Chapter 2. Guiding principles

This chapter discusses the guiding principles that should inform policy makers when considering a privatisation programme or transaction. It discusses how policy objectives are identified and articulated, drawing on lessons learnt from national privatisation experiences; underlines how a transparent and credible institutional framework with high-level political support and early stakeholder engagement can support the privatisation programme; and outlines how best to sequence the process to build credibility and support.


The decision to privatise a state-owned enterprise (SOE) is complex and influenced by evolving governmental priorities, political cycles and changing paradigms about the merits/demerits of public ownership. It is also impacted by previous privatisation experiences, evolving public discourse on the matter and other factors. Although the decision-making process is complex and never completely divorced from political considerations, this chapter provides tools to the policy maker on how best to anchor the process to ensure credibility, transparency and integrity, while avoiding discretionary decision-making.

This section discusses the guiding principles that should inform policy makers when considering a privatisation programme or transaction. It discusses how policy objectives are identified and articulated, drawing on lessons learnt from national privatisation experiences; underlines how a transparent and credible institutional framework with high-level political support and early stakeholder engagement can support the privatisation programme; and outlines how best to sequence the process to build credibility and support.

Identifying and articulating policy objectives

Rationales for privatisation

Privatisation objectives are multiple, and at times conflicting, and their relative importance has varied across countries, and even within the same country they have changed over time. Although there is no single approach to privatisation, the rationale for divestment is inextricably linked to the rationales for ownership (See Figure 2.1).

These rationales should be made transparent and based on clear criteria, which can help to avoid overly “subjective” decision-making, while also ensuring a good business case and value for money. Ensuring value for money will necessarily require balancing revenue maximisation with other policy goals, which are often immaterial but important to define in advance of the process. Cited examples of rationales for divestment often include:

  1. 1. rationale for government intervention no longer present (e.g. government intervened because of a market failure and that market failure is no longer present)

  2. 2. raising revenue for the national treasury either to reduce debt or to raise expenditure

  3. 3. improving economic or sectoral economic performance

  4. 4. enhancing the efficiency of the individual SOE

  5. 5. developing national stock exchanges

  6. 6. diversifying corporate ownership and/or attracting outside investment

  7. 7. attracting a strategic or foreign investor

  8. 8. opening up markets for competition and improving service delivery.

Where an ownership policy exists, the privatisation of an SOE will typically be justified by the fact that this company no longer falls within the rationale for state ownership established by the policy. A state enterprise ownership policy provides SOEs, the market, and the general public with predictability and a clear understanding of the state’s overall objectives and priorities as an owner. The ownership policy should ideally take the form of a concise, high-level policy document that outlines the overall rationales for state enterprise ownership (Figure 2.2). According to the annotations of the OECD Guidelines on Corporate Governance of State-Owned Enterprises (“OECD SOE Guidelines”), the state, where relevant, should also include information in the ownership policy on its policy and plans regarding the privatisation of SOEs. The rationale for government ownership should be made clear and transparent and should be restated at certain intervals, with measurable indicators for determining if the stated rationale is still applicable (e.g. market failure).

Figure 2.1. Rationales for ownership and divestment: A balancing act
Rationales for divestment and public ownership are inextricably linked and should be balanced.
Figure 2.2. What is an ownership policy?
Privatisation is typically justified when a company no longer falls within the rationale for state ownership established by a state ownership policy.

In mature economies, the rationales for state ownership are mostly limited to the need to remedy market failures and to provide goods and services for which there is no likely private supplier. Privatisation has often been motivated by changing market conditions where SOEs operate and the entrance of private competitors.

In emerging economies, the rationales for state ownership are sometimes defined more broadly and may for instance relate to the role of SOEs in national development strategies or in the provision of a broader palette of public services, safeguarding national ownership of enterprises and, especially in post-transition economies, an ongoing effort to rebalance the public and private shares of the productive economy.

Countries also differ with respect to the “rigour” they apply when assessing what to do with an SOE no longer complying fully with the stated rationale for ownership. Many governments would tend to see such companies merely as “candidates” for privatisation (see also section on sequencing below).

