Privatization

source: http://www.visionapexcollege.blogspot.com 

Privatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector (the state or government) to the private sector (businesses that operate for a private profit) or to private non-profit organizations. 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.

Public Enterprises and Privatization

Public enterprises were established as a strong means of development after the Second World War in developing countries. such enterprises were established in developed countries from the Eighteenth century. However, in the developing countries, constrained with the scarcity of capital and professional skills, the significance of such enterprises was evidently even greater; so in these countries, right from the infrastructural and service areas to the production and even distribution sectors, public enterprises were established. It was believed that the government should play a predominant role in national economic development especially in those developed and developing countries cast in the socialistic pattern. with this view, public enterprises were established in production, distribution and even in business sectors. In Nepal too, the same ideas were behind the emergence of such enterprises. 

In Nepal, the public enterprises were  established in public services, industry, trade, finance and other sectors to create the infrastructure for basic services; and also because the private sector was seen as inefficient in important areas; the capital investment capability was low, and because technical know-how development was still in a very primary stage. After Nepal Bank Limited was established in 1954 as a public enterprise, other such enterprises like Nepal Industrial Development Corporation and Royal Nepal Airlines Corporation also came into being. In the industrial sector also, industries like the Janakpur Cigarette Factory, Birgunj sugar Mill, and Bansbari Leather Shoe Factory were established in 1961. Subsequently, banks, business sector, telecommunication, electricity and water supply in the services sector; cement, bricks, medicines and textiles in the industrial sectors came into existence.

White Elephant

Despite the long term protection given to these public enterprises they have not been able to achieve financial capability and work efficiency and are still dependent upon government grants. So in order to enhance their efficiency, it has become necessary to think seriously

about them.

Upto the fiscal year 1990/91 His Majesty's Government had invested a capital of Rs. 6,303.2 million and loan investment worth Rs. 15,584.2 million on the existing public enterprises. The enterprises which were audited in the fiscal year 1989/90 showed a loss of Rs. 240 million, which increased upto Rs. 1,870 million in the fiscal year 1990/91. From this, it has been evident that public enterprises have become a perpetual financial burden. As the average capacity utilization of these enterprises was only 52 percent and had mostly gone into loss, the capital

grants to be given by Government for functional and transportation expenses gradually increased to Rs. 76,720 million in the fiscal year 1990/91. Since it has become necessary to enhance the working efficiency, to effect managerial reforms and to run these enterprises from the ommercial point of view, it is necessary to analyze the nature of these enterprises and to privatize them.

The Necessity of Privatization

1. The returns from these enterprises are negligible. Even to keep them functioning, the government has had to provide additional annual grants. Thus, most of these enterprises are running in losses.

2. the corporations are tied up by various rules and regulations they lack necessary flexibility and, hence, the competitiveness.

3. Most of the corporations are overstaffed, the expenditures are unduly high and their  productivity and competitive capabilities are adversely affected. Therefore, they are not being able to provide expected services.

4. There is a lack of skilled professionals and responsible management in the corporations.

5. It has become necessary to direct the government resources more towards social welfare and other areas than to these    enterprises and commercial sectors.

Because or these reasons HMG has adopted the aim of privatising public enterprises. The objectives of privatisation are mainly concerned with the development of industry and business sectors, increment in productivity and efficiency, the mobilisation. of savings and increase in public participation in the commercial

field.

Objectives

1 By enhancing the efficiency and competitive ability of corporations, production and  productivity will be increased along with the promotion of co-operatives.

2. Programmes to increase efficiency in both types of corporations which are not to be privatised and which are to be privatised in future are to be initiated and reorganization works for better management are to be conducted.

Policies

1. A long-term strategy on privatization will be devised. Corporations of industrial and business nature will be gradually privatized. All policies and  programmes relating to privatization will be made transparent.

2. The private sector will be allowed to operate projects related to public utility sector like hydroelectricity, drinking water and other public utility services but for the present, public enterprises set up in those areas will continue to operate in the government sector. And, those public enterprises which are considered as important from the public view point will also be operated under the government sector.

3. In the process of privatisation of corporations or in implementing efficiency enhancing programmes the current employees will also be included as far as possible, but if the number of employees/ labourers are more than necessary, they will be removed only after providing adequate compensation.

4. To privatise and to increase the efficiency in corporations, a central unit will be formed. This unit will conduct ail the works relating to privatisation with the support of concerned ministries.

5. The privatisation of public enterprises will be undertaken in groups such as those being privatized immediately, those to be privatised after a certain period of time, or those to be privatised after restructuring in the long-term. Necessary improvement programmes will be launched for corporations to be privatised later and not to be privatised at all. Corporations will be shut down, should it be difficult to introduce improvement programmes, where privatisation cannot take place and where it is irrelevant to continue operating as a public enterprise.

6. In the process of privatisation, the evaluation will be made together with other necessary preparatory arrangements. Efforts will be made to increase public participation in the ownership as far as possible. In future it will be clearly stated whether a reduction in employees/labourers is possible or not, and in the case of having to reduce them, how much compensation they will be given.

7. Legal basis will be prepared for the privatisation of corporations, considering their structure. Those corporations, established through special legal provisions will be handed over through the company laws and privatised.

8. Public awareness programmes on privatization will also be launched. In the process of privatization, arrangements will also be made to involve the participation of employees and labourers.

9. In order to increase the efficiency of public enterprises which are not going to be privatised or which are going to be privatised in future; programmes related to organizational changes, financial and managerial reforms and top level managerial appointments will be conducted in order to create a responsible management.

Situation of Public Enterprises

The government of Nepal began setting up Public Enterprises (PEs) for manufacturing, provision of services and utilities and for the overall economic development of the country since the early 1960s. Out of established PEs, currently 36 are operating under full or majority ownership of the government. Out of 36 enterprises, seven are in the industrial sector, six in the trading sector, seven in the service sector, five in the social sector, three in the public utility sector and eight in the financial sector.

Net fixed assets of these 36 public enterprises (including those under construction) has increased to Rs. 133.74 billion at the end of FY 2008/09 from Rs. 124.89 billion in 2007/08.

Considering the overall financial situation of the existing 36 public enterprises of Nepal during FY 2008/09, 18 PEs have earned the net profit whereas 18 PEs were in loss. The number of PEs incurring losses has decreased to 18 in FY 2008/09 from 19 in 2007/08. This indicates some improvements in financial situation of the PEs in Nepal. Likewise, the overall net profit of the PEs has increased to Rs. 10.55 billion in FY 2008/09 from Rs. 4.94 billion in FY 2007/08. The PEs mainly contributing to the net profits are Nepal Telecom Ltd, Rastriya Banijya Bank Ltd, Nepal Oil Corporation and Agricultural Development Bank Ltd. earning net profit of Rs. 10.18 billion, Rs. 2.06 billion, 3.31 billion and 1.05 billion respectively. Overall financial situation of the existing 36 public enterprises of Nepal during FY 2008/09 seems to have improved with respect to previous year. By the Middle of April this year net loss of the Nepal Oil corporation reached  to around Rs. 4 billion.