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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

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

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

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

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

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

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

supermajority and a mandate for reform, and in October 2005, the bill was passed to privatise Japan Post in 2007.[12] Nippon Telegraph and Telephone's privatisation in 1987 was the largest share offering in financial history at the time.[13] 15 of the world's 20 largest public share offerings have been privatisations of telecoms.[13] The United Kingdom's largest public share offerings were privatisations of British Telecom and British Gas. The largest public share offering in France was France Telecom. Privatisation in Europe has led to genuine competition: the former state-owned enterprises lost their monopolies due to legislation and technological change, competitors entered the market, and prices for broadband access and telephone calls fell dramatically.
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[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, many of which regard them as natural monopolies. Campaigns typically involve demonstrations and democratic political activities; sometimes the authorities attempt to suppress opposition using violence (e.g. Cochabamba protests of 2000 in Bolivia and protests in Arequipa, Peru, in June 2002). Opposition is often strongly supported by trade unions. Opposition is usually strongest to water privatisation as well as Cochabamba, recent examples include Haiti, Ghana and Uruguay (2004). In the latter case a civilsociety-initiated referendum banning water privatisation was passed in October 2004. [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. 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. Another circumstance may occur when greater control than viable under privatisation is determined to be in the governmental unit's best interest. National security concerns may be the source of reverse privatisation actions when the most likely providers are non-domestic or international corporations or entities. For example, in 2001, in response to the September 11th attacks, the then-private airport security industry in the United States was nationalized[citation needed] and put under the authority of the Transportation Security Administration. Insurance sector grew 83% after privatisation
The insurance industry has grown by 83 per cent since the opening up of the sector. Remarking on the performance of the insurance industry, C S Rao, chairman, Insurance Regulatory & Development Authority, said public sector players have not suffered with the opening up of the sector. Insurance premium income has risen to Rs 82,415 crore (Rs 824.15 billion) in 2003-04, against Rs 45,000 crore (Rs 450 billion) in 2000-01. 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. "There has been no reduction in growth rates as seen in the case of the Life Insurance Corporation of India [ Images ]. It is able to hold on to its existing share in terms of business growth. Market share is bound to stand reduced as some business goes to the private players," said Rao. The health and personal line segments are expected to see maximum growth during the current financial year.

"The health insurance sector is expected to grow by 10-15 per cent," 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. If the cap on foreign direct investment is increased to 49 per cent from the current 26 per cent, the industry can expect greater entry of players. But this, said Rao, should not be seen as a threat to public sector players.

Insurance, 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. We have today a host of products coupled with a large number of intermediaries who market them. The post-liberalized insurance industry panorama in India is witnessing dramatic changes in terms of a slew of latest products and services, new channels of distribution, greater use of I.T. as a service facilitator etc. There is also the phenomenon of noticeable shifts in consumer preferences impacting the product mix being offered by insurers. 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- in terms of figure out market shares but is full of potential. Added to these are the rising trends of convergence of financial services, especially in the areas like wealth management and evolution of newer risk management tools, particularly in the context of reinsurance management. Greater attention is also being bestowed on the areas like Agricultural Insurance and risk coverage of export-import trade. Then there is impact of visible socio-economic changes like greater urbanization, greater job mobility, growth of the services industry, weakening of traditional family structure, impact of globalization etc. All in all, interesting things are happening in the Indian insurance scene. Insurance undergone rapid and massive changes in all aspects of their business: product and services, sectoral structure, market segmentation, competitive environment.It is believed that the information sharing has not taken its expected shape in the insurance industry for the purposes of practices, research and education. However, data is one of the most needed ingredients in the insurance business development as well as for research and consultancy. There have been regular efforts by IRDA for collection and sharing of the data and other information of public interest. The industry is facing problems in terms of data review as parliament need to register this beforehand. 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. Manpower India today released the Manpower Employment Outlook Survey for the first quarter of 2006 revealing sustained positive hiring intentions of employers in India. India continues to lead all 23 countries surveyed this quarter, with a positive overall Net Employment Outlook of +27%. Even though this figure represents a decrease of 13 percentage points from the fourth quarter of 2005, the employment outlook remains extremely healthy. For the first time since the Survey was launched in India, the Finance, Insurance and Retail industry sector emerged as the most optimistic sector for a quarter with a Net Employment Outlook of +32%, surpassing the Services sector. Privatization of insurance sector has allowed insurance companies to work in the market by depositing 100 crore rupees in the reserve of government. This has encouraged many overseas insurance companies, having a required amount in their reserve, to open their branch in our country. Introduction of the sector has changed the employment pattern, but people must know how to make profit from it. To be in the global market and have advantage of it, capital and skill as per the demand and knowledge of market is the requirement. It is necessary that institutions, which form a part of this financial system, have internal management, governance and accountability structures, which measure up to the highest standards