Rationales for mixed/broadened ownership

In some cases the divestment of state assets may fit into a broader “mixed ownership” or (partial) “divestment” policy without the end goal of full privatisation. This will depend on a number of factors, including the extent to which privatisation is accepted as part of the public discourse and the extent to which the state has expressed the policy as part of a broader economic strategy to remain as a shareholder. For example, the state may maintain residual ownership to signal a commitment that the government is willing to share the residual risk with investors. The dual involvement of the state and a private company as shareholders can balance various priorities. For example, the involvement of a private industrial shareholder in the company can bring in changes to the operational strategy and management of a company.1 At the same time, state involvement can lower transaction costs in areas where the enterprise continues to deliver on public policy objectives of a “social” nature through effective regulation. The presence of private investors may allow for investments in longer-term and more risky projects, especially in certain capital intensive, and sometimes uncertain, investment projects, such as in the oil or mining sectors. The presence of a government shareholder may balance out the short-termism of private investors concerned primarily with maximising shareholder value, while the market-orientation of private investors may balance out government pressures to reap short-term dividends associated with political or fiscal cycles. A recent OECD study (OECD, 2016) found that many states which pursued mixed ownership or partial divestment did it for various reasons, including:

  • Remain shareholder for strategic reasons: Retaining state shareholdings in a company can ensure that it is not fully controlled by foreign or other investors that could theoretically target the company for a takeover. This can also allow the government to maintain leverage if public policy objectives are still carried out by the company. It can also help to achieve certain strategic policy objectives, such as maintaining company headquarters and R&D activities in the country.

  • Free up capital and maximise revenue: A partial divestment can allow the government to free up capital and, depending on the market conditions, maximise revenue, especially if it leads to improvements in performance, thus increasing the value of the company, or where proceeds could be maximised by sale in more than a single tranche.

  • Attract private capital and financial resources to companies: Mixed ownership of SOEs permits the government to share risk with private investors and attract financial resources to SOEs.

  • Drive performance improvements through market discipline: A number of studies show that on average in the long-run, mixed-ownership listed companies yield better returns in terms of profitability, output and efficiency than companies remaining unlisted and 100% state-owned.

  • Strengthen the local stock market: Countries with under-developed capital markets may list SOEs as a means to develop capital markets. In countries with well-developed stock markets, the stated motivation may be more oriented towards encouraging citizen participation in the stock market, by increasing attractive investment opportunities.

  • Improve the governance and transparency of SOEs: Where private ownership is introduced through a public share offering, the listing requirements of the stock market often raise the governance and transparency of SOEs. This includes: requirements for audited financial statements which, if not in place prior to listing, may improve transparency around SOE operations; and introducing requirements for independent directors. Non-state shareholders may have better abilities and incentives to monitor and exercise effective control over management. Listing debt would achieve similar goals, even if to a lesser degree.

  • Free SOEs from public spending limits and state intervention: In some cases introducing an outside shareholder has also reportedly given the company increased autonomy from the state in the management of the enterprise’s affairs, while also freeing up the SOE from public spending limits.

Tools to make an informed decision and setting sales objectives

Countries undertaking a privatisation programme need to have clear objectives for what they want it to achieve. Objectives for divestment are likely to be both political and economic and often require trade-offs between various interests which influence the nature of the reform that is undertaken. Still, the competent authorities have a number of tools at their disposal to make an informed decision about privatisation. This includes carrying out a competition assessment; undertaking a cost-benefit or value-for-money assessment; carrying out periodical reviews of the public ownership portfolio; and establishing clear policies for the use of privatisation proceeds. This section provides a brief (non-exhaustive) overview of tools used in some jurisdictions.

Competition assessment

Consensus after decades of privatisation has been that competition and other market regulation should necessarily be in place prior to privatisation. This involves evaluating the market structure and the degree of competition. Since privatisation is often a component in a larger set of liberalising, competition-enhancing reforms, some increased exposure to competition can contribute to better privatisation outcomes or even determine whether privatisation will result in an optimal outcome. Doing a competition assessment can help to evaluate whether the state’s presence in the marketplace has anti-competitive effects, whether any such effects are inevitable (or the policy objectives could be achieved in a less distortionary way) and how to assess the costs of such distortions to enable the government to make an informed policy choice about privatisation or other market correcting measures. The OECD's Competition Assessment Toolkit provides guidance in this regard.2

Privatisation in and of itself has also served as a vehicle to enhance competition by providing an opportunity for sector restructuring, where governments replace state-owned monopolies with several competing firms and, in the case of the network industries, establish third-party access and competition rules. If increased competition is one of the objectives of privatisation, a first and important step is to evaluate the extent to which divestment will help to achieve this goal as well as the broader benefits to the competition environment and consumers.

