Introduction -: Privatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public

sector (government) to the private sector (business). In a broader sense, privatization refers to transfer of any government function to the private sector including governmental functions like revenue collection and law enforcement. The term "Privatization" also has been used to describe two unrelated transactions. The first is a buyout, by the majority owner, of all shares of a public corporation or holding company's stock, privatizing a publicly traded stock. The second is a demutualization of a mutual organization or cooperative to form a joint stock company History History and Origen -: There is a long history of privatization dating from Ancient Greece when the government contracted out almost everything to the private sector In the Roman Republic private individuals and companies performed the majority of services including tax collection (tax farming), army supplies (military contractors), religious sacrifices and construction. However, the Roman Empire also created state-owned enterprises — for example, much of the grain was eventually produced on estates owned by the Emperor. Some scholars suggest that the cost of bureaucracy was one of the reasons for the fall of the Roman Empire. In Britain, the privatization of common lands is referred to as enclosure (in Scotland as the Lowland Clearances and Highland Clearances), and occurred significantly from 1760 to 1820, coincident with the industrial revolution in this country. In more recent times, Winston Churchill's government privatized the British steel industry in the 1950s, and West Germany's government embarked on large-scale privatization, including selling its majority stake in Volkswagen to small investors in a public share offering in 1961 . In the 1970s General Pinochet implemented a significant privatization program in Chile. However, it was in the 1980s under the leaderships of Margaret Thatcher in the UK and Ronald Reagan in the USA, that privatization gained worldwide momentum. In the UK this culminated in the 1993 privatization of British Rail under Thatcher's successor, John Major; British Rail having been formed by prior nationalization of private rail companies. A major ongoing privatization is the privatization of Japan Post, Japan Post being the Japanese post service and the largest bank in the world. This privatization was spearheaded by Junichiro Koizumi, and enacted in 2007, following generations of debate. The privatization process is expected to last until 2017.

Types of privatization There are three main methods of privatisation: Share issue privatisation (SIP) - selling shares on the stock market Asset sale privatisation - selling the entire firm or part of it to a strategic investor, usually by auction or using the Treuhand model Voucher privatisation - shares of ownership are distributed to all citizens, usually for free or at a very low price. Share issue privatisation is the most common type of privatisation. Share issues can broaden and deepen domestic capital markets, boosting liquidity and potentially economic growth, but if the capital markets are insufficiently developed it may be difficult to find enough buyers, and transaction costs (e.g. underpricing required) may be higher. For this reason, many governments elect for listings in the more developed and liquid markets, for example Euronext, and the London, New York and Hong Kong stock exchanges. As a result of higher political and currency risk deterring foreign investors, asset sales are more common in developing countries. Voucher privatisation has mainly been used in the transition economies of Central and Eastern Europe, such as Russia, Poland, the Czech Republic, and Slovakia. A substantial benefit of share or asset sale privatisations is that bidders compete to offer the highest price, creating income for the state in addition to tax revenues. Voucher privatisations, on the other hand, could be a genuine transfer of assets to the general population, creating a real sense of participation and inclusion. If the transfer of vouchers is permitted, a market in vouchers could be created, with companies offering to pay money for them. Arguments for and against privatisation Pro-privatisation Proponents of privatisation believe that private market factors can more efficiently deliver many goods or service than government due to free market competition. In general, it is argued that over time this will lead to lower prices, improved quality, more choices, less corruption, less red tape, and quicker delivery. Many proponents do not argue that everything should be privatised. According to them, market failures and natural monopolies could be problematic. However, some Austrian school economists and anarcho-capitalists would prefer that everything be privatised, including the state itself. The basic economic argument given for privatisation is that governments have few incentives to ensure that the enterprises they own are well run. One problem is the lack of comparison in state monopolies. It is difficult to know if an enterprise is efficient or not without competitors to compare against. Another is that the central government administration, and the voters who elect them, have difficulty evaluating the efficiency of numerous and very different enterprises. A private owner, often specializing and gaining great knowledge about a certain industrial sector, can evaluate and then reward or punish the management in much fewer enterprises much more efficiently. Also, governments can raise money by taxation or simply printing money should revenues be insufficient, unlike a private owner.

If there are both private and state owned enterprises competing against each other, then the state owned may borrow money more cheaply from the debt markets than private enterprises, since the state owned enterprises are ultimately backed by the taxation and printing press power of the state, gaining an unfair advantage. Privatising a non-profitable company which was state-owned may force the company to raise prices in order to become profitable. However, this would remove the need for the state to provide tax money in order to cover the losses. Performance. State-run industries tend to be bureaucratic. A political government may only be motivated to improve a function when its poor performance becomes politically sensitive, and such an improvement can be reversed easily by another regime. Increased efficiency. Private companies and firms have a greater incentive to produce more goods and services for the sake of reaching a customer base and hence increasing profits. A state-owned firm would not be as productive due to the lack of financing allocated by the entire government's budget that must consider other areas of the economy. Specialisation. A private business has the ability to focus all relevant human and financial resources onto specific functions. A state-owned firm does not have the necessary resources to specialise its goods and services as a result of the general products provided to the greatest number of people in the population. Improvements. Conversely, the government may put off improvements due to political sensitivity and special interests — even in cases of companies that are run well and better serve their customers' needs. Corruption. A state-monopolized function is prone to corruption; decisions are made primarily for political reasons, personal gain of the decision-maker (i.e. "graft"), rather than economic ones. Corruption (or principal-agent issues) in a state-run corporation affects the ongoing asset stream and company performance, whereas any corruption that may occur during the privatisation process is a one-time event and does not affect ongoing cash flow or performance of the company. Accountability. Managers of privately owned companies are accountable to their owners/shareholders and to the consumer, and can only exist and thrive where needs are met. Managers of publicly owned companies are required to be more accountable to the broader community and to political "stakeholders". This can reduce their ability to directly and specifically serve the needs of their customers, and can bias investment decisions away from otherwise profitable areas. Civil-liberty concerns. A company controlled by the state may have access to information or assets which may be used against dissidents or any individuals who disagree with their policies. Goals. A political government tends to run an industry or company for political goals rather than economic ones. Capital. Privately held companies can sometimes more easily raise investment capital in the financial markets when such local markets exist and are suitably liquid. While interest rates for private companies are often higher than for government debt, this can serve as a useful constraint to promote efficient investments by private companies, instead of crosssubsidizing them with the overall credit-risk of the country. Investment decisions are then governed by market interest rates. State-owned industries have to compete with demands

Nationalized industries are prone to interference from politicians for political or populist reasons. forcing an industry to freeze its prices/fares to satisfy the electorate or control inflation. or by reducing costs).from other government departments and special interests. It is argued that a government which runs nationalized enterprises poorly will lose public support and votes.[6] [edit] Anti-privatization Opponents of privatisation dispute the claims concerning the alleged lack of incentive for governments to ensure that the enterprises they own are well run. Corporations of different sizes may target different market niches in order to focus on marginal groups and satisfy their demand. when economically. The existence of natural monopolies does not mean that these sectors must be state owned. Examples include making an industry buy supplies from local producers (when that may be more expensive than buying from abroad). Poorly managed state companies are insulated from the same discipline as private companies. In either case. Private companies are also able to take greater risks and then seek bankruptcy protection against creditors if those risks turn sour. Profits. due to the pressure of future elections. democratic governments do have an incentive to maximize efficiency in nationalized companies. Concentration of wealth. Another view is that some of the utilities which government provides benefit society at large and are indirect and difficult to measure or unable to produce a profit. Private companies make a profit by enticing consumers to buy their products in preference to their competitors' (or by increasing primary demand for their products. and basic education). Ownership of and profits from successful enterprises tend to be dispersed and diversified -particularly in voucher privatisation. basic health care. The availability of more investment vehicles stimulates capital markets and promotes liquidity and job creation. Opponents of certain privatisations believe certain parts of the social terrain should remain closed to market forces in order to protect them from the unpredictability and ruthlessness of the market (such as private prisons. Governments have had the tendency to "bail out" poorly run businesses. . on the basis of the idea that governments are proxy owners answerable to the people. while a government which runs those enterprises well will gain public support and votes. more profits are obtained and no government subsidies and less taxes are needed. or be taken over by competitors. increasing its staffing to reduce unemployment. Natural monopolies. it may be better to let the business fold. Governments can enact or are armed with anti-trust legislation and bodies to deal with anti-competitive behavior of all companies public or private. Thus. As the economy becomes more efficient. Lack of market discipline. Political influence. Private corporations typically profit more if they serve the needs of their clients well. there will be more private money available for investments and consumption and more profitable and better-paid jobs will be created than in the case of a more regulated economy. which could go bankrupt. or moving its operations to marginal constituencies. often due to the sensitivity of job losses. A company with good corporate governance will therefore be incentivized to meet the needs of its customers efficiently. political risk may add substantially to the cost of capital. Corporations exist to generate profits for their shareholders. for smaller markets. Security. have their management removed. Job gains.

the private firm's performance in a particular project would be removed from their performance. The government may seek to use state companies as instruments to further social goals for the benefit of the nation as a whole. would have the entire military of a nation to draw upon for security. Corporations typically have far more resources for expert testimony. which would be both necessarily limited and complicate their functions. The profit motive may be subordinated to social objectives. either have to hire security. advertisements. the selling process could lack transparency. on the other hand. in order to provide security. In rebuilding a war torn nation's infrastructure. and can intervene when civil liberties are threatened. or coordinate with government. a private firm would. due to a lack of command structure shared between firm and government. However. to any degree. Privatisation opponents believe that this model is not compatible with government missions for social support. Still another is that natural monopolies are by definition not subject to competition and better administrated by the state. Goals. allowing the purchaser and civil servants controlling the sale to gain personally. the only way private companies could. whose chain of command is clearly defined. A government agency. operate them would be through contracts or block payments. As many areas which the government could provide are essentially profitless. and is motivated to safeguarding the assets of the nation. the government is motivated to performance improvements as well run businesses contribute to the State's revenues. A democratically elected government is accountable to the people through a parliament. whose primary aim is delivering affordability and quality of service to society. opponents of privatisation argue that it is undesirable to transfer stateowned assets into private hands for the following reasons: Performance. which. Improvements. and embezzlement and dangerous cost cutting measures might be taken to maximize profits. Some would also point out that privatising certain functions of government might hamper coordination. Corruption. Market interactions are all guided by self-interest. Civil-liberty concerns. Accountability. for example. Opponents would say that this is a false assertion: numerous books refer to poor organization between government departments (for example the Hurricane Katrina incident). large corporations can pay public relations professionals to convince decision-makers that privitazation is a sensible idea. and charge firms with specialized and limited capabilities to perform functions which they are not suited for. whether or not this is actually the case. Furthermore. The public does not have any control or oversight of private companies. conferences and other propaganda efforts than anti-privatisation advocates. and standards of probity are guaranteed through codes of conduct and declarations of interest. Government ministers and civil servants are bound to uphold the highest ethical standards. and successful actors in a healthy market must be committed to charging the maximum price that the market will bear.such as defense. . A democratically elected government is accountable to the people through a legislature. In these cases. might be difficult. Many privatisation opponents also warn against the practice's inherent tendency toward corruption. Congress or Parliament. Furthermore. The controlling ethical issue in the anti-privatisation perspective is the need for responsible stewardship of social support missions.