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

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

revenue. In almost all cases the share prices rose sharply as soon as dealing began after privatisation. 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. 5) Less share ownership -: Wider share ownership did not really happen as many small investors took their profits and didn't buy anything else. Defined in the strictest of terms, privatization means the sale of public utilities to private concerns. But as Public Works magazine noted, "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. It most often occurs in solid waste management, water/wastewater treatment, fleet maintenance, road/bridge building and maintenance, and municipal management." Small businesses that provide services in these and other areas (for-profit school academies, for instance) have been among the biggest winners in the growing national trend toward privatization. As Public Works commented, "opportunities abound for private concerns to offer to manage public services with a close eye on cost and efficiency." 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, state, and federal governments to pay for services. This trend has grassroots origins, with local governments in the forefront and state and federal levels of government trailing behind. The purpose of privatization is to take advantage of the perceived cost efficiencies of private firms. Indeed, proponents of the practice say that privatization results in better performance of needed services at lesser cost. "The government usually allows the firm to choose how it will satisfy the contract," wrote Simon Hakim and Edwin Blackstone in American City and County. "For example, a contract may specify trash removal services for the area residents a certain number of times per week. The firm is normally allowed to choose the methods it will use to perform the requirements of the contract, the trash trucks, used, and the number of workers on each trash truck. The profit motive will encourage the firm to produce the services efficiently at the least cost, a motive absent in government provision of services." Even after privatization, however, government monitoring is necessary in order to ensure that satisfactory services are provided to residents. GROWTH OF PRIVATIZATION "Privatization may be a popular buzzword today, 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," remarked Public Works. "The difference today is that privatization is encroaching into all areas of public administration. And governments are expecting public agencies to competedollar for dollarwith private operators or surrender management of services. For years, our country has supported the idea that a

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

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

disciplining effect of competition does not occur in the public sector. Still, 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. Privatization cannot be expected to produce these same benefits if competition is absent. Given this reality, analysts strongly encourage municipal governments to make sure that the bidding process is an ethical one. Monitoring and Enforcement. Critics of privatization of government services contend that problems sometimes arise in various aspects of the process, including the bidding process, the precise specification of the contract, and the monitoring and enforcement of the contract. For example, 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. Subsequently, the contractor would then demand a higher price after the government has dismantled its own production system. Such "low-balling" in the bidding process may be reduced if the local government requires relatively long-term contracts, or constructs contracts that give them flexibility in hiring and firing outside firms. 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. These precautions include detailed performance specifications for service providers, guidelines for the evaluation of competitive bids, and labor relations strategies. For their part, 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. Commonly utilized methods of contract monitoring, meanwhile, include performance appraisals, tracking complaints, citizen satisfaction surveys, reports from contractors, field observations, and ongoing cost comparisons. Employment. Privatization is understandably viewed as an alarming trend by public employee groups. In some cases, privatization results in layoffs of public sector employees, although governments often reassign them to other government jobs, place them with private contractors, or offer them early retirement programs. These possibilities have been particularly upsetting to public employee unions, which have been at the forefront of efforts to block privatization. Indeed, 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. Indeed, 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. Another charge leveled at privatization initiatives is that they too often have a disproportionate impact on minorities. "Governments often hire minorities in larger proportions than other workers," wrote Blackstone and Hakim. "Thus, if government size is reduced, relatively more minority workers are likely to lose their jobs." In recognition of these fears, some service contracts now require private contractors to hire affected public employees or give them hiring preference. Demographic and Geographic Factors. 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. These localities may benefit from turning to a contractor that serves

