1. The Anandnagar Electricity Company

The Anandnagar Electricity Board (AEB) has been operating under the ownership and control of the state of Anandnagar since the creation of the state in 961. The state government privatized AEB in 2000 by selling it to a local business house that has interests in pharmaceutical, financial service and energy. AEB came to be known as the Anandnagar Electricity Company (AEC). Privatization was intended to pave way to the company to improve performance and raise much needed finances from the capital market. The demand for electricity has always exceeded the supply, as the state government did not have enough funds to spend on capital expenditure to create the required power generation capacities. AEC would be now required to make sufficient investments to increase power generation capacity in order to meet ever-increasing demand for electricity. AEC management stated that being a private sector company, it shall maximize shareholders return. At the time of its privatization, a large private sector financial institution valued the company at Birr.4,000 million. The issue of ordinary shares raised this money. The merchant bank division of the financial institution helped the public issue of ordinary shares, par value Birr.10 each, sold at a premium of 100 percent for Birr.20 each. The issue was oversubscribed, and on the very first day of trading, the market price of share reached a value of Birr.35.

AEC has been in operation for three years as a private sector company. The table1.1.1. below provides select financial and operating data of the companys operations for the period 2001-2004. The financial data for 2001 are for the last year of the government ownership of the company. As a private sector company, AEC has paid dividend in accordance with the policy stated in the prospectus.

The Central Electricity Board regulates the prices and oversees the activities of the privatized electricity companies.

(Birr in million)

	2001 Pub.Sector	2002 Pvt.Sector	2003 Pvt.Sector	2004 Pvt.Sector
Revenues	13,500	14250	17500	19500
Operating profit	810	1100	1790	2730
Taxes	160	200	300	400
Profit before depreciation & tax	900	960	1030	1190
Profit after tax	650	900	1490	2330
Dividends	200	320	600	900
Wages and salaries	3000	3000	2700	2600
Total assets	3000	3600	4500	5750
Capital expenditure	500	900	1750	2250
Debtors	6000	3200	3000	3600
Creditors	4500	2400	2300	2400
Directors emoluments	30	70	80	100
Employees(number)	32000	31400	30500	30100
P/E ratio	------	10.5	12.0	11.5
Consumer price index	100	102.7	105.8	107.4

The demand for electricity in Anandnagar has grown at the rate of 4 per cent per annum.

Discussion Questions

1. What changes, if any, do you expect in the objectives of the company after privatization and why?
2. Who are the companys stakeholders? State the additional information that you may need to answer this question.