Mubarak verdict opens the door to what he was not tried for

Ahmed El-Sayed Al-Naggar
Sunday 17 May 2015

Mubarak was tried and convicted for the simplest crime committed during his rule. Far greater crimes — especially a slew of corrupt privatisation deals — remain and should be accounted for

Cairo Criminal Court has upheld a three-year sentence against deposed president Mohamed Hosni Mubarak and his two sons, fining them LE125,779,267, ordering them to return an additional LE21,197,000 to the state, confiscating all the forged written documents and ordering the defendants to pay for the trial expenses. This verdict was issued in the retrial of the case charging them with embezzling LE125 million of the presidential budget allocated to Egypt's presidential palaces and forging official written documents.

Since the accused have spent more than two years of the trial sentence in prison during pretrial detention, they will spend almost 10 months only in prison, according to this verdict.  

Mubarak stands convicted of seizing and facilitating to seize about LE126 million from the budget allocated to communication centres in Egypt's presidential residencies. He issued direct orders to his subordinates to execute construction work in his sons' own private buildings, cut from the allocated budget. Of course, the subordinates did what they were ordered to do, since the orders were issued from the highest executive authority in the country.

Mubarak and his sons forged official written documents in the form of invoices which were passed by some presidential officials, the Arab Contractors Company and its sub-contractors. Perhaps this crime, for which Mubarak was tried and convicted, is the simplest crime that occurred during his rule.  

The biggest crimes are wasting what previous governments and generations built in totally corrupt privatisation programmes. Those responsible for these programmes were not satisfied with transferring the ownership of public companies to local and foreign private sectors in corrupt deals, wasting public funds in a horrendous way. They even wasted strategic industries, such as the steam boilers industry. In accordance with this corrupt programme, more than half a million workers were also thrown out in the streets under the guise of early retirement schemes, causing a complex social crisis.

Corruption became monstrous and infiltrated almost everything, leading to the creation of a general culture based on being tolerant towards corruption or participating in it. This is the worst thing that happened in to Egypt in its entire history and it needs an enormous educational and cultural effort to treat it, in addition to legal treatment most definitely.

One of the biggest crimes of this era was establishing the culture of public office inheritance, starting from the lowest rungs to the post of the presidency itself, which instigated the people's revolution against the deposed dictator and removed him from power. This public office inheritance has led to degradation in the efficiency of state institutions, as well as grievous social injustice represented in depriving citizens who are not sons of public officials of their just rights in working in state institutions. Despite the fact that the constitution stipulates that accessibility to public office is based on the criteria of merit and efficiency, abuses of this constitutional stipulation were a salient feature during Mubarak's rule, and is still continuing now.

The Administrative Court in Alexandria has done well when it upheld the principle of efficiency for employment regardless of nonsensical social merit. This social merit has deprived the sons of farmers and workers who were more qualified and efficient from receiving their natural right, which they deserve according to their qualifications, in public jobs, especially in public prosecution jobs. This issue deserves an independent article because it is continuing until now in a way that constitutes a flagrant aggression on the rights inherent in citizenship.

One of the colossal crimes of Mubarak's rule is represented in giving agricultural and industrial development lands to relatives, companions and leaders of the dissolved National Democratic Party in return for ridiculous sums, allowing them to perform all forms of trade, buying land on minimal cost and then selling it for enormous sums, and all other violations of the purposes for which the lands were allocated in the first place, for the sake of corrupt profiteering at the expense of Egypt and its people.

Mubarak himself was the head of the Al-Ahram Desert Society sometime in the past. Lands were allocated to this society for the purpose of agricultural development, but it was changed and used in the real estate development without the state receiving any price difference. As for giving lands on the Desert Road, the lands of Oweinat, Toshka, the North West Suez Gulf and the Green Belt surrounding 6th of October City, and the lands of the new cities, this is an enormous corruption story. In these lands and other parts, most of the land was allocated to "businessmen" who were close to Mubarak's regime, along with prominent officials, through direct order and without criteria and at very low prices.

