1. 1 PRIVATISATION, SPEs etc. Jean-Pierre DUPUIS OECD Working Party on National Accounts (Paris, 12 October 2005

2. 2 2 PRIVATISATION Definition: 1. Giving up of control by the general government over a public corporation by the disposal of shares and other equity to private units (same basic definition in the EMGDD and GFSM 2001). 2. The typical case of privatisation is a sale of assets, and at first the sale of shares and other equity.

3. 3 3 PRIVATISATION The Sale of assets in the SNA1993 General principle: this transaction entails a restructuring / reshuffling the assets in the balance sheets of the units involved (neutral on net worth). The sale of assets generates no flow of income (in favour of the government) The cost of using the service of a financial intermediary for achieving the sale is to be recorded as intermediate consumption

4. 4 4 PRIVATISATION The sale of financial assets (shares and other equity) Direct sale of financial assets: The sale by the government of shares and other equity in a public enterprise is a financial transaction (in F.5, with a counterpart flow in F.2) The associated cost of purchasing the service of a financial intermediary is recorded as intermediate consumption (P.2)

5. 5 5 PRIVATISATION Indirect sale of financial assets: Case where the sale of shares and other equity in a subsidiary is made by a public holding corporation – or any kind of public unit: The sale itself is a financial transaction (F.5, counterpart in F.2) The payment of all or part of the sale proceeds to the government is a financial transaction (F.2, counterpart in F.5)

6. 6 6 PRIVATISATION The sale of non-financial assets (buildings, land etc.) Direct sale of non-financial assets: The sale of a non-financial asset is a transaction in goods and services (or in products) recorded in the capital account: As P.5 if it is a produced asset (counterpart in F.2) As K.2 if it is a non-produced asset

7. 7 7 PRIVATISATION Indirect sale of non-financial asset: Case where the sale of a non-financial asset is made by a public holding corporation – or any kind of public unit The sale itself is a transaction in goods and services (P.5 or K.2) The payment of all or part of the sale proceeds to the government is a financial transaction (F.2, with a counterpart in F.5). Rationale: liquidation of assets, reflected in the equity.

8. 8 8 PRIVATISATION Special case of a « restructuring agency »: A public holding corporation (or any kind of public unit) sales assets but does not give the sale proceeds to the government: the funds are kept by the « restructuring agency » to inject capital in other enterprises in any possible way (grants, loans etc.)

9. 9 9 PRIVATISATION Special case of a « restructuring agency »: Two main possibilities can be envisaged: 1. The unit is a real holding corporation directing a group of subsidiaries, and restructuring corporations is a minor part of its activity: Solution: to reroute the transactions made on behalf of the government through the government itself (SNA §3.24 or 3.31: « recognising the principal party to a transaction ») 2. The main function of the unit is to reorganise the public sector, redistributing income and wealth on behalf of GG: Solution: to classify the unit in the government sector

10. 10 NATIONALISATION Definition: nationalisation means the taking of control by the government over assets and over a corporation, by acquiring the majority or by acquiring the whole equity in the corporation. Two forms of nationalisation are observed.

11. 11 NATIONALISATION 1. Nationalisation by confiscation: This is not recorded as a transaction, made by mutual agreement, but as an other flow: K.8: uncompensated seizure (in OCV account) 2. Nationalisation by purchase of shares: There is a payment, in a legal context that normally guarantees some mutual agreement: this is a financial transaction (F.5, counterpart in F.2) NB: A combination of both treatments is possible if the price is too low (SNA, §12.39)

12. 12 Restructuring agencies Context: government rescues some banks in order to prevent a collapse of the financial system. Case of defeasance of bad assets. Set-up of special units, sometimes called « bad banks ». Issue: how and when to record losses that will affect government expenditure? Government guarantees are often involved. Sectorisation: is the created entity a financial corporation (putting itself at risk) or a government unit (acting on behalf of government)?

13. 13 Restructuring agencies Possible options of recording: A: the restructuring unit is a government unit. A capital transfer is recorded at time of acquisition of the bad assets (or granting of guarantees) B: the restructuring unit is classified outside the government. Capital transfers of government are recorded when losses are realised, at time of liquidation of assets.

14. 14 Special purpose entities Context: financial function, often the securitisation of assets Main issue: sector classification, in S.12 or in S.13 First step: as for any entity, national accountants must assess if the SPE meets the criteria for being an institutional unit. Assessment is on a case by case basis. SPEs involved in securitisation, if they are institutional units, are to be classified in S.123 (OFI) Case of ancillary units (New York meeting, Sept 05)

15. 15 Special purpose entities The case of non-resident SPEs created by the government to outsource some borrowing and expenditure, through securitisation for instance, has been discussed in a few instances TFHPSA in March 2005 and Eurostat in April asked for a classification inside the government (similarly to embassies) BOPCOM opposed this point of view (no exception for government except embassies and military) New-York and Washington proposal: possibility to consolidate some flows with the government

16. 16 Debt reorganisation A paper (prepared by the IMF) described several cases of such debt reorganisation involving the government: assumption, forgiveness, rescheduling, write-offs etc. General principle: when the debt of a public entity is cancelled or assumed, and an effective equal-valued claim against the corporation is not obtained, the counterpart of the transaction is a capital transfer Rationale: a voluntary transfer of wealth in the SNA is to be recorded through a capital transfer

17. 17 Debt reorganisation Clarification necessary in some cases: It should be made clear that the general principle contradicts some provisions in the GFSM 2001 (and in the paper): see appendix 2 point 6 for the case of debt assumption against a public corporation recorded as a financial transaction Case of debt write-off: other flow in OCV Case of concessionnal debt