ARGU M ENTA OECON OM ICA No 1-2(6)- 1998 PL. ISSN 1233-5835
Grażyna Wrzeszcz-Kamińska*
LEASE PRIVATIZATION AS A NONSTANDARD
CONTRACT
T h e process o f ow nership tran sfo rm atio n s takes the fo rm o f transactions. C ontractual re la tio n s in th e tran sitio n from state-d o m in ated property rights to p riv a te p ro p erty are o f various character. T h e privatization contract proceeds according to the follow ing sequence: 1) preparation o f a privatization contract, 2) conclusion o f the contract for the transfer o f property rights, 3) im plem entation o f th e contract. The features o f th e privatization contract, p articularly the limited ra tio n a lity o f p a rtic ip a n ts in the contract, u n c ertain ty resulting from th e o p p o rtu n ism o f participants in the c o n tra c t, and the specificity o f th e subject-m atter o f the c o n tra c t, determ ine the resu lts o f the im p le m e n tatio n o f a privatization contract. In lease priv atizatio n , w hich incorporates fe atu res o f a n o n sta n d a rd contract, the results o f th e implementation o f a c o n tra c t m ay be as follows:
1. F ailu re to fulfil the c o n tra ct, in which case the pro cess o f th e transfer o f property rig h ts in th e e co n o m ic sense does not tak e place;
2. Fulfilm ent o f the co n tract, w h ich entails the e stab lish m en t o f a private entity o r an e m p lo y e e-o w n e d company.
1. INTRODUCTION
T h e process of ow nership transformations m ay b e treated as organizational innovations that impact on the development o f an entity that u n dergoes privatization. The analysis o f the privatization pro cess in terms of transaction costs means focusing on privatization contracts, and in particular on th e ir q ualitative and quantitative features. As the analyzed economic phenom ena are q u ite complex, the analysis o f the privatization c o n tra ct presented below is not conclusive. It is merely an attem pt to highlight som e aspects that in m y opin io n are o f importance, an understanding of which can be obtained usin g the instrum ents of the new institutional economics.
T h e subject-m atter o f th is paper is the p riv a tiz a tio n contract a n d the e ffe c ts o f its im plem entation in a situation o f a transition from sta te - d o m in a te d property rig h ts to private property. A fte r discussing th e m a in fe a tu re s o f the privatization contract, I will try to p o in t out the changes in th e s tru c tu re o f property rig h ts that are the re su lt o f the im plem entation o f c o n tra c ts in the process o f lease privatization.
2. DESCRIPTION OF THE PRIVATIZATION CONTRACT IN TERMS OF TRANSACTION COST ECONOMICS
As a result o f the implementation o f a privatization contract tw o qualitatively different situations may develop. O ne situation is w here as a result of the im plementation o f a privatization contract the formal o w n er actually controls business activities. There is a coincidence of property rights and control over business activities. In such a case the fulfilment of the privatization contract results in privatization as the transition of property rights to natural or legal persons results in the constitution o f private property.
The o ther situation is connected w ith the fact that property rights and control over business activities do not alw ays coincide. The form al ow ner is in fact unable to control a business. In such a case the changes caused by the privatization contract may be defined precisely on the basis o f the logic of the behaviour o f persons who actually control business activities. Thus, the im plem entation o f the privatization contract will not result in an actual transfer of a state en terprise from the public secto r to the private sector. W ith regard to the second situation, i.e. the situation where property rights an d control over business activities do not coincide, we will use the term “ownership transform ation” .
O w nership transformation of a privatization nature is a process that takes place according to the following sequence: => preparation o f a privatization contract => conclusion of the contract for the transfer o f property rights => implementation of the contract.
The follow ing features characteristic o f the privatization contract may be enumerated:
1) lim ited rationality of the participants in a contract; 2) uncertainty:
- fortuitous,
- behavioural, resulting from opportunism of the participants in a contract; 3) specificity o f the subject-matter o f a transaction;
4) uniqueness o f the circumstances o f each transaction; 5) possibility o f renegotiation of the term s of the contract.
The lim ited rationality of participants in a contract results from the fact that individuals h av e limited ability to collect and process inform ation. It is not possible to establish a detailed strategy of the privatization contract due to limited rationality on the one hand and opportunism on the other hand. According to F. von Hayek (1945, p. 254), interesting econom ic problems of an organization are connected with uncertainty, as the main econom ic problem of a
society consists of adaptations to changes in the circum stances of a particular tim e an d place.
