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II. Privatization Process: Making Privatization Work - Key Issues & Approaches |
With all the factors discussed above in mind, certain specific steps have emerged as most likely to achieve success. This section discusses what these steps are, why they are taken, and how they are advanced.
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E. Different Participants in Privatization: In-Country and Advisors |
The following is an illustrative description of in-country participants in the power privatization process:
The Government and Parliament
• Design the overall sector framework (e.g., the market structure) and privatization framework and adopt into law
The Cabinet
• Approves privatization strategy
• Sets deadlines
Energy Ministry or Department
• Develops strategy for sector reform and privatization
• Government holder of management rights
• Assures cooperation of power companies with privatization process and potential bidders
Ministry of Finance/Economy
• Defines budgetary requirements for privatization revenues
• Interacts with multilateral financial institutions on financial and sector conditions
The Privatization Agency
• Primary implementation entity to oversee the process including pre-qualification, tender issuance and receipt of bids
• Approves the winner based on tender committee evaluation process and negotiations
Companies to be privatized
• Prepare information and meet with investors
Tender Committee (can be comprised of representatives from several areas of government, including the parliament, ministries of economy, finance, energy and others)
• Reviews the analysis of the privatization agency and the investment banker
• Selects the winner
• Negotiates with the winner
Regulator
• Advises on industry structure and market and privatization strategy, particularly as it relates to tariffs and license issues
• Provides input to preparation of tender documents
• Provides regulatory information to bidders
• Not a Tender Committee Member, but may advise privatization agency and Tender Committee in process and negotiations while maintaining regulatory autonomy
• Makes final decisions on tariffs and licenses
• Balances consumer and investor interests
The tasks outlined above for each of these participants are reflected in the legal and regulatory framework, and flow from their authorities. Political officials develop policy, because policy involves political decision-making. Ministers, the Privatization Agency and Tender Committee are administrators charged with implementing that policy. Finally, the regulator, as the entity that will be overseeing the purchaser after the sale, should be involved from the start but maintain its autonomy and not be directly involved in the selection process, except to act as a source of information and technical expertise.
As the subsequent day-to-day overseer of sector operations, the regulator may have a different perspective from the others. For example, the government may be concentrating on receiving an optimal sales price. The regulator, looking ahead and in keeping with one of its usual ongoing duties -- consumer protection -- may be more concerned with lower tariffs or initial infrastructure investment than assuring that the most money goes to the governments general budget. A successful privatization should balance all these interests, while retaining the political will to focus on long-term gains.
Aside from these in-country participants, it is crucial to hire outside advisors. The privatizing country should retain an internationally experienced and well-known investment banker to guide the process. Such an advisor has the experience needed to carry out a privatization, credibility with potential investors and is less subject to domestic political interference. Advisors are typically chosen through a competitive bid process.
In selecting appropriate advisors, it is crucial not only to choose a firm with a strong reputation, but to insure that the individual personnel from that firm assigned to the privatization are knowledgeable and experienced. This means not only general privatization experience, but also an understanding of the sector and circumstances affecting the individual country and that particular privatization.
Given the importance of selecting a good advisor, the key in choosing one should not be cost, but rather the reputation and experience they bring to the project. Typically, they are paid through a combination of a fixed retainer fee plus a success fee (e.g., 1-5% of the sales price).
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Source: |
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Table
of contents |
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I. Power Sector Privatization |
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II. Privatization Process |
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Conclusion |
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