Chapter 5. Steps to be taken post-privatisation

The work on privatisation should not be seen terminated upon finalisation of the divestment process. This chapter discusses steps to be taken post-privatisation including in regard to ensuring any residual guarantees are budgeted and any contingent liabilities assessed; transparency and accountability in the use of the privatisation proceeds; assessing the outcomes of privatisation, including auditing the transaction; and, good governance practices in the case of partial privatisation.


The work on privatisation should not be seen as terminated upon finalisation of the divestment process. This chapter discusses steps that need to be taken post-privatisation, including in regard to ensuring any residual guarantees are budgeted and any contingent liabilities assessed; transparency and accountability in the use of the privatisation proceeds; assessing the outcomes of privatisation, including auditing the transaction; and, taking steps to ensure good governance of partly privatised entities.

Handling residual guarantees or liabilities

Most legal systems regulate the transfer of debts and obligations including contingent liabilities (e.g. derived from ongoing or potential litigation). In civil law countries, debt transfers are subject to the creditor's approval, without which the original debtor continues to be liable. In the case of a privatisation, that situation is not altered. However, if the state-owned enterprise’s (SOE's) legal status is changed through corporatisation, then the creditor may not be satisfied with the new status of an implicit backing by the state, especially where a limited liability company organized under company law may reduce the security afforded to its creditors to the amount of the new company's declared capital. This is why the framework or privatisation legislation would normally specify how the public authority involved in executing the transaction should defray costs, including debt write-offs resulting from balance sheet adjustments. Normally this would also be taken care of in the pre-privatisation restructuring of the company.

Accountability and transparency in handling privatisation proceeds

As discussed in Chapter 2, the rationales for privatisation should be clear before embarking on the transaction and so too should the use for privatisation proceeds. These can be used to fund various policy priorities. Whatever the end use, there should be a high level of accountability and transparency in handling the proceeds especially if they are (eventually) diverted to achieve certain public policy goals (e.g. reduce debt, reinvestment of proceeds to support public services or other policy priorities, etc.).

The state can receive privatisation proceeds in different ways, and they can either be used immediately or earmarked for a limited time for a specific purpose. The legal decision triggering the sell-off (either in the context of a privatisation framework or transaction-related legislation) should specify the use of the privatisation proceeds and should clarify how the funds should be used, for example (Seven, 2002):

  • General government revenue. Allocated to treasury as public revenue and subject to public finance laws (with or without constraints on how it is used) and subject to parliamentary authorisation and scrutiny.

  • Proceeds allocated or earmarked to a special purpose fund. This could be a sovereign wealth fund, pensions fund, innovation fund or another type of special purpose fund. The funds can have the purpose of financing a number of public interest priorities for example pension liabilities of privatised companies; to finance infrastructure projects; or develop a fund for innovative start-ups). If allocated to a special fund a separate set of laws will determine how the fund is set-up, operated or monitored.

  • Funding of privatisation transaction. Sales proceeds are also often used to pay for expenditures required to execute the privatisation process, redundancy payments, loan write-offs, payment of advisors, etc., which would also be subject to parliamentary authorisation and scrutiny, but covered by the privatisation legislation. These are often funded by the public budget in a specialised privatisation account.

  • A mix of uses. In some cases part of the revenue may go into the general government fund with the funds earmarked for a special purpose (e.g. social security payments, pension liabilities, funding adjustment policies for affected employees, to purchase shares in another enterprise; to purchase government bonds).

In the cases involving the sale of assets (e.g. a division, factory or subsidiary) the process may be more complicated as under company law (and under public enterprise laws where they exist) the proceeds may revert to the seller. In this case, the seller would often be the company itself, and the use of proceeds would be subject to the decision of the board of directors. Where the state is the sole or majority shareholder the state is in a positon to recover the proceeds through its dividends policy.

The privatisation legislation should provide rules on the method of payment expected from the private investor. Cash payments are preferred, but may also involve special financing techniques such as deferred payment (seller financing) or credit (bank financing). Where shares are paid in instalments the voting power of shareholders who have not paid the full amount of their shares can be limited and their shares held in escrow accounts until the last instalments have been paid (Seven, 2002).

