

• Raising public awareness regarding the differences in evaluating the enterprises and assets through establishing media and social content, by utilizing the capacity of the national broadcast, virtual networks and cooperation of Islamic Republic of Iran Broadcast (IRIB) and other cultural institutions, advertisement and media (short term- Ministry of Economic Affairs and Finance, Ministry of Culture and Islamic Guidance)
• Cooperation with the supervisory and judiciary entities with the aim of promoting specialized knowledge in the field of pricing and the difference between evaluating the enterprise, asset, market and book value (short term- Ministry of Economic Affairs and Finance, Justice Administration)

Contributing Factor 3: Insufficient Trust of Consumers in the Government

Solution 1: Assuring the Consumers

Major Measures

• Taking alternative measures such as amendment of contracts as oppose to cancellation and termination of the transfer contracts in cases where the objections to the aforementioned contracts do stem from the fault of the purchaser, and if termination is inevitable, arranging for the payment of significant damages to the purchasers of enterprises, by proposing the required laws (long term- Ministry of Economic and Affairs and Finance, Justice Administration, Vice-president of Legal Affairs)

Contributing Factor 4: Inconvenient Business Environment

Contributing Factor 5: The Tendency of Executives to Use the Debt Default procedures in Transfers

Solution 1: Reassuring the Purchasers

• Blocking the ability to use the Debt Default method in Transfers in the annual budget laws (short term- Plan and Budget Organization, Ministry of Economic Affairs and Finance)

Contributing Factor 6: Limited Financial Ability of the Privatization Organization for Transfers

Solution 1: Taking advantage of the private sector’s capacities for specializing the privatization and transfer procedure.

Major Measures

• Support for the private sector for the establishment of specialized companies with technical, legal, financial, and media capacities in subjects that take priority in the privatization in certain  fields such as energy and mining, as agents for the pricing process and preparation of enterprises subject to privatization for an increase in precision and transparency of the transfer process; and, providing the required resources for the expenses in the form of commission from the transfer sum, by creating by-laws concerning the conditions as well as methods of activities of the official privatization agencies (midterm- Ministry of Economic Affairs and Finance)
• To take advantage of the specialized financial entities such as capital financing companies, as privatization consultants, to find the right buyers and to create a suitable incentive system through the payment of commission from the transfer sum for privatization consultation (midterm- Ministry of Economic Affairs and Finance)

Challenge No. 2: Insufficient Gains of the Predicted Developmental Goals Despite the Transfers

Contributing Factor 1: Budget Deficit and Transfer to Cover the Current Costs

Solution 1: Organizing How to spend the Profits from Privatization

Major Measures

• Determining the specific share of the funds gained through the transfer, in different consumption as per the relevant usages; to be distributed into development, infrastructure, cooperation and current affairs, and the legal obligation regarding the allocation of 100 percent of the gains  in the framework of the determined share, via the  proposition on  amending  the execution of the general policies of the Principle 44 of the Constitution (midterm- Plan and Budge Organization, Vice-president of Legal Affairs)

Contributing Factor 2: The Persistence of Undesirable Government Interference in the Activities of Private Enterprises Despite the Transfer of Ownership

Contributing Factor 3: Neglecting other Cores of the General Policies of the Principle 44 of the Constitution and Emphasis on Transfer

Solution 1: Attention to the Issues Surrounding Enterprises Before Transfer

Major Measures

• Attention to the analysis and amendment of external issues of enterprise prior to the transfer,  such as working in a captive market, being under umbrella, sponsorship, support or special privileges, local issues, etc. through utilization of the available legal capacities, and if required, through the proposition of amendments in implementing  the general policies of the Principle 44 of the Constitution (midterm- Ministry of Economic Affairs and Finance, Vice-president of Economic Affairs, Vice-president of Legal Affairs)