Privatisation and Employment

1
Privatisation and Employment

• The Dutch Perspective
• Melle Hendrikse
• Ministry of Finance, The Netherlands
• October 10, 2002

2
Explicit two-phased approach towards
privatisations

• Restructuring phase
• Transformation of public entity into private
  entity
• Shares owned by the State State is regular
  shareholder
• Regulatory framework in place (or at least
  a.s.a.p.)
• Privatisation phase
• Usually five years or more after restructuring
• All usual forms (IPOs, private sale, etc.)
• Public offerings in various tranches
• Only in exceptional cases restructuring and
  privatisation at once

3
Problems in restructuring phase

• Consequences for employment and employees in
• restructuring phase rather than privatisation
  phase
• Loss of status as civil servant
• Job security, lay-offs (both short and long run)
• Change in primary and secondary benefits
• Change in job content

4
Starting point in restructuring

• Extensive social safety net in place
• Traditionally good relationships with labour
  unions and workers councils
• Existing collective labour agreements provide
  clear framework for future labour conditions

5
Possible additional measures

• Additional social plan for redundant personnel
• In co-operation and negotiation with unions and
  workers council
• Return guarantee to government
• If necessary and feasible
• Small and medium-size companies
• Usually 2-3 years
• Commitments for employee stock ownership plans
• Larger companies
• Should not block private sale

6
Problems in privatisation phase

• According to current policy, privatisation shall
  not take place unless
• SOE has been restructured properly
• Commercial and financial track record has been
  established
• Public interests have been safeguarded by means
  of law, contracts, concessions, etc.
• An ideal privatisation is nothing more than the
  technical ending point of a broader process of
  becoming independent. SOEs should function as
  regular companies before they are offered for
  sale. Therefore, major problems should not arise
  during privatisation.

7
Pensions

• In the actual privatisation (second phase) the
  main employment problem relates to pensions.
• Pension schemes of employees of state-owned
  enterprises are executed by the ABP (General
  pension fund for civil servants)
• If State ownership falls below 50, the company
  should leave ABP and enter a private fund

8
Dutch pension system

• Largely based on a savings system (instead of
  current workforce paying for the older
  generation)
• This means that financial settlement with ABP is
  necessary
• Financial settlement is unfavourable for the
  company concerned

9
Pension transfers
Reserve
100 of Commit- ments
100 of Commit- ments
Costs
85-95 of Commit- ments
ABP Individual Collective
transfer transfer
10
Pension problems

• Unclear prospects for partially state-owned
  enterprises
• Collective pension transfers not legally taken
  care of

11
Good policy, butthe current case of NOB

• NOB Dutch Broadcast Production Company
• Legally restructured in 1989
• Privatisation intended for around 2000
• Blocked by deteriorating results in 1999/2000
• High labour costs, compared to competitors
• Bad relationship with customers, due to mix of
  monopoly and market activities
• No earlier measures taken due to overwhelming
  assets (real estate) allocated in restructuring
  phase

12
Measures taken

• Experienced supervisory board member appointed as
  new CEO
• Good housekeeping within the company restored
• Restructuring split into three parts (monopoloid
  broadcasting functions, commercial production
  company and real estate)

13
Drastic employment measures

• Collective labour agreement renegotiated
• salaries reduced with 20 over five-year period
• job cuts 450 out of a total of 2000
• Result
• privatisation process of real estate almost
  completed
• privatisation of commercial production envisaged
  for 2003

14
Concluding remarks

• The case of NOB is relatively exceptional.
  Generally effects on employment in both phases
  (restructuring and privatisation) are limited.
• The total number of employees of state-owned
  enterprises account for no more than 1-2 of the
  total Dutch workforce.
• In order to prevent problems in privatisation
  process, more and more emphasis professional
  governance by the State is necessary.