multiple communities. Privatization is also more acceptable in fast-growing communities. If services are being expanded to cover new residents, private contractors are less likely to displace existing public sector employees. Finally, contracting out varies with the number of services provided to residents. As the number of services increases, differences in the cost and effectiveness with which they are provided become more apparent. Therefore, municipalities providing diverse services may be more open to exploring private sector options than those localities where services are more limited.
We may begin with a simple question; whether expansion of any kind is possible without efficient operational flexibility? I think this is the crux of the issue. When we talk of globalization, it simply implies the fact that competition of any sort should not be confined to a particular territory. Competition should be allowed to expand itself beyond traditional frontiers. In other words, all possible quantitative restrictions should be removed to prepare a new atmosphere of free interplay and free movement of creative ideas, goods and services for which a new pattern and structure of the economy is called for. Well, how can you expect benefit for the larger production without ever enlarging the extent of the market. Hence a time has come for all of us to think globally and act locally. Global interaction has thus become a new reality. It is a process associated with increasing economic openness, growing interdependence and deepening economic integration. In fact isolation in the long run, becomes a breeding ground for underdevelopment and poverty. The world trade has perceptibly increased from 12 per cent of World Gross Domestic Product in seventies to 13 per cent in 1990s. Global foreign exchange transactions have soared from $ 60 billion per day in 1983 to $ 1200 billion per day in 1996. There is also a surge in the international investment flows. Between 1980 and 1996 foreign direct investment as a proportion of world output rose from 4.8 percent to 10.6 per cent. The change is clear. The flow of international finance, international knowledge, international technology and international information has really gained a new momentum. The so-called information revolution, technological revolution and scientific revolution has opened up new opportunities and new advantages. Now a new culture of larger interaction and larger production has come to stay. The reach of the electronic media is enormous. So is the power of television as a medium. The culture of the youth in metros is globalized jeans, T-shirts, jogging suits, fast food, pop music, Hollywood movies, satellite TV and so on. Consumerism is global. Even corruption and crime have become similar everywhere. What we see today is really exciting and equally challenging. Thus the emergence of a global village has necessarily given rise to a new pattern of liberalization. What is liberalization? In a plain language liberalization means free entry and free exit within the framework of greater competitive efficiency. 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. Who can give you competitive efficiency more? This is a fundamental question. Remember where there is greater competition, there is strength. And where there is strength, there is growth. This is a simple message of liberalization and privatization. If we want to accelerate the pace of competition, we have to prepare a new environment for better participation of private initiatives. Look at the balance sheets of the Birla, Tata, Malavia and Mafatlal companies whose performance is really amazing. The high degree of efficiency and outstanding commercial achievement is really convincing. 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. They hardly act on established lines for long. Innovation is their religion. Risk

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

roles of the government and private sectors are not mutually contradictory - but very much complimentary. It is thus increasingly clear that a sound policy of privatization should be an integral part of development strategy.

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- for profit organizations for the delivery of goods and services. Contracting-out is common especially in such services as public works and transportation, public safety services,health and human services, 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. 3-DEREGULATION AND DECONTROL:Public regulation and public control are broad concpts in the sense that they define the various ways, in which governmentmay intervene directly to the economic agent. All type of public controls be abolished. 4-USER CHARGES: (Higher education, health services, cable TV, electric power, 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. 5-GRANT SYSTEM: Grant and subsidies are financial or in-kind contributions to individuals or private firms by government. 6-VOUCHER SYSTEM: It is designed to encourage the consumption of particular goods and services by a particular class of consumers. Types of voucher system are; 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.

8-LEASING: Local government rents its trucks to a private firm for the solid waste collection in the city. In this case, management and operation are carried out by the private firm. 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.

10-BUILT-OPERATE-TRANSFER (BOT) SYSTEM: The system is quite simple and seek to attract foreign capital. Direct foreign capital investment are encouraged to build infrastructure facilities, petroleum exploration station etc within the developing, at the end of contract, the facilities and establisment are transferred to the government. 11-NON-PROFIT ORGANIZATION: It , which are called voluntary organization or philanthropic organization, also provide some public goods and services. 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, State shares in 241 companies, 4 power generators, 22 incomplete plants, 29 energy generation and distribution units and 5 real estates have been taken into the scope of privatization portfolio. Later, 22 of these companies, 4 power generators and 4 real estates were excluded from the portfolio for various reasons.