T h e long-term nature of the privatization contract increases uncertainty. T his is d u e to the fact that not all future circum stances may be anticipated. A dju stm en t to new circum stances that arise during the implementation o f a co n tract can be limited. An increase of uncertainty as a consequence o f open- end contracts may and does cause a higher degree o f adjustm ent. Privatization co n tracts are organized in various manners. The re aso n s that justify the various organizations of privatization contracts may be ex p lain e d using the categories o f transaction cost economics, in particular such characteristics as the specificity o f resources, uncertainty, and frequency. The complex nature o f the empirical analysis o f the privatization contract results from the specificity o f physical resources and the specificity of human resources. As pointed out by O. E. Williamson (1985, p. 62), specific transactions are m ore often related to hum an resources, which evolve during the period of the implementation of a contract. This is illustrated by specialized training and learning by doing.
D ue to the unpredictableness o f circumstances in the privatization process, the term s o f privatization contracts are rather general and flexible and equip the parties to such contracts with special tools for the negotiation and renegotiation o f the terms. A question should be posed w heth er privatization contracts im plem ented under the liquidation method are con d u civ e to the establishm ent o f large num bers of independently operating b usinesses controlled by clearly defin ed owners and what form s o f ownership the state enterprises privatized by m eans o f the liquidation m ethod will assume.
T h e privatization contract m ay be a basis for the establishm ent of private prop erty rights. Due to its features the privatization contract proceeds through three interdependent stages.
In th e first stage, a p riv a tiz a tio n method is s e le c te d and the en terprise is p re p a re d for the conclusion o f a privatization c o n tra c t under the selec ted m e th o d . A t this stage the p artic ip a n ts that c o -d e c id e about the privatizatio n are: th e em ployees’ c o u n c il, the enterprise’s m a n a g e rs (agents), and a re p re se n ta tiv e of the o w n e r - the State T re asu ry (th e founding organ - p rin c ip a l). In the liquidation m ethod the pow ers o f the em ployees, i.e. th e e m p lo y e e s ’ council, and o f th e m anagers are o f e sse n tia l im portance w ith re sp e c t to the decision on th e ultim ate form o f p riv atiza tio n . Those p o w e rs are d e riv e d from em p lo y m en t in the given e n te rp rise . Thus, it can b e c o n c lu d e d that the em ployees participate in the firs t stag e of privatization by p a rtic ip a tin g in making th e privatization d e c isio n , w hich has lab o u ristic ju s tific a tio n . The em p lo y ees’ participation is m a n ife ste d in making c h o ic e s
and ju stify in g them to the fo u n d in g organ with re sp ect to th e following issues:
- the targ e t type of company: p rivate limited company o r public limited company;
- the rules regarding the allocation o f shares to employees; - principles concerning the transfer o f shares;
- em ployees’ participation in the management board and the supervisory board; - pow ers o f the management board w ith regard to em ploym ent.
The selection o f the future form o f ownership of the enterp rise is of utmost importance fo r the implementation o f the privatization co n tract under the liquidation m ethod. The forms of ow nership correspond to legal m odels defined in the C om m ercial Code. The choice can be made between tw o possibilities: the private lim ited company and the public limited company. T h e choice of the legal m odel is determined by the features of the privatization contract, in particular by lim ited rationality, uncertainty, and specificity o f the subject- matter of the transaction. The selection o f the public lim ited com pany option is tantamount to the adoption of a strategy o f openness to new shareholders who could reinforce the company’s capital. The choice o f the private limited company option means the exclusion o f the possibility o f ra isin g capital through increasing th e num ber of shareholders. T he satisfaction o f financial needs will require borrow ing. When comparing th e tw o options it should b e noted that the selection o f the public limited com pany offers the possibility o f limiting the em ployees’ interests, whereas the selection of the private lim ited company is conducive to th e petrification of the ow nership and em ploym ent structures.
The adopted rules of the allocation o f shares to em ployees determine the scope o f the decision-making pow ers o f managers and other em ployees at the stage of the implementation of a privatization contract. A t the beginning of the process d ifferent situations are possible, which in conjunction with principles concerning transfer of shares m ay have a decisive im p act on the target ownership structure and on the m otivations of managers. T h e adopted rules for the allocation o f shares constitute in fact an informal co n tra ct between the
employees an d the managers fo r the implementation o f ownership
transform ation by means of the liquidation method.
