Clear Goals Are the Cornerstone of the Privatization Process

We found that the government’s goals, either for its overall privatization agenda or for individual privatization initiatives, influenced what entities would be privatized, how they would be valued, what type of sale would be used, and who would be eligible to purchase the entity. All the governments we contacted undertook privatization for a variety of reasons but all stated that they used privatization primarily to increase economic efficiency and reduce the size of the public sector. Table 2 shows the entities controlling the privatization process in each of the governments we studied. The United Kingdom has primarily sold nationalized industries, which are already in a corporate form. Officials in most of the countries told us that because of this complexity, the centralized agencies responsible for the management of privatization hired financial advisors to assist with the valuation process. In Canada, the government uses valuation to assist in pricing rather than to determine whether or not to privatize an entity. All governments in this study retained some amount of debt associated with entities to be sold, and generally paid the balance on under-funded or unfunded employee obligations. Budget Display and Use of Sale Proceeds

Most of the governments in this study use any cash proceeds that result from privatization to reduce debt and interest costs and do not permit proceeds to be used to offset ongoing spending.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the divestiture experiences of other nations, focusing on the: (1) privatization process; (2) valuation and preparation of assets for sale; and (3) use and display of sale proceeds for budgetary purposes.

What GAO Found

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.