Currently there are 38 companies and some real estates in the portfolio and 26 of these companies have more than % 50 State shares.

I.THE CONCEPT OF PRIVATIZATION B.BROAD MEANING OF PRIVATIZATION Denationalization is only one form of privatization. In broad meaning, privatization refers to the transfer of functions previosly performed exclusively by the public sector to the private sector. In other words, privatization is an umbrella term, 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

Build-Operate-Transfer (BOT) system Non-profit Organization

THE OBJECTIVES OF PRIVATIZATION A.Greater Effcency Privatization fasters competition and thereby results in efficiency and effectiveness within sectors.Competition is very important to obtain more efficient and effective public services. Revealing The True And Full Cost Of The Service Provided Publicly provided goods and sevices are underpriced because of some political and economic reasons. Politicians want to maximize their votes and people would like to get services free of charges. So public pricing of goods and services tends to be below the cost of production of these services. 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. 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. Broadining the Wealth and Achieve Widespread Private Ownership In Society Privatization can broaden the wealth and achieve widespread private ownership in Turkey. F.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.So they cause cost-push inflation. Privatization can be considered a disinflatory tool. G.Raising Extra Revenues for the Government One of the objective of privatization would be to raise revenues for the government.This strategy would be important when the government encounters a financial crises. H.Eliminating Hidden Unemployment and Reducing the Power of Public Employee Unions By privatization cost of hidden unemployment can be eliminated.

Definition of Privatisation According to the World Bank, 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. 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, directly or indirectly, in a public enterprise. Commercialisation: the re-organisation of specified government departments into enterprises so that they may operate as profit making commercial ventures. Divestiture sequence plan: a list, as approved by the cabinet, 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. Background The concept of privatisation has emerged and found emphasis through out the world because of the failure of the State owned enterprises, much as they were created for very noble reasons. State owned enterprises have existed in the world including Malawi for quite some time. Local examples include; 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. 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. To produce higher investment ratios and extract a capital surplus for investment in the economy. To transfer technology to strategic sectors. Much as the reasons for creating the SOEs are noble, many of them have not lived to expectation. There is evidence to the effect that many have been operating inefficiently and have incurred losses on many occasions. This means tax payers money and government borrowings used on them have not been efficiently employed. The enterprises have been a strain on the National Budget in that Government has had to bail them out. From another angle, 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.

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. Some indicators of success which are easily noted are: Employment: many of them have not retrenched but increased employment. Production: production and provision of services have gone up. Objectives of Privatisation The objectives of privatisation in Malawi are; To foster increased efficiency in the economy. To increase competition and reduce monopoly. To promote participation by the Malawian public. To raise revenue for government. 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. Enhancing growth in the economy as privatised enterprises grow. The Mandate of Privatisation Commission Privatisation Commission was established under the Public Enterprises (Privatisation) Act 1996. The Commission is mandated to be the sole authority in Malawi to implement the privatisation programme for state owned entities. According to section 8 of the Privatisation Act the functions and authority of the Commission include the following; To formulate and recommend to Cabinet for approval, privatisation policy guidelines. To implement the privatisation programme in accordance with the policy guidelines approved by the Cabinet. To implement all aspects of the implementation of the privatisation programme in Malawi. To monitor the progress of privatisation in Malawi. To prepare the long-term divesture sequence plan and submit reports of privatisation transactions to the Cabinet, specifying the method of sale used and the reasons why such method was considered appropriate, the proceeds realized and other particulars. Ensure that privatisation is carried out according to the following principles: Each transaction is transparent to the public at large. Participation is competitive by making it open to all investors. The process is fair and efficient. The transaction is such as to reduce concentration of ownership and marketing. 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, and The price. To prepare or cause to be prepared the relevant documentation necessary to effect the privatisation of any public enterprise. To seek potential investors in public enterprises.