The unpredictableness of circumstances in the ownership transformation process is the reason w hy the terms of privatization contracts are rather general and flexible and equip the parties to such contracts with special tools for negotiation which cannot constitute a legal framework. T h e implementation o f the contract is both formal and inform al in character. A ccording to the letter of the law (Dziennik Ustaw 1990) a commercial-law company is established. Property rights could not be acquired individually by a manager in the manner provided for in Art. 39 of the
State Enterprises Privatization Act. Thus, the im plem entation of the contract has features o f circumstantial approxim ation to the law in the sense of C. Summers (W illiam so n 1985, p. 9). T h e opportunism o f p a rtic ip a n ts in the co n tract brings benefits to the ag en t (m anager), in the fo rm of a reduction in tra n sa c tio n costs, and to th e principal, in the fo rm of, for instance, th e fu lfilm e n t of political o b jectiv es (quantitative re su lts o f privatization - a fo rm al reduction in the n u m b er o f state enterprises).
T h e general principle o f trad e in shares should b e the transferability o f em p lo y ee shares. By em ployee shares I understand shares in the public lim ited com p an y or the private lim ited company acquired b y individual em ployees on preferential terms. Em ployee shares may exist only in enterprises that have the legal fo rm of companies. In P o lan d employee shares m ay be created in sto ck co m p an ies and in limited liability companies. This fo rm o f ownership is close to classical private equity ow nership as it is based on individual shares that h ave m arket value. Such shares are owned by persons w ho as a result o f the acqu isitio n of the shares acquire specified property, incom e, and decision rights. It sh o u ld be emphasized, how ever, that there ex ist significant differences b etw een employee ow nership and classical equity ow nership. The differences relate first o f all to the prin cip les and manner o f acquisition and transfer o f em p lo y ee shares. The transferability of em ployee shares is limited due to, am ong others, limited rationality and behavioural u n certain ty resulting from the o p portunism of participants in a contract, as a result o f which, in conjunction w ith th e uniqueness of the circum stances of each transaction (relating to the parties, the subject-matter, the tim e, and the place), th e transferability of shares is su b ject to:
- tim e limitations;
- lim itations concerning persons entitled to acquire shares;
- limitations concerning the existence of pre-emptive rights with regard to the shares to be transferred.
G e n e ra lly , the tran sfera b ility o f employee s h a re s depends on the leg al fo rm o f the entity in w h ich employees h o ld em ployee shares. T h e C o m m e rc ia l Code provides fo r full and unlim ited transferability o f sh a re s (b o th inscribed and b ea rer sh a re s) in stock c o m p a n ie s. In limited lia b ility c o m p a n ie s, however, each tra n sfe r of shares re q u ire s the consent o f th e m a n a g e m e n t board and m u st be recorded in th e com m ercial register. In p riv a tiz a tio n lease the p o ssib ility of opportunistic b e h a v io u r of the p arties to a p riv a tiz a tio n contract m ay lead to the lim itation o f transferability o f sh ares. T w o o p tio n s are possible w ith regard to the tra n s fe r o f shares. P riority w ith re g a rd to the transfer o f sh a re s is given to em p lo y ees. T h is lim itation is m o st o ften form u lated explicitly in th e articles of asso c ia tio n .
Under one option, companies issue inscribed shares. T he lim itation imposed on the transfer o f such shares is that th e company has p re-em ptive rights with regard to the shares. Share transfer transactions between em ployees are also subject to lim itations, as they require the company’s consent. In such a case inscribed em p lo y ee shares are not sub ject to market valuation.
Under the o ther option, trade in the com pany’s shares is n o t restricted to the employees. In such a company part o f the shares are inscribed shares and the remainder are bearer shares and are traded on the stock exchange. Unrestricted transfer o f shares makes possible m arket valuation o f th o se shares and, indirectly, o f registered employee shares. Rafako is an ex am p le of such a company. A ccepting the behavioural assumption about opportunism and in particular W illiam son’s statement (W illiam son 1985, p. 31) th at some people are opportunistic from time to tim e, the analysis of c o m p an ie s’ articles of association proves that efforts are m ade in order to create ex a n te rather than ex
post security. T he next factor conducive to opportunistic behaviour of
participants in privatization contracts is the degree in w hich shares are paid for with em ployees’ own funds and the scope o f privileges, reliefs, and exemptions offered to em ployees. Privatization activities that have been carried out so far show clearly th at in enterprises privatized by means of the liquidation method various privileges are granted with respect to the purchase o f em ployee shares and the tran sfer o f such shares is subject to temporal and perso n al limitations.