[edit] Developed / Low corruption economies It is fairly easy for a top executive to reduce the perceived value of an asset . unlike the public companies. Privatisation and Poverty. The more necessary a good is. Cuts in essential services. and are thus anti-democratic. engage in off balance sheet transactions to make . as opposed to the needs of the majority. A private company will serve the needs of those who are most willing (and able) to pay.g. Governments have chosen to keep certain companies/industries under public ownership because of their strategic importance or sensitive nature. The number of losers —which may add up to the size and severity of poverty—can be unexpectedly large if the method and process of privatisation and how it is implemented are seriously flawed (e. In the case of price elasticity of demand is zero (perfectly unelastic good). improper design and inadequate control of the privatisation process leading to asset stripping. Political influence. Profit. its new owner(s) could lead to the abandoning of the social obligation to those who are less able to pay. Profits from successful enterprises end up in private. Private companies do not have any goal other than to maximize profits. however many implementations of privatization can . Many private companies have downsized while making record profits.lead to the firesale of public assets. Governments may more easily exert pressure on state-owned firms to help implementing government policy. A state-owned company might have a longer-term view. and/or to inefficient or corrupt . training etc. Natural monopolies. lack of transparency leading to stateowned assets being appropriated at minuscule amounts by those with political connections. Due to the additional financial burden placed on privatized companies to succeed without any government help.for profit management.Capital. [edit] Intermediate Views Others don't dispute that well run for-profit entities with sound corporate governance may be considerably more efficient than an inefficient governmental bureaucracy or NGO. If a government-owned company providing an essential service (such as the water supply) to all citizens is privatised. Private companies often face a conflict between profitability and service levels. hands instead of being available for the common good. and could over-react to short-term practice . and thus be less likely to cut back on maintenance or staff costs. It is acknowledged by many studies that there are winners and losers with privatisation. The executive can accelerate accounting of expected expenses. to stem short term losses. as people will attempt to buy it no matter the price. Lack of market discipline. Governments can raise money in the financial markets most cheaply to re-lend to state-owned enterprises. Downsizing. jobs could be lost to keep more money in the company. Concentration of wealth. the lower the price elasticity of demand. absence of regulatory institutions leading to transfer of monopoly rents from public to private sector. delay accounting of expected revenue. Privatisation will not result in true competition if a natural monopoly exists.[7] Job Loss.due to information asymmetry. often foreign. demand part of supply and demand theories does not work. or to regions where this service is unprofitable.

[edit] Outcomes Literature reviews [8][9] find that in competitive industries with well-informed consumers.. (This is again due to information asymmetries since it is more common for top executives to do everything they can to window dress their earnings forecasts). or simply promote and report severely conservative (eg. subsidies or other give-aways). the public is left with a government that taxes them heavily. Debt repayment is enforced by international agreements and agencies such as the IMF. corrupt officials would have to slowly harvest their corrupt earnings over time.leading to a further decay in the economic efficiency of the country over time. due to asymmetric information. There are typically very few legal risks to being 'too conservative' in one's accounting and earnings estimates.particularly by borrowing extensively to engage in spending on overly favorable contracts with their backers (or on tax shelters. who will tend to benefit from developing a reputation of being very generous to parting top executives). pessimistic) estimates of future earnings. Again. and makes non-profits and governments more likely to sell. Without privatization. it can also contribute to a public perception that private entities are more efficiently run reinforcing the political will to sell of public assets. policy makers and the general public see a government owned firm that was a financial 'disaster' . Of course. [edit] Underdeveloped &/or High corruption economies In a society with substantial corruption. Such efficiency gains mean a one-off increase in GDP. privatization allows the government currently in power and its backers to siphon a large portion of the entire net present value of state assets away from the public and into the accounts of their favored power brokers.miraculously turned around by the private sector (and typically resold) within a few years. When the entity gets taken private . corrupt governments can also extract corrupt rents quite efficiently in other ways . Ironically. Naturally. Infrastructure and upkeep is sacrificed . Top executives often reap tremendous monetary benefits. (This is nevertheless an excellent bargain for the takeover artist. The executives can facilitate the process by making the entity appear to be in financial crisis . privatisation consistently improves efficiency. mutual or non-profit organization undergoes privatization. When a publicly held asset.the company's profitability appear temporarily poorer. Generations of subsequent taxpayers are then left with paying back the debt incurred for corrupt transfers made decades previously.the new private owner gains a windfall from the former top executive's actions to surreptitiously reduce the sales a dramatically lower price . but through improved incentives to innovate and reduce costs also tend . this may lead to the sale of public assets. Such seemingly adverse earnings news will be likely to (at least temporarily) reduce sale price. As such. and gives them nothing in return. efficient privatization depends on their being a very low of current corruption among the current government officials since it allows for far more 'efficient' extraction of corrupt rents.. This can represent 10s of billions of dollars (questionably) transferred from previous owners (the public) to the takeover artist..this reduces the sale price (to the profit of the purchaser). In the end. The former top executive is then rewarded with a golden handshake for presiding over the firesale that can sometimes be in the 10s or 100s of millions of dollars for one or two years of work.

[11] [edit] Alternatives to total privatisation This article may contain original research. In sectors that are natural monopolies or public services. corruption-free privatisations and restructuring of government enterprises in the Nordic countries. [edit] Non-Profit The enterprise could be managed by a private non-profit organization. and that corruption is more prevalent in nonprivatised sectors. Those with political connections unfairly gained large wealth. Changes may include. In general. due to good and often simple regulations. The Nordic countries have low corruption but large public sectors. dismantling telecommunications monopolies have resulted in several new players entering the market and intense competition with price and service. [edit] Municipalization Transferring control to municipal government [edit] Outsourcing or Sub-contracting It is possible that national services may sub-contract or out-source functions to private enterprises. the British government has involved the private sector more in the workings of the National Health Service principally through .to raise the rate of economic growth. rather than privatisation itself. studies have argued that in addition to increased operating efficiency. the sales themselves give a large opportunity for grand corruption. Regarding political corruption. showing high government accountability and transparency. One should also notice the successful. A notable example of this is in the United Kingdom. the imposition of related reforms such as greater transparency and accountability of management. In addition. Please improve it by verifying the claims made and adding references. Privatisations in Russia and Latin America were accompanied by large-scale corruption during the sale of the state-owned companies. the results of privatisation are much more mixed. inter alia. Furthermore. as a private monopoly behaves much the same as a public one in liberal economic theory. privatisation (or threat thereof) has been known to improve matters. improved internal controls. it is a controversial issue whether the size of the public sector per se results in corruption. there is evidence to suggest that extralegal and unofficial activities are more prevalent in countries that privatised less. Although typically there are social costs associated with these efficiency gains[10]. However. many economists argue that these can be dealt with by appropriate government support through redistribution and perhaps retraining. More details may be available on the talk page. and better financing. Statements consisting only of original research may be removed. where many municipalities have contracted out their garbage collection or administration of parking fines to private companies. Also regarding corruption. For example. The type of industries to which this generally applies include manufacturing and retailing. larger without privatisation. these countries score high on the Ease of Doing Business Index. While media have reported widely the grand corruption that accompanied the sales. regulatory systems. or would be. and for political rights and civil liberties. which has discredited privatisation in these regions. (January 2010) [edit] Public Utility The enterprise can remain as a public utility. if the performance of an existing public sector operation is sufficiently bad. daily petty corruption is.

Under that scenario. the state of North Rhine-Westphalia is also planning to buy shares in the energy company E. where the state often retains a "blocking stake" in private industries. There are also moves to refer patients to private surgeries to ease the load on existing NHS human resources. with a number of shares in the company being retained by the state. Koizumi scheduled nationwide elections to be held on September 11. In September 2003.ON in what is claimed to be an attempt to control spiraling costs. Whilst partial privatisation could be an alternative. As of 2005. Some state-owned companies are so large that there is the risk of sucking liquidity from the rest of the market. and covering the cost of this. It can offer the business a smoother transition period during which it can gradually adjust to market competition. Koizumi's cabinet proposed splitting Japan Post into four separate companies: a bank. but ownership is retained by the governmental unit. The Prime Minister Junichiro Koizumi wanted to privatise it because it was thought to be an inefficient and a source for corruption. the state privatised Deutsche Telekom in small tranches. This is a particularly notable phenomenon in France.outsourcing the construction and operation of new hospitals to private companies. and be subjected to terms less desirable than the prior operation under stateownership. Japan Post was often said to be the largest holder of personal savings in the world. it is more often a stepping stone to full privatisation. and thus must be sold off bit by bit. 2005. but the government retains the capacity to self-operate at contract intervals. He declared the election to be a referendum on postal privatisation. gaining the necessary . and still retains about a third of the company. The first tranche of a multi-step privatisation would also in the first instance establish a valuation for the enterprise to mitigate complaints of under-pricing. It was the nation's largest employer and one third of all Japanese government employees worked for Japan Post. and a fourth company to handle the post offices as retail storefronts of the other three. Koizumi subsequently won this election. (see section below) See also: Public-private partnership [edit] Notable privatisations See also: List of privatisations The largest privatisation in history was Japan Post. the government may be unable to obtain sufficient competitive bids. This form of partial privatisation eases concerns that once an operation is contracted. In some instances of partial privatisation of contracted services. An example of partial privatisation would be some forms of school bus service contracting. an insurance company. In Germany. if it so chooses. a reverse privatisation would be more feasible for the government. such as arrangements where equipment and other resources purchased with government capital funds and/o those already owned by a governmental entity are used by the contractor for a period of time in providing services. provision of some portion(s) of the state-owned service are provided by private-sector contactors. See also: private finance initiative [edit] Partial ownership An enterprise may be privatised. a postal service company. After privatisation was rejected by upper house. even in the most liquid marketplaces.

