APV Rt.'s role in Hungary's privatisation process

Hungarian Privatisation and State Holding Company APV Rt.

Of all the countries of Central Europe, Hungary has made the most progress in terms of translating economic reform theories into practice. Essential characteristics of the changes include the diminishing role of the state in the economy and an ever increasing role for free market enterprise. Privatisation has underpinned the changes. Beginning in 1989, its results have been substantial by any historical standards. Consequently, an opportunity has been created in Hungary at the end of the 20th century for the establishment of modern social and economic conditions.

The establishment of a modern mixed economy based on private enterprise has advanced at an unprecedented pace over the last five years. Owing partly to privatisation, the increase in the private sector's share of GDP from 10 per cent in 1990 to 70 per cent in 1995 is a telling statistic, highlighting the radical economic changes brought about, in part, by privatisation.

The magnitude of ownership reform is marked by the rising privatisation revenues of the Hungarian Privatisation and State Holding Company (ÁPV; Rt.) and its predecessors, including the State Property Agency (ÁV;Ü) and the State Holding Company (ÁV; Rt.), from HUF 670 million in 1990 to HUF 174 billion in 1993 and HUF 474 billion at the end of 1995. Besides selling off assets, holding long-term state property in 89 associations with a current book value of nearly HUF 350 billion also constitutes a privatisation-related responsibility.


The ownership structure of a modern, mixed economy is determined by the economic tasks undertaken by the state, the institutional owners and the extent of private enterprise. Since 1990, the privatisation process has mainly featured sales to strategic investors through competition. In addition, privatisation procedures and techniques ranging from compensation vouchers to privatisation through the stock exchange have been tried and tested.

The legal framework of the market economy's institutional system was established extremely quickly. The world's major consulting and auditing firms and investment banks had started to establish a presence in Hungary from the end of the 1980s. As an unambiguous sign of investors' confidence in Hungary, this also created the conditions for an influx of foreign working capital. As a result major multinational manufacturers, insurance companies and banks have been investing in Hungary ever since.

Over 40 per cent of the foreign investments made in Central European countries to date have been placed in Hungary. Almost three-quarters of this foreign capital was actually used to pay for privatised state assets, with the remainder accounting for greenfield investments.

Hungary achieved a unique first in Central Europe when ÁPV; Rt. led the privatisation of the strategic public utility companies which belonged to the national economy's major supply systems. Foreign investors acquired shares in gas and electricity distributors, two power plants and the largest Hungarian company in terms of turnover, the Hungarian Oil and Gas Company (MOL Rt.) In addition, a majority stake in the following companies was transferred to private hands: the Hungarian Telecommunications Company (HTC), the country's largest pharmaceuticals company Richter Gedeon Rt., and the National Savings Bank (OTP Rt.), the largest retail bank. ÁPV; Rt.'s performance made 1995 a remarkably successful year in the history of Hungarian privatisation, earning international recognition.

What is ÁPV; Rt?


The State Property Agency (ÁV;Ü) was established in 1990 in one of the first steps of the transformation process of state into private property. With this move, Hungarian legislation separated the state's executive and ownership functions. In 1992, the State Holding Company (ÁV; Rt.) was set up to perform a holding activity of the stakes in those companies deemed as strategic by the government at that time. In the new government cycle that started in 1994, the Hungarian Privatisation and State Holding Company (ÁPV; Rt.), founded as the legal successor of ÁV; Rt., was mandated by law to fulfil state privatisation and holding duties by virtue of Act no. XXXIX/1995. In a simultaneous move, the ÁV;Ü was closed down, and its duties taken over by ÁPV; Rt.

ÁPV; Rt. is a decision-making and executive organisation representing the state in respect of its ownership rights and the execution of such rights. ÁPV; Rt.'s activities involve the sale or utilisation of the property under its legal control. Its decisions influence the future of certain branches and companies of key importance to the national economy. Besides influencing the process of ownership change, ÁPV; Rt.'s decisions also affect the progress of economic restructuring.

Following their transformation into business entities, the total or partial sale of the 1,857 state-owned companies registered in 1990 left the state with a stake in a total of 661 entities by the end of 1995. From this, the state continues to hold a majority stake in 363 and a minority stake in 298 entities. Since 1990, privatisation revenues totalling HUF 900 billion have been received by the ÁPV; Rt. and its predecessors. The book value of the remaining property that can be transferred into private hands is estimated at HUF 823 billion.