Em ployees’ financial participation m eans that em ployees tak e shares in a company fo r cash contributions, the obvious result of w hich is that they hold property rights to a specified part o f the company’s assets and the right to income generated by the company’s assets. An employee w ho is the owner of such a share, depending on the type o f the share, has the rig h t to participate in the com pany’s decisions, is entitled to benefits, but at the sam e tim e assumes risks connected with the com pany’s econom ic perform ance. T h e purchase of individuated shares by employees in enterprises that are priv atized by means of the liquidation m ethod is supported by various types of facilities. T he nature and scope of such facilities that may be offered to employees in th e process of the privatization o f enterprises have been specified in statutory regulations (Art. 24 of the State Enterprises Privatization Act). They may relate to: the num ber and price of shares and the term s of payment in consideration of purchased shares.
The financial condition for the conclusion of a privatization contract by the State T reasury is the accumulation by th e company of funds eq u al to 20% of the combined fo u n d in g fund and en terprise fund of the state enterprise. The requirement o f financial contribution from the employees acquiring shares is supported by a system of financial facilities. Employees w ho acquire shares can
take advantage of loans, discounts, payment by in stalm en ts, partial forgiveness o f p ay m en t as well as tax exem ptions and allowances.
C ertain features of circum stantial approximation to law are shown by th e fun d in g o f loans to finance the acquisition o f sh ares by employees fro m O w n ersh ip Transformation Foundations, to which contributions are made out o f the p rofits and other funds o f state enterprises transform ed by the lease privatization method. Those foundations gave low -in terest or interest-free lo an s exclu siv ely to employees o f those enterprises fo r th e purchase of em ployee shares. Subsequently the foundations forgave the lo an s, which in fact w ere grants. (F o r example, the P oznan Private O w nership Foundation ‘Sami S o b ie ’ [W e fo r Ourselves] received donations from various state enterprises u n d erg o in g privatization, used the donated funds to m ake loans to em ployees fo r th e purchase of shares, and immediately w rote th em off. The enterp rise W in stal contributed 5 bn zlotys out of its 1990 pro fit to the O w nership T ransform ation Foundation, w hich made loans to th e enterprise’s em ployees at
5% p e r annum. The ow ners’ equity of the com pany W instal was 5.5 billion zl
(“G a z e ta W yborcza ” no. 54, 5 M arch 1993).
U ncertainty on the one hand and opportunism on the other red u ce em p lo y e e s’ willingness to subordinate operating d ecisions to strategic ones. T h eir operating decisions concern privileges with re sp ect to the acquisition an d tran sfer o f shares, and thus in view of the source o f funding for the acquisition o f shares during the im plem entation of the privatization contract em ployees beco m e residual claimants. T herefore they may be w illin g to use their prop erty rights in order to maxim ize profits. Who the u ltim ate owners of a privatized enterp rise will be depends on the long-term m ake-up o f the group of resid u al claim ants. It usually com prises managers. M anagers are interested in acquiring shares from other enterprises. In state enterprises im plem enting privatization co n tracts under the liquidation method, an internal quasi capital m arket is created. T he fact that individuals hold specific eq u ity interests in the form o f em p lo y ee shares means that the structure of the o w n e r’s rights is changed. E m p lo y ee shares give rise to property, income, an d decision rights o f th e ir ow ner. U sing the m ethodological hints of the P ro p erty Rights School w e ca n ch aracterize the bundle o f property rights of an en terp rise transformed thro u g h lease privatization by reference to the attributes o f p ro p e rty rights, exclusiveness and com pleteness, bearing in m ind that free transferability is a prerequisite fo r the realization of the exclusiveness attribute. T he lack o f exclusiveness m ean s that free transferability o f com ponent property rig h ts does not exist. T h e com pleteness of property rights means that all en u m erab le component rig h ts exist. In the case under consideration the subjects o f the transactions are state enterp rises and companies. Incom plete and no n ex clu siv e property rights are
transferred into other incomplete and nonexclusive property rights. It should be stressed th at individual privatization contracts concerning lease privatization differ from one another in terms o f th e principles of acquisition and disposition of equity shares, the scope of the rights o f em ployees-shareholders, the degree of financial risk involved in the h olding o f shares. In reality , the privatization contract b rings about changes in actual rights to such an ex ten t that managers (agents) enjoy exclusive property rights (Table 1).