Systematically conducting post-privatisation evaluation

Good practice calls for the competent authorities to conduct an independent evaluation of the past privatisation projects undertaken. This should be based on the criteria set out at the beginning of the process, in terms of achieving the stated goals, rationales and objectives. A post-privatisation evaluation should also include an assessment of corporate efficiency, effects on markets and stakeholders. Finally, good policy practice would encourage independent evaluation of the impact of the privatisation in terms of consumers, especially where public service delivery is concerned. These are most often performed by the national audit office (see also below).

In some jurisdictions post-privatisation evaluations can also be conducted by a specific commission with a mandate to supervise and assess the privatisation transaction; by the Ministry of Finance in the context of annual policy evaluation; by parliamentary inquiry1; the ownership or privatisation agency. For example:

  • In France, this is done by the Shareholdings and Transfers Commission which is responsible for supervising and assessing the privatization operations. The results of its inquiry are made public at the end of each transaction.

  • In Japan in the cases of recent stock offerings of JT, NTT, JP, and Kyushu Railway Company, the outcomes of privatisation are subject to assessment in the annual Policy Evaluation Reports of the Ministry of Finance.

  • In Turkey, the Privatisation Administration includes a Post Privatisation Department, which exercises post-privatisation oversight of fully divested enterprises. The Department monitors whether parties to past privatisations fulfil their obligations (and are granted their rights) under the contracts and agreements entered as part of the divestment. The Department further monitors the privatised enterprises with respect to such criteria as profitability, employment and investment. It carries out studies and assessments with the purpose of providing proposals concerning future privatisations.

  • In the Netherlands, the Senate has performed a parliamentary enquiry of the Dutch privatisation practices (See also Box 5.1).

Policy makers should be held equally accountable for the outcomes of the privatisation process and ensuring that the transaction was carried out in the best interest of the public. Appropriate recourse mechanisms should be made available in the case of non-fulfilment of obligations by the buyer following privatisation; or if the transaction was subject to irregular practices.

Box 5.1. Post-privatisation evaluation: Case study from the Netherlands

Post-privatisation evaluation in the Netherlands is performed by Parliament as part of regulatory parliamentary inquiry; in 2012 it conducted an inquiry to evaluate privatisation transactions that took place over two decades from 1990 to 2010. A summary of the elements of this report is provided as an example of national practice.

The Netherlands parliament examined privatisation transactions taken place from 1990-2010 to evaluate the way privatisation was orchestrated, its institutional framework as well as how stakeholders were involved in the broader public and parliamentary debate. The report offered recommendations on how to improve the process in the future. It determined that:

  • Complex institutional environment. Privatisation transactions were carried out in a complex and changing environment and that there was no coordination of policies, no common road map but there were many differences in the implementation of decisions by ministries. There were no broadly accepted frameworks for decision-making to ensure coherent policy-making. As a result, decision-making about privatization took up a lot of time and attention in parliament. The committee determined that the national government should create more uniformity in how decisions about privatization are implemented. A well-defined structure is needed to achieve more clarity about the different public and private forms of policy execution. This calls for a government wide approach, to be coordinated.

  • A new role for parliament. The committee concluded that the parliament has to rethink how it should fulfil its various law-making, control and representation roles. In particular, it determined that the authority of parliament should be very clear however, both in terms of its role as legislature and controller. This requires comprehensive legal frameworks, to assess and support decision-making. This could be achieved by strengthening the roles of legislature and controller, while taking into account that the public sector has become more complex.

  • Effects for citizens and public interest. The committee concluded that by focusing on the roles of citizens as client and tax payer, a too narrow perspective on public interests was used, and that particularly fuelled the public’s dissatisfaction with privatization. Therefore, it was concluded that a broader perspective needs to be developed and applied to look at both interests of individual citizens as well as collective interests that benefit all.

  • Parliamentary control. The committee determined that it could exert its control function where incomplete decisions had led to unsatisfactory outcomes or suboptimal governance arrangements. As a result, it concluded that Parliament should develop new instruments and ways to reinforce its control on policy execution at arm’s length.

In response to these recommendations the government has agreed to use the decision framework developed by the parliamentary inquiry committee if it intends to privatize a SOE. The decision framework consists of five steps: (1) intention, (2) design, (3) decision, (4) execution, (5) follow-up. By following the five steps in this context, the parliament is informed timely and adequately about decisions about privatization.

Source: Eerste Kamer der Staten-Generaal (2012).

