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Privatization in the Republic of Belarus

1 February 2014

Belarusian legislation is aimed to improve legal and economic relations in the field of state property privatization and transformation of state-owned unitary enterprises into joint stock companies. That is made in order to create the conditions for attracting investment and development of an efficient economy.

1. The concept of privatization

In accordance with the current legislation, privatization of state property (hereinafter – privatization) means selling privatization objects to subjects of privatization on the terms and conditions provided by legislation.

Privatization objects are:

  • enterprises as property complexes of state unitary enterprises;
  • shares (stocks in authorized funds) of companies which are in the ownership of the Republic of Belarus or in the ownership of administrative and territorial units.

Subjects of privatization are: individuals and legal entities, as well as foreign states, their administrative and territorial units, international organizations and foreign organizations that are not legal entities.

Privatization is implemented through the sale of:

  • shares (stocks in authorized funds) at an auction;
  • shares (stocks in authorized funds) by a competitive bidding;
  • enterprises as property complexes at an auction;
  • enterprises as property complexes by a competitive bidding;
  • shares of an open joint-stock company according to the results of trust management.

Sale of a privatization object without holding an auction (competitive bidding) is carried out in the event of the sale of shares of an open joint-stock company according to the results of trust management and in other cases established by the President of the Republic of Belarus.

2. The procedure of privatization

Privatization is carried out on the basis of privatization body’s decision. The privatization body shall prepare a draft decision on privatization of enterprise as a property complex or shares (stocks in authorized funds) which are the state property.

After decision the privatization body carries out the publication about the auction (competitive bidding) for the sale of an object of privatization.

The obligation to organize auction (competitive bidding) is under privatization bodies, which in the frame of its duties install auction (competitive bidding) rules, accept applications for participation in the auction (competitive bidding), create a commission on conducting the auction (competitive bidding) on the sale of the objects of privatization. The participant, which or who is considered as winner by commission, draws up a protocol on results of the auction (competitive bidding) on the sale of the object of privatization

Sale of the privatization objects is carried out at the open auctions (competitive biddings) only for monetary funds.

2.1. Features of selling shares (stocks in authorized funds) and enterprises as property complexes at auction

Sale of shares (stakes in authorized funds) and enterprises as property complexes at the auction is carried out when the buyer is not required to fulfill any conditions.

Sale of shares of closed joint stock companies, stakes in authorized funds of other economic companies shall be carried out according to established rules of obligatory giving of proposal for purchase to other participants, those economic companies, third persons in accordance with the normative acts.

The initial sale price of an enterprise as property complex which has a number of employees less than 100 persons, whose outstanding financial liabilities on the date of determining the estimated cost of the enterprise as a property complex are equal to the balance cost of assets or exceeds this cost, when it is sold through a competitive bidding the estimated cost is to be one base unit on the date of holding the competitive bidding, established in accordance with acts of legislation.

The enterprise as property complex is transferred to the customer after the state registration of sale’s contract under the transfer act.  State registration of the transfer of the ownership of the enterprise as property complex is carried out after the full payment of the object of the privatization by the buyer in accordance with the contract of sale. The ownership of the enterprise as property complex is transferred to the buyer from the moment of state registration of the transfer of the ownership.

Buyers should know that the punishment for the breach of the payment period is tough: fine in the amount of 10 percent of the purchase price for the privatization object and a penalty interest in the amount of 1/360 of the refinancing rate of the National Bank, established on date of remittance of funds (making payments), on the unpaid sum for each day of delay.

2.2. Features of selling shares (stocks in authorized funds) and enterprises as property complexes at competitive bidding

Sale of shares (stocks in authorized funds) is carried out at a competitive bidding, when the purchaser is required to fulfill certain conditions set forth in the decision on privatization.

Sale of shares of closed joint stock companies, stakes in authorized funds of other economic companies shall be carried out according to established rules of obligatory giving of the purchase offer to other participants, those economic companies, third persons in accordance with the normative acts.

The following conditions can be stated in the decision on privatization through sales of shares (stocks in authorized funds) at a competitive bidding:

  • amount, time constraints and spheres of investment;
  • preservation and (or) creation of a certain number of jobs within a certain period;
  • preservation of the sphere of business  activity of the business entity within a certain period;
  • preservation and funding for a certain period of social facilities that the economic company have in the ownership or under a contract of gratuitous use;
  • other conditions.

The following conditions can be stated in the decision on privatization through the sale of enterprises as property complexes at a competitive bidding:

  • amount, time constraints and spheres of investment;
  • preservation and (or) creation of a certain number of jobs within a certain period;
  • retraining and (or) advanced training of employees;
  • preservation within a certain period of the range of manufactured products (types of works, services);
  • preservation within a certain time of the sphere of business  activity of the state unitary enterprise;
  • other conditions.

In the event of sale of an enterprise as property complex at a competitive bidding with the establishment of an initial sale price equal to one base amount, the owner of the privatized enterprises as property complex is required to repay the indebtedness on financial obligations of the state unitary enterprise the property complex of which he has acquired, to keep a certain amount of jobs, to ensure operational and commercial activities of the enterprise and meet the other conditions of the contract of sale.