T a b le 1
P ro p e rty rig h t attributes in state e n te rp ris e s and in enterprises in th e lease period
P roperty rig h t a ttrib u te s
State e n te rp ris e E n te rp ris e in the lease period
P erso n P erso n Ius utendi Ius fruendi Ius ab utendi Ius d isp o n e n d i managers State Treasury, e m p lo y e es m anagers S tate T re a su ry , employees no residual claim an ts founding organ, m an ag ers founding organ, e m p lo y e es
residual c la im a n ts occur o w ners - em p lo y ees, managers ow ners
Source: o w n research.
The m an ag e m en t’s authority reg ard in g em ploym ent is an im portant elem ent o f th e privatization co n tra ct. Two alternatives are possible: the m an ag em en t’s autonomy as re g a rd s dism issing and h irin g em ployees or em ploym ent guarantees for em ployees-shareholders. E ith e r option is possible in both the private and th e public limited co m p a n y ; however, the public lim ite d com pany, where sh ares can be traded, o ffe rs greater freedom in em p lo y m en t policies than the p riv a te limited com pany.
3. CONCLUSIONS
To sum up, it can be said that the choice of the corporate form of organization is essential for the fulfilm ent of the privatization contract, while the other elem ents are important for the efficiency of the contract, as they have an effect on the m anagers’ motivation and their ability to act in the multifaceted restructuring o f the enterprise and repaym ent of lease obligations to the owner (Table 2). T h e private limited com pany is the predom inant legal form of company established for the purpose o f taking over assets leased by the State Treasury. T h e Commercial Code im poses restrictions on the transfer of interests
in lim ited liability com panies. Such transfers are restricted in that, firstly, such in terests are personal and, secondly, any transfer requires the consent o f the m anagem ent board or is tem porarily prohibited. A n analysis of the legal form o f co m p an ies leasing State Treasury-ow ned assets has sh o w n that where the p u b lic lim ited company form w as selected, an open n a tu re of the company w as env isag ed , with a view to attracting external investors.
Table 2
C o m p ariso n o f privatization o p tio n s
Conditions o f privatization
contract
Public lim ite d c o m p an y L im ited liab ility co m p an y Inscribed shares B e a re r shares
M a n a g e rs ’ motivation relatin g to
in c re a s e o f his interest strong m ed iu m w eak
P o s s ib ility o f securing additional
ca p ita l medium stro n g w eak
B o rro w in g requirements medium w eak stro n g
P o s s ib ility o f restructuring
e m p lo y m en t medium strong w eak
P o s s ib ility o f m anagers’ o p p o rtu n is tic
b e h a v io u r weak m edium stro n g
R o le o f em ployee ow nership a fter c o m p le tio n o f the privatization
p ro c ess weak W eak stro n g
S o u rce: own research.
T h e privatization c o n tra c t, which takes p la c e in the case o f le a se p riv a tiz a tio n , is not an in stitu tio n characteristic o f th e perfect m arket a n d h as fe a tu re s o f a relational co n tra c t. However, ce rtain privatization contracts can be d esc rib ed as n eo c lassical contracts, whose p rin c ip a l characteristic is th a t e ffe c tiv e adaptations are provided for to a c h ie v e the fulfilm ent o f th e o rig in a l agreement. P riv a tiz a tio n contracts re la tin g to leasing p ro c e e d in su ch a w ay that some o f th e m can be and a c tu a lly are conform able to th e o rig in a l agreem ents, w h ile others need n o t b e and actually are n o t co n fo rm a b le to the o rig in al agreem ents. In c o n tra s t to the classical c o n tra c t, in th e relational contract contractual terms an d co n d itio n s are not fix e d ex
a n te . T he open-endedness o f the contract m ean s th a t the parties ag ree o n a
as it w as n o t possible to m ake th e m sufficiently sp e c ific at the time of concluding th e contract. The e x istin g legal order is in su ffic ie n t to overcome opportunistic behaviour, and b ec au se o f inform ational asy m m etry the parties to the c o n tra c t have limited ra tio n a lity . J. R. M acneil (1 9 7 8 , pp. 854-906) describes re la tio n a l contracts as c o n tra cts relating to re c u rrin g nonstandard transactions. T h e transactions are bilateral and d esc rib ed as managed by unified m anag em en t structures.
