MODULE D: ENTERPRISE MANAGEMENT AND PRIVATE

SECTOR PARTICIPATION

1. Role of the public sector and conditions for private sector involvement in ISP?

2. How can private sector involvement be achieved?

3. Improved management in public sector enterprises

4. What does better enterprise management mean for different levels of government?

Session-1: Role of the public sector and conditions for private sector

involvement in ISP?

Define the role of the state

Give reasons for private sector development

Suggest different ways of involving the private sector

Give examples and an exercise

The role of the public sector

• Establishing a foundation of law• Maintaining a non distortionary policy

environment, including macroeconomic stability

• Investing in basic social services and infrastructure

• Protecting the vulnerable• Protecting the environment

Reasons for private sector involvement

• Limited efficiency of govern. organization

• Financial reasons: loss-making leading to government budget deficits

• Lack of quality or products are too expensive

• Lack of regular supply

• Political interference in public sector enterp.

Conditions for successful private sector involvement in ISP

• National level:enabling policy environment

• meso levelsectorial policies encouraging private sector involvement

• micro leveltransparent and accountable firm

Conditions for project finance

• A supportive policy environment• A sound and stable economic base• A business environment in which:

- business dealings are transparent- contracts are respected

- a framework exists for resolving conflicts • A legal and judicial framework conducive

to private contractual activity

Barriers to private sector involvement in ISP

• Lack of policy and regulatory framework

• Weak domestic capital markets

• High transaction and bidding costs

Example 1 Public water supply

• Indicators of good public service provision

• Indicators of government failure

• Factors explaining failure of water utilities

• Factors explaining the success of water companies

• What is the situation in your country?

Case 1 Innovation promotion for SME is private sector developm.

• Innovation is crucial to keep competitive edge

• Innovation requires technology transfer and building local technological capability

• Need for macro policies

• Activities at the meso level

• Enterprise level initiatives

Exercise 1 Reasons for poor electricity supply in your country

• What are the reasons for rationing or irregular supply?

• What can be said about the price?• How much subsidies are provided?• What could be done to solve the situation?• Why/how could private sector involvement

contribute to the solution? • Under what conditions and in what form?

Summary Session-1

• We described core roles of the public sector• Discussed an example of public water supply with

private sector support• Considered basic conditions for private sector

involvement• Examined conditions for project finance• Looked at certain barriers to private sector

involvement• Made a case for supporting innovation of SME• Examined possible reasons poor electricity supply

Session-2: How can private sector participation in ISP be achieved?

• Private sector participation and privatization

• Ways to involve the private sector

• Exercise: advantages/disadvantages privatization

Ways to involve the private sectorin ISP

• Outsourcing or subcontracting (maintenance)

• Lease and operate contracts (BOT)

• Provide a concession (water supply)

• Private sector finance (housing & infrastructure)

Ways to involve private sector (cont.)

• Service contracts (solid waste collection)• A management contract (to run a bus

company)• Socio-economic development funds

(employment)• A PPP for urban renovation (Agetip)• A PPcP for waste collection (waste collection)• Privatization (telecommunication company)

Lessons from experiences with socio-economic development funds• Private sector involvement has substantial

direct and indirect employment effects;• To reach labour intensive enterprises jobs

need to be cut up in smaller portions • Small projects should also be welcomed• Appraisal of projects need to be transparent• Entrepreneurs need money after finishing• Tendering procedures have to be simplified

Different financial instruments for private sector involvement in ISP

• Loans

• Direct foreign investments

• Buying bonds

• Portfolio investment

• Project finance

Strong points of the public sector and the private sector in PPPs

Public sector• Idealistic striving for

general good

• Pay attention to legal security & lawfulness

• Used to weighing of interests

• Political responsibility

Private sector

• Provides continuity and profitability

• Willing to take challenges

• Efficient

• Large degree of freedom in organizational structure

An example of public services through a PPcPartnership

• An agreement between the municipality and a local non-governmental organization

• Young people collect waste in certain neighborhoods for a fee

• They use donkey carts as an appropriate technology for this purpose

• This is called a Public-Private-Community partnership PPcP and exists in Bamako Mali

How to choose between the different options

• Past experience with private sector

• Nature of project or activity

• Seriousness of the issue

• Legal framework

• Degree of development of local capital market

Exercise: advantages disadvantages of privatization

• Advantages

• Disadvantages

• What would you recommend for the power sector:1. Restructuring2. Private sector involvement3. Full fledged privatization?

