Privatization Plan Faces Key Test

ZEEV REFUA begins, as he usually does, by directing visitors to four rows of neatly framed parchments on his office wall. ``This is Cables of Zion; we sold 33 percent to investors from South America,'' he says, pausing at the first. ``This is Paz Petroleum - $75 million. This was the first big sale,'' he continues, moving on to the next.

Since being appointed in 1985 to put teeth into efforts to privatize Israel's economy, Mr. Refua has been the moving force behind the sale of eight state-owned enterprises, worth $300 million, to eager private investors in Israel and abroad.

But one week before returning to the helm of his own computer firm near Tel Aviv, he says pride in his nearly single-handed achievement is mixed with growing concern.

Refua built a solid constituency behind a five-year plan to sell off the government's equity in 50 of Israel's largest companies. Now opposition has surfaced. If the program now falters, he warns, foreign investors will be scared off, leaving Israel at a serious disadvantage in an increasingly competitive international market.

``If it's stopped now it will take another 20 years before it can start again,'' says Refua, who parlayed $900 into a $10 million computer company before moving to Israel's finance ministry to head the privatization program.

Stagnant socialist economy

Many Israeli economists agree that privatization is crucial to pulling Israel's stagnant socialist economy into the era of the free market.

``When I came here there was nothing, only the willingness of the government since 1977 to sell the companies to the public,'' he says, referring to the year the conservative Likud Party unseated the socialist Labor Party in national elections. ``But it was only words; nothing was done.''

Within months of taking over as director of the Israel Government Corporation Authority (IGCA), Refua devised a three-pronged strategy to nudge the country's state-owned concerns into private hands.

First, he hired First Boston, a leading United States investment house, to devise a master plan. The bank's massive report recommended that 50 companies, representing 90 percent of the turnover of all state-owned enterprises, be put up for sale over a five-year period. The list included Israel's national airline, El Al, and its antiquated phone system, Bezek. The report also provided advice on how to restructure the companies for easier sale and how to go into stock markets at home and abroad.

Next, while the master plan was pending, ICGA pressed ahead with the sale of three small companies in which the government had a minority interest.

The third part of Refua's strategy was to test the interest of Israeli investors by selling holdings in several small companies on the Tel Aviv stock exchange.

Refua scored one of his biggest successes when an Australian businessman purchased a 75 percent share in Paz, one of Israel's largest oil companies. Other landmark sales have included Jerusalem Economic Corporation, a major land developer, and Mamam, a subsidiary of El Al.

But late last year the process bogged down, halted by growing criticism that the country was handing over its patrimony at bargain basement prices to foreigners.

Refua says the future of the privatization program may hinge on whether the government approves selling one of the nation's largest industrial concerns, Israel Chemicals Ltd. (ICL).

After giving a green light to sell 50 percent of ICL to private investors, the Knesset finance committee suddenly demurred, arguing that the company is a vital asset that should stay in government hands.

Israel's Histadrut trade federation also protested the sale, claiming that a foreign buyer could shut the firm down, producing massive unemployment. The opposition has left hanging 12 potential investors who have shown interest in coming to Israel to bid on the company, which had sales of $1 billion in 1988. Government crisis

Refua insists that there are ways to screen foreign investors to ensure that Israeli companies do not fall into the hands of hostile interests. In a warning seconded by First Boston he adds that if the ICL sale is thwarted, and if Israel's current government crisis drags on, the impetus he has generated - and the interest of foreign banks and investors - will quickly wane.

``There's a momentum,'' say Refua. ``It can't be stopped for more than a year or the banks won't come back.''

As he prepares to return to the private sector he has labored five years to enlarge, Refua says he has demonstrated the possibilities for his as-yet unnamed successor.

He points again to the framed privatization contracts. ``You can see it on the wall.''