But privatization should be done right, otherwise we could end up with a worse situation, leading to more corruption and less efficient system.

There are many discussions right now in the parliament about privatization. Many agree that public sector companies should be privatized and some like PSP leader Walid Jumblatt disagree and threatened that the ministers in his bloc would resign from the Cabinet if the Siniora plans for privatization were implemented.

We are sure that Mr. Jumblatt will support Privatization if it is done right, since we have no doubt of his sincere interest in supporting the Lebanese consumer. We believe that no civilized nation can accept the blackouts we Lebanese face daily in Lebanon, so enough is enough, it is about time we turn over the electricity company for example to the private sector, since the government has proven time and again that they are not capable to run this company.

Here are the basic benefits of Privatization that all the Lebanese consumers will benefit from:

Privatization promotes efficiency by exposing businesses and services to the greatest possible competition, to the benefit of the consumer.

Through privatization we obtain the best value for each industry or service the government sells.

By privatizing an industry we spread share of ownership as widely as possible amongst the population.

Privatization is not a simple matter, on the contrary it is very complex. If privatization is not done right it could be disastrous. This article is to familiarize our readers with this issue and could serve as a basic guide to privatization.

What is Privatization?

A very broad term, but most simply, privatization is the transfer of assets or service delivery from the government to the private sector. Privatization runs a very broad range, sometimes leaving very little government involvement, and other times creating partnerships between government and private service providers where government is still the dominant player.

Merely defining "privatization" is difficult. In its purest form, the term refers to the shifting of the production of a good or the provision of a service from the government to the private sector, often by selling government-owned assets

Most definitions of privatization, though, are more expansive, covering virtually any action that involves exposing the operations of government to the pressures of the commercial marketplace

Types and Techniques of Privatization

A variety of alternative service delivery techniques can be employed to maximize efficiency and increase service quality. Some methods will be more appropriate than others depending on the service. In searching for ways of cutting costs and increasing delivery, consider using a combination of these techniques:

Contracting Out (also called "outsourcing")
The government competitively contracts with a private organization, for-profit or non-profit, to provide a service or part of a service.

Management Contracts
The operation of a facility is contracted out to a private company. Facilities where the management is frequently contracted out include airports, wastewater plants, etc...

Public-Private Competition
(Also called "managed competition" or "market testing")
When public services are opened up to competition, in-house public organizations are allowed to participate in the bidding process.

Franchise
A private firm is given the exclusive right to provide a service within a certain geographical area.

Internal Markets
Departments are allowed to purchase support services such as printing, maintenance, computer repair and training from in-house providers or outside suppliers. In-house providers of support services are required to operate as independent business units competing against outside contractors for departments’ business. Under such a system, market forces are brought to bear within an organization. Internal customers can reject the offerings of internal service providers if they don’t like their quality or if they cost too much.

Vouchers
Government pays for the service; however, individuals are given redeemable certificates to purchase the service on the open market. These subsidize the consumer of the service, but services are provided by the private sector. In addition to providing greater freedom of choice, vouchers bring consumer pressure to bear, creating incentives for consumers to shop around for services and for service providers to supply high-quality, low-cost services.

Commercialization
(Also referred to as "service shedding")
Government stops providing a service and lets the private sector assume the function.

Self-Help
(Also referred to as "transfer to non-profit organization")
Community groups and neighborhood organizations take over a service or government asset such as a local park. The new providers of the service also are directly benefiting from the service. Governments increasingly are discovering that by turning some non-core services—such as zoos, museums, fairs, remote parks and some recreational programs—over to non-profit organizations, they are able to ensure that these institutions don’t drain the budget.

Volunteers
Volunteers are used to provide all or part of a government service. Volunteer activities are conducted through a government volunteer program or through a non-profit organization.

Corporatization
Government organizations are reorganized along business lines. Typically they are required to pay taxes, raise capital on the market (with no government backing—explicit or implicit), and operate according to commercial principles. Government corporations focus on maximizing profits and achieving a favorable return on investment. They are freed from government procurement, personnel and budget systems.

Asset Sale or Long-Term Lease
Government sells or enters into long-term leases for assets such as airports, utilities or real estate to private firms, thus turning physical capital into financial capital. In a sale-leaseback arrangement, government sells the asset to a private sector entity and then leases it back. Another asset sale technique is the employee buyout. Existing public managers and employees take the public unit private, typically purchasing the company through an Employee Stock Ownership Plan (ESOP).

Private Infrastructure Development and Operation
The private sector builds, finances and operates public infrastructure such as roads and airports, recovering costs through user charges. Several techniques commonly are used for privately building and operating infrastructure.

