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Home > Privatization Alert - July 2008
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Privatization Alert - July 2008
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Focus: Privatization in Infrastructure
Aware of the importance of infrastructure for generating growth, alleviating poverty, providing crucial services for manufacturing and commerce and attracting FDI, countries across the world have implemented a number of reforms over the past decades. Key amongst these are privatization and public-private partnerships. What is the evidence to-date as regards the impact of privatization on infrastructure performance? According to the World Bank(1), in general privatization has led to significant improvement in performance and service quality, increase in investment and in some cases (e.g. telecoms) lower prices. However, not all infrastructure privatization programs have been successful in meeting their objectives. Most cases of privatization failure are associated with lack of transparency in the privatization processes, lack of re-regulation and a poor corporate governance framework.
The experience of various countries in Latin America and Asia indicates that successful infrastructure privatization programs require governments and investors to operate as partners. Prior to the implementation of a privatization program, a credible and effective regulatory framework should be established, supported by the necessary institutional arrangements. If necessary, restructuring should be undertaken and competition should be introduced prior to privatization. Transparency is also crucial.
The global infrastructure market to-date is far from saturated, with infrastructure privatization continuing to offer attractive investment opportunities for both foreign and domestic companies. In India, for example, the Ministry of Finance estimated recently a need of about US$320 billion in investment in infrastructure between 2007 and 2012 in order to maintain an annual growth rate of around 9 percent(2). A recent report(3) by the Public-Private Infrastructure Advisory Facility (PPIAF) highlighted the recovery of private participation in infrastructure in the developing world, which continued for the third consecutive year. The recovery is led by telecoms, for which divestitures have recovered significantly since 2003, followed by transport. PPIAF recently reported that private activity in transport infrastructure in developing countries reached peak levels during 2005-2007, both in terms of new projects and investment commitments. Prospective privatizations in infrastructure abound in Latin America, Asia and Europe (particularly in Turkey).
(1) World Bank, Reforming Infrastructure: Privatization, Regulation, and Competition, June 2004.
(2) Ministry of Finance, The Report of the Committee on Infrastructure Financing, May 2007.
(3) PPIAF, Recent Trends in Private Activity in Infrastructure, Gridlines, Note No. 31, May 2008.
Status and upcoming transactions
Europe and Central Asia: Ukraine is preparing the privatization sale of 120 coal mines. Serbia is privatizing its sole producer of trucks and special vehicles, as well as several other companies through public auctions, as part of its divestment program. Turkey's Baskent Electricity Distribution Corporation was sold for just over US$1.2 billion to a joint venture of three companies. The country is also proceeding with the privatization of the state-owned National Lottery. Kyrgyzstan has adopted a new law allowing the Government to decide on most privatizations without waiting for the Parliament's approval.
>> Complete list of regional project opportunities
>> Detailed country analysis by region
Middle East and North Africa: Between December 31, 1987 and June 30, 2008, Tunisia had fully or partially privatized, restructured or liquidated 216 state-owned enterprises.
>> Complete list of regional project opportunities
>> Detailed country analysis by region
Sub-Saharan Africa: Ghana has announced that it has sold 70 percent of Ghana Telecom to Vodafone for US$900 million, with the Government retaining the remaining stake. This transaction still requires the backing of the country's Parliament.
>> Complete list of regional project opportunities
>> Detailed country analysis by region
East and South East Asia: According to the June 2008 issue of Privatization Barometer, there were only four large IPOs in China during the first half of 2008, raising €7.74 billion.
>> Complete list of regional project opportunities
>> Detailed country analysis by region
Latin America: Consolidated Water Co. Ltd., which operates seawater desalination plants and water distribution systems throughout the Caribbean, was selected in the privatization of the water utility of Turks and Caicos.
>> Complete list of regional project opportunities
>> Detailed country analysis by region
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