State asset management and its institutional framework in Hungary OECD Advisory Group on Privatisation Dr. Péter Székács Hungarian Privatization and State Holding Company ÁPV Rt. 19th September, 2000 Slide 1

 The commercial assets of the Hungarian state  Institutions of state asset management in Hungary  ÁPV Rt.’s asset management principles, objectives and tools  Possible alternatives for managing commercial state assets The topics of this presentation: Slide 2

The commercial assets of the Hungarian state the Privatisation Act regulates the scope and extent of the commercial assets of the state assets may remain in long-term state ownership in: national public utility service providers companies of strategic significance in the national economy companies carrying out defence or other special duties or services company shares needed to guarantee state ownership or voting rights Long-term state ownership cannot be less than 50%+1 vote. In exceptional cases this can be reduced to a 25%+1 vote blocking minority, or a special priority voting share Organisations managing long-term state assets:93 companies by ÁPV Rt. 74 companies by ministries Slide 3

Commercial state assets in ÁPV Rt.’s portfolio (31st December, 1999) long-term state ownership 306 bn HUF Total: 768 bn HUF agricultural land 69 bn HUF goods, real estate 26 bn HUF cash and govt. bonds 97 bn HUF balance of obligations and receivables bn HUF assets to be privatised 409 bn HUF Slide 4

No. of companies general level of long-term state ownership _____________________________________________________________________________ state-owned forestry companies 19100% state-owned agriculture companies 2775% Volán group of bus companies 2450%+1 companies of strategic importance 1525% - 100% companies of strategic importance 81 priority voting share Slide 5 Categories and levels of long-term state ownership in ÁPV Rt.’s portfolio

treasury assets Treasury Asset Management Organisation (until 1996) Treasury Property Directorate (since ) Treasury Central organisations with delegated powers (e.g. ministries) commercial assets State Property Agency (ÁVÜ, ) State Holding Company (ÁV Rt., ) The Hungarian Privatisation and State Holding - Company (ÁPV Rt., since 1995) Ministries Contracted external asset management companies assets of separate state funds Separate fund management organisations assets of the Social Security Fund (wound up 1998) Pension Fund (until 1998) National Health Fund (until 1998) Slide 6 Institutions of state asset management in Hungary

Slide 7 Institutions of state asset management in Hungary The Hungarian Privatization and State Holding Company (ÁPV Rt.) established in 1995 by Act XXXIX of 1995 one-man, state-owned, holding-type company limited by shares supervised by the Government via the minister in charge of privatisation organisational and operational rules passed by government duties stipulated in the privatisation act, prevailing budget act and governmental resolutions tasks are market-based management and sale of the assets in its portfolio headed by a 8-11 member Board of Directors and a CEO activities supervised by Supervisory Board, independent auditor and State Audit Office in 1999 asset management and privatisation activities were separated to ease the adoption of the future asset management institutional framework

Slide 8 State Audit Office Auditors Minister supervising privatisation Organisational chart of ÁPV Rt.

Slide 9 ÁPV Rt.’s objectives for the forthcoming years:  To assert the state’s service obligations with strategic assets, implement state policies in asset management activities.  To operate and manage the state’s commercial assets in harmony with the principles of economic policy.  To achieve the best possible economic performance from assets and to use resources to develop well-operating companies and pay dividends to the state.  To employ the same up-to-date management techniques used by companies in the private sector so enable state-owned companies to compete in the market.  To exercise a governing role without being involved in every aspect of company operations, but by setting the framework and conditions for their operation according to tough market demands.  To privatise quickly but not just for the sake of it. Companies should be ready for it.  To sell assets competitively under the best possible conditions and with the state undertaking the least amount of guarantees.  Increasing transparency and openness in asset management and privatisation within legal and business limits.

Slide10 ÁPV Rt.’s asset management duties:  issuing mandates at shareholders meetings (decisions on the articles of a company, annual reports, business plan, use of dividends, employee shares etc.)  carrying out asset protection transactions (withdrawal, assets brought into the business)  making owners decisions on reorganisation and crisis management  carrying out bankruptcy, liquidation procedures  raising and reducing a company’s capital  selling and buying ownership stakes in companies  providing (non-interest) loans, financial support  undertaking guarantees  founding new companies, developing existing companies  taking human resource decisions (the appointment, replacement, remuneration and bonus payment etc. of the board of directors, supervisory board, CEO, managing directors)  establishing controlling and supervisory systems  valuation of assets, company evaluation, record keeping  exercising ownership rights

Slide11 ÁPV Rt. can exercise its will and decisions through:  shareholders and members meetings  delegates on the board of directors  delegates on the supervisory board  analysis of regular controlling reports  owner supervision  examining targets and issues  nominated auditors

Slide12 ÁPV Rt.’s supervision of the companies in its portfolio deals with the following:  ownership structure  capital situation, financing, liquidity  market (buyer-supplier connections)  debt level  credit (returns) repayments  competitors, examination of product structure  management of reserves  modernity of technology used  development needs, examination of developments underway  structure of business interests  evaluating business achievements

Slide13 Points for consideration regarding the future management of the state’s commercial assets:  the role of the state in the economy  the level and scope of long-term state ownership  the targeted objectives and outcomes  the institutional framework for managing state assets, selection of asset managers and transferring ownership rights to them  the state’s supervision of the asset management and how it should be integrated into the public administration system  the tools and methods of asset management  putting the required legislation into place

Slide14 option commercial assetstreasury assets ______________________________________________________________________ 1relevant ministries Treasury Property Directorate (winding up ÁPV Rt.) ______________________________________________________________________ 2built on the existing Treasury Property Directorate professional organisation (reworking the Privatisation Act) ______________________________________________________________________ 3new asset management holding and new state priv. officeTreasury Property Directorate ______________________________________________________________________ 4new asset management Treasury Property Directorate and privatisation holding (new unified asset law) Alternatives for the future management of the state’s commercial assets