Public Sector Enterprises and the State Ownership Function in Panama September 2011

Public Sector Enterprises and the State Ownership Function in Panama

September 2011

Economic Performance

Source: INDESA

2002-09 Share of GDP (% total)

Source: Instituto Nacional de Estadistica

Panama achieved Investment Grade status from the three major rating agencies between March and June of 2010. Since that time, Panama has continued on a path of growth and development.


Better economic performance contributes growth of trade activity and decreasing in the unemployment rate, since it stimulates new jobs.

Source: Instituto Nacional de Estadistica y Censo


Foreign direct investment (FDI) remains one of Panama´s main driver for growth.

FDI inflows reached US$1.7 billion in 2009, or 7.2%

Background

1991-1994

• The program to privatize State-owned was launched to increase enterprise efficiency and production capacity.• A framework law was adopted to regulate the process and a Privatization Office (PROPRIVAT) under the Ministry of Economy and Finance.• During this period, only small enterprises such COBANA, COBAPA, Citricos de Chiriquí and Cemento Bayano.

1997-1999

• In June, the sale of 49% of the share of the National Telecommunications Institute (INTEL) to UK company Cable & Wireless concluded.• The Hydraulic Resources and Electrification Institute (IRHE) was divided into 4 generating, 3 distribution and one transmission company. State, through COMVA, sold 49%-51% of stake from generating and distribution companies. The GOP retained control of the transmission company (ETESA). • Privatization also encompassed the port sector, the ports of Balboa and Cristobal were transferred to Panama Ports Company under a concession, where Stake keeps 10% of state.

2003 • Tocumen International Airport was converted into an autonomous company, but the shares continued to belong to the GOP.

2006 • GOP established an electricity-generating company as a public enterprises.

Background

NOWADAYS

New projects and actions are taken in order to improve the governance in the PPP, as the Code of Conduct and supporting of DICRE assists the Directors (GOP) with information and replace them, when they are not available, to assist to BOD through a proxy.

Established in September 2009.

Public Sector Enterprises

Government of Panama

OWNER 100% of stake

Sector: Infrastructure, utilities, toll roads and others

CO – OWNER50% or less stake

Sector:Utilities, pipeline, telecom and ports

Government of Panama (GOP) is shareholder in several companies and sector industries.

TOTALLY OWNED PUBLIC PRIVATE PARTNERSHIP


Responsibility for the determination of strategic goals depends on the level of ownership.

TOTALLY OWNED

• Administration Staff and Board of Directors (BOD).• BOD are appointed by Government. • Both manage and determine the strategic goals.• Both coordinate with government officer and Ministry of Economics and Finance ( MEF) all new sensitive actions programs.

PUBLIC PRIVATE

PARTNERSHIP

• Operator or partner companies are in charge of the management.• Strategic planning, Budgets and important decisions require approval of the BOD. • Government is represented by two members in BOD and a representative from DICRE, this last one has right to speak.

Management Team is responsible for achieving their goals, in both kinds of companies.


Coordinating strategic planning between enterprises and policy makers.

TOTALLY OWNED

Management and BOD GoP regulation offices & MEF

• Manage the company.

• Set strategic plans according to best practices of corporate governance.

• Regulated field has to inform to governmental office.

• Keep open communication with MEF authorities.

PUBLIC PRIVATE

PARTNERSHIP

• Manage the company.• Set strategic plans according to best practices of corporate governance.• Present strategic plan to BOD.

Management

• Approve plan strategic and other issues, that establish incorporation deed.

BOD Directors• 3 from Int’l Operator• 2 from GOP


Balance between commercial and non-commercial objectives.

• Set goals on a balance of commercial and non-commercial objectives are carried with no major difficulties.• Both objective can be decided by one part.

• It is harder but achievable to reach an agreement on sensitive matters like balance of objective, but always both parties have been able to arrive at consensus.

TOTALLY OWNED

PUBLIC PRIVATE PARTERNSHIP


Privatization strategy and implementation

MEF created COMVA

COMVA lead privatization

process

COMVA established

FDD

Privatization Process(1997-1999)

COMVA sold share of utilities

companies

MEF is responsible

office of privatizations

Currently, MEF doesn’t have a program or strategy to privatize other companies or services, so far.


DICRE (MEF) &Directors from GOP

Board of Directors Management Team

Private-public dialogue is through DICRE and government’s directors in each company.


Representing the state interest, modalities and responsibility for governance PSE

BOD

DICREMEF created in Sept. 2009

Directors are appointed by

GOP

DICRE assists government directors with reports, analysis and evaluations so the positions adopted are well informed and discussed.Besides, DICRE is in charge of the coordination with each company, representing the State interest as shareholder, and given that they are in different industries, there are different regulators and control offices, which are in direct and constant communication with each PSE, including Ministries and Authorities.

Government as shareholdersThe Government owns 100% of stakes of some companies and participates in their BOD.

During 2010, these companies have contributed to National Treasury in $845 millions approximate.

Net Income 2010: $11.7M100% GOP’s stake




Government as shareholders in private sector

EBITDA 2010P: $272.3MValue: $742M according to Goldman Sachs49% GOP’s stakes

EBITDA 2010: $99.7MValue: $300M according to Citi49.9% GOP’s stake

EBITDA 2009: $7.5M49% GOP’s stake

EBITDA 2010: $58.8M48.25% GOP’s stake

EBITDA 2010: $108.4M48% GOP’s stake(ESEPSA, EDEMET, EDECHI)



EBITDA 2009P: $113.4M50.5% GOP’s stake

The Government evaluates the possibilities to consolidate its shareholding in public companies private.

• According to EBITDA multiples (5 to 8x) the Government position value in these enterprises is between US$ 1,634 millions and US$ 2,614 millions approximate.

• MEF, through State’s Investment, Concessions and Risk Office (DICRE), is planning a strategy in order to maximize the government stakes value.

• GOP is evaluating an effective way to consolidate and maximize its stakes, through a Sovereign Wealth Fund.

Thank you

Documents

Public Sector Enterprises and the State Ownership Function in Panama September 2011