Subjecting the transaction to an ex-post audit process

As a separate element of the post-privatisation evaluation, in most countries, privatisation is subject to an audit process, either during or after privatisation. In some cases this is done through an internal audit process in the responsible ministries and, in a few countries, governmental committees overseeing the privatisation process. Countries differ with respect to whether the state auditors may only carry out ex-post auditing or are empowered to intervene during the privatisation process itself. The state auditor’s core roles include carrying out an audit of past privatisations with a view to assess propriety and value for money, and the achievement of other goals and objectives set out as part of the sales objectives (e.g. transfer of future liabilities; absence of future government funding, assessment of efficiency gains realised by the private sector). The latter involves comparing privatisation revenues with pre-privatisation valuation and may extend to an assessment of the valuation methodology. It will also need to take into consideration information available at the time of the transaction; and the achievement of immaterial goals identified at the outset of the process.

Box 5.2. Ex-post audit of a privatisation transaction: Case examples from the UK

Royal Mail

In October 2013, the Shareholder Executive managed the sale of a 60 per cent stake in the UK government’s shareholding in Royal Mail through an initial public offering. Following the sale, the National Audit Office (NAO) evaluated the transaction to examine whether the Shareholder Executive achieved the UK government’s sale objectives, while protecting the taxpayers’ interests. Moreover, a secondly inquiry by the Public Accounts Committee (a cross-party parliamentary body) reviewed the transaction and drew up its own conclusions.

The NAO ex-post audit covered the following areas:

  • the context for the sale

  • restructuring Royal Mail’s business in readiness for sale

  • advisers, transaction alternatives and valuation

  • book-building, final demand and pricing.

In the UK typically the Public Accounts Committee (a cross-party parliamentary body) will also review the transaction drawing on the National Audit Office report and then producing its own report on the success or otherwise of the privatisation.

Lloyd’s Banking Group

Between September 2013 and May 2017, UK Financial Investments (UKFI; now incorporated under UK Government Investments, a company wholly owned by HM Treasury) managed the sale of the government’s 43 per cent shareholding in Lloyds Banking Group, acquired through measures to maintain financial stability in 2008-09. Following the sale, the National Audit Office (NAO) conducted a review of the process, focusing on what Government could learn from its experience in the Lloyds sale with a view to applying this to future transactions – particularly the sale of the government’s remaining holding in Royal Bank of Scotland.

Although the review did not form a judgement on the value for money of the share sales, the NAO’s review of the process as a whole was positive. They found UKFI and its advisers to have prepared for, and executed, the transactions professionally and in cash terms the sale returned the taxpayers’ original investment. The NAO’s published report outlined observations and recommendations for future sales, focusing on three aspects: sale preparation, sale execution, and sale outcome.

Source: National Audit Office, 2014 and 2018.

Good governance practices in the case of partial privatisation

This section will briefly discuss best practices in terms of government ownership practices in the case of a partial privatisation. In particular, if the state still effectively controls the company, controls are needed to ensure an adequate protection of minority shareholders.

"Golden" shares

"Golden" shares provide governments with special powers and veto rights in the fully or partially privatised companies, and have served governments as a means of protecting the newly privatised company from hostile takeovers on national security or on public policy grounds, where this has been deemed to be necessary. "Golden" shares have been widely adopted and introduced across numerous OECD and OECD Partner countries, and have often served as a key element of post-privatisation control devices. At the same time, in the European Union, countries have tread cautiously with regard to retaining golden shares to avoid violating rules relating to the free movement of capital, as upheld by numerous judgements of the European Court of Justice.

According to the OECD Guidelines on Corporate Governance of State-Owned Enterprises (“OECD SOE Guidelines”), the use of "golden" shares should be limited to cases where they are strictly necessary to protect certain essential public interests such as those relating to the protection of public security and proportionate to the pursuit of these objectives (Figure 5.1). Further, governments should disclose the existence of any shareholders’ agreements and capital structures that allow a shareholder to exercise a degree of control over the corporation disproportionate to the shareholders’ equity ownership in the enterprise.