Some jurisdictions apply a “yellow pages rule” which establishes that if a private company exists in a certain market, then the state should exit that market (See case example from Kazakhstan in Box 2.1.). Chapter 3 of this Guide provides more detailed coverage of this topic.

Box 2.1. Case example: Competition considerations in Kazakhstan

“Yellow Pages Rule” restricts state ownership where there is a private competitor

In Kazakhstan, the Yellow Pages Rule is incorporated into the Entrepreneurial Code of 2015 and limits state involvement in the market economy. In particular, Article 192 of the Entrepreneurial Code provides for the cases when the state may participate in economic activity. It states that “the state shall participate in entrepreneurial activity in the following cases”:

  1. 1. absence of another opportunity of ensuring national security, defence capability of the state or protection of societal interests

  2. 2. use and maintenance of strategic objects held in state ownership

  3. 3. performing activities in the fields related to the state monopoly

  4. 4. performing activities by organisations established for analysis of effectiveness and preparation of proposals on improving public policy

  5. 5. absence of the relevant goods (works, services) market of an entity (entities) of private business, performing production or sale of the like or interchangeable good (work, service)

  6. 6. performing activities by established affiliated persons of the national managing holding “Baiterek”, created as part of the measures on optimisation of the system of management of development institutions, financial organisations and development of the national economy

  7. 7. in cases directly foreseen by the Entrepreneurial Code, laws of the Republic of Kazakhstan, decrees of the President or Government Resolutions of the Republic of Kazakhstan.

In sectors where SOEs are already active, if there is a private company, which can provide the same goods, works and services, then the law stipulates that the state should leave this field by transferring the SOE to the competitive market through privatisation, PPP or concession.

Source: Submission by Kazakh authorities.

Ex-ante evaluation of privatisation objectives

Prior to privatising an SOE, the government will need to carefully consider possible impacts that the transaction might have on the company, the market and the wider economy. The types of assessments carried out will need to assess: costs and benefits, both to the company and the wider market and economy; value for money of the transaction; and timing and risk assessments. Some questions that policy makers may want to consider include:

  • Will privatisation bring about improvements to efficiency, performance, and public service delivery (if applicable)?

  • Does it make sense to privatise before making any changes to the market structure and introducing market regulation? What changes are required within the company? (These issues are considered in more detail in the Chapter 3 discussion on pre-privatisation industry and company restructuring).

  • Is there value for money for the government? For example, will the method of transaction ensure an optimal use of resources to achieve the intended outcome? Some governments report that a "value-for-money assessment" is required before undertaking a privatisation transaction. The transaction will also be assessed by the national audit office or other competent authority ex-post. When considering value-for-money, beyond the value of the transaction, have other considerations been made? These could include, for example: transfer of future liabilities; absence of future government funding; and efficiency gains realised by transferring ownership from the public to the private sector (see Box 2.2).

  • Will the transaction fulfil certain other policy goals (i.e. beyond value-for-money), if they were clearly articulated in advance as among the guiding principles/rationales for privatisation? These could include, for example, the ability to attract a strategic investor from another country or to pass on residual liabilities to an investor.

Box 2.2. Setting sales objectives: Case example from the United Kingdom

Examples of recent sales objectives in the United Kingdom

Lloyds Banking Group:

The government’s primary sales objective of its 43% stake in Lloyds Banking Group was to return the company to full private ownership, achieving value for money for the taxpayer and recovering as much of the initial investment as possible.

Green Investment Bank:

The government’s primary objectives were to achieve value for money for the UK taxpayer and reclassification of GIB to the private sector. It was the government’s intention that GIB should continue to focus on green sectors and play a role in accelerating the United Kingdom’s transition to a more sustainable low-carbon economy.

Royal Mail:

The government secured the universal postal service for the benefit of all users by ensuring Royal Mail’s future through the introduction of private sector capital and associated disciplines. This was achieved by:

  • delivering a sale of shares in Royal Mail within parliament

  • creating an employee share scheme that, as decided by parliament, will lead to at least 10% of the company being in employee ownership, to drive stronger staff engagement

  • delivering a financial outcome for the taxpayer, which when considered in the context of the overarching policy objective, represents overall value for money.