To maintain records, safeguard information and establish such administrative procedures as shall ensure confidentiality of information To publicise the activities of the privatisation programme. 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. In most cases management of the enterprise has stayed the same. Concession In this case Government owns the land and most assets. The concessionaire can make capital expenditure and investment with the permission of the government. The concessionaire pays government a fee for the right to operate the business. Government reserves the right to cancel the concession where the concessionaire fails to perform. The concessionaire may be allowed to purchase the enterprise at a later date. Sale of assets Here Government can sell the assets (buildings, vehicles, stock, and fixtures) piece meal. This is when the business is unprofitable. Liquidation/Dissolution This method is used when an enterprise only exists on paper and has no value. Examples are Midcor and Charcoal Production Fund Liquidation can also mean the process by which the enterprises property and assets are identified and realized to pay off its debts and the surplus, if any, distributed among the enterprise members in accordance with their entitlement under the articles and memorandum of association. Sale of Enterprise Here the business is sold as a going concern. It is expected that the enterprise will continue to operate. Management Buy Out This is where the existing management buys a controlling share of the business. 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 government pay a fee to the expert or enterprise involved. 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. 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. Information Memorandum This contains a profile of every public enterprise to be privatised whose purpose is to provide interested persons with comprehensive, 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.

It contains information such as: Full name, address and contact details of the public enterprise. The enterprises legal status.(whether it is a limited or unlimited enterprise) The enterprises bankers, auditors and legal practitioners. The enterprises brief history. The enterprises type of business, markets, suppliers, turnover levels capacity and utilization. The enterprises latest accounts. vii) The enterprises 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. There are two types of forms which have to be filled representing whether the sale is by shares or sale of assets. 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. 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. The bid documents are given at a fee. Documents Produced by the Bidders These are produced by the bidders for the purpose of buying the entity being privatised. They include; Qualification statements i.e. technical proposals, normally business plans. Price bids or financial proposals, normally the price offered for the entity being privatised.

Objectives of Privatisation
The emphasis is on improving the efficiency of all Parastatal enterprises, whether retained or divested. The Government has decided to distance itself from direct involvement in business, and thus to divest most of its interests whether in loss making or in profit making Parastatal enterprises. All commercial Parastatal enterprises will become available for both foreign and local participation using suitable methods of divestiture including liquidation where necessary. Primary Objectives: The following are the primary objectives which have been defined in the Governments policy statement on Parastatal Sector Reform: Improve the operational efficiency of enterprises that are currently in the Parastatal sector, and their contribution to the national economy; Reduce the burden of Parastatal enterprises on the Government budget; Expand the role of the private sector in the economy, permitting the Government to concentrate public resources on its role as provider of basic public services, including health, education and social infrastructure; and Encourage wider participation by the people in the ownership and management of business.

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

.0 Introduction Maharashrta State is one of the leading Industrial states in the country. Mumbai, the capital of Maharashatra is known as the commercial capital of India. The state has also achived remarkable progress in the Agriculture and Fisheries Sector. 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. The Public Works Department in Government of Maharashtra undertakes construction of roads and bridges in the state, including improvements and repairs to the existing roads with 3000km of major district roads. Improvements. maintainance, repairs of roads other than National Highway are carried out by the state Government form the funds received from the Central Government. Public Works Department is responsible for their maintenance, repairs and improvement.Besides these, the State has other district roads and village roads which are looked after through Zilla Parishad and their maintenance,repairs, improvements and new construction are done either by the Public Works Department itself or through Zilla Parishad. A lot of funds are required for carrying out works on those roads. 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. This causes the road development schemes to lag behind the target. The gap between the achivements and the targets is increasing year by year. For implimenting state road development programme in a systamatic manner, 1981-2001 Road Development Plan has been prepared. This plan includes widening and black topping of State highways and major district roads and also black topping of other road. For implementing this development plan approximately Rs. 26000 Crores are required. With a provision of Rs. 400 Crores every year, this plan can be complated only after 65 years. Improvements to State Highways and National Highways, construction of bridges over them and construction of new expressways cannot be implimented due to shortage of funds avaliable with the Government. The Government of Maharashtra has, therefore, decided to impliment some of the important road projects through Private Sector Participation.

2.0 Road Development Projects Proposed Under Privatisation 2.1 Following projects shall be genrally taken through Private Sector participation : 1) Construction of new roads. 2) Improvements, widening and Strengthening of existing roads. 3) Baypasses outside towns. 4) Repairs to Major bridges. 5) Construction of bridges. 6) Widening of bridges. 7) Construction of flyovers. 8) Construction of expressways. 9) Construction of Railway over bridge. 10) Construction of tunnels. 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.

