Budget Issues

Privatization/Divestiture Practices in Other Nations Gao ID: AIMD-96-23 December 15, 1995

A variety of divestiture proposals are now being considered in the United States, including selling the Naval Petroleum Reserves, four Power Marketing Administrations, and the Helium Program. Because the U.S. government has limited experience with asset divestiture, GAO examined the experiences of other governments for lessons that might prove useful for the United States. For this study, GAO reviewed the divestiture experiences of the following five countries: Canada, France, Mexico, New Zealand, and the United Kingdom and major industries that have been fully or partially privatized such as agriculture, mining and construction, manufacturing, transportation and public utilities, finance, insurance, and real estate, and services. This report discusses (1) the privatization process, (2) the valuation and preparation of the assets for sale, and (3) the use and display of the sale proceeds for budgetary purposes.

GAO found that: (1) in the nations studied, privatization goals influenced how and what entities would be offered for sale; (2) the nations studied used privatization mainly to increase economic efficiency and reduce the size of government; (3) a central agency is responsible for overseeing the privatization process in each of the nations studied; (4) the nations generally privatized entities already in a corporate form; (5) some nations used clawbacks to require buyers to return a share of profits to the government; (6) although the use of clawbacks helps protect taxpayers against undervaluation, they decrease sale prices and may constrain entities' commercial behavior; (7) although the nations used various valuation techniques, all governments hired financial advisors to assist in the valuation process; (8) most of the nations studied attempted to remove liabilities from entities being privatized by restructuring debt, paying unfunded employee obligations, or otherwise removing risks that would reduce the entity's sale price; and (9) most of the governments used any proceeds resulting from privatization to reduce debt and interest costs rather than to offset ongoing spending.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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