competitors entered the market. For example. "There has been no reduction in growth rates as seen in the case of the Life Insurance Corporation of India [ Images ]. chairman. said public sector players have not suffered with the opening up of the sector. many of which regard them as natural monopolies. Cochabamba protests of 2000 in Bolivia and protests in Arequipa. sometimes the authorities attempt to suppress opposition using violence (e.15 billion) in 2003-04. Ghana and Uruguay (2004). Insurance sector grew 83% after privatisation The insurance industry has grown by 83 per cent since the opening up of the sector. [citation needed] [edit] Negative responses to privatisation Privatisation proposals in key public service sectors such as water and electricity are in many cases strongly resisted by opposition political parties and civil society groups. recent examples include Haiti. Peru. Market share is bound to stand reduced as some business goes to the private players. In the latter case a civilsociety-initiated referendum banning water privatisation was passed in October 2004. Opposition is usually strongest to water privatisation — as well as Cochabamba. the then-private airport security industry in the United States was nationalized[citation needed] and put under the authority of the Transportation Security Administration." said Rao. Privatisation in Europe has led to genuine competition: the former state-owned enterprises lost their monopolies due to legislation and technological change. National security concerns may be the source of reverse privatisation actions when the most likely providers are non-domestic or international corporations or entities.[13] The United Kingdom's largest public share offerings were privatisations of British Telecom and British Gas. against Rs 45.g. Another circumstance may occur when greater control than viable under privatisation is determined to be in the governmental unit's best interest. The largest public share offering in France was France Telecom. Campaigns typically involve demonstrations and democratic political activities. the bill was passed to privatise Japan Post in 2007. Insurance Regulatory & Development Authority. Opposition is often strongly supported by trade unions.415 crore (Rs 824.[13] 15 of the world's 20 largest public share offerings have been privatisations of telecoms. . Rao expects premium income in the life insurance sector to rise further by 15-16 per cent and non-life insurance premium by 14 per cent in 200506. The growth comes on the back of healthy demand from the manufacturing sector. [edit] Reverse privatisation A reversion from contracted ownership of an enterprise and/or services to governmental ownership and/or provision is called reverse privatisation or nationalization. It is able to hold on to its existing share in terms of business growth. in June 2002). Such a situation most often occurs when a privatisation contractor fails financially and/or the governmental unit has been unable to purchase satisfactory service at prices it regards as less than with state-ownership or self-operation of services.[12] Nippon Telegraph and Telephone's privatisation in 1987 was the largest share offering in financial history at the time. and in October 2005.supermajority and a mandate for reform. and prices for broadband access and telephone calls fell dramatically. Insurance premium income has risen to Rs 82. Remarking on the performance of the insurance industry. in response to the September 11th attacks. C S Rao.000 crore (Rs 450 billion) in 2000-01. The health and personal line segments are expected to see maximum growth during the current financial year. in 2001.

interesting things are happening in the Indian insurance scene. the Finance. We believe that progress of the industry should not be constrained by any extraneous conditions in the interest of research and development in the area. but people must know how to make profit from it. have internal management. governance and accountability structures. which measure up to the highest standards . For the first time since the Survey was launched in India. particularly in the context of reinsurance management. new channels of distribution. India continues to lead all 23 countries surveyed this quarter. However. This has encouraged many overseas insurance companies. market segmentation. should not be seen as a threat to public sector players. capital and skill as per the demand and knowledge of market is the requirement. Insurance. The post-liberalized insurance industry panorama in India is witnessing dramatic changes in terms of a slew of latest products and services. There have been regular efforts by IRDA for collection and sharing of the data and other information of public interest.It is believed that the information sharing has not taken its expected shape in the insurance industry for the purposes of practices. said Rao. Then there is impact of visible socio-economic changes like greater urbanization. Manpower India today released the Manpower Employment Outlook Survey for the first quarter of 2006 revealing sustained positive hiring intentions of employers in India. the employment outlook remains extremely healthy. It is necessary that institutions. If the cap on foreign direct investment is increased to 49 per cent from the current 26 per cent. To be in the global market and have advantage of it. greater use of I. having a required amount in their terms of figure out market shares but is full of potential. There is also the phenomenon of noticeable shifts in consumer preferences impacting the product mix being offered by insurers. especially in the areas like wealth management and evolution of newer risk management tools. But this.T. Insurance and Retail industry sector emerged as the most optimistic sector for a quarter with a Net Employment Outlook of +32%. All in all. Privatization of insurance sector has allowed insurance companies to work in the market by depositing 100 crore rupees in the reserve of government. data is one of the most needed ingredients in the insurance business development as well as for research and consultancy. Added to these are the rising trends of convergence of financial services. research and education. The industry is facing problems in terms of data review as parliament need to register this beforehand. Greater attention is also being bestowed on the areas like Agricultural Insurance and risk coverage of export-import trade. which form a part of this financial system. Even though this figure represents a decrease of 13 percentage points from the fourth quarter of 2005. to open their branch in our country. sectoral structure. We have today a host of products coupled with a large number of intermediaries who market them." Rao said at a one-day seminar on 'Growth of Insurance Industry in India' organised by the Indian Merchants' Chamber in Mumbai [ Images ] on Friday. Introduction of the sector has changed the employment pattern. competitive environment. weakening of traditional family structure. the industry can expect greater entry of players. as a service facilitator etc. with a positive overall Net Employment Outlook of +27%. impact of globalization etc. greater job mobility. the Future Boom Sector of India The reforms in the insurance sector leading finally to the opening of the insurance sector for private participation have brought in its wake major changes not only in the design of the products available in the market but also the manner in which they are marketed. surpassing the Services sector. Insurance undergone rapid and massive changes in all aspects of their business: product and services."The health insurance sector is expected to grow by 10-15 per cent. growth of the services industry. The market structure dominated by a few stabilized public sector players and the 'new' players in the market (some of whom claim their lineage from established international insurance behemoths) is in a state of flux.

such as asphalt resurfacing. IMPROVE SERVICE QUALITY A number of surveys have indicated that public officials believed service quality was better after privatization. Over 100 studies have documented cost savings from contracting out services to the private sector. comprehensive state privatization programs can reduce program costs. Service quality is not assured. diligent monitoring of the contractor's performance through customer . INCREASE EFFICIENCY AND INNOVATION 5. savings are often greater. INCREASE FLEXIBILITY 3.[18] If competitive bidding is instituted for a service. Privatization also creates a steady stream of new tax revenues from private contractors and corporations who pay taxes and license fees. Much of the impetus is the desire to inject competition into the delivery of state services in order to provide services to citizens in a more-efficient and cost-effective manner. privatization can: 1. service quality can improve even if the service is retained in-house. while state units do not. STREAMLINE AND DOWNSIZE GOVERNMENT 7. by privatization. The reason is simple: competition induces in-house and private service providers to provide quality services in order to keep complaints down and keep the contract. For some services. privatization can put an end to subsidies to previously government-run operations. IMPROVE SERVICE QUALITY 4. 63 percent of public officials responding reported better services as a result of contracting out. States can also realize large one-time windfalls from the sale or lease of state infrastructure and facilities. facilities. such as prison construction and operation. Officials can replace the private firm if it isn't meeting contract standards.Advantages of Privatization Many reasons explain the movement by cities and states toward privatization to restructure and "rightsize" government. In a survey of 89 municipalities conducted in 1980. infrastructure. IMPROVE MAINTENANCE SAVE TAXPAYERS' MONEY By applying a variety of privatization techniques to state services. depending on the service. ALLOW POLICYMAKERS TO STEER. or downsize as needed. Contracts must be welldesigned with performance standards that create incentives for high quality service. add to service during peak periods. cut back on service. enterprises. savings are generally less. If structured appropriately and sufficiently monitored. Competitive bidding whenever possible and careful government oversight are crucial to sustained cost savings. and land. for example. Furthermore. RATHER THAN ROW 6.[17] Cost savings vary but average between 20 and 40 percent. SAVE TAXPAYERS' MONEY 2. however. INCREASE FLEXIBILITY Privatization gives state officials greater flexibility to meet program needs. Moreover. while for others.

do not exist in the public sector. Competition forces private firms to develop innovative. IMPROVED MAINTENANCE Private owners are strongly motivated to keep up maintenance in order to preserve the asset value of the investment in the facility. it would be very wasteful and expensive to build two sets of track into Liverpool Street just to create some competition. It partly depends on how the privatisation took place. for the most part. efficient methods for providing goods and services in order to keep costs down and keep contracts. This is the main reason why it has been necessary to create regulators (OFWAT. For example. Disadvantages of Privatisation 1) Very Expensive-: Privatization is expensive and generates a lot of income in fees for specialist advisers such as banks. With patience a better price could have been had with more beneficial results on the government's . ALLOW POLICYMAKERS TO STEER. Natural monopolies create a special justification for public ownership in the general public interest. It partly depends on the market. such divisions often receive a new lease on life. Public owners often defer maintenance due to political considerations. For example. Entrepreneurial governments can replicate this experience. so consumers have not benefited as much as had been hoped. RATHER THAN ROW Privatization allows state officials to spend less time managing personnel and maintaining equipment. OFGAS etc). job categories. Some markets are 'natural monopolies' where competition is difficult. thus allowing more time to see that essential services are efficiently delivered. STREAMLINE AND DOWNSIZE GOVERNMENT Privatization is one tool to make bureaucracies smaller and more manageable. Large private corporations often sell off assets that are underperforming or proving too difficult to manage efficiently.[19] Private ownership can stimulate innovation. Under new owners and leaner management. 2) Less consumer benefit -: Public monopolies have been turned into private monopolies with too little competition. INCREASE EFFICIENCY AND INNOVATION Private management can significantly lower operating costs through the use of more flexible personnel practices. and simplified procurement. This is an important point.surveys and on-site inspections must also be performed by government in its oversight role. These incentives. increasing overall long-term costs. streamlined operating procedures. the railways were privatised in bit of a rush and there might have been other ways to do it so that more competition was created. 3) Loss To Government companies -: The nationalised industries were sold off too quickly and too cheaply.