3.0 Procedure for taking up Road Project through Private Sector Participation While implimenting a road project through Private Sector Participation, 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. Following Procedure is adopted while taking up the project through Private Sector Participation. 3.1 Before taking up the project through Private Sector Participation its feasibility is ascertained. Generally a project which can be return beyond 20%, shall be deemed to be feasible for taking up through Private Sector Participation. For major and complicated projects, a consultant shall be appointed to carry out feasibility studies. For other projects feasibility will be checked in-hours by the Public Works Department. According to the feasibility report and the recommendation therein, the project shall be prepared and taken up for implementation. 3.2 Once the feasibility of any project to be taken up with Private Sector Participation is established, 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. for projects costing more than Rs. 50 Crores, approval of State Cabinet committee will be necessary. 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. For example, Project costing more than Rs. 50. Crores require clearance from Central Enviromental Department. For acquiring forest lands, permission has to be obtained form the Forest Department. These and such others permissions will be obtained by the Government of Maharashtra. 3.4 The land required for the project will be acquired by the Government of Maharashtra at its cost. After marking the project alignment, lands will be acquired after giving proper compensation to the concerned persons or Organisations, or the land will be obtained from other Government Departments. All the required land will be taken over by Public Works Department and there-after for the purpose of the project, it will be handed to the Enterpreneur on lease. 3.5 For implimenting medium or large projects through private sector participation, the intending Enterpreneurs have to be prequalified considering their financial, enigineering and other abilities. Fot this, after deciding the criteria for prequalification, public tenders will be invited form the intending Enterprenurs for prequalification. The Enterprenuers satisfying the criteria will be prequalified enterprenurs. While inviting these offers the terms and conditions of the agreement, the subsidy offered by the Government crietria for selection of the best possible offer will be laid down in the bid documents. 3.6 For smaller projects, insted of prequalification, the fiancial bids will be directly invited and the Enterprenurs stisfying the criteria will be post qualified. 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, if necessare by a high level committee appointed by the Government and the best acceptable tenders, from among the technically acceptable proposals, will be selected. All this process will be absolutely transperent.

4. Policy decision taken by the Government for facilitating Private Sector Participation in Road Development Project. To enable it to take up road development projects through Provate Sector Participation the Government of Maharashtra has taken some policy decision. These include procedure for taking up such works and concessions to be offered to the Enterprenurs. 4.1 The following alternatives may be considered while taking up road development projects through private sector participation. a) The Enterprenurs to bear the entire cost of the project and recover the same through toll fees levied after the project is completed. 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. c) The Enterpreneurs to complate the project in Phases and toll to be recovered after completion of each phase. 4.2 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. Some of the sources of income to be made available to the Enterprenurs apart from the tolls, 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. b) Permission to erect Petrol Pumps, Hotels, Motels, etc. at approved locations by the road side. c) Permission to retain income genrated from tree plantation to be permitted by the road side. 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, the land required for the project after acquiring the same at the cost of Government, alongwith the quarries and connecting roads and the Entreprenures to be permitted to use them for constructing the project. f) To make suitable provisions in the bid documents for covering risk beyond their control in relation to the investment made by the Entreprenurs. 4.3 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 To enable the Entrepreneurs to collect and to retain the toll fees, the Bombay Motor Vehical Tax Act 1958 has been suitably amended. 4.5 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).