Summary Session-2

• Difference between privatization and private sector participation;

• Ways of involving the private sector in ISP;• Examples of various public-private arrangements; • Guidance for choosing between various options • Arguments for the private supply of sanitation• An exercise concerning advantages and

disadvantages of privatization

Session-3: Improved management in public

sector enterprises

• Different options• Elements of restructuring• Strategies for privatization• Example: Management issues water sector• Performance indicators water supply• Case: contribution of management science• Exercise: the cost of issuing bonds versus

taking a loan

Improved management: different options:

• Restructuring state-owned enterprises

• Privatization

• Bringing in private sector elements:- in management- in finance- through outsourcing or- out contracting

Elements of restructuring

• Enterprise level changes, such as - Changing the product mix- Introducing different technologies- Change the location, or- The plant configuration

• Changes in the context in which public sector enterprise functions: more competition, more autonomy, a recession or a new opportunity for export

• Changes in personnel: change in management and or reduction of employment

Strategies for privatization

• Public offering of shares

• Private sale of shares

• New private investment in the enterprise

• Sale of government assets

• Reorganisation into component parts

• Management employee buyout

• Lease and management contract

• Combination of the above methods

Example 3: Issues in water sector, insufficient water because of:

• Lack of repair and maintenance activities

• No participation of the population in the preparation, or implementation of the project

• No good cost recovery system

• No capacity to manage water supply at the municipal level

• No private sector involvement

Performance indicators water• Solvency ratio (equity capital to total capital)• Yield to assets• Efficiency as connections per personnel• Price of 150 m3• Operating revenue as % of operating costs• Unaccounted for water• Collection efficiency• Coverage• Service to poor people/neighbourhoods• Productivity

Case: capacity building through MBA or short courses

• Strategic management, which helps defining where we want to go with an organization

• Change management: helping organisation and its staff to go from one way of doing things to another way of achieving fixed targets.

• Project management makes project successful• Financial management: techniques assuring positive

financial results of enterprises activities• Operational management• Integration: how can such modules help to analyse a

problem and result solutions?

Exercise 3 The cost of issuing a bond versus taking a loan?

Which factors should be taken into account when calculating the cost of issuing a bond versus taking a loan?Think about the need:- to involve investment bank- to get a credit rating- to look for guarantees or insurances- how much can be obtained from one source?

Summary Session-3

• Different options for improving public sector enterprise management examined

• Elements of restructuring process listed• Strategies for privatisation were presented• Management issues in water sector used as illustration,

with performance indicators• Case: need for capacity building including

contribution of management science and short courses• Exercise: the cost of issuing bonds versus taking a loan

Session-4: What does better enterprise management mean for different levels of government?

• What different levels of government can do to improve public enterprise management

• Government policies to support effective private sector involvement in ISP

• Cases: water supply in South Africa and solid waste management in Zambia

• Exercise: design an enterprise friendly environment

• Summary

What different levels of government can do to develop

economic activities

• National level: create policy environment and macroeconomic conditions

• Regional level: make the region attractive for investors

• Local government level:- land- infrastructure- consultation stakeholders

General government policies to improve enterprise management

• Macro-economic policies

• Technology development policies

• Physical planning policies

Regional / District government policies

• Develop a vision and strategy on ISP

• Provide co-ordination between different levels of government

• Stimulate private sector involvement

• Discuss with organisations of private sector enterprises

Local government policies

• Provide space and infrastructure

• Provide incentives for private sector development and involvement

• Attract foreign investment

• Provide information on ISP

• Promote link with local knowledge resources

Lusaka, Zambia private sector involvement in waste collection

• Private waste collectors are licensed by the Lusaka City Council and the Environmental Council of Zambia to collect and dispose of waste (usually septic tank waste and solid waste).

• Operators charge their customers and in turn pay the Lusaka Water and Sewerage Company for disposal of the sanitary wastes into the latter’s facilities

South Africa: water supply through a partnership

• Private sector and NGO involvement is envisaged

• The local authority remains responsible:• ensuring that the services are provided to the

residents and communities• regulating the provision of services at local

level• monitoring the implementation of agreements

with service providers

Exercise: design an enterprise friendly environment

• Design an enterprise friendly environment for your country

• Specify the role of different levels of government:- local- regional/city level-national

• What could the private sector itself contribute?

• Who would you involve (which stakeholders)?

Summary Session-4

• Role of governments to improve public enterprise management

• Government policies to support effective private sector involvement in ISP

• Cases:

- water supply in South Africa- solid waste management in Lusaka, Zambia

• Exercise: design an environment that is conducive to private sector involvement in ISP