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Home > Privatization Alert - July 2009
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Privatization Alert - July 2009
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Focus: Managing state-owned enterprises when privatization in not in the cards
Throughout the world, many States continue to own and manage enterprises, mostly in sectors deemed important for the development of countries, such as telecoms, public utilities, natural resources and physical infrastructure, with no immediate plans for divestiture. According to one estimate(1), only in approximately one third of the developing countries in 2004 was the private sector responsible for the delivery of electricity, water and transport (railways). State-owned enterprises have important forward and backward linkages to private sector companies in a variety of industries. State-owned enterprises in key sectors also tend to be among the largest employers. Increasingly state-owned companies are seeking to internationalize their operation through foreign direct investment, recently focusing on energy and commodities.
For existing state-run companies there is a growing pressure to offer service quality at prices that match those offered by private companies. The challenge for governments is how to run these companies effectively so as to produce the desired results in terms of performance and service provision. Corporate governance is important in improving the performance of state-owned companies. To this end, the Organisation for Economic Co-operation and Development (OECD) issued in 2005 the Guidelines on Corporate Governance of State-Owned Enterprises. These guidelines aim at assisting countries in improving corporate governance by providing standards and best practices, as well as guidance in their implementation. OECD has also established the Global Network on Privatisation and Corporate Governance of State-Owned Assets for member and non-member countries to exchange views and discuss issues pertaining to state ownership of companies.
A recent World Bank working paper(2) also offers some policy suggestions regarding corporate governance of state-owned companies in infrastructure. First, corporate governance guidelines need to be adapted to infrastructure, especially in the case of natural monopolies. Second, states should try to address both internal and external governance issues for the sustainability of performance of state-owned enterprises. Finally the paper cautions that some of the structures implied by internationally adopted principles of corporate governance for state-owned enterprises favoring a centralized ownership function may not be suitable for all developing countries.
(1) Estache, Antonio and Goicoechea, Ana (2005), “How Widespread Were Private Investment and Regulatory Reform in Infrastructure Utilities during the 1990s?” World Bank Policy Research Working Paper No. 3595.
(2)Vagliasindi, Maria (2008), “Governance Arrangements for State Owned Enterprises” World Bank Policy Research Working Paper No. 4542.
Status and upcoming transactions
Europe and Central Asia: Kosovo has launched a new round of company privatizations (the 37th wave). Turkey has received 13 bids for the pre-qualification for the tender for Coruh Elektrik Dagitim AS, 22 bids for Osmangazi Elektrik Dagitim As and 17 bids for the Yesilirmak electricity distribution grid.
>> Complete list of regional project opportunities
>> Detailed country analysis by region
Middle East and North Africa: As of 2008, Egypt had privatized 20 percent of its public sector companies.
>> Complete list of regional project opportunities
>> Detailed country analysis by region
Sub-Saharan Africa: Nigeria's Bureau of Public Enterprises has shortlisted six companies for the sale of Skypower Aviation and Handling Co. (Sahcol). A 51 percent stake in Mali's national phone company Sotelma has been acquired by Maroc Telecom (Morocco), which is controlled by Vivendi SA. Canada’s SaskTel International, which was awarded by Tanzania's Parastatal Sector Reform Commission a three-year management contract to manage the operations of Tanzania Telecommunication Company Ltd. in 2007, has submitted a notice of its intention to pull out of the contract. Kenya is exploring alternative ways of privatizing the country's sugar factories. Botswana's Public Enterprise Evaluation and Privatisation Agency has earmarked the parastatals National Development Bank and the Botswana Telecommunications Corporation for divestiture.
>> Complete list of regional project opportunities
>> Detailed country analysis by region
East and South East Asia: The Philippines is finalizing a proposal for the privatization of the Philippine National Railways. Maldives is in the process of privatizing Maldives National Shipping Limited.
>> Complete list of regional project opportunities
>> Detailed country analysis by region
South Asia: India is planning to expedite the sale of its shares eight parastatal enterprises.
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