With Build-Operate-Transfer (BOT) arrangements, the private sector designs, finances, builds, and operates the facility over the life of the contract. At the end of this period, ownership reverts to the government.

A variation of this is the Build-Transfer-Operate (BTO) model, under which title transfers to the government at the time construction is completed.

Finally, with Build-Own-Operate (BOO) arrangements, the private sector retains permanent ownership and operates the facility on contract.

Terms Related to Privatization Activities and Processes

Contents
ABC
ASSET SALE
COMMERCIAL ACTIVITIES
COMPETITION
CONTRACTING OUT
DIVESTITURE
EMPLOYEE STOCK OWNERSHIP PLANS (ESOP)
FRANCHISING OF EXTERNAL SERVICES
FRANCHISING OF INTERNAL SERVICES
GOVERNMENT CORPORATIONS
GOVERNMENT-SPONSORED ENTERPRISES (GSE)
INHERENTLY GOVERNMENTAL ACTIVITIES
JOINT VENTURES
MANAGED COMPETITION
MOST EFFICIENT ORGANIZATIONS (MEO)
OMB
OUTSOURCING
PERFORMANCE-BASED ORGANIZATIONS (PBO)
PRIVATIZATION
PUBLIC-PRIVATE PARTNERSHIP
SERVICE SHEDDING
SUBSIDIES
USER FEES
VOLUNTEER ACTIVITIES
VOUCHERS

ACTIVITY-BASED COSTING (ABC)
ABC is a methodology that assigns costs to products or services based on the resources they consume. It assigns functional costs, direct and indirect, to the activities of an organization and then traces activities to the product or service that caused the activity to be performed. ABC gives visibility to how effectively resources are being used and how all relevant activities contribute to the cost of a product or service. Such information may be key to making decisions about whether to restructure or privatize an activity.

ASSET SALE
An asset sale is the transfer of ownership of government assets, commercial-type enterprises, or functions to the private sector. In general, the government has no role in the financial support, management, or oversight of a sold asset. However, if the asset is sold to a company in an industry with monopolistic characteristics, the government may regulate certain aspects of the business, such as utility rates.

COMMERCIAL ACTIVITIES
The term commercial activity is used in the governmental context to identify those activities that the government performs with its employees or resources but could obtain from private-sector sources. Commercial activities are in contrast to & quote inherently governmental" activities.

COMPETITION
Competition occurs when two or more parties independently attempt to secure the business of a customer by offering the most favorable terms or highest quality service or product. Competition in relation to government activities is usually categorized in three ways: (1) public versus private, in which public-sector organizations compete with the private sector to conduct public-sector business; (2) public versus public, in which public-sector organizations compete among themselves to conduct public-sector business; and (3) private versus private, in which private-sector organizations compete among themselves to conduct public-sector business.

CONTRACTING OUT
Contracting out is the hiring of private-sector firms or nonprofit organizations to provide goods or services for the government. Under this approach, the government remains the financier and has management and policy control over the type and quality of goods or services to be provided. Thus, the government can replace contractors that do not perform well.

DIVESTITURE
Divestiture involves the sale of government-owned assets or commercial-type functions or enterprises. After divestiture, the government generally has no role in the financial support, management, regulation, or oversight of the divested activity.

EMPLOYEE STOCK OWNERSHIP PLANS (ESOP)
Under an ESOP, employees take over, or participate in, the management of the organization that employs them by becoming shareholders of stock in that organization. In the public sector, an ESOP can be used in privatizing a service or function. For example, in 1996, the Office of Personnel Management established an ESOP for its former employees who perform personnel background investigations.

FRANCHISING OF EXTERNAL SERVICES
Under the franchising of external services, the government grants a concession or privilege to a private sector entity to conduct business in a particular market or geographical area,for example, operating concession stands, hotels, and other services provided in certain national parks. The government may regulate the service level or price, but users of the service pay the provider directly.

FRANCHISING OF INTERNAL SERVICES
Under the franchising of internal services, government agencies provide administrative services to other government agencies on a reimbursable basis. Franchising gives agencies the opportunity to obtain administrative services from another governmental entity instead of providing them for themselves. In the government, these arrangements are often called interservice support agreements (ISSA).

GOVERNMENT CORPORATIONS
Government corporations are separate legal entities that are created by the parliament, generally with the intent of conducting revenue-producing commercial-type activities, and that are generally free from certain government restrictions related to personnel and procurement.

GOVERNMENT-SPONSORED ENTERPRISES (GSE)
GSEs are government established, privately owned corporations designed to increase the flow of credit to specific economic sectors. GSEs typically receive their financing from private investment, and the credit markets perceive that GSEs have implied government financial backing. GSEs issue capital stock and short- and long-term debt instruments, issue mortgage-backed securities, fund designated activities, and collect fees for guarantees and other services. GSEs generally do not receive government appropriations.