"The difference today is that privatization is encroaching into all areas of public administration." Even after privatization. But as Public Works magazine noted. proponents of the practice say that privatization results in better performance of needed services at lesser cost. and municipal management. a motive absent in government provision of services. It most often occurs in solid waste management. but the concept has been around since the first municipality hired Joe and his wagon to pick up the trash instead of getting city employee Frank to do it. and federal governments to pay for services. Defined in the strictest of terms. 4) Shutting down the business -: The privatised businesses have sold off or closed down unprofitable parts of the business (as businesses normally do) and so services eg transport in rural areas have got worse. "in the broader sense of the term …and the definition that applies to most contemporary discussions. privatization is the contract operation of a public utility or service by a private entity.revenue." Privatization efforts in America today are in large part a reaction to dissatisfaction with government performance and/or unhappiness with the level of taxation that is levied on individuals and businesses by municipal. 5) Less share ownership -: Wider share ownership did not really happen as many small investors took their profits and didn't buy anything else. our country has supported the idea that a . The purpose of privatization is to take advantage of the perceived cost efficiencies of private firms. "For example. And governments are expecting public agencies to compete—dollar for dollar—with private operators or surrender management of services. road/bridge building and maintenance. for instance) have been among the biggest winners in the growing national trend toward privatization. state. "The government usually allows the firm to choose how it will satisfy the contract. "opportunities abound for private concerns to offer to manage public services with a close eye on cost and efficiency." remarked Public Works. The firm is normally allowed to choose the methods it will use to perform the requirements of the contract. water/wastewater treatment. As Public Works commented. government monitoring is necessary in order to ensure that satisfactory services are provided to residents. and the number of workers on each trash truck. fleet maintenance. a contract may specify trash removal services for the area residents a certain number of times per week. privatization means the sale of public utilities to private concerns. This trend has grassroots origins. Indeed. GROWTH OF PRIVATIZATION "Privatization may be a popular buzzword today. For years. The profit motive will encourage the firm to produce the services efficiently at the least cost. used. with local governments in the forefront and state and federal levels of government trailing behind. In almost all cases the share prices rose sharply as soon as dealing began after privatisation." Small businesses that provide services in these and other areas (for-profit school academies. however." wrote Simon Hakim and Edwin Blackstone in American City and County. the trash trucks.

financing." stated a report on privatization conducted by a coalition of Illinois academic. but leaves decisions about production decisions to the private firm. 3) and deregulation of private firms providing services. and many service businesses. In the first case. and production of a service. and municipal groups. Many officials also report they would like more information on certain aspects of privatization. "Cost pressures. a private firm carries out the actual execution of it. Indianapolis. have garnered significant new contracts as a result. both large and small. New York City opened up bidding from private companies on 40 different municipal services in 1995alone. several of the nation's largest cities. The government determines the service level and pays the amount specified in the contract. including New York. thus encouraging them to perform at a higher level for lower cost. and —in the cases of larger cities. the . For example. It can be deduced that providing additional information on privatization to city officials will lead to increased acceptance. In this case. COSTS AND PRODUCTIVITY Proponents of privatization argue that whereas government producers have no incentive to hold down production costs. and Phoenix have contracted out a broad spectrum of services that were previously attended to exclusively by city employees. fiscal belt-tightening. The second version of privatization refers to joint activity of the public and private sectors in providing services. and individual consumers select and purchase the amount of services they desire from private providers. The lower the cost incurred by the firm in satisfying the contract. sometimes lackluster performance by workers. are rated as the most important reasons that officials decided to privatize a service. Today. private producers who contract with the government to provide the service have more at stake." VARIATIONS IN PRIVATIZATION The term privatization has been applied to three different methods of increasing the activity of the private sector in providing public services: 1) private sector choice. The third form of privatization means that government reduces or eliminates the regulatory restrictions imposed on private firms providing specific services. especially—festering problems with infrastructure led increasing numbers of city planners and public policy makers to look to privatization. public employees enjoyed a certain job stability and a wide range of desirable benefits." But proliferating responsibilities. Public employees would reliably and efficiently protect the public safety and deliver water and power. "The main obstacle is the lack of information or evidence of the benefits of privatization. Indeed. consumers select and pay for the quantity and type of service desired through government. collect refuse and treat sewage…. American City and County reported that various analyses indicate that this trend will likely continue. business. maintain roads and bridges. In return. the entire responsibility for a service is transferred from the public sector to the private sector. Although the government provides for the service. Philadelphia. solid-waste collection is provided by private firms in some communities. which then contracts with private firms to produce the desired amount and category of service.public workforce was the best provider of essential services. Smaller cities and towns have instituted outsourcing philosophies as well. both internal and external.2) public-sector choice and financing with private sector production of the service selected.

"The local government will still be held responsible for the cost and quality of the service under contract. private firms may use retained earnings to finance research or to purchase new capital equipment that lowers unit production costs." wrote Blackstone and Hakim. and possible changes in service requirements. to fire unsatisfactory workers. a government agency cannot walk away at the end of a contract period. In some cases. On the other hand. competition will lead to lower margins. Although private firms may pay lower wages and fringe benefits than local governments. Private owners have a strong incentive to operate efficiently. local. and decreased profits." Competition. If private firms spend more money and employ more people to do the same amount of work. critics of municipal governments argue that they are less likely to reward individual initiatives or punish aberrant behavior when compared with their private sector counterparts. Public Works observed that good service is sometimes defined differently by citizens. In addition. Private firms have more flexibility than governmental units to use part-timers to meet peak periods of activity. government may not be able or willing to allocate tax revenues to these purposes as easily. Moreover. Lower labor costs may arise either from lower wages (which means that the government was paying wages higher than necessary for a given skill) or from less labor input (which means that the government retaining more employees than necessary to fulfill need). and to allocate workers across a variety of tasks. On the other hand. while this incentive is lacking under public ownership. they argue. Moreover. Proponents of privatization state that private firms may be more likely to experiment with different and creative approaches to service provision.and mid-sized companies also need to make sure that they do not sacrifice an acceptable profit margin in their zeal to secure a contract. Finally. given the many competing demands on the government's budget. "the ultimate responsibility (in the eyes of the public. and federal regulations may determine whether a service can even be handed over to a private provider." stated Public Works. supporters of privatization argue that the trend has spurred improvements in performance by public service providers. whereas government tends to stick with the current approach since changes often create political difficulties for elected officials. Expected quality of service varies from community to community. Supporters of privatization often cite the competitive environment that is nourished by the practice as a key to its success. lost customers. Moreover." stated Public Works." Operating Philosophies. Regulatory Realities. the major cause of the cost differences between the private and governmental sectors is employee productivity." Service. "Stability may be a concern in the eyes of the public. Of course. public service providers. depending on a wide range of factors such as historical service levels. and private service providers. "Response time and public confidence need to be taken into account when judging the pros and cons of private/public.greater profit it makes. state. small. "Evidence shows that public agencies should be allowed to bid on contracts along with private operators. "since this exposure to competition has led many public agencies to improve their service delivery and significantly reduce costs. if not the courts) rests with the public agency that assigns operating rights to a private concern. the absence of competition and profit incentives in the public sector is not likely to result in cost minimization. The . local taxation.

analysts strongly encourage municipal governments to make sure that the bidding process is an ethical one." In recognition of these fears. Such "low-balling" in the bidding process may be reduced if the local government requires relatively long-term contracts. place them with private contractors. Demographic and Geographic Factors. For their part. Indeed. Employment. or constructs contracts that give them flexibility in hiring and firing outside firms. Critics of privatization of government services contend that problems sometimes arise in various aspects of the process. even advocates of privatization agree that private ownership produces the public benefits of lower costs and high quality only in the presence of a competitive environment. Indeed. Given this reality. field observations. and labor relations strategies. These localities may benefit from turning to a contractor that serves . Commonly utilized methods of contract monitoring. Still. if government size is reduced.disciplining effect of competition does not occur in the public sector. "Governments often hire minorities in larger proportions than other workers. although governments often reassign them to other government jobs. and ongoing cost comparisons. Monitoring and Enforcement. critics such as the Journal of Commerce and Commercial 's David Morris contend that private companies are only able to promise meaningful financial savings over public agencies because of the comparatively low salaries they pay their workers. meanwhile. Smaller municipalities may incur relatively high unit costs if they operate their own services as a result of not being able to achieve economies of scale. some service contracts now require private contractors to hire affected public employees or give them hiring preference. relatively more minority workers are likely to lose their jobs. Another charge leveled at privatization initiatives is that they too often have a disproportionate impact on minorities. and the monitoring and enforcement of the contract. or offer them early retirement programs. reports from contractors. the precise specification of the contract. including the bidding process. Privatization cannot be expected to produce these same benefits if competition is absent. private bidders need to make certain that these precautions are reasonable ones that will not unduly impact their ability to perform both profitably and professionally. For example. the contractor would then demand a higher price after the government has dismantled its own production system. one of the principal objections to privatization is that it replaces positions that featured compensation that could be used to support a family with private sector spots that offer modest compensation. which have been at the forefront of efforts to block privatization. In some cases. guidelines for the evaluation of competitive bids. some observers have raised concerns that potential suppliers may initially offer a price to the government that is less than actual production costs to induce the government to transfer the service to the private sector or to win the contract. include performance appraisals. citizen satisfaction surveys." wrote Blackstone and Hakim. These possibilities have been particularly upsetting to public employee unions. Public Personnel Management magazine also noted that governments need to take several important precautions before handing out a contract in order to avoid litigation and legal liability. "Thus. tracking complaints. These precautions include detailed performance specifications for service providers. privatization results in layoffs of public sector employees. Subsequently. Privatization is understandably viewed as an alarming trend by public employee groups.

