Two factors were mentioned to have limited potential benefits, though outside the control of the EPC. First, lack of competitive pressure, and second, timing of sales
Amman: Jordan's privatisation programme should focus on infrastructure projects where investment is crucial, according to a study funded by the European Union (EU) and implemented by a consortium led by Pohl Consulting & Associates.
Entitled "Privatisation Impact Study," the publication mentioned water, wastewater, roads, electricity, waste management and social sector projects as opportunities for introducing or expanding private sector participation.
The study, prepared with the technical assistance of the Executive Privatisation Commission (EPC), recommended water extraction, transmission, distribution and treatment as well as wastewater collection and treatment as works to be considered.
Besides water, Pohl Consulting & Associates pointed to electricity, especially renewable energy generation, as a sector needing private investment because "the energy and water sectors remain a drain on the (state) budget."
The study stressed the importance of attracting independent private producers in infrastructure projects through public-private partnerships (PPP) and indicated that the EPC is developing a PPP regulatory framework and agenda to be implemented in the coming years.
"Competition will need an element of control to avoid market distortions by illicit bonding of the players, or artificially being assumed by a regulator in order to create ideal market conditions," the study said.
In the energy and water sectors, the overall institutional set up (price distortions and subsidies, and the absence of a fully independent water regulator) might explain difficulties in developing PPPs. A case in point is the Kirbet Samra Water Treatment Plant which had to be financed partly by a USAID grant because a private partner could not be found.
It finally recommended maximisation of impact or governance and technology transfer by favouring technical operators rather than mere financial investors noting that "economic benefits of privatisation are maximised by attracting international investors with access to international markets, technology and know-how."
Economic benefits
The study indicated that "the long-term benefits for the economy and the society as a whole have not been fully materialised yet but are beginning to show encouraging signs."
It said the public debt situation was considerably relieved and has created room for government flexibility.
"Initial development and housing projects were implemented contributing to the creation of better socio-economic conditions and supporting government poverty alleviation objectives," it added.
Another economic benefit was noted in the change of mentality towards more consumer-oriented goods and services provisions. "These processes and developments have to be encouraged and further strengthened by the government on the national and regional levels," the consultants said.
They referred to the "Single Buyer Model" noting that the government opted to sell companies in infrastructure sectors to strategic investors who have long-term interests in the country, thus contributing to social development.
The study admitted that monopolies do persist in some sectors, either because of a natural monopoly situation or as a result of considerable market entry barriers for potential new entrants.
Two factors were mentioned to have limited potential benefits, though outside the control of the EPC. First, lack of competitive pressure, and second, timing of sales.
The cement and electricity industries (single buyer concept) were cited as examples for shifting de facto monopolies from public to private ownership in several sectors.
"This is a common problem encountered in all privatisation of natural monopolies worldwide, and it can only be alleviated through strong, politically and commercially independent sector regulators.
The period from pre-privatisation to date, may be too short to arrive at a conclusive judgement on whether the exclusive market position of some privatised companies will lead to unsatisfying developments in service penetration, capacity expansion, labour productivity and prices," the consultants explained.
Financial benefits from privatisation have not always been maximised. The Jordan Investment Corporation (JIC), the government arm for investments that preceded the Social Security Corporation's Investment Unit, sold off its (often minority) shares at times when market valuation was low. However, this assessment does not concern cases when shares divested by JIC (cement for instance) were acquired by the Social Security Corporation.
"However, government may and should not always act in the interest of maximizing profits. There are obviously, from the government perspective, a multitude of political, social and economic objectives and considerations being taken into account, which determine the timing of specific transactions," the study concluded.
By Samir Ghawi
Jordan Times 2007
