Overview
This proclamation establishes the legal framework for privatizing public enterprises in Ethiopia, repealing and replacing the previous privatization law (No. 146/1998). It aims to improve efficiency, enhance competitiveness, attract private investment, and generate revenue for development financing.
Key Words and Phrases
Privatization, Public Enterprise, Private sector, Pre-privatization activities, Golden share, Agency (Public Enterprise Holding and Administration Agency), Ministry of Finance, Trustee, Valuation, Indicative price, Floor price, Competitive tender, Public auction, Initial Public Offerings (IPO), Strategic sales, Post-privatization investment obligations, Post-privatization evaluation, Transfer of rights and obligations, Residual assets and liabilities, Proceeds from privatization, Industrial Development Fund
Key Definitions
- Privatization: Sale of assets or share capital of a public enterprise (full or partial) to private ownership
- Public Enterprise: Enterprises governed by Proclamation No. 25/1992
- Golden Share: Special share enabling government to protect national interest through voting and veto rights over board resolutions
- Pre-Privatization Activities: Preparatory work conducted by the Ministry to ready enterprises for privatization
- Supervising Authority: Body designated to monitor government ownership rights
- Trustee: Directorate General within the Ministry handling residual assets/liabilities
Objectives
- Improve efficiency and competitiveness of public enterprises
- Attract technical expertise and improve access to capital
- Generate revenue and enhance development finance
- Create enabling policy environment for private investment
- Promote economic development through private sector expansion
Institutional Responsibilities
Council of Ministers:
- Determines which enterprises to privatize
- Approves transfer of enterprises to the Agency
- Approves golden share structure and use
Ministry of Finance:
- Determines pre-privatization activities and timing
- Sets sale modalities and indicative prices
- Oversees restructuring efforts
- Ensures anti-competitive behavior is prevented
Agency (Public Enterprise Holding and Administration):
- Implements privatization transactions
- Develops sales procedures and bid criteria
- Publicizes offerings and organizes transactions
- Monitors post-privatization obligations
- Conducts post-privatization evaluations
Management Board of Enterprises:
- Provides requested information
- Prepares enterprise for privatization
- Prevents asset deterioration during process
- Restricts new investments without Ministry approval
Pre-Privatization Activities
- Ministry evaluates capital structure, business strategy, governance, and disclosure practices
- Restructuring may occur to bolster enterprise value and attractiveness
- Ministry must prevent anti-competitive behavior and excessive market dominance post-privatization
Conversion to Share Company
- Public enterprises may be converted to share companies with a single shareholder (government)
- All Commercial Code provisions apply except Articles 307(1), 311, 347(1), and 349
- Ministry determines assets/liabilities transferred, fixes capital, and may increase capital after revaluation
- Supervising Authority exercises shareholder meeting powers
Valuation
- Independent valuation by qualified expert
- Conducted after restructuring completion
- Floor/indicative price requires Ministry approval
- Follows Ministry-issued valuation guidelines
Privatization Modalities
- Competitive tender
- Public auction
- Initial Public Offerings (IPO) (where stock exchange exists)
- Phased/sale tranches over time
- Trade or strategic sales (to pre-selected corporate investors) – with Ministry approval
All modalities must be transparent and secure favorable terms for government.
Key Provisions
Golden Share: Government may retain golden share with voting and veto rights when selling controlling interest.
Employee Share Reservation: Ministry may reserve shares for enterprise employees.
Post-Privatization Obligations:
- Investment requirements may be included in agreements
- Buyers must implement obligations within specified timelines
- Agency monitors compliance
Post-Privatization Evaluation:
- Independent expert conducts evaluation
- Annual report assesses: government liabilities, guarantees, efficiency gains, absence of government funding impacts
Transfer of Rights and Obligations:
- Enterprise ceases to exist upon registration of share company
- Rights/obligations transfer to buyer per sales contract
- Residual assets/liabilities transfer to Trustee
- Employee pension coverage continues uninterrupted
Dispute Resolution
- Disputes between Agency and buyer referred to Federal Court
- Parties may agree to arbitration as specified in contract
Taxation
- Depreciation calculations based on valuation under Article 7
- If tender price lower, based on actual amount paid by buyer
- Agency provides asset value breakdowns to tax authorities
Use of Proceeds
Proceeds from privatization (net of transaction costs) deposited into Industrial Development Fund Bank account administered by Ministry.
Miscellaneous Provisions
Duty to Cooperate: All government organs must provide information and assistance for privatization implementation.
Eviction of Illegal Occupants: Courts must issue eviction orders within 30 days unless legal defense is submitted.
Repealed Laws: Proclamation No. 146/1998 (as amended) is repealed.
Transitional Provision: Existing contracts under previous law remain enforceable.
Applicable Laws: Investment laws apply to privatized enterprises; however, “domestic investor” definition does not include government or public enterprises for implementation purposes.
Effective Date
July 10, 2020
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