Even corruption and crime have become similar everywhere. Consumerism is global. Look at the balance sheets of the Birla. Finally. Innovation is their religion. In other words. What is liberalization? In a plain language liberalization means free entry and free exit within the framework of greater competitive efficiency. The culture of the youth in metros is globalized jeans. we have to prepare a new environment for better participation of private initiatives. there is growth. Well. Malavia and Mafatlal companies whose performance is really amazing. We may begin with a simple question. If we want to accelerate the pace of competition. The new article of competitive coexistence further implies a new social and economic order where the article of faith is bound to be competitive efficiency. Remember where there is greater competition. jogging suits. Can you expect development without innovative management? By and large private enterprises do better because they are operating in a free environment where they can act swiftly in response to market signals. The change is clear. It is a process associated with increasing economic openness. So is the power of television as a medium. They hardly act on established lines for long. becomes a breeding ground for underdevelopment and poverty. whether expansion of any kind is possible without efficient operational flexibility? I think this is the crux of the issue. international knowledge.multiple communities. Hence a time has come for all of us to think globally and act locally. satellite TV and so on. fast food. goods and services for which a new pattern and structure of the economy is called for. And where there is strength. Global interaction has thus become a new reality. The reach of the electronic media is enormous. If services are being expanded to cover new residents. This is a simple message of liberalization and privatization. international technology and international information has really gained a new momentum. Risk . it simply implies the fact that competition of any sort should not be confined to a particular territory. how can you expect benefit for the larger production without ever enlarging the extent of the market. Global foreign exchange transactions have soared from $ 60 billion per day in 1983 to $ 1200 billion per day in 1996. Between 1980 and 1996 foreign direct investment as a proportion of world output rose from 4.6 per cent. Thus the emergence of a global village has necessarily given rise to a new pattern of liberalization. There is also a surge in the international investment flows. Now a new culture of larger interaction and larger production has come to stay. differences in the cost and effectiveness with which they are provided become more apparent. The world trade has perceptibly increased from 12 per cent of World Gross Domestic Product in seventies to 13 per cent in 1990s. The flow of international finance. As the number of services increases.8 percent to 10. Therefore. T-shirts. Competition should be allowed to expand itself beyond traditional frontiers. private contractors are less likely to displace existing public sector employees. technological revolution and scientific revolution has opened up new opportunities and new advantages. The high degree of efficiency and outstanding commercial achievement is really convincing. When we talk of globalization. municipalities providing diverse services may be more open to exploring private sector options than those localities where services are more limited. Who can give you competitive efficiency more? This is a fundamental question. there is strength. Tata. Privatization is also more acceptable in fast-growing communities. Hollywood movies. pop music. growing interdependence and deepening economic integration. In fact isolation in the long run. all possible quantitative restrictions should be removed to prepare a new atmosphere of free interplay and free movement of creative ideas. contracting out varies with the number of services provided to residents. What we see today is really exciting and equally challenging. The so-called information revolution.

We have to decontrol gradually if we hope to revitalize and strengthen our economy. But caution is the need of the hour. is a telling example. fraud and waste. safety nets and reduction of fiscal burden. policy direction and policy coordination at all levels i. In fact the psychological foundation is high.000 crore expected from these disinvestments would be hopefully used for restructuring public sector units. A poor state like Manipur cannot and should not afford this loss when the fate of Manipur depends on the repeated overdrafts and market borrowings. Rs 12. The sense of partnership is very high. They have become part of the established system. When we uphold the rising imperative for progressive privatization in central areas. Why should we allow the scarce resources to be misused in the government sector while there are many better organizations in the private sector able to make best use of scarce resources? Look at the dismal performance of the Manipur State Road Transport Corporation and so on. domination. the enforcement of a sound domestic policy for a high operational standard is not ruled out. before privatization. What the government should do is to review. At most the government can act as facilitator. On the other hand. The picture is very different in the government sector where one experiences the multiplying issues of monopoly. the government owned-units are very slow and normally go along the age-old established tracks .taking is part of their commercial life. They can tune their operational pattern to the needs of time. Because the government of West Bengal knows fairly well that efficiency goes with privatization and also that the state run enterprises distort market relations and ultimately invite economic slow-down. the new economic strategy is really private sector friendly. Secondly the public sector units are plagued with corruption. Lack of high degree of specialization. concentration. Hence we have to change the outdated system of license. The rationale is very convincing. The commercial enterprises demand a serious attention of daily character.e. pilferage and corruption take place in the atmosphere of mutual suspicion and absence of loyalty and discipline. secrecy. We have incurred a cumulative loss of Rs 50 crores on these sick units. In the private sector the vision and mission of the organization is shared and made transparent. mainly because there is less financial discipline and also the sense of belongingness and loyalty is fairly low. a continuous process of monitoring. These inherent issues remain unsolved and may continue to frustrate any attempt in future also. The rising performance of the Shija Hospital Private Ltd. finance minister of India has gone ahead with reform process by privatizing 27 companies. The role of the government is equally important particularly in policy planning. during privatization and after privatization. They can take their investment decision based on their own commercial perception. In fact in the commercial world one has to be alert and prompt to change the track to take fuller advantage of market opportunities. permit and quota. One fact is quite clear that the government of Manipur cannot personally and directly act as entrepreneur. evaluation and planning: that also in this age of cutthroat competition. avoidance of responsibility and lack of transparency. Ultimately the state-owned units are caught in the rut of loss and stagnation. Yashwant Sinha. a spirit that is so rare and vital. Why should the whole economy suffer for the gross weakness of a handful few? The government of West Bengal is also going ahead with the process of privatization of 67 ailing state owned/state-run companies. professionalization and innovation becomes a comfortable breeding ground for retardation. Theft. Even a thief does not steal his own money and property. revise and set a new operational standard from time to time keeping in view the challenges and threats. One of the important factor for the dismal performance of state-owned industries in Manipur is obviously lack of entrepreneurial spirit. subordination. Thus to take fuller advantage of global opportunities the process of liberalization and privatization needs to be meticulously planned and stepped up. We cannot expect this frame of mind in the government sector.and thus invite acute disadvantages of time-overrun and cost overrun. the . In other words.

BROAD MEANINIG OF PRIVATIZATION Contracting-out Franchising Deregulation and Decontrol User charges Grant system Voucher system Management contract Leasing Joint venture Build – operate – transfer (BOT)system Non-Profit organization 1-CONTRACTING-OUT :The government contracts out with the for –profit as well as not. Tuition voucher Medicre/medicaid voucher Child care voucher Housing voucher Transportation voucher Food voucher Clothing voucher 7-MANAGEMENT CONTROL: Government may sometimes retain full ownership of public economic enterprises and/or other public facilities but transfer its management to a private firm. 3-DEREGULATION AND DECONTROL:”Public regulation” and “public control” are broad concpts in the sense that they define the various ways. cable TV.but very much complimentary. health services. 4-USER CHARGES: (Higher education. . 5-GRANT SYSTEM: Grant and subsidies are financial or in-kind contributions to individuals or private firms by government. It is thus increasingly clear that a sound policy of privatization should be an integral part of development strategy. likes that) some types of goods and services can be either provided free of charge and financed by taxes or by the imposition of a fee or user charges to the individuals who receive benefits. public safety services. electric power. All type of “public controls” be abolished. in which governmentmay intervene directly to the economic agent. 6-VOUCHER SYSTEM: It is designed to encourage the consumption of particular goods and services by a particular class of consumers. Contracting-out is common especially in such services as public works and transportation. parks and recreations services etc… 2-FRANCHISING :The government gives a special monopoly privilege to a private firm to produce and suplly some part of a particular services.roles of the government and private sectors are not mutually contradictory .for profit organizations for the delivery of goods and and human services. Types of voucher system are.

22 incomplete plants. . 9-JOINT VENTURE: Privatization encompasses all pactises aiming to reduce the role and scope of the public sectorand to increase private sector activities in the national economy. 11-NON-PROFIT ORGANIZATION: It . 29 energy generation and distribution units and 5 real estates have been taken into the scope of privatization portfolio. which are called “voluntary organization” or “philanthropic organization”. 10-BUILT-OPERATE-TRANSFER (BOT) SYSTEM: The system is quite simple and seek to attract foreign capital. In this case. at the end of contract. Later. 4 power generators and 4 real estates were excluded from the portfolio for various reasons. Direct foreign capital investment are encouraged to build infrastructure facilities. the facilities and establisment are transferred to the government. THE OBJECTIVE OF PRIVATIZATION  Greater efficiency  Revealing the true and full cost of the service provided  Promotion of technological advancement  Development of capital markets  Broadening the wealth and achieving widespread private ownerships in society  Curbing inflation  Raising extra-revenues for the government  Eliminating hidden unemployment and reducing thepower of public employee unions Example Great privatization -: Since 1985. 4 power generators. management and operation are carried out by the private firm. State shares in 241 companies. petroleum exploration station etc within the developing.8-LEASING: Local government rents its trucks to a private firm for the solid waste collection in the city. 22 of these companies. also provide some public goods and services.

BROAD MEANING OF PRIVATIZATION Denationalization is only one form of privatization. In other words. privatization refers to the transfer of functions previosly performed exclusively by the public sector to the private sector. I.Currently there are 38 companies and some real estates in the portfolio and 26 of these companies have more than % 50 State shares.THE CONCEPT OF PRIVATIZATION B. which encompasses all methods or policies implemented to increase the role of market forces within the national economy. PRIVATIZATION METHODS Contracting-out Deregulation and decontrol Franchising User changes Grant system Voucher system Management contact Leasing Voint Venture . In broad meaning. privatization is an umbrella term.

Promotion Of Technological Advancement Competition as a result of privatization forces enterpreneurs to introduce new methods of production which will generate additional output with the same amount of inputs. F.Eliminating Hidden Unemployment and Reducing the Power of Public Employee Unions By privatization cost of hidden unemployment can be eliminated. G. Politicians want to maximize their votes and people would like to get services free of charges.Curbing Inflation In many countries public economic enterprises do not work efficiently and effectively they are usually in need of supplementary funds from general account budget. Privatization can be considered a disinflatory tool. Revealing The True And Full Cost Of The Service Provided Publicly provided goods and sevices are underpriced because of some political and economic reasons. Broadining the Wealth and Achieve Widespread Private Ownership In Society Privatization can broaden the wealth and achieve widespread private ownership in Turkey. Development Of Capital Markets The main purpose foe establishing a capital market is to withdraw some of the savings of individuals and private firms and to lead them toward productive investment fields.So they cause cost-push inflation. So public pricing of goods and services tends to be below the cost of production of these services.This strategy would be important when the government encounters a financial crises.Raising Extra Revenues for the Government One of the objective of privatization would be to raise revenues for the government.Competition is very important to obtain more efficient and effective public services. H.Greater Effıcıency Privatization fasters competition and thereby results in efficiency and effectiveness within sectors.Build-Operate-Transfer (BOT) system Non-profit Organization THE OBJECTIVES OF PRIVATIZATION A. .

