The Government Companies Authority is planning to sell stakes in 19 government companies to the public.

It has retained the global consulting firm McKinsey & Company to devise a strategy for carrying out the privatization plan, particularly in regard to conducting a public share offering.

McKinsey beat out TASC Strategic Consulting and BDO Ziv Haft for the contract, as well as the Boston Consulting Group and Giza Singer Even. The project is subject to a cost ceiling of 350,000 shekels ($100,000).

In recent years, McKinsey has worked particularly closely with the Israeli government. The firm developed the Defense Ministry’s efficiency plan and another for the Environmental Protection Ministry regarding the reduction of greenhouse gases. Currently it is advising an official committee that is looking at ways to combat poverty.

Among the companies that are candidates to sell some of their shares to the public are the governemnt’s biggest businsses — Israel Electric Corporation, the water company Mekorot, Israel Railways, Trans-Israel Highway Company, Israel Post, Rafael Advanced Defense Systems and the Amidar public housing company.

Last Thursday the head of the Government Companies Authority, Ori Yogev, told a conference that the plan was to sell a stake in 10 companies while retaining control of them. The list submitted to the consulting firms, however, featured about twice that number.

The share sales would mark a revival of a privatization program that lost momentum after Benjamin Netanyahu’s term as finance minister ended in 2005. Israel has 100 government companies with a combined turnover of NIS 67 billion and payroll of 60,000 people, but as a group they lose money,

In a separate development about a week ago, the Government Companies Authority began pursuing the sale of shares in four companies that it owns jointly with the Tel Aviv Municipality.

Yogev attributed the move to sell off partial stakes in state-owned enterprises to the public’s dissatisfaction with how they are managed, including allegations of corruption and politically motivated appointments.

Yogev also spoke about the effort to develop a new pool of candidates to join the boards of directors of government-owned companies, who would be chosen without political interference. The basic outlines of the partial privatization plan, however, were developed as far back as 2012 and therefore predated the board recruitment effort.

A year ago, a team headed by the Director General of the Prime Minister’s Office, Harel Locker, considered a comprehensive plan to sell minority shares in government companies without divesting of a controlling interest.

Plan to disband Companies Authority

It also called for the Government Companies Authority to be disbanded and its responsibilities distributed between the Israel Securities Authority and the office of the controller general at the Finance Ministry.

The idea was that this would lead to the best use of the basic assets of the government companies while eliminating political influence and the influence of the workers’ committees at the individual firms.

Instead, the thinking went, it would let the free market take over as a means of providing oversight. In practice this meant that the firms would come under the tighter scrutiny of the Israel Securities Authority, in the belief that the ISA had a greater capacity to impose more stringent supervision and enforcement than the Government Companies Authority could.

The plan envisioned a public offering of up to 30% of each government company, or the issue of convertible bonds that could be turned into shares later.

Along the way, it was expected that a portion of the proceeds from the public offerings would be used to shore up the finances of government companies such as Israel Electric Corp. But there was a concern that this plan would deter the changes being made to the corporate structure of the partially privatized government companies.

In fact, at one point the workers’ committee at Israel Electric made a behind-the-scenes proposal to the Finance Ministry for the company’s shares be publicly traded. The idea was met with concern by government officials, however, that in addition to injecting outside capital into a company in financial trouble, the workers would use the process to scuttle any future effort to split the company up into smaller entities. Ultimately, however, the government backed off from its plan to dismantle the firm.

Open gallery view Smokestacks at an Israel Electric Corp power station are seen from the Mediterranean, some 10 kilometers from Hadera. January 22, 2014. Credit: Reuters