The government’s main objective was to maximise value for money by:

  • maximising net proceeds (sale proceeds less transaction costs)

  • maximising certainty of deal closing

  • minimising post-sale residual risks to the government.

Source: Submission from UK authorities.

Specific assessment for universal service obligations

Where the privatisation will have a potential impact on the delivery of universal service obligations, policy makers should undertake a specific assessment to ensure that the transaction does not undermine the delivery of such services and if transferred to the privatised entity, that fundamental principles of quality, affordability, accessibility and universality are guaranteed. This assessment should take into account long-term assessments on costs and efficiency.

Periodic review of government ownership

It is considered good practice to review governments’ enterprise ownership rationales at regular intervals. Practices for undertaking these reviews vary across jurisdictions and can inform the decision-making process for divestment. Some methods are described as follows:

  • Where ownership policies exist, some countries review the rationale for ownership/divestment through a regular or as-needed review of their framework for state ownership. Germany, for example, conducts a two-yearly review of its portfolio of SOEs during which it must be justified why each company shall remain in state ownership, after which failing companies will be privatised.

  • In the absence of a state ownership policy, divestment is often considered when assessing individual SOEs’ fulfilment of their objectives. In the case of Israel for example, each SOE’s fulfilment of objectives, status and ownership rationale is periodically reviewed.

  • In other jurisdictions, such reviews occur in the context of annual aggregate SOE reporting or in the preparation of broader development, investment and financial planning programmes (as is the case for Turkey).

  • In Norway, the government has conducted privatisation “readiness reviews” for companies regardless of whether there is an actual wish to privatise the asset. This is useful in order to determine how prepared a company is for privatisation concerning e.g. reporting routines, internal control, corporate governance, operational and financial efficiency, and for the owner and/or the company to take action if needed (See also Chapter 3 for more on the “readiness review”).

In general, the owner needs to be aware of the SOEs in its portfolio and their readiness for privatisation and it needs to be clear on its own objectives with the companies. For example, if an SOE operates strategic infrastructure, privatisation may not be a viable exit strategy; whereas, in other cases the state may currently be the owner of shares, but has clearly stated in its ownership policy that it plans to divest it shares, thus signalling its objectives to the market. As such, being consistent and having a clear overview of the state’s portfolio will be important precursors for the success of future privatisation transactions.

Uses for privatisation proceeds

Prior to embarking on the privatisation process, the government must decide on the various rationales behind the privatisation, the uses for privatisation proceeds and, where relevant, the appropriate investment vehicle or fund through which privatisation proceeds will be channelled (e.g. sovereign wealth, infrastructure, pension, or innovation fund). This can also help ensure that stakeholders and the public at large see the benefits of the reform and possibly secure broader public support for privatisation (See Box 2.2). The provisions governing the use and treatment of privatisation proceeds can also serve as a vehicle for enhancing transparency and accountability and achieving a balance between the fiscal and efficiency drivers of privatisation. As mentioned above, one of the stated rationales for divestment often quoted by governments is the need to raise revenue either to reduce the government debt, or to reinvest to meet other policy priorities such as funding of social safety nets and other public services (e.g., health and education, worker retraining) and/or funding deficits. More examples are provided in Box 2.3 and in Chapter 5 of this report.

Box 2.3. Privatisation proceeds to support other economic goals

Privatisation proceeds can be reinvested to meet other policy priorities. In France, for example, the government announced a substantial state assets sales plan (USD 12 billion). The proceeds of this operation are planned to go towards a planned fund for innovative start-up companies.

The French government announced a EUR 10 billion (USD 12 billion) state assets sales plan in July 2017. The proceeds of this operation are planned to go towards a planned fund for innovative start-up companies. As the first step of the plan, the government conducted the sale of a 4.5% stake in gas utility Engie SA (ENGIE.PA) for EUR 1.53 billion (USD 1.82 billion) in September 2017. The state remains the leading Engie shareholder, with 24.1% of the capital and 27.6% of the voting rights.

Source: Submission by French authorities.