in a public enterprise. Divestiture sequence plan: a list. many of them have not lived to expectation. State owned enterprises have existed in the world including Malawi for quite some time. directly or indirectly.” Some of the important definitions under the Privatisation Act 1996 include the following: Privatisation: the transferring to the private sector of part or the whole of equity or other interests held by the government. much as they were created for very noble reasons. Local examples include. The enterprises have been a strain on the National Budget in that Government has had to bail them out.Definition of Privatisation According to the World Bank. Much as the reasons for creating the SOEs are noble. This means tax payers money and government borrowings used on them have not been efficiently employed. From another angle. of public enterprises categorized according to the sequence in which the whole or part of their shares will be disposed of over the period of the privatisation programme. it can be said that Government has used funds which could have been used on development projects to subsidise SOEs where they have not performed successfully. ADMARC Air Malawi Bata shoe enterprise Central Government Stores ESCOM Grain and Milling MDC Dzalanyama Lodge Premier Mining It should be noted SOEs cut across a wide range of economic sectors. To produce higher investment ratios and extract a capital surplus for investment in the economy. To transfer technology to strategic sectors. Background The concept of privatisation has emerged and found emphasis through out the world because of the failure of the State owned enterprises. There are several reasons which can be advanced for the existence of SOEs but those that stand out are: To ensure that citizens have access to goods and services which the private sector might not be willing or be able to provide. privatisation “is the transfer of ownership of State Owned Enterprises (SOEs) to the private sector by sale (full or partial) of going concerns or by sale of assets following their liquidation. . as approved by the cabinet. There is evidence to the effect that many have been operating inefficiently and have incurred losses on many occasions. Commercialisation: the re-organisation of specified government departments into enterprises so that they may operate as profit making commercial ventures.

privatisation policy guidelines. To implement all aspects of the implementation of the privatisation programme in Malawi. To increase competition and reduce monopoly. To prepare the long-term divesture sequence plan and submit reports of privatisation transactions to the Cabinet. Some indicators of success which are easily noted are: Employment: many of them have not retrenched but increased employment. To prepare or cause to be prepared the relevant documentation necessary to effect the privatisation of any public enterprise. specifying the method of sale used and the reasons why such method was considered appropriate. According to section 8 of the Privatisation Act the functions and authority of the Commission include the following. and The price. The Commission is mandated to be the sole authority in Malawi to implement the privatisation programme for state owned entities. Role of Privatisation The role of privatisation is multifaceted but its major aspects are: Improving the living standards and welfare of the people through the benefits of privatisation. To set pre-qualification criteria for the selection of the bidders with regard to: The ability and commitment of the buyers to develop the enterprise and The track record of the buyers and their expertise in the type of enterprise on offer. the proceeds realized and other particulars. Production: production and provision of services have gone up. . The Mandate of Privatisation Commission Privatisation Commission was established under the Public Enterprises (Privatisation) Act 1996. To seek potential investors in public enterprises. Objectives of Privatisation The objectives of privatisation in Malawi are. Participation is competitive by making it open to all investors. To monitor the progress of privatisation in Malawi. Ensure that privatisation is carried out according to the following principles: Each transaction is transparent to the public at large. To promote participation by the Malawian public.The advent of privatisation and well developed objectives has offered a solution in that where it has been implemented there has been evidence of success or improvement in performance. To implement the privatisation programme in accordance with the policy guidelines approved by the Cabinet. The process is fair and efficient. To formulate and recommend to Cabinet for approval. The transaction is such as to reduce concentration of ownership and marketing. To foster increased efficiency in the economy. Enhancing growth in the economy as privatised enterprises grow. To raise revenue for government.

. Documents Provided by the Privatisation Commision There are standard documents which are available at Privatisation commission to assist bidders in the preparation of their bids. Concession In this case Government owns the land and most assets. The concessionaire may be allowed to purchase the enterprise at a later date. stock. Information Memorandum This contains a profile of every public enterprise to be privatised whose purpose is to provide interested persons with comprehensive. Government reserves the right to cancel the concession where the concessionaire fails to perform. The government pay a fee to the expert or enterprise involved. Sale of assets Here Government can sell the assets (buildings. accurate and update information on the public enterprise and assist them to decide whether they should bid for it and determine the terms of their bids. distributed among the enterprise members in accordance with their entitlement under the articles and memorandum of association. Management contract/ service contract It is an arrangement where a team of experts or enterprise is identified to run the state owned enterprise on behalf of the government. The concessionaire can make capital expenditure and investment with the permission of the government. It is expected that the enterprise will continue to operate.To maintain records. This is when the business is unprofitable. vehicles. Examples are Midcor and Charcoal Production Fund Liquidation can also mean the process by which the enterprise’s property and assets are identified and realized to pay off its debts and the surplus. Methods of Privatisation Sale of shares This is where the Government has shares (equity) in the enterprise and then it offers those shares to the public. Sale of Enterprise Here the business is sold as a going concern. safeguard information and establish such administrative procedures as shall ensure confidentiality of information To publicise the activities of the privatisation programme. Management Buy Out This is where the existing management buys a controlling share of the business. if any. Liquidation/Dissolution This method is used when an enterprise only exists on paper and has no value. The concessionaire pays government a fee for the right to operate the business. and fixtures) piece meal. In most cases management of the enterprise has stayed the same. The bidders in most cases are outsiders and might not have full details on the financial position of an enterprise so the documents are intended to facilitate the preparation of bid documents.

Qualification statements i. including health. education and social infrastructure.(whether it is a limited or unlimited enterprise) The enterprise’s bankers. normally business plans. Expand the role of the private sector in the economy. and Encourage wider participation by the people in the ownership and management of business. suppliers. Objectives of Privatisation The emphasis is on improving the efficiency of all Parastatal enterprises. Reduce the burden of Parastatal enterprises on the Government budget. The documents include the letter which informs the first and second letters to interested persons and a confidential undertaking that the information obtained from the Commission on the public enterprise to be privatised shall be kept secret and will only be used for making a bid. and thus to divest most of its interests whether in loss making or in profit making Parastatal enterprises. They include. auditors and legal practitioners. vii) The enterprise’s constitutional documents (Memorandum and Articles of Association) Draft Sale and Purchase Agreement This document states the terms of the sale and purchase agreement and they are signed by the buyer and the Commission. The enterprise’s latest accounts.It contains information such as: Full name.e. Documents Produced by the Bidders These are produced by the bidders for the purpose of buying the entity being privatised. The enterprise’s brief history. Bid procedures These are documents issued by the Privatisation Commission to persons interested in bidding for the public enterprise following advertising of that entity by the Commission. address and contact details of the public enterprise. The enterprise’s type of business. Primary Objectives: The following are the primary objectives which have been defined in the Government’s policy statement on Parastatal Sector Reform: Improve the operational efficiency of enterprises that are currently in the Parastatal sector. normally the price offered for the entity being privatised. whether retained or divested. permitting the Government to concentrate public resources on its role as provider of basic public services. technical proposals. All commercial Parastatal enterprises will become available for both foreign and local participation using suitable methods of divestiture including liquidation where necessary. The enterprise’s legal status. The bid documents are given at a fee. turnover levels capacity and utilization. and their contribution to the national economy. There are two types of forms which have to be filled representing whether the sale is by shares or sale of assets. Price bids or financial proposals. . markets. The Government has decided to distance itself from direct involvement in business.

to capital and to technology.In pursuing these primary objectives the CHC aims to: Transform. in turn. have boards and managements that are autonomous and accountable. increase tax collection from businesses that become more profitable after privatisation. Given these objectives the Parastatal sector reform programme is expected to: increase private sector savings and investment (both local and foreign) in all sectors of the economy which. the performance of most significant enterprises in the Parastatal Sector. through comercialisation. activities except when explicitly compensated by Government. Likewise the process of comercialisation and restructuring will be designed so as to ensure that those Parastatals that remain for the time being in the public sector: are responsive to markets. do not encounter political interference in their operations including the banks. to secure enhanced assess to foreign markets. Secondary Objectives: In so far as their pursuit is consistent with the primary objectives. create an environment that will encourage private investment and the emergence of indigenous entrepreneurs. will stimulate sustainable employment opportunities. and to preserve the goal of self-reliance. to promote the development of the capital market. cost-conscious and profit oriented. . and improve the quality of delivery of utility and other public services. act as business entities without being required to carry out non commercial. restructuring and divestiture. and have effective performance monitoring systems. the CHC intends to ensure that divestiture meets the following secondary objectives: to create a more market-oriented economy. and Ensure liquidation of all non-viable Parastatal enterprises as soon as possible. are guided by supervisory agencies to the minimum consistent with pursuit of consumers’ interests.

repairs of roads other than National Highway are carried out by the state Government form the funds received from the Central Government. 2) Improvements. repairs and improvement. This plan includes widening and black topping of State highways and major district roads and also black topping of other road. A lot of funds are required for carrying out works on those roads. 5) Construction of bridges. The state has also achived remarkable progress in the Agriculture and Fisheries Sector.0 Road Development Projects Proposed Under Privatisation 2. this plan can be complated only after 65 years. construction of bridges over them and construction of new expressways cannot be implimented due to shortage of funds avaliable with the Government. Funds made avaliable to the Public Works Department under plan and non-plan schemes undertaken through the State Budget are very meagre compared with the requirments. Improvements to State Highways and National Highways. maintainance. 7) Construction of flyovers. 3) Baypasses outside towns. 8) Construction of expressways. 4) Repairs to Major bridges. With a provision of Rs. The Public Works Department in Government of Maharashtra undertakes construction of roads and bridges in the state. the State has other district roads and village roads which are looked after through Zilla Parishad and their maintenance. therefore. The traffic intensity on roads in the State has increased remarkably due to industrial growth in the other commercial sectors. The Government of Maharashtra builds roads and bridges in the state and facilitate public communication. 2. including improvements and repairs to the existing roads with 3000km of major district roads. 9) Construction of Railway over bridge.Besides these. 1981-2001 Road Development Plan has been prepared. For implementing this development plan approximately Rs. The Government of Maharashtra has. widening and Strengthening of existing roads. Public Works Department is responsible for their maintenance.repairs. 10) Construction of tunnels. improvements and new construction are done either by the Public Works Department itself or through Zilla Parishad.1 Following projects shall be genrally taken through Private Sector participation : 1) Construction of new roads. The gap between the achivements and the targets is increasing year by year.0 Introduction Maharashrta State is one of the leading Industrial states in the country. the capital of Maharashatra is known as the commercial capital of India. . This causes the road development schemes to lag behind the target. 6) Widening of bridges. While selecting the projects priority will be given to the works included in road development plan and efforts will be made to maintain regional balance. 400 Crores every year. 26000 Crores are required. decided to impliment some of the important road projects through Private Sector Participation. For implimenting state road development programme in a systamatic manner. Improvements.. Mumbai.