INHERENTLY GOVERNMENTAL ACTIVITIES
An inherently governmental activity is one that is so intimately related to the public interest that it must be done by government employees. These functions include those activities that require either the exercise of discretion in applying government authority or the making of value judgments in making decisions for the government. Governmental functions normally fall into two categories: (1) the act of governing, i.e., the discretionary exercise of government authority, and (2) monetary transactions and entitlements.

JOINT VENTURES
See public-private partnership.

MANAGED COMPETITION
Under managed competition, a public-sector agency competes with private-sector firms to provide public-sector functions or services under a controlled or managed process. This process clearly defines the steps to be taken by government employees in preparing their own approach to performing an activity. The agency's proposal for providing the service, which includes a bid proposal for cost-estimation purposes, is useful in competing directly with private-sector bids.

MOST EFFICIENT ORGANIZATIONS (MEO)
In certain circumstances, agencies that are considering contracting out an activity must first conduct a cost benefit exercise to identify the MEO. The MEO refers to the government's in-house organization that would most efficiently perform a commercial activity after a managed competition. It may include a mix of government employees and contract support and is used as the basis for measuring all government costs (direct and indirect) and performance against competitive contractor or interservice support agreement (ISSA) offers. To determine the MEO, the in-house activity may reinvent, reorganize and restructure itself, including making capital investments, in order to arrive at the agency's most efficient method of performing the commercial activity.

OMB CIRCULAR A-76
The Office of Management and Budgets with the help of outside experts sets forth government policy for determining whether commercial activities associated with conducting the government's business will be performed by government employees or private contractors.

OUTSOURCING
Under outsourcing, a government entity remains fully responsible for the provision of affected services and maintains control over management decisions, while another entity operates the function or performs the service. This approach includes contracting out, the granting of franchises to private firms, and the use of volunteers to deliver public services.

PERFORMANCE-BASED ORGANIZATIONS (PBO)
Under a PBO, policymaking is to be separated from service operation functions by moving all policymaking responsibilities to a governmental appointee. The service operations are moved to an organization to be headed by a chief executive officer (CEO) hired on a competitive contract for a fixed term. The CEO's contract defines expected performance, and in exchange for being held accountable for achieving performance, the CEO is granted certain flexibilities for human resource management, procurement, and other administrative functions.

PRIVATIZATION
The term privatization has generally been defined as any process aimed at shifting functions and responsibilities, in whole or in part, from the government to the private sector.

PUBLIC-PRIVATE PARTNERSHIP
Under a public-private partnership, sometimes referred to as a joint venture, a contractual arrangement is formed between public- and private-sector partners that can include a variety of activities that involve the private sector in the development, financing, ownership, and operation of a public facility or service. It typically includes infrastructure projects and/or facilities. In such a partnership, public and private resources are pooled and responsibilities divided so that the partners' efforts complement one another. Typically, each partner shares in income resulting from the partnership in direct proportion to the partner's investment. Such a venture, while a contractual arrangement, differs from typical service contracting in that the private-sector partner usually makes a substantial cash, at-risk, equity investment in the project, and the public sector gains access to new revenue or service delivery capacity without having to pay the private-sector partner. Leasing arrangements can be used to facilitate public-private partnerships.

SERVICE SHEDDING
Divestiture through service shedding occurs when the government reduces the level of service provided or stops providing a service altogether. Private-sector businesses or nonprofit organizations may then step in to provide the service if there is a market demand.

SUBSIDIES
The government can encourage private-sector involvement in accomplishing public purposes through direct subsidies, such as the funding of low-income housing, or tax subsidies, such as research and development tax credits.

USER FEES
User fees require those who use a government service to pay some or all of the cost of the service, rather than having the government pay for it through revenues generated by taxes. The fees charged for entry into public parks are an example of a user fee.

VOLUNTEER ACTIVITIES
Volunteer activities are conducted through either a formal agency volunteer program or a private nonprofit service organization. An activity in which volunteers provide all or part of a service and are organized and directed by a government entity can also be considered a form of outsourcing.

VOUCHERS
Vouchers are government financial subsidies given to individuals for the purchase of specific goods or services from the private or public sector. The government gives individuals redeemable certificates or vouchers to purchase the service in the open market. Under this approach, the government relies on market competition for cost control and on individual citizens to seek out quality goods or services. The government's financial obligation to the recipient is limited to the amount of the voucher. One form of voucher is a government grant given to a municipality, which then may use the funds to buy services from the private sector.

Sources: Ya Libnan, Privatization.org