Establishing a transparent and credible institutional framework with high-level political support

Privatisation transactions are complex, requiring extensive planning and preparation. Depending on the type of assets being sold, privatisation of SOEs can give rise to a host of policy questions and decisions that need to be addressed prior to sale. These include decisions such as when and how to restructure the SOEs that are slated for sale, hiring of advisors, timing, the decision as to who should lead the process, the approach to labour issues, the size of stake for sale, the method of the transaction, and how fast the asset should be sold. There also needs to be agreement up front on the decision-making process, for example at which stage are ministers consulted, and how the wider sales process will be governed to make sure all necessary stakeholders are involved. For this reason, the institutional framework for decision-making and management of privatisation policy and the development of a clear road map are critically important for the smooth execution of privatisation policies and for ensuring the programme’s success. It should be noted that even where political support is garnered, the privatisation transaction may or may not go through. This will depend on a host of issues including the readiness of the company, the market conditions, or other considerations, which may affect the decision-making process.

Institutional arrangements often involve various levels of government

The multiplicity of actors involved in a privatisation, each with their own vested interests, means that the process should be well organised with a strong institutional framework. Otherwise, transactions can be delayed and the absence of a clear policy on staging and sequencing (such as company or industry restructuring) can create uncertainty and undermine the credibility of the programme.

Many governments structure the institutional framework involving various levels of government as part of a hierarchy of responsibilities. At the top, the process is backed by political commitment at the highest level to move the process forward. Some countries note that dynamism in the privatisation process can be found when there is a major change in government or following an election cycle (Box 2.4).

On a second level, an inter-ministerial dialogue/committee can support the process by serving to resolve bureaucratic inertia and inter-institutional rivalries. The dialogue/committee can also identify relevant policy questions, develop appropriate responses and ensure that all the relevant issues have been addressed prior to going to the market (Figure 2.3).

Figure 2.3. Typical institutional arrangements for a privatisation transaction
Various levels of hierarchy involved in the institutional arrangements for privatisation.

At a third level, the process needs to be supported by a professional (preferably centralised) ownership entity or other competent authority (e.g. privatisation agency) giving structure to the privatisation process and ensuring that the transaction can stand up to various levels of scrutiny. This will help to ensure that once a decision is made, the process is run effectively and ministers are engaged at the right time on the right matters. As a separate issue, a well-governed and transparent decision-making structure helps to avoid unwarranted political interference.

An example can be drawn from recent past experience in Lithuania. During the country’s active privatisation programme, a three-level hierarchy of responsibilities to its privatisation processes was established. Overall political oversight was exercised by the Privatisation Committee which consisted of representatives of government ministries and parliament. The Ministry of Economy, which is also responsible for coordinating the state ownership policy, was the government agency charged with implementing the privatisation policy for state property. The actual process of privatisation, as well as temporary asset ownership, was steered by the state-owned Turtos Bankas (Property Bank) which (at the time) also hosted the Governance Coordination Centre (a coordination body for the oversight of the SOE portfolio not slated for privatisation).

Box 2.4. Privatisation must benefit from a high level of political backing: Example from Norway

For the privatisation to be a success, it must benefit from a high level of political backing. In Norway, the privatisation process is often initiated when there is a major change in government or following an election cycle. It also requires interaction with Parliament to get approval for the privatisation transaction and coordination with relevant parts of government before carrying forward the transaction. The process in Norway consists of four steps, initiated by a "White Paper" submitted to Parliament and concluded by a decision made by the responsible ministry and coordinated with other parts of government. The process is as follows:

  • White Paper on State Ownership: Usually after each election (approximately every 4th year) or change in government, the Ministry of Trade, Industry and Fisheries (where the centralised ownership unit is placed) outlines on behalf of the whole of government the state’s ownership policy in a so-called "White Paper on State Ownership". This White Paper identifies the overall objectives for state ownership and for each individual company that the state owns. The ministry submits the White Paper to Parliament.

  • Annual state-budget approval process: The annual state budget includes specific requests for approval by the Parliament of mandates to fully or partially dispose of shareholdings (within the framework of the White Paper). The mandate is issued to the ministry that is delegated the responsibility for managing the ownership of the company in question.

  • Following mandate, decision requires ministry approval: The ministry that is delegated the responsibility for exercising ownership over the company decides whether, when and how to use the privatisation mandate given by the Parliament. A mandate does not necessarily result in a privatisation.

Source: Submission by the Norwegian authorities.