For major and complicated projects. 3. These and such others permissions will be obtained by the Government of Maharashtra. the subsidy offered by the Government crietria for selection of the best possible offer will be laid down in the bid documents. it will be handed to the Enterpreneur on lease. Following Procedure is adopted while taking up the project through Private Sector Participation. the intending Enterpreneurs have to be prequalified considering their financial. 50 Crores.2 Once the feasibility of any project to be taken up with Private Sector Participation is established. will be selected. approval of State Cabinet committee will be necessary. lands will be acquired after giving proper compensation to the concerned persons or Organisations. the project shall be prepared and taken up for implementation. permission has to be obtained form the Forest Department. Fot this. after deciding the criteria for prequalification. it is assumed that the Enterpreneur shall invest the cost of the project and that will be allowed to revover his investment allongwith reasonable profit through toll collection and other means provided by the Government. a consultant shall be appointed to carry out feasibility studies. public tenders will be invited form the intending Enterprenurs for prequalification. 3.3 Before taking up any project through Private Sector Partiicpation prior permission of same Departments of the state as well as Central Government has to be obtained. Generally a project which can be return beyond 20%. from among the technically acceptable proposals.4 The land required for the project will be acquired by the Government of Maharashtra at its cost. For other projects feasibility will be checked in-hours by the Public Works Department.3. or the land will be obtained from other Government Departments.0 Procedure for taking up Road Project through Private Sector Participation While implimenting a road project through Private Sector Participation.1 Before taking up the project through Private Sector Participation its feasibility is ascertained. 3. 3. For acquiring forest lands. Crores require clearance from Central Enviromental Department.6 For smaller projects. Project costing more than Rs. 3. There after the technical bids will be considered and finally their financial bids will be opened the offers received from the Enterprenurs will be scrutinized. for projects costing more than Rs. 3. The Enterprenuers satisfying the criteria will be prequalified enterprenurs. the fiancial bids will be directly invited and the Enterprenurs stisfying the criteria will be post qualified. 50. enigineering and other abilities. For example. According to the feasibility report and the recommendation therein. All this process will be absolutely transperent. shall be deemed to be feasible for taking up through Private Sector Participation. fairly detailed plans and estimates and detalls of State Government participation and/or additional facilities to be given to the Enterpreneurs will be worked out and detailed proposal will be prepared and approval of the Government will be obtained for the same. insted of prequalification. After marking the project alignment. . While inviting these offers the terms and conditions of the agreement. All the required land will be taken over by Public Works Department and there-after for the purpose of the project. if necessare by a high level committee appointed by the Government and the best acceptable tenders.5 For implimenting medium or large projects through private sector participation.

Hotels.1 The following alternatives may be considered while taking up road development projects through private sector participation. Some of the sources of income to be made available to the Enterprenurs apart from the tolls. 4. d) Income generated from the commercial exploitation of land aquired by the Government as per the requirements at proper locations and to be given to the Entreprenurs on long lease. e) To give on nominal lease rent. 4. c) Permission to retain income genrated from tree plantation to be permitted by the road side.3 A special cell has been formed in Mantralaya for projects to look after the works to be done in Mantralaya for projects to be taken up through Private Sevtor Participation. 4.4. the land required for the project after acquiring the same at the cost of Government. Policy decision taken by the Government for facilitating Private Sector Participation in Road Development Project.4 To enable the Entrepreneurs to collect and to retain the toll fees. To enable it to take up road development projects through Provate Sector Participation the Government of Maharashtra has taken some policy decision. the Bombay Motor Vehical Tax Act 1958 has been suitably amended. at approved locations by the road side. f) To make suitable provisions in the bid documents for covering risk beyond their control in relation to the investment made by the Entreprenurs. will be as below : a) To permit display of advertisement by the road side approved locatio and to permit the Entreprenurs to genrate income from the same.2 To make the road development projects financially feasible through private sevtor participation the Government has to decided to give some concessions and to make available some other sorces of income to Enterprenures. alongwith the quarries and connecting roads and the Entreprenures to be permitted to use them for constructing the project. 4. etc. These include procedure for taking up such works and concessions to be offered to the Enterprenurs. 4. b) To make some of these project feasible the Government may have to participate by sharing up to 40% of the project cost in some cases. The Enterprenurs can recover his investment will be recovered later by levy tolls. a) The Enterprenurs to bear the entire cost of the project and recover the same through toll fees levied after the project is completed.5 The decision laying down the policy of the Government in respect of works to be taken up under Private Sector Participation has been issued on 19th July 1996 ( a translation is appended). b) Permission to erect Petrol Pumps. c) The Enterpreneurs to complate the project in Phases and toll to be recovered after completion of each phase. Motels. .

b) To generate funds through private sector participation for development of roads and bridges. 30. Government Resolutions:: Considering the above background.5. those works will be taken up in a phased manner.R. 4 has been partly completed through private sector participation and recently a decision to undertake the work of construction of bridge across river Patalganga near Kharpada on N. PSP1089/CR. etc. environmentals impact studies. It is essential to obtain the permission from the Ministry of Surface Transport of the Central Government for taking up the works on National Highways include in the above list have been processed for the approval of the Ministry of Surface Transport.R. Policy on implmentation on Road & Bridge Projcets through Private sector participation Government of Maharashtra Public Works Departmant G. 30.22a/Planning-2 Dt. supervision./Planning 2. so also maintainance of such roads and bridges. 6 Present Status of Implimentation of Road Development Projects through Private Sector Participation The Public Works Department has prepared a preliminary list of same important road development projects which could be taken up through private sector participation based on the report received from the field officers.H. The work to be taken up through private Sector Participation will be implimented through this corporation. Establishment of Corporation To execute certain projects through private sector participation the "Maharashtra Road Development Corporation (Limited)" has been established.89 Background: In the opinion of the Government the road and bridge projects which would be financially viable and for which financial participation could be obtain from financial institutaion or from other sorces.89 2)Government of Maharashtra Planning Department G. The principle objectives of the Corporation are as belows: a) To impliment through private sector prticipation development programme for bridges. Dt. road and other related facilities.To function as a consultant or to appoint consultant for preparing plans and estimates of the projects. At present the work of improvements to the Thane-Bhivandi Baypass on National Highway No. the Government have taken the following decision for making Such Projects .11/R. More than 200 works located all over Maharashtra have been included in this list and after ascertaining their feasibility.8 Mantralaya. 17 has been taken. c) To commercially exploit Government lands in possession of the Public Works Department.PSP1095/CR. can be justifibly handed over for a limited period to the private sector. feasibility reports. Accordingly in selected developmental areas the Government was considering obtaining private sector participation on proper terms and conditions. surveys. No.6. Mumbai . and to obtain equity financial participation from different financial institutions or other carporations.400 032 Date:19th July. etc.6.R. For facilitating this the Government have taken certain decision in the present resoluation. and after giving careful thought to implimantion of road development projects through private sector participation. 1996 Ref : 1) Government of Maharashtra Planning Department G. d) Other objectives.No. No1089/CR22.

The priority should be decided on the principle of traffic intensity. 5) As per the financial analysis a return of minimum 20% should be genrated on the investment made by the . b) Permission to commission petrol pumps. f) To make suitable provision in the tender documents for covering the ill-effects on the investment due to reasons beyond tje control of the Entrepernures. for the projects as well as for the quarries and connecting roads and to permit their use for the construction of the projects. g) To obtain form the Government side necessary environmental and other No Objection Certificate by employing Consultants. by the road side under the relevent rules and regulations. if necessary. a) Within the framework of rule to give permission to display advertisement by road side and permit the Entrepreneurs to retain income generated form the same during the concession period. ii) The Government to participate in the investment project cost. 3) To enable these road development projects to be financially profitable and to induce the Entreprenure to take them up the following consessions may be given according to the need and for this the existing laws may be suitably amanded. 4) While taking up the projects thorugh private sector participation the following alternatives should be considered while deciding according to the feasibiliy. Road Development Plan should as far as possible be selected. the investment to be made by the Enterprenurs: i) The Enterprenures to meet the entire project cost and to recover the same through levy of tolls. c) To permit development tree plantation by the road side and to permit retaining the income generated from the same on contract basis. and to permit generation and retantion of the income from the same. 1) In respect of roads and bridges the following types of works may be taken up through private sector participation. hotels. Strengthing & Improvements to Existing works c) Works of diversion road outside town d) Works of new bridges e) Works of Major repairs to bridges f) Works of widening of Major bridges g) Works of road/rail over bridges h) Works of flyovers i) Works of tunnels 2) While selecting the works to be undertaken thorough private sector participation the works identified in 1981-2001. e) To handover on nominal lease rent the land aquired by the Government at its cost. need for development and higher financial viability. etc. d) To acquire at proper location as per requirments land by the side of the projects and to hand over same to the Entrepreneur on long leases for commercial exploitation in the form of housing complexes etc. a) Works of new roads b) Works of Widening. iii) To complate tje project in phased manner and to permit levy of tolls after the complition of the subsequent phases. motels.financially feasible after considering and amending wherever necessary the proposal made by the Public Works Department.

) 1 Newspaper This publicity should be done through information and Public Relation Departments and for this guiding principles should be issued by the Public Works Department. traffic counters. reputed private persons or institutions will have to be appointed as supervision consultants. progress monitoring. in general. electronic calculators. 1Crore should be approved by the Public Works Department in consultation with the Finance Department. 50 Crores.3628/A-2 dated 31/10/94 and urgency clause should be made applicable. 25 Crores Up to Rs. may be done if necessary. inspection. 11) Considering the nature of the project to be undertaken through private sector participation the Public Works Department may purchases necessary modern and technical equipments (e. fax machines . 6) The power to decide whether the project can be taken up through private sector participation will be as follows: a) For works/projects with estimated cost less than Rs. 10) The Public Works Department cannot supervise on a day to day basis roads and bridge works undertaken through private sector participation like other Budgeted works. computers. traffic analysers. 9) The works of the roads and bridges taken up through the private sector patrticipation by the Public Works Department will require acquisition on large scale. 50 Crores. vehicle and axle weighting machines. 25 Crores.g. However day to day supervision. the proposal for taking up such works through private sector pariticipation should be placed before the Cabinet for approval. The Public Works Department will in gereral monitor such works. Simalarly before undertaking projects through private sector participation plans and estimates feasibility studies. 25 Crores. 7) For works to be undertaken though private sector participation the tender publicity in newspapers and the period of publicity should be as follows: 1) District level 1 Newspaper 2) State level(Marathi) 2 Newspaper 3) State level(English) 2 Newspaper 4) National level (for Works costing > Rs. 25 to 50 Crores Above 50 Crores Period (Period from the date of publication to the receipt of the tender) 4 Months 5 Months 6 Months 8) In respect of the projects to be taken up through private sector participation the Public Works Department administrative approval to the cost covering expenditure to be made by the Government in respect of the project. levelling and survey equipments. A list of such works to be taken up through private sector pariticipation should be printed in the Budget form time to time.Entreprenurs. Till the received policy in this respect is decided. be as follows Cost of Works (Rs. Minister. by the Public Works Department through consultants.) 1 Newspaper 5) International level(for workscosting > Rs.No LQN 1986/CR. acquiring lands for such works. b) For works with estimated cost more than Rs.Public Works Department. the Public Works Department may takes decision and the tender for such works should be approved by the Public Works Department on consultation with the Finance Department and after approval of Hon. in crores) Up to Rs. etc. The tender for such works should also be placed before the Caninet for approval. quality control. Tender publicity period should.R. Full power to accept consultancy tender up to Rs. the land acquisition should be done on the basis of Government of Maharashtra Revenue and Forest Department G.