"Golden" shares can have some drawbacks in the sense that the potential for government intervention is greater, thus creating more investor uncertainty. The degree to which "golden" shares have proven to be detrimental to the spirit of privatisation is largely influenced by the breadth of their scope, their duration, and the extent to which the government has exercised the powers afforded to it by the "golden" share. In the absence of an effective regulatory capacity (e.g. where the institutions and the market need time to develop), and in the case of companies where there are specific national interests are at stake, golden shares can help facilitate privatisation and are arguably better than establishing a standard policy of limiting foreign ownership and control by legislation.

Figure 5.1. Golden rules about "Golden" shares
Golden shares can be used by government owners as a post-privatisation control device, however according to the OECD SOE Guidelines some important "golden rules" should apply.

Source: OECD (2015) and OECD (2003).

Protecting minority shareholders and stakeholders

The presence of non-State minority shareholders is important, as it allows outside investors to participate in the shareholders’ meetings and in some cases have a deciding vote in areas where the government as a controlling shareholder is conflicted. However, it might be appropriate for the State as an owner to reassure minority shareholders that their interests are taken into consideration (Box 5.3). Particular concerns may arise where the State must balance the control of the SOE where (majority) public interests remain, while ensuring the protection of minority shareholders. The role of minorities may differ in the case of an initial public offering versus for an unlisted business. In all case the protections for minority shareholders should be as laid down in the relevant legislation and/or listing requirements (See Figure 5.2).

Empirical research suggests that shareholder rights protection is positively related to performance improvements following listing. Where the State remains the controlling shareholder its identity and intentions matter, as there is evidence to suggest that the government as a controlling shareholder can alter the firm’s objectives and management profile, and may be more tempted to pursue objectives that are inconsistent with profit maximisation.2

Figure 5.2. Partial privatisation: Enhancing the government's credibility in the market
As part of a staged privatisation process, and to ensure success of (potential) future offerings, a few good practices should be followed by the state-owner, balancing its roles as shareholder, government owner and regulator.
Box 5.3. OECD SOE Guidelines Chapter IV - Equitable treatment of shareholders and other investors

Where SOEs are listed or otherwise include non-state investors among their owners, the state and the enterprises should recognise the rights of all shareholders and ensure shareholders’ equitable treatment and equal access to corporate information.

A. The state should strive toward full implementation of the OECD Principles of Corporate Governance when it is not the sole owner of SOEs and of all relevant sections when it is the sole owner of SOEs. Concerning shareholder protection this includes:

  1. 1. The state and SOEs should ensure that all shareholders are treated equitably.

  2. 2. SOEs should observe a high degree of transparency, including as a general rule equal and simultaneous disclosure of information, towards all shareholders.

  3. 3. SOEs should develop an active policy of communication and consultation with all shareholders.

  4. 4. The participation of minority shareholders in shareholder meetings should be facilitated so they can take part in fundamental corporate decisions such as board election.

  5. 5. Transactions between the state and SOEs, and between SOEs, should take place on market consistent terms.

B. National corporate governance codes should be adhered to by all listed and, where practical, unlisted SOEs.

C. Where SOEs are required to pursue public policy objectives, adequate information about these should be available to non-state shareholders at all times.

D. When SOEs engage in co-operative projects such as joint ventures and public-private partnerships, the contracting party should ensure that contractual rights are upheld and that disputes are addressed in a timely and objective manner.

Source: OECD (2015).


Eerste Kamer der Staten-Generaal (the Senate) (2012), “Summary of main findings of the parliamentary enquiry by the Dutch Senate into privatization and agencification of central government services”,

National Audit Office (2014), “The Privatisation of Royal Mail”, Report by the Comptroller and Auditor General,

National Audit Office (2018), “The return of Lloyd’s Banking Group to private ownership”, Report by the Comptroller and Auditor General,

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

OECD (2003), Privatising State-Owned Enterprises: An Overview of Policies and Practices in OECD Countries, OECD Publishing, Paris,

Seven, B. (2001), “Legal Aspects of Privatisation: A Comparative Study of European Implementations”, Universal


← 1. Should evaluation be conducted by Parliament this could be subject to changing political environment, and thus changed perceptions as to the rationales that underpinned the decision to privatise. Appropriate risk mitigation strategies should be adopted at the outset of the process, to ensure the guiding principles, goals and rationales of the privatisation are transparent.

← 2. Interestingly, Boubakri, et al. (2011) find that in developing countries, where there is a lack of an established institutional framework for efficient corporate governance, concentrated ownership is more likely to ensure the success of privatisation than in countries with low investor protection.

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