Those who received agricultural development lands were not compelled to use these lands for the purposes allocated during a specified timeframe. Neither were they punished for changing the usage of such lands, especially from agricultural development to real estate development, although they amassed mountains of looted wealth from the state funds of the people, due to such changes of purpose.

For example, the price of a square metre on the Cairo-Alexandria Desert Road after changing it to real estate usage amounts to tens of thousands of times the price with which it was sold when it was allocated for the purpose of agricultural development.

Moreover, wasting natural resources of gas, gold, mineral and quarry resources through selling them to foreign countries or to some close businessmen for the lowest of prices also constitutes another principle feature of the corruption crimes of the Mubarak era.

For those who are not aware of the volume of the crimes for which Mubarak was not tried, we will remind them with some of the more corrupt privatisation deals.

Corruption climax: Public sector privatisation

The economic model adopted during the Nasserite era achieved significant successes that enabled Egypt to build its greatest project through the ages, which is the Aswan High Dam. It enabled Egypt also to construct vital bases for heavy industry and to transform the industrial sector into the most dynamic and influencial sector in the economy.

It also enabled Egypt to face external challenges represented in the Zionist state, especially in the critical period between the two wars of 1967 and 1973. The Egyptian economy proved in this period — and its industrial sector in particular — its capacity to be a significant lever for state power.

Despite all this, successive Egyptian governments since the adoption of the "Open Door" policy left the public sector to sink into bad performance, led by mediocre leadership, and become mired in corruption. Those successive governments also laid the burden of their social policies on this sector's shoulders instead of paying the price of social changes directly to those who deserved it, thus exposing them to losses.

Instead of reforming the public sector, these successive governments sold it to Egyptian and foreign private sector interests within the process of transition towards the free capitalist economy in Egypt, accompanied by opening doors to the private sector to operate in every economic sphere. However, the selling operation was nothing but an episode in the world series of selling the public sector in developing countries and the former socialist countries to local and foreign private sector interests through heavy pressure from the International Monetary Fund, the World Bank and creditor countries. Those selling operations involved astounding levels of corruption and public fund looting, especially in countries such as Egypt, where there was no level of transparency under the dictatorial police rule of Mubarak.

In short, during the application of the privatisation programme, the Egyptian people and the cultural elite were subject to the extortion of a global situation, especially that the extortion was carried out on the basis of creditor states' standpoints towards Egypt, and through the IMF, which has become an agent of creditor countries against debtor states. All these circumstances contributed to the predominance of unjust and arbitrary ideological stances in tackling this issue, leading to neglect in discussing the main points of the privatisation process, and opening the field for the biggest looting in Egypt's modern history and for wasting public funds and all that was built by previous governments and generations at the hands of Mubarak's governments.

1. Privatising Al-Nasr Company for Boilers

This deal is considered a hallmark in the corruption involved in the privatisation process. The area on which the company was built is situated in Manial Shiha directly overlooking the Nile. Five offers were presented for buying the company and all of them were from foreign companies coming from the US, Canada, France, Italy and Japan. Before privatisation, the company had 1,100 workers and used to manufacture pressure vessels ranging from one ton to 12 tons with capacities reaching 1,300 steam tons per hour, boilers for generating electricity, liquid gas vessels, purifying drinking water units, desalination units and other products. The company was making profits until the fiscal year 1991. Then it made investment expansion decisions that changed its status to debtor before it was sold. Perhaps driving this company into the abyss of debt and losses was a deliberate action to justify selling it, because it is not logical that a company about to be sold takes on new investment that drives it into a debt crisis.

However, driving profitable and important companies into losses is a behaviour that officials responsible for privatising public sectors in several developing countries resort to in order to justify selling strategic companies that perform a vital role in the economy in the face of those opposing such sales. It is noteworthy to mention that this company, before privatising it, was a subsidiary to the Holding Company for Engineering Industries, headed by Abd-Al-Wahhab Al-Habbak, who is one of the symbols of corruption in Egypt who was later tried because a feud between him and his wife revealed a part of his corruption.