5. Establishment of Corporation To execute certain projects through private sector participation the "Maharashtra Road Development Corporation (Limited)" has been established. The work to be taken up through private Sector Participation will be implimented through this corporation. The principle objectives of the Corporation are as belows: a) To impliment through private sector prticipation development programme for bridges, road and other related facilities. b) To generate funds through private sector participation for development of roads and bridges. c) To commercially exploit Government lands in possession of the Public Works Department. d) Other objectives- To function as a consultant or to appoint consultant for preparing plans and estimates of the projects, feasibility reports, environmentals impact studies, surveys, supervision, etc. and to obtain equity financial participation from different financial institutions or other carporations, etc. 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. More than 200 works located all over Maharashtra have been included in this list and after ascertaining their feasibility, those works will be taken up in a phased manner. 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. At present the work of improvements to the Thane-Bhivandi Baypass on National Highway No. 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.H. 17 has been taken. Policy on implmentation on Road & Bridge Projcets through Private sector participation Government of Maharashtra Public Works Departmant G.R.No.PSP1095/CR.11/R.8 Mantralaya, Mumbai - 400 032 Date:19th July, 1996 Ref : 1) Government of Maharashtra Planning Department G.R. No1089/CR22./Planning 2. Dt. 30.6.89 2)Government of Maharashtra Planning Department G.R. No. PSP1089/CR.22a/Planning-2 Dt. 30.6.89 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, so also maintainance of such roads and bridges, can be justifibly handed over for a limited period to the private sector. Accordingly in selected developmental areas the Government was considering obtaining private sector participation on proper terms and conditions. For facilitating this the Government have taken certain decision in the present resoluation. Government Resolutions:: Considering the above background, and after giving careful thought to implimantion of road development projects through private sector participation, the Government have taken the following decision for making Such Projects

financially feasible after considering and amending wherever necessary the proposal made by the Public Works Department. 1) In respect of roads and bridges the following types of works may be taken up through private sector participation. a) Works of new roads b) Works of Widening, 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. Road Development Plan should as far as possible be selected. The priority should be decided on the principle of traffic intensity, need for development and higher financial viability. 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. 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. b) Permission to commission petrol pumps, hotels, motels, etc. by the road side under the relevent rules and regulations. c) To permit development tree plantation by the road side and to permit retaining the income generated from the same on contract basis. 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. and to permit generation and retantion of the income from the same. e) To handover on nominal lease rent the land aquired by the Government at its cost, for the projects as well as for the quarries and connecting roads and to permit their use for the construction of the projects. 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. g) To obtain form the Government side necessary environmental and other No Objection Certificate by employing Consultants, if necessary. 4) While taking up the projects thorugh private sector participation the following alternatives should be considered while deciding according to the feasibiliy, 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. ii) The Government to participate in the investment project cost. iii) To complate tje project in phased manner and to permit levy of tolls after the complition of the subsequent phases. 5) As per the financial analysis a return of minimum 20% should be genrated on the investment made by the

Entreprenurs. 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. 50 Crores, 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. Minister,Public Works Department. b) For works with estimated cost more than Rs. 50 Crores, the proposal for taking up such works through private sector pariticipation should be placed before the Cabinet for approval. The tender for such works should also be placed before the Caninet for approval. 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 Crores.) 1 Newspaper 5) International level(for workscosting > Rs. 25 Crores.) 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. Tender publicity period should, in general, be as follows Cost of Works (Rs. in crores) Up to Rs. 25 Crores Up to 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. A list of such works to be taken up through private sector pariticipation should be printed in the Budget form time to time. 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. Till the received policy in this respect is decided, acquiring lands for such works, the land acquisition should be done on the basis of Government of Maharashtra Revenue and Forest Department G.R.No LQN 1986/CR.3628/A-2 dated 31/10/94 and urgency clause should be made applicable. 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. The Public Works Department will in gereral monitor such works. However day to day supervision, inspection, quality control, progress monitoring, reputed private persons or institutions will have to be appointed as supervision consultants. Simalarly before undertaking projects through private sector participation plans and estimates feasibility studies, etc. may be done if necessary, by the Public Works Department through consultants. Full power to accept consultancy tender up to Rs. 1Crore should be approved by the Public Works Department in consultation with the Finance Department. 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.g. levelling and survey equipments, traffic counters, traffic analysers, vehicle and axle weighting machines, electronic calculators, computers, fax machines

modems,E-mail, etc.) as per the prsent procedure of Finance Department. 12) In order that the project undertaken through private sector participation become a success co-operation from all related Departments is necessary. (e.g. land aquisition for the project, forest and enviormental clearance, electricity and water supply, quarries, problem which crop up under industries act,etc.). On this background, 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, but are Government projects jointly of all the different departments. The concerned Department, therefore should expeditiously clear the cases related to those projects to be undertaken through private sector participation. This resoluation is issued with the concurrence of the Planning Department and the Finance Department, obtained under U.O.R. No 307/Expenditure-6 dated 17/7/96