ÁPV; Rt. is supervised by the minister without portfolio responsible for privatisation, who shares responsibilities with the government when exercising the rights of a shareholder. Operating as a joint-stock company, the organisation is headed by an 11-strong board of directors, which is the highest ranking operative and decision-making body in Hungarian privatisation. The Chairman and the ten members of the Board are appointed by the government following their approval by the relevant parliamentary committee. Through supervising the work of the board of directors, the 11-strong supervisory board oversees the work performed by the entire ÁPV; Rt. The Chairman of the Supervisory Board is proposed by the State Audit Office.

The duties of ÁPV; Rt.

ÁPV; Rt. performs its duties by virtue of a legal mandate. A state-owned joint-stock company, its duty involves the sell-off of state property, ie, privatisation, as well as holding state property. These two tasks require a complex strategic approach and the use of an elaborate decision-making system.

The fundamental points of the Hungarian government's privatisation strategy adopted for the period between 1994 and 1998 are laid down in Act XXXIX/1995. The objectives outlined in this act determine the basic positions and principles of the activities of ÁPV; Rt., the organisation responsible for the completion of privatisation.

Given the Hungarian economy's market environment and operational conditions, the goal of privatisation under an ownership structure currently undergoing a radical change is to boost economic efficiency, to alleviate the shortage of capital and to improve market positions. This is also related to the process of economic restructuring and the reorganisation of corporate assets still capable of performing business operations. Furthermore, the establishment of a modern mixed economy requires capital market development and raising foreign capital. When making privatisation decisions, ÁPV; Rt. must also seek to protect jobs and provide for property acquisition by employees and management. In addition, the organisation must also ensure opportunities are available for compensation voucher-share swaps.

The privatisation law identifies the state property scheduled to be privatised. The law's appendix gives an item-by-item list of the entities (a total of 89) in which the state wishes to retain a permanent small or large share. ÁPV; Rt.'s duty and responsibility involves the following: assessment and registration of property and relevant conditions, the asset value and the business value of the associations constituting such property, identification of the optimum privatisation techniques and procedures and completion of the transaction. Before making a sale, ÁPV; Rt.'s task is to maintain the property's value and to perform temporary holding activities.

The privatisation law also provides for some companies to be kept in permanent state ownership. ÁPV; Rt.'s duty is to preserve and enhance the property value of the state-owned companies classified in this category. ÁPV; Rt. is also responsible for exercising ownership rights in respect of the state-owned companies in question, including national public utilities, state companies with a strategic or national defence significance and state-owned shares in partnerships as provided by virtue of the concession law. The organisation may sell a minority share in order to reach the ownership proportion that ensures the necessary state control. As regards the privatisation concept of the companies important for the operation of the national economy, the government or, based on a government proposal, Parliament is entitled to make a decision.

How ÁPV; Rt. operates

Decision-making by ÁPV; Rt. is based on hierarchy. Decisions are made after the careful assessment of economic, market and competition policy and legal considerations. During the privatisation process, ÁPV; Rt. ensures equal opportunity in the acquisition of state property. Therefore, the most fundamental principle observed in both privatisation and holding activity is that of tendering, meaning competition is of paramount importance in business offers. For the sake of maintaining control the privatisation law prescribes the rules and formal requirements of tenders. ÁPV; Rt. provides an opportunity for every interested party to access the necessary information for making business decisions in respect of the property under its control. The above requirements are enforced by every ÁPV; Rt. staff member in the preparation and completion of privatisation and asset holding transactions.

Privatisation involves ÁPV; Rt. selling state property directly to investors, through the stock exchange and through investment funds and investment companies. Selling conditions are determined by business considerations, meaning state property may be purchased by the bidder offering the most favourable conditions and the highest price.

When exercising its role as a holding company, ÁPV; Rt. acts so as to implement the state's ownership strategy at the general assembly of totally or partially state-owned associations. As regards property in permanent state ownership, the ÁPV; Rt. performs holding activities in accordance with the provisions of the law on economic associations. Depending on the proportion of state property, the operation and dividend policy of an association constituting state property is determined or influenced by the ÁPV; Rt. as the representative of the state.

Holding also comprises the fulfilment of certain control and legislative duties related to the preservation and increase of property value. If an earlier attempt has failed to sell off an asset belonging to the ÁPV; Rt., or selling conditions are unfavourable from a business standpoint, the ÁPV; Rt. may undertake to utilise the asset in question on a temporary basis.

How to contact us

ÁPV; Rt. has set up customer service bureaus in Budapest, in every county seat and in two neighbouring countries to assist interested parties in making enquiries. Information is also available via computer networks including the Internet and ÁPV; Rt.'s Marketing Database.

Internet: http://www.meh.hu/apv/

Marketing Database: 36 1 156 5566/4021

E-mail address: apvrt@apvrt.hu

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