The task of evaluating the company's worth was assigned to an American firm that is a subsidiary of the gigantic Bechtel real estate company. The company's worth was evaluated by the aforementioned firm as ranging from $16 to $24 million. This price was very low as the value of the grounds on which the company was built, if this land was evaluated as construction land, would alone be $100 million, or about LE330 million, at the time. This confirms that the American firm under Bechtel lowered the evaluation value of the company for the benefit of potential buyers, at the top of which the American company that made an offer to buy the Egyptian company.

In spite of protests by the company's workers against privatising it, the privatisation proceeded. On 13 December 1994, the company's board of directors obtained the consent of the Holding Company for Engineering Industries' constituent assembly to sell the fixed assets of the company for $11 million and its stock merchandise for $6 million. Thus, the total value of the company and its stock was deemed to be $17 million. The buyer was the American-Canadian company Babcock and Wilcox, which was not committed at all to pay Al-Nasr Company for Boilers' debts and taxes. After deducting these dues, what remained from the price of the company is LE2.5 million — i.e., less than three quarters of a million dollars. After the sale, constructing the Kuraymat Electricity Power Station, worth $600 million, was assigned to the American-Canadian company that bought the Egyptian boilers company ("Results of the Privatisation Programme … Achievements or a Catastrophe," Al-Ahram, 31 January 2000).

It is worthy of mention that there was a better offer for buying the company, one committed to pay its debts besides paying an additional $10 million, equivalent to LE33.5 million at the time. However, officials responsible for privatising the company chose the worst offer in a flagrant example of corruption and the wasting of public funds. Because corruption took dramatic dimensions in this deal, matters stopped at ceasing to produce the gigantic boilers that electricity power stations depend on. The American-Canadian company that bought the Al-Nasr Company for Boilders sought steam boilers from abroad instead of manufacturing them locally. As for the labour force, the deal ensured their position for three years only. Thus, the buying company won the Egyptian market, the land on which company was built, destroyed one of the most significant national industries, and eventually threw a large number of workers into the unemployment abyss!

2. Privatisation of the Egyptian American Bank

The Egyptian American Bank (EAB) was one of the best Egyptian banks regarding its performance, where its profits reached LE337 million at LE5 a share in 2005. The bank's loan allocations were of nominal value (LE1) due to the bank's sound loans and its clients' commitment to make their due payments. This was an excellent situation that does not exist almost in any other bank, where Central Bank statements point out that loan allocations in the Egyptian banking system reached LE50.5 billion, thus constituting 16.2 percent of the loan value in November 2005. As for the bank's deposits, it reached LE8 billion. The Alex Bank owned 30.8 percent of the Egyptian American Bank's shares, while American Express Bank owned 41 percent, and small and middle investors owned the rest. There was a deficit in the bank's employees fund amounting to LE324 million.

When the public money share in a bank such as the EAB is up for sale it is assumed that the owners show the advantages of their merchandise, which is the EAB. However, what the Central Bank governor and Alex Bank president said at the time could not be understood except in the context of undermining the valuation of the bank up for sale. They asserted that the bank's value in the stock market, when the evaluation process started aimed at selling it, was much lower than the price offered to buy it. Thus, this price was extremely high.

If it is natural that the buyer goes to the seller, Alex Bank's president travelled to Paris many times to finalise the deal, instead of negotiating with Calyon Bank's representative. He justified this by saying that negotiating with all the French bank's board of directors was better than negotiating with the representative only. This draws unnecessary suspicion.  

The EAB share price in the stock market in the last six months of 2005 ranged between LE56 and LE70. On 4 January 2006, a joint announcement by Central Bank Governor Farouq Al-Ouqda, Minister of Investment Mahmoud Mohie El-Din and Alex Bank was made pointing out that the share price did not exceed LE45. It was a bad declaration that constituted pressure on investors to lower the share price to this level with the assistance of complicit brokerage firms, to enable the minister of investment to sell the bank at this low price in the stock market.