1. 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, domestic inflation, investments mostly concentrated in the financial sector and falling exports. They followed a political decision -- agreed upon with the opposition immediately before the handover of power -- to send a clear signal to the markets and the international financial institutions regarding the right course to take in the interests of good governance. This decision was supported by large sections of the population which, encouraged by media campaigns, felt that the efficiency of the public services would greatly improve if they were transferred to the private sector. In addition, the umbrella trade union organization adopted a position of broad support for the new authorities. 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 far-reaching process was initiated partly in response to immediate economic demands; it was marked by a certain haste and, especially in the transport sector, by the lack of any clear policy or goals for the enterprises being privatized. One might say, then, that the requirements and conditions for transferring ownership were determined by the laws and regulations as they evolved. The Government's stated objectives in pursuing privatization included the following: breaking up monopolies; promoting investment; reducing public expenditure; ensuring continuity of service; improving efficiency.

2. Legal instruments effecting the change of management of state enterprises


In addition to the general principles it sets out, the State Reform Act (Ley de Reforma del Estado) authorizes a series of initiatives in specified state enterprises. These initiatives include the following: deregulation; privatization; decentralization; award of concessions and licences.

Deregulation, as the name implies, means freeing certain sectors (e.g. the ports sector) from regulations both with regard to the provision of the service, charges levied, etc., and with regard to conditions of work and employment. Privatization is the process of transferring to the private sector certain state-owned enterprises of potentially high profitability. 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). Decentralization means handing over responsibility for the maintenance of particular services to provincial and municipal authorities. For the purpose of this paper, land (rail) transport can be said to have involved a range of initiatives (privatization, concessions and decentralization), while in the case of air transport only privatization was used.

3. 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, organization of work, contractual categories, wage and salary structure, leave, responses to technological change, management methods and forms of participation, 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; these were originally company unions but expanded as activities grew and diversified. The unions represent the following groups: (1) administrative, cleaning, repairs, passenger handling and catering staff on the ground; (2) aircraft maintenance ground staff and technicians -- the union which is closest to the traditional "industrial" unions; (3) supervisory and managerial staff on the ground, including department chiefs and even junior managers (in spite of their aspiration in the past to represent management); (4) flight engineers, who have seen their role diminish as their function has been "designed out" of modern aircraft; (5) cabin staff, who attend to passengers during flights; (6) pilots and co-pilots, 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. Pilots, 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; they were also covered by provisions originally enacted for the Argentine Air Force concerning flight safety, which impose limits on operating hours and rest breaks on board aircraft and on the ground, depending on the type of aircraft. These provisions have been amended on successive occasions, 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 provisions comply with the international standards established by the International Civil Aviation Organization

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

or preferential rates for employees -- benefits which were laid down in collective agreements before the time of privatization. (5 )Leave: By contrast with the prevailing trend before privatization, 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. (6) Response to technological change: Despite the obvious need for modernization which rail and air companies had pointed out, agreements devote little attention to staff training and there are some indications of increased risks in air travel. (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. The agreements now include provisions for joint union/company proposals which stress the importance of aspects such as productivity, efficiency, quality, customer satisfaction, training, maintenance of harmonious labour relations, respect for agreed procedures for arranging working hours, fair conditions and pay, profitability, cooperation, teamwork, etc. The emphasis is on the service user (as the intended beneficiary of company and union endeavours) and on service quality, aspects which were not emphasized in the organizational culture of the public companies. The provisions in question did not allow the possibility of union participation. In general, the enterprises have taken over areas of decision-making in which decisions were previously taken in collaboration with the unions, and the bodies established for that purpose have been effectively neutralized.(3) Something similar is evident with regard to the right to information -- a right embodied in the rail sector agreements but not actually implemented in practice. 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. It seems appropriate at this point to give a brief overview of past versus present trends in labour relations in the privatized enterprises; though something of a generalization, it shows what is happening in the sector discussed here.
Before privatization Personnel management Preferential salaries, additional benefits, 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, bursaries, flexible hiring arrangements Internal labour market based on formal qualifications, high level of rotation Flexible working hours, reduced overtime Greater internal flexibility Greater discretionary powers for enterprise Reductions in staff levels (redundancies, retirements, etc.)

Diversified and more defensive union strategies

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

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