The Financial Economics of Privatization

By William L. Megginson | Go to book overview

10
Privatization Industry
Studies
Energy and Airlines

Along with telecoms and banking, the two major industries that have accounted for the largest number and highest value of privatizations over the past quartercentury are oil and gas companies and electric utilities. These four industries collectively account for almost $900 billion of the total $1.25 trillion or so that governments have raised through asset sales and public share offerings since 1977. This chapter examines the privatization histories and regulatory regimes adopted for these two energy industries, as well as for a third, national airlines. Although airlines are much less important in terms of aggregate proceeds or number of sales, these are arguably the most internationally visible of all privatizations. While only a nation’s citizens or visitors will experience the service provided by most stateowned enterprises, the entire population of international air travelers will likely observe a nation’s airline, and a sizable fraction will actually experience that carrier’s service.

We also present estimates of the value of retained government stakes in firms in these three businesses. While this exercise is inherently difficult and can generate approximate valuations at best, even these are striking. For example, we find that while governments have raised about $300 billion through sales of oil and gas, electricity, and airline companies since 1977, their retained stakes in partially privatized companies are worth almost the same amount. This means that these governments have roughly as much left to sell as they have already sold. However, the value of fully state-owned electricity, and particularly oil and gas, companies is far higher. Though we do not prepare a detailed estimate of the value of fully state-owned electric utilities, these are certainly worth at least $100 billion, and perhaps far more. We estimate the value governments could raise through an aggressive privatization of the national oil companies of OPEC and non-OPEC countries using three different valuation methods. The lowest estimate obtained is $1.45 trillion, and the highest is $3.21 trillion—more than twice as much as governments have raised through all types of privatizations over the past quartercentury!

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