quarries. The concerned Department. felt that the efficiency of the public services would greatly improve if they were transferred to the private sector. promoting investment. award of concessions and licences.E-mail. They followed a political decision -. 2. One might say. especially in the transport sector. land aquisition for the project. forest and enviormental clearance. but are Government projects jointly of all the different departments. (e.) as per the prsent procedure of Finance Department. by the lack of any clear policy or goals for the enterprises being privatized. This resoluation is issued with the concurrence of the Planning Department and the Finance Department. Brief review of the situation before privatization The legislative changes which opened the way to the privatization of state enterprises took place at a time of high levels of foreign debt. etc.modems. This was the background to the economic emergency and reform laws that were enacted and which defined the guidelines and models for transforming the State and changing state policy as a service provider. This decision was supported by large sections of the population which. that the requirements and conditions for transferring ownership were determined by the laws and regulations as they send a clear signal to the markets and the international financial institutions regarding the right course to take in the interests of good governance. encouraged by media campaigns. improving efficiency. it was marked by a certain haste and. 12) In order that the project undertaken through private sector participation become a success co-operation from all related Departments is necessary. These initiatives include the following: deregulation.). In addition.agreed upon with the opposition immediately before the handover of power -.O. investments mostly concentrated in the financial sector and falling exports. The Government's stated objectives in pursuing privatization included the following: breaking up monopolies. all the Government Departments should calculate a feeling that the projects to be taken up through priavte sector participation are not the responsiablity of the Public Works Departments alone.R. obtained under U.etc. electricity and water supply. then. This far-reaching process was initiated partly in response to immediate economic demands. ensuring continuity of service. No 307/Expenditure-6 dated 17/7/96 1. problem which crop up under industries act. reducing public expenditure. the State Reform Act (Ley de Reforma del Estado) authorizes a series of initiatives in specified state enterprises. Legal instruments effecting the change of management of state enterprises In addition to the general principles it sets out. domestic inflation. On this background. therefore should expeditiously clear the cases related to those projects to be undertaken through private sector participation. privatization.g. the umbrella trade union organization adopted a position of broad support for the new authorities. decentralization. .

and with regard to conditions of work and employment. who have seen their role diminish as their function has been "designed out" of modern aircraft. (5) cabin staff. management methods and forms of participation. These provisions have been amended on successive occasions.the union which is closest to the traditional "industrial" unions. depending on the type of aircraft. organization of work. Concessions or licences are generally accompanied by state subsidies and used in cases where an enterprise has low profit potential or where transfer of assets is not possible (for example the land on which the railway network was built). they were also covered by provisions originally enacted for the Argentine Air Force concerning flight safety. 3. flight engineers and cabin staff were not merely covered by the general minimum conditions of employment applicable in the public sector under the Labour Contracts Act. These provisions comply with the international standards established by the International Civil Aviation Organization . while in the case of air transport only privatization was used. including department chiefs and even junior managers (in spite of their aspiration in the past to represent management). who attend to passengers during flights. repairs. who fly the aircraft and are the highest authority on board. (b) transport enterprises had to take into account a somewhat unusual feature of one category of posts. Decentralization means handing over responsibility for the maintenance of particular services to provincial and municipal authorities.g. it is necessary to consider a number of specific issues of particular relevance to the air transport sector which determine the scope for change in existing agreements: (a) The trade union structure in the air transport sector is based on six unions which are represented ex officio. (3) supervisory and managerial staff on the ground. etc. and those currently in force are based on a regulating decree of 1994 which introduced greater "flexibility" into conditions of work and employment(1) and in this respect went along with the general trend towards reducing minimum legal standards. these were originally company unions but expanded as activities grew and diversified. (4) flight engineers. leave. cleaning. contractual categories. as the name implies. the ports sector) from regulations both with regard to the provision of the service. passenger handling and catering staff on the ground. responses to technological change. concessions and decentralization). wage and salary structure. means freeing certain sectors (e. (2) aircraft maintenance ground staff and technicians -.Deregulation. land (rail) transport can be said to have involved a range of initiatives (privatization.. Privatization is the process of transferring to the private sector certain state-owned enterprises of potentially high profitability. The unions represent the following groups: (1) administrative. Pilots. (6) pilots and co-pilots. which impose limits on operating hours and rest breaks on board aircraft and on the ground. For the purpose of this paper. charges levied. Review of changes in conditions of work and employment in public enterprises in the transport sector based on an analysis of the relevant agreements Before considering matters such as daily working hours.

Such reductions have been achieved in various ways such as voluntary redundancies. changes have been made with regard to conditions that had already been agreed with some or all of the relevant unions.a system of variable pay with per diem allowances and food vouchers (the latter with a reduced tax rating). with some items being considered as remunerative and others given in kind. the daily expenses component was a form of indirect salary. For managerial staff and flight crews. whose functions are quite specific and cannot be altered (for example by changing rosters or by sudden changes of aircraft) without affecting flight safety. there was a trend towards reducing indirect salary in the form of free services . consequently. without any reference to company productivity. the breakdown of salaries was based on occupational category. As was noted with regard to the flight unions. as profitability criteria were introduced. in both sectors. Remuneration consisted of a basic contractual salary plus supplements for such things as good attendance record and length of service. flight engineers and cabin staff. (3) Contractual job categories: The changes brought about by the introduction of "polyvalence" will affect the entire system of job categories and the corresponding pay scales. will reduce the staff levels needed to provide services. (2) Organization of work: Previously. This allocation of many different tasks seems ill-advised and is not in practice applied to the unions representing pilots.(2) (4) Salary structure: In the public companies. who had to perform those tasks as a regular and permanent part of the job. At the same time. also the associated wages and salaries pyramid) and. With privatization. the air companies have not concluded a collective agreement on conditions of work and employment with all the relevant sectors. Broadening posts to include tasks other than those traditionally associated with them. This means that the allocation of tasks to a given post has become less rigid in that workers will now also have to perform other complementary or related tasks. particularly in the case of pilots. by increasing daily working hours and mobility. they have effectively implemented changes on which the unions were not consulted and to which they have little opportunity of replying. while in the air transport sector preference was given to daily allowances given in kind (accommodation and meals). will "flatten" the pyramid of job categories (and. early retirements and layoffs which in some cases preceded the formal act of privatization. and combining those tasks with those normally associated with other posts.(ICAO) and the directives issued to aircraft manufacturers. this was facilitated by the legislative changes. we note that while collective agreements have been concluded in the rail sector with the purchasing companies (privatization was done by line or branch line). and are not open to collective bargaining. this salary structure began to change radically as new criteria and parameters were established. As regards collective bargaining in these two transport sectors (rail and air). The changes in question affect the following areas: (1) Daily working hours: Provisions to extend daily working hours and make them more flexible. This meant -. Under the new collective agreements. working time and length of service in the post. a limited number of specific tasks were assigned to each worker. In both cases.especially in the rail sector -. to the detriment of previously established conditions of reduced working days and fixed shifts which gave entitlement to overtime. that concept has given way to the concept of polyvalence (flexibility).

training. The provisions in question did not allow the possibility of union participation. Before privatization Personnel management Preferential salaries. (5 )Leave: By contrast with the prevailing trend before privatization.benefits which were laid down in collective agreements before the time of privatization. customer satisfaction. maintenance of harmonious labour relations. It seems appropriate at this point to give a brief overview of past versus present trends in labour relations in the privatized enterprises. the enterprises have taken over areas of decision-making in which decisions were previously taken in collaboration with the unions. The emphasis is on the service user (as the intended beneficiary of company and union endeavours) and on service quality. it shows what is happening in the sector discussed here. significant indirect salary component Preference in recruitment to family members of employees and unionized workers Internal labour market based on length of service and experience Reduced daily working hours and overtime Labour stability High level of rotation of management staff (union as stable reference) Overstaffing Union participation Uniform union strategies based on claims and demands After privatization Reduction of additional benefits and indirect salary Internships. (6) Response to technological change: Despite the obvious need for modernization which rail and air companies had pointed out. respect for agreed procedures for arranging working hours. retirements. teamwork. quality. flexible hiring arrangements Internal labour market based on formal qualifications. leave has been reduced and broken up into shorter periods as companies have acquired greater discretionary powers to organize work and the concepts of efficiency central to privatization philosophy have taken hold. etc. efficiency.or preferential rates for employees -.a right embodied in the rail sector agreements but not actually implemented in practice. The agreements now include provisions for joint union/company proposals which stress the importance of aspects such as productivity. high level of rotation Flexible working hours. cooperation. etc. and the bodies established for that purpose have been effectively neutralized.) Diversified and more defensive union strategies . profitability. though something of a generalization. The establishment of "worker directors" entitled to 10 per cent of the shares allocated to employees under the Ownership Participation Programme (Programa de Propiedad Participada) has been no more successful in promoting staff participation in the management of privatized companies.(3) Something similar is evident with regard to the right to information -. additional benefits. (7) Management methods and forms of participation: An analysis of the collective agreements in the rail sector highlights certain particular aspects of union/company relations in this area. aspects which were not emphasized in the organizational culture of the public companies. fair conditions and pay. In general. reduced overtime Greater internal flexibility Greater discretionary powers for enterprise Reductions in staff levels (redundancies. agreements devote little attention to staff training and there are some indications of increased risks in air travel. bursaries.

High level of participation and union membership Selective benefits Collective bargaining Centralized bargaining One collective agreement per enterprise Lower level of participation and union membership Abolition of benefits Decentralized bargaining by sector Separate collective agreements for each enterprise .