Professionalised ownership to steer and oversee privatisation

Good practice calls for the privatisation process to be supported, if not administered, by a centralised or coordinated ownership entity which is independent, competent, well-resourced and subject to high standards of accountability and transparency. It should not exercise both regulatory and ownership functions concurrently, as this would present a clear conflict for the privatisation process. Most countries have either vested responsibilities for the privatisation processes in the entities responsible for enterprise ownership, or in the Ministry of Finance (most common in countries with a relatively centralised ownership). Some others have vested the powers in the line ministries that exercise the state’s ownership rights.

Where ownership is dispersed among several government bodies, it is imperative to establish a coordinated approach to privatisation. Where cost effective and politically feasible, privatisation should be delegated to a specialised unit (for example in the Ministry of Finance), or to a coordinating body tasked with enhancing collaboration between the government departments involved. This unit would have to be adequately resourced and would ideally report to one clearly identified part of the administration (ideally the executive power), in addition to being subject to the highest standards of transparency and accountability.

In countries with active privatisation programmes, specialised privatisation agencies may be the main players involved in steering the privatisation process, often operating separately from a centralised ownership entity or coordination unit due in part to the sheer volume of transactions. An example can be found in Kazakhstan where the Committee on State Property and Privatisation, a specialised agency established under the Ministry of Finance, is the competent authority for privatisation of state assets, while state ownership is coordinated by a number of state holding companies. Another example is the State Property Fund of Ukraine which is the sole authority authorised to carry out privatisation transactions. Privatisation agencies have become increasingly rare in OECD economies, reflecting the fact that the era of frequent privatisations has come to an end.3

Regardless of how privatisation is administered institutionally, the ownership entity or designated privatisation agency or unit plays a central role in seeing through the transaction from beginning to end. It plays a role in the preparation of the SOE for the sale. In anticipation of the sale, it may be involved in modifying the corporate structure, establishing new governance practices, changing management or the board and establishing a “change culture”. Where the SOE may have residual liabilities, the ownership unit will decide how to restructure them. The ownership unit will also develop a strategy for the sale. It will manage the relationship with the external advisors (Figure 2.4).

The ownership entity also plays an important role in advising and preparing the government for the transaction. This means working closely with relevant ministers to agree on sale parameters and objectives; valuation; timing of the transaction; ensuring that the appropriate legislative and regulatory frameworks are in place; managing public consultation and securing support from stakeholders; and justifying the privatisation based on an informed decision-making process (see also further below).

In short, the ownership unit is the central actor in managing the privatisation process from start to finish, acting as an intermediary between the SOE, the relevant decision-making bodies, stakeholders, the public and external advisors involved in various stages of the process. It must ensure that the process is balanced with political timetables, economic conditions and market appetite (See Box 2.5 for a case example from the UK).

Figure 2.4. Role of the ownership entity
The ownership entity plays an important role in seeing through the transaction from start to finish.

Source: Based on submission from UK authorities.

Box 2.5. UK Government Investments’ central role in the privatisation process

UK Government Investments (UKGI) (formerly the Shareholder Executive) is the United Kingdom’s centre of excellence for corporate finance and governance across the public sector. While UKGI undertakes a wide variety of activities, it has two main responsibilities: (1) to prepare and execute all significant corporate asset sales by the UK government; and (2) to advise on major corporate finance matters involving the UK’s public authorities. The UKGI also represents the UK government as shareholder in relation to a large number of SOEs.

  • In relation to its work on preparing and executing all significant corporate asset sales by the UK Government, UKGI is active across a wide variety of work streams, including:

    • Making sure SOEs have appropriate and robust commercial strategies in place;

    • Making sure SOEs have the right leadership, management and corporate culture;

    • Putting in place appropriate legal and regulatory structures and governance arrangements; and

    • Where required, restructuring of liabilities.

  • In this work UKGI also plays an important role in readying the UK Government, with its activities including:

    • Providing advice to ministers and stakeholders across the UK Government on issues including the sales process, valuation, transaction timing and bid assessment;

    • Managing approvals processes within the public sector, including preparing business cases, assessments of value for money and consultations as required;

    • Making sure appropriate legislative and regulatory frameworks are in place ahead of any sale; and

    • Managing the procurement and work of external advisers and, if applicable, also interactions with prospective purchasers during the transaction process.