“On th e one hand, both p a rtie s have an in cen tiv e to sustain the relationship ra th e r than to perm it it to unravel, the o b ject b e in g to avoid the sacrifice o f v alu ed transaction-specific economies. O n th e o th e r hand, each party ap p ro p riates a separate p ro fit stream and cannot b e ex p e c te d to accede readily to a n y proposal to adapt th e contract. What is n e e d e d , evidently, is some way fo r declaring adm issible dim ensions for a d ju stm e n t such that flexibility is provided under term s in which both p artie s h av e confidence. This can b e accom plished partly b y (1) recognizing th a t the hazards of opportunism vary with the type o f adaptation proposed an d (2) restricting adjustm ents to those where the h a z a rd s are least.” (W illiam so n 1985, p. 76). T ransactions in privatization co n tra c ts concern specific reso u rces that are sold to b u y e rs who offer co n tra ctu al security. In such ca se s W illiam son (1985, p. 38) recognizes ju stific a tio n for price d iscrim in atio n . The buyer obtains a p re m iu m in the form o f a lo w er price.
The adoption of a decision to privatize an enterprise, and in the case under consideration specifically to lease out its assets, means that there will be various transaction costs. In particular, E. G. Furbuton and R. Richter (1991) distinguish contract preparation costs, contract conclusion costs, and contract monitoring and strengthening costs. Certain costs of agreeing the terms and conditions of ownership transformations are incurred before the terms of exchange are fixed. Transaction costs in this case can be described as the costs of guaranteeing property rights. Particularly important for the implementation phase of a privatization contract based on lease is the occurrence of the cost o f management and the cost o f monitoring the obligations o f exchange participants.
The equity structures of com panies resulting from the im plem entation of a privatization contract are closed to th e ir own evolution, w hich gives rise to the surmise that the privatization process is not finished as soon as strong private property appears. The conclusion o f a lease contract with th e ow ner does not create such guarantees. The im plem entation of a privatization contract may result in the establishm ent of:
1. a com pany with an active ow ner, where the latter role ca n be assumed by: a) the co m p an y ’s managers,
2. an employee-owned com pany with an active m anager.
In the former case ow nership transformations involve a reduction o f em p lo y ee interests, in the latter employee interests are not affected. As can be seen in Table 2, a company with an active owner is more lik ely to be formed und er th e stock com pany option, and an employee-owned co m pany under the p riv ate lim ited company option.
T he accomplishment of ownership transformations by means of the lease m ethod depends not only on the elements of the privatization decision discussed above but also on many circum stances of the econom ic activity of the enterprise that condition its fulfilment of obligations towards the owner.
A com pany that takes State Treasury-owned assets on lease obtains freedom to use those assets in exchange for payments. Financial responsibility remains with the owner. (This situation is illustrated by the privatization o f the enterprise W odrol. In 1991 the assets of the state enterprise were taken on lease for a six-year term (1991— 1997) by a company. In M ay 1994 the company stopped paying principal instalm ents and other charges to the Provincial Office and was declared bankrupt on 30 N ovem ber 1995. Under the agreement concluded by the provincial governor, representing the State Treasury, and the company W odrol S.A., if the agreement is for som e reason terminated before all principal instalm ents have been paid, the Provincial Office must refund to the company all principal instalments that have been paid (Rybak 1996; N C E...1996). In such cases the effect o f the implementation of the privatization contract is the transfer of state property to private ownership.
S u m m in g up, the im p lem en tatio n of the p riv a tiz a tio n contract, w hich is a p ro c e ss o f the creation o f p riv a te property, can hypothetically lead to th e fo llo w in g results:
1. T h e lessee fails to d ischarge its obligations u n d e r the contract. The S ta te T re asu ry remains the ow ner o f the leased assets o f the state enterprise. T h e privatization contract is not fulfilled. Property rights are not transferred in th e eco n o m ic sense as a result o f the failure to make p ay m en ts in respect of the u se o f S ta te Treasury-owned assets.
2. T h e lessee pays up the amount due for the u se State Treasury-ow ned assets. T he privatization contract is fulfilled. An em ployee-ow ned or a p riv ate co m p an y can be set up.
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