Indeed, it was announced that EAB was sold to Calyon Bank for LE45 a share, in addition to the buyer's acquisition of the last year's profits, which were LE5 a share. This meant that the real selling price of the bank was LE40 only per share. This difference between the selling price of the bank's shares in the Calyon deal and its price in the stock market at the time of sale means that small investors lost the difference between the bank's share price in the stock market before the announcement of the sale deal (LE56) and the offered selling price for the bank in the Calyon deal (LE45). It also means that the share of public money in the EAB lost LE320 million due to this difference in the deal price. Note that Law No 195 for the year 1992 regarding the capital market stipulated that finalising sales operations must be based on the average of the closing price during the week preceding notification or the price in the offer, whichever is higher.

Despite the fact that compatibility with the law's text was an easy and casual matter in the Egyptian Stock Market, where different mechanisms are used to lower the share price of a company intended to be sold, so as the selling price seems an achievement for those responsible for buying, this did not happen in the EAB deal.

The great shock in this deal was that two ministers in the Egyptian government at the time — Ahmed Al-Maghrabi, minister of housing and urban communities, and Mohamed Mansour, minister of transport — were buyers jointly with Crédit Agricole France (Calyon). It is noteworthy that Al-Maghrabi was a member in the board of directors of the British HSBC, which is one of the banks that offered to buy the EAB at a low price of LE31 a share. This justifies the assumption that there is complicity and agreement between the aforementioned bank and Calyon, which Al-Maghrabi joined in the deal of buying the EAB, in lowering the offered prices for the bank. Mansour was also a member in the board of directors of Calyon and announced his resignation 28 December 2005 after he became a minister. But he finalised the buying deal, a contract signed officially afterwards, on 5 January 2006, the transfer of ownership on 7 February 2006. Mansour's resignation, whether real or formal, did not end his interest in connection with the bank, in which he had a large stake. This reveals the bad consequences of capital entering into power circles, and its control of key posts within such circles.

If there are several elements for evaluation, such as doubling profitability, and the value of assets at their market price (if it is forbidden for the buyer to transfer their use to any other use, or their value at the market price according to any other usage, if the buyer was free in transferring it), it was possible that the EAB price could be raised to LE4.8 billion — an increase of more than LE1.9 billion on the price offered for it, and with an increase of more than LE600 million in the share of public money, if the doubling of profitability were used as a criterion for the bank's initial price.

3. Privatisation of the Egyptian Company for Mobile Services

The deal of selling the Egyptian Company for Mobile Services is considered one of the most corrupt of all the privatisation deals. The company was making large profits, while national security considerations stipulated that it should stay in the state's hands. Ambassador Mervat Al-Tellawi told me that when she was social affairs minister she asked to purchase the company with the ministry's money for the benefit of pensioners for LE2 billion (i.e., more than the price by which it was sold) and her request was refused. After a year and a half, the company share's price, which was sold for LE10, had reached LE180 and by this it became close to its real value, instead of the farcical value at which it was sold. This raises legitimate questions about the existence of corruption in the deal. As for the years of complete monopoly this company enjoyed, including fantastical prices for lines and the price of calls per minute, without any supervision over billing, this enabled the buyer of the company to make mountains in fortunes. After several years, while the inflation rate (the rate of increase in consumer prices) was low, the license for a third company, without infrastructure or subscribers, was LE16 billion. This points to the real value of the corresponding company, and the degree of wastage of public funds in selling it.

There is a lot more that needs volumes to write down regarding the corruption in privatisation schemes and other crimes that Mubarak and his regime were not tried for until now. It is right that building for the future is more important, but holding the corrupt accountable and regaining Egypt's rights from them bears a strong and necessary message, which is: no crime will not come to pass without accountability and that the new structure should rise by relying on fairness and transparency.

The writer is chairman of the board of Al-Ahram Establishment.


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