Source: Submission by UK authorities.

Box 2.6. Establishing a steering group for the transaction: Case example from Norway

Close cooperation with the board and management of the SOE, led by the owner, is vital to the success of the transaction.

The Government of Norway has considered that establishing a steering group when doing IPOs in wholly owned companies has been a key factor in ensuring the privatisation process is run smoothly, while also ensuring that the roles and responsibilities between the owner, board and management are properly assigned in all phases of the process. The steering group does not have specific decision-making powers. Rather, it is set up to coordinate, evaluate and advise the relevant decision maker, which is for some matters the state and for other matters the SOE.

The steering group involves the state-ownership entity normally as “project manager”, as well as members of the board, senior management, and external advisor(s).

One of the first tasks of the steering group is to involve the management of the company and its advisors to conduct a “readiness” test. Management then reports back to the steering group as to whether the SOE has all elements in place that can pre-qualify the SOE for a transaction. These elements can include: appropriate corporate governance structures; corporate strategy; reporting and disclosure practices; optimal capital structure, etc.

The steering group will then, together with the board of the company, ensure that the company is/becomes “ready”, for example by:

  • Defining a proper dividend policy;

  • Defining a proper capital structure of the company;

  • Clarifying the business strategy and equity story;

  • Determining a proper valuation of the company; and/or

  • Ensuring the right systems of internal controls are in place.

The “readiness” test will also be key to determine - at the level of the steering group - the timeline for the transaction. The decision to privatise the company might even be postponed should a readiness test reveal that more preparatory work is needed in the company. The steering group plays a key part of an IPO process and ensures that there is a healthy dialogue between the owner and governing bodies, to help the state and the company to make informed decisions and ensure the process is appropriately staged to ensure success.

It should be noted that in the case of a partially state-owned company, especially if it is already stock-exchange listed, the steering group would not include members of the management and board, but only the ownership entity and external advisor. The company would only typically be informed of the planned divestment of state shares immediately before the transaction.

Source: Submission by Norwegian authorities.

Involvement of the SOE board and management: SOEs have an important role in both initiating and implementing their own privatisation. This has been particularly true where the SOEs have enjoyed a large degree of de facto autonomy. The government owner often relies on the cooperation of the company, in particular a wholly owned company, in order to ensure that the company is successfully prepared for sale and transition to the private sector, especially when the sale is to be preceded by major restructuring. Getting the company involved as early as possible in the process is key. In Norway, for example, the government establishes a steering group for IPOs of SOEs. This steering group includes two members of the board and top management in the group. As the transaction moves forward, cooperation between steering group members becomes more regular. The company’s management plays a key role in assessing the “readiness” of the company for privatisation.

Early stakeholder involvement and communication strategies: Communication and early engagement with stakeholders are cited as key success factors in privatisation (OECD, 2009). The communication campaign should explain the policy objectives of privatisation and the means by which they are to be achieved in order to respond to public concerns and to gain support for the policy. The plan should ensure that public officials from the ownership entity, ministers and company executives have talking points and enough knowledge on the transaction to provide coordinated, coherent and accurate information to the media and public.

Employees of state-owned enterprises constitute a key stakeholder group in the process of privatisation. In this regard, experience from a variety of countries underlines the importance of close involvement of workers and their representatives early and throughout the process. As a first step, information-sharing should take place at an early stage; as a second step, the state as well as the company, through existing institutional arrangements (e.g. tripartite bodies linking governments, employers and trade unions or their equivalent), should engage in more in-depth dialogue and consultation. This dialogue and consultation can inform decision-making and strengthen feasibility of the transaction. Finally, as a third step, when the sale is triggered and if necessitated, the dialogue might transform into a negotiation (collective bargaining) between governments, employers and workers’ representatives.

From the point of view of the entity steering the transaction, identification of the issues at the outset, establishment of a consultation timetable, risk mitigation framework and communication plan, and sharing of government plans for mitigating the potential negative effects of privatisation (e.g. on public service delivery, or workers’ conditions) helps to dispel any potential employee concerns, and ultimately lead to better privatisation outcomes.

Separately, a communication campaign should be designed to build public support and also share information (as applicable) where public participation may be possible.

