|
|
|
B. The Importance of the Strategic International Investor |
The conference participants expressed a preference for privatization through the strategic investor approach as opposed to mass privatization or portfolio investors. In doing so, the participants recognized that an important benefit of the strategic investor approach is its ability to import experience using modern managerial systems employed in similar utilities elsewhere in the world.
In nations with transitional economies, this preference will generally require the strategic investor to be an international entity with significant experience operating outside of the region. This does not mean, however, that any foreign investor is acceptable, or that domestic investment should be completely foreclosed. Privatizing countries should aim to attract those strategic investors with financial capability, technical expertise, proven experience and global reputations to protect.
First, a sale to strategic investors brings investment in existing infrastructure. There is a significant need in the power sector of transitional economies to refurbish, rehabilitate and/or replace existing plant that has reached the limits of its useful life. Limited public sector budgets mean infrastructure investments suffer. Privatization provides access to new sources of private capital inflow.
Second, and equally important, investors bring new human resources, personnel management techniques, improved organizational/management structures and practices and, modern technology to the sector. This leads to training and improving the skills of existing employees. The introduction of these new management skills can work toward further sector reform as the employees of the new owners push for improved collections, competition, customer choice, and further price rationalization. The initial experience indicates that strategic investors promptly pay employee back wages and taxes (Moldova, Georgia).
Third, the introduction of standard commercial practices by strategic investors can be an effective method of reducing corruption in the electric power sector. This is accomplished by improved collections, selective cut-offs for non-payment and replacing entrenched interests with owners motivated by efficiency and profit. Sound autonomous regulatory oversight can re-enforce these efforts in balancing the interests of both the investor and consumer.
Finally, the strategic investor can be an important proponent of further sector reform and rationalization necessary to improve efficiency. This may include pricing reforms through the elimination of subsidies, requiring the payment of debt accrued by public sector consumers and, innovations in market structure such as the introduction of customer choice and competition.
The participants noted that balance between risk and reward is a strong determinant in the ability of a country to attract a large number of potential qualified strategic investors. When weighing investment in the power sector of nations with transitional economies, potential strategic investors are confronted by a number of legal, commercial, political, and regulatory risks. The mobility of capital and the increasing number of choices in the privatization marketplace provide an investor with a number of investment options. A risky investment climate will limit the interest in a power sector privatization in that country, reducing the number of qualified bidders and lowering the price offered by interested bidders.
Perhaps even more crucially, participants stressed the need by potential strategic investors to obtain management control of the utility and to have the right to obtain majority ownership of the shares of the privatized asset. These rights significantly reduce aspects of commercial risk related to daily decision making as to management of the asset. Nations that do not offer majority shares and management control raise the risk profile of the privatization, and limit both the number of potential bids from strategic investors and their offering price.
|
|
Source: |
|
|
|
Table
of contents |
|
|
|
I. Power Sector Privatization |
|
|
|
II. Privatization Process |
|
|
|
Conclusion |
|
|
