The fragile state of governments in new EU member states is emerging as a major obstacle to the region finishing off the privatization process launched following the fall of communism 16 years ago.
Despite several big sell-offs in sectors such as airlines, finance and utilities that are still to be completed, the current political weakness of governments -- in particular in the Czech Republic, Poland and Hungary -- combined with the widespread unpopularity of privatization, appears to have pushed the issue onto the back burner in many nations.
"Political weakness is a a major hindrance to privatization," said Lars Christensen, emerging markets analyst with Danske Bank in Copenhagen.
At the same time, signs of softer equity markets have also helped to dampen the enthusiasm among governments for pressing on with privatizations when the return might be lower than what they had hoped for.
Last week Poland called off holding a tender for an adviser for the privatization of key insurer PZU, raising doubts as to when Warsaw will proceed with what was seen as one of the biggest sell-offs this year.
Poland is already in the grip of moves towards a national election, which could mean that highly-charged political issues such as restructuring the country's coal mining sector, along with its huge financial burden of liabilities and debt, are now likely to handed over to the country's new government.
This leaves the Czech government's sale last week of its 51 percent stake in Cesky Telekom as likely to be one of the key sell-offs for the year.
NO FORWARD MOVEMENT
"There are some sell-offs but privatization is not really going forward," Christensen said. "There is no real popular support for privatization."
Even then Prague's sale of the holding to Spain's Telefonica for US$3.59 billion was held as Prime Minister Stanislav Gross' ruling coalition faced collapse.
Further underscoring the political uncertainty facing the nation, Gross's minority left-center government went on to survive a parliamentary vote of no-confidence only after several deputies including the bloc of communist representatives abstained from voting.
"The political cycle has been by no means helpful," said Michael Dybula, emerging markets strategist with BNP Paribas in Warsaw.
However, political pressures are not the only forces acting against governments moving ahead with privatizations. Last week Hungary's state privatization body announced that it had again failed in sell off the nation's flag carrier Malev because, according to Hungarian press reports, of the reluctance of bidders to takeover the loss-making airline's debt.
FEW CANDIDATES
Analysts point out however that a decade after the round of sell-offs across Central and Eastern Europe (CEE) as governments embarked on dismantling their nations' command economies, the number of candidates that can be lined up for privatization has shrunk considerably, with the state share of the economy having dropped significantly in recent years.
Moreover, the scale of the privatization which took place across the region in the early years following the fall of communism means that the companies now on the sell-off list are often in highly politically sensitive areas.
"It is harder to privatize now than it was five or 10 years ago," Christensen said.
This is despite the pressure on many CEE governments to knock their public finances into shape in the hope of merging their currencies with the euro, possibly by the turn of the decade. Selling off the remaining utilities presents more risk of a political backlash for governments than the privatizations that have already taken place in sectors such as telecoms, banking and manufacturing.
UTILITY SECTOR
"Everybody is paying an electricity bill so it is a sensitive question," Dybula said.
Selling off utilities also raises complicated issues such as how a privatized utilities sector should be regulated.
But with the numbers of mergers and acquisitions across the CEE increasing sharply, the competitive pressures unleashed by nations such as Poland, the Czech Republic, Slovakia and Hungary signing up for EU membership last year may have resulted in companies already starting to move into a new phase of consolidation.
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