Sequencing the process to build credibility and support

One of the important policy decisions for the government is the issue of the order by which assets are privatised and the sequencing of a particular transaction. The experience with decades of privatisation programmes undergone in OECD countries shows that successful programmes usually began with the sale of assets that operate in competitive sectors of the economy and require less preparation. In general, the government will usually begin in sectors where the market structure is already adapted to competition and where the company is ready for sale, in terms of its performance and “readiness”.

Another important factor in the sequencing decision is to determine whether the asset will be fully or partially privatised. In some cases, the state may decide to retain majority or partial ownership due to political or strategic imperatives. Some cited examples include where public or national security interests are at stake, for “strategic” reasons, or where the SOEs’ sheer size can have systemic impacts. OECD country experience shows that with time, changing political or strategic rationales may also bring about changes to perceptions of necessary partial ownership. One mitigation strategy, if the full privatisation does not garner support, is to break up the SOE into different parts and sell the parts not considered strategic (e.g. the Swedish pharmacy monopoly which was divided into different lots, with some left in state ownership, while others were auctioned off).

In other cases, a partial sale may be necessitated due to following factors: (1) more time is needed for an effective regulatory capacity to develop; (2) staging of the sale can build momentum and gain credibility among investors and the public to facilitate subsequent sales4; (3) transactional and market requirements set the pace of sequencing; and (4) the government sees the benefit of maximising proceeds. A selection of national experiences is highlighted in Box 2.7.

Finally, in some cases the sale process may never ultimately take place, which highlights the importance of ensuring the “readiness” of the company before triggering the sell off and being clear of the ownership strategy before embarking on any transaction (see also Chapter 3).

Ultimately, sequencing decisions can build credibility and support for a broader privatisation programme or future privatisation transactions.

Box 2.7. Selected national examples: Sequencing privatisation

Sequencing often takes the form of IPOs, followed by a number of subsequent share offerings. Sequencing is common especially where the privatisation of large or strategic SOEs occurs, but a host of factors can motivate the decision to sequence a privatisation process, as demonstrated by these selected national examples.

  • In the United Kingdom, reasons for maintaining a state ownership stake include: (1) benefiting from a potential improvement in performance; (2) ensuring continued involvement in a strategically important activity or for national security reasons; and (3) retaining a degree of influence, including linked to the public interest. Sequencing of privatisation depends also on the wider political landscape and the appetite for the type of corporate assets potentially on offer.

  • In France, the maintenance of the state’s shares in a company after privatisation is most often based on social, political and strategic motivations. The decision usually accompanies inter-ministerial discussions.

  • In Germany, sequencing of privatisation has occurred where particularly large SOEs were being divested. It is deemed that the stock market’s capacity to absorb new equities is such that a gradual process is needed to obtain the best price for the state’s shares.

  • In the Netherlands, the government maintains its ownership in a company if it decides that a public interest needs to be safeguarded through public shareholdings.

Source: OECD (2018).


OECD (2018), “Privatisation and the Broadening of Ownership of SOEs: Stocktaking of National Practices”,

OECD (2016a), Competition Assessment Toolkit: Principles,

OECD (2016b), Broadening the Ownership of State-Owned Enterprises: A Comparison of Governance Practices,

OECD (2015), OECD Guidelines on Corporate Governance of State-Owned Enterprises, 2015 Edition,

OECD (2010), Privatisation in the 21st Century: Summary of Recent Experiences,

OECD (2009), Privatisation in the 21st Century: Recent Experiences of OECD Countries: Report on Good Practices, January 2009,


← 1. It should be noted that the profile of the buyer matters in terms of the impact the change in ownership and management can have on the company. A difference can be seen between the objectives of an industrial buyer versus those of a financial buyer, with the latter most likely involved in a transaction with a shorter-term horizon than an industrial buyer.

← 2. OECD (2016a)

← 3. Where a separate privatisation agency has been set up, the government should not lose its ability to use the appropriate levers it can exercise to affect the pace of privatisation. For example, the privatisation agency may be guided by value maximisation as an overarching policy goal whereas the government has set out a broader set of rationales and objectives to guide the privatisation process. Such goals must be balanced at the outset of the process and should be subject to clear rationales and transparently communicated to the privatisation agency responsible for executing the transaction.

← 4. For example, some countries cite the impact of political considerations on the decision to sequence a privatisation, with some parts of the political spectrum being willing to contemplate divestment only if the state remains a dominant owner.

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