2.3. Features of selling shares of open joint stock company according to the Results of trust management

Sale of part of shares (no more than 10 percent of the authorized fund) owned by the Republic of Belarus or administrative and territorial unit of open joint-stock companies, the debt on financial obligations of which within two years preceding the date of the decision on privatization is equal to book value assets or more for two years preceding the date of taking the decision on privatization, mainly (at least 14 months) are equal to balance sheet value of assets or exceeds its assets, can be carried out according to the results of trust management of shares of unprofitable open joint stock company.

Shares of unprofitable open joint-stock companies owned by the Republic of Belarus or an administrative and territorial unit may be transferred into trust management with the right to buy out those shares according to the results of trust management to the subjects of privatization – professional securities market participant (banks, other financial organizations).

Privatization body accepts applications for participation in competitive bidding, sets up a contest commission to conduct the competitive bidding. The contest commission determines the participant, who has won competitive bidding, and draws up minutes on the results of the competitive bidding.

The competitive bidding is considered invalid if:

  • application Form in the competitive bidding is filed only by one party;
  • no applications for participation in the competitive bidding were filed;
  • only one participant or none of the participants appeared at the competitive bidding.

A competitive bidding is considered to have no result if among the applications filed by the participants of the competitive bidding under the terms of the competitive bidding none of the proposals of the participants of the competitive bidding corresponds to those terms.

The winner of the competitive bidding is deemed to be the participant whose all offers, according to the conclusion of the commission on conducting the competitive bidding, correspond to the terms of the competitive bidding or contain better terms in comparison with the terms of the competitive bidding.

The participant, who has won the competitive bidding, and the contest commission shall sign protocol on the results of the competitive bidding on the day of the competitive bidding.

The procedure for conducting the competitive bidding on the transfer of the shares of unprofitable open joint-stock companies into the trust management with the right to buy out a part of those shares according to the results of the trust management and for concluding the contract on trust management of shares with the right to buy out a part of those shares according to the results of the trust management (hereinafter – contract of trust management with right to buy out) as well as for control over its fulfillment is determined by the Council of Ministers of the Republic of Belarus (the head of executive branch) with regard to the requirements of legislative acts.

The subject of the privatization that concluded a contract of trust management with the right to buy out, after the termination of the trust management and in case he fulfilled all conditions of the contract of trust management with the right to buy out, has a right to purchase a part of the shares transferred to him, in the ownership under a contract of sale subject to conditions specified in the contract of trust management with the right to buy out. Sale price of shares of unprofitable open joint-stock companies is determined by their nominal value in accordance with the charters of those companies on the date of the conclusion of the contract of trust management with right to buy out.

In the case of breach of the contract of trust management with right to buy out the subject of privatization has no right to repurchase the shares of unprofitable open joint stock company and bears the liability provided by the contract of trust management with the right to buy out.

3. Transformation of the state unitary enterprises into the open joint stock companies

Decisions on the transformation of the state unitary enterprises into the open joint stock companies are made in accordance with the approved plans on transformation of the state unitary enterprises into the open joint stock companies:

  • concerning the republican unitary enterprises employing 1,000 people or more ­–
    by The Property State Committee of the Republic of Belarus;
  • concerning the republican unitary enterprises employing less than 1,000 people – by The National cadastral Agency and its subordinate organizations;
  • concerning municipal unitary enterprises – by the appropriate local executive and administrative authorities.

The founders of the open joint stock companies created in the process of transformation of state unitary enterprises are the privatization bodies. Other subjects of privatization who have made monetary and/or non-monetary contributions to the authorized funds of the open joint-stock companies can be additional participants.

The choice of other founders other than the state is to be made by the privatization body by holding a competitive bidding, and in case the competitive bidding has been recognized to have failed – by the direct negotiations of the privatization body with the single participant of the competition.

Works on transformation of the state unitary enterprise into open joint-stock company are performed by the commission for transformation. The commission for transformation includes representatives of the collective of workers of the state unitary enterprises and representatives of the state body, state organization, local administrative and executive body to which the state unitary enterprise being transformed is subordinated (makes part of).

The amount of authorized fund of the open joint-stock company is determined based on the balance sheet value of assets and liabilities of the state unitary enterprise or several state unitary enterprises on January, 1st of the year in which the transformation is being conducted, under the procedure established by the republican body of state administration for managing state property, and in the event of participation of the founder other than the state, also based on the value of the contribution of such a founder, determined in accordance with acts of legislation, and may not be below the minimum size established by legislative acts.

The sectoral commission negotiates the project of the transformation of the state unitary enterprise into the open joint stock company, prepares the conclusion on the possibility of establishing of the open joint stock company.

Based on the conclusion of the sectoral commission, the privatization body makes a decision on the establishment of an open joint stock company in the course of transformation of the state unitary enterprise, or in the course of transformation of a few state unitary enterprises.

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