MODULE D: ENTERPRISE MANAGEMENT AND PRIVATE SECTOR PARTICIPATION

1
MODULE D ENTERPRISE MANAGEMENT AND PRIVATE
SECTOR PARTICIPATION

• Role of the public sector and conditions for
  private sector involvement in ISP?
• How can private sector involvement be achieved?
• Improved management in public sector enterprises
• What does better enterprise management mean for
  different levels of government?

2
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

3
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

4
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.

5
Conditions for successful private sector
involvement in ISP

• National levelenabling policy environment
• meso levelsectorial policies encouraging private
  sector involvement
• micro leveltransparent and accountable firm

6
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

7
Barriers to private sector involvement in ISP

• Lack of policy and regulatory framework
• Weak domestic capital markets
• High transaction and bidding costs

8
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?

9
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

10
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?

11
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

12
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

13
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)

14
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)

15
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

16
Different financial instruments for private
sector involvement in ISP

• Loans
• Direct foreign investments
• Buying bonds
• Portfolio investment
• Project finance

17
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

18
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

19
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

20
Exercise advantages disadvantages of
privatization

• Advantages
• Disadvantages
• What would you recommend for the power sector1.
  Restructuring2. Private sector involvement3.
  Full fledged privatization?

21
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

22
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

23
Improved management different options

• Restructuring state-owned enterprises
• Privatization
• Bringing in private sector elements- in
  management- in finance- through outsourcing
  or- out contracting

24
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

25
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

26
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

27
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

28
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?

29
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?

30
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

31
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

32
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

33
General government policies to improve
enterprise management

• Macro-economic policies
• Technology development policies
• Physical planning policies

34
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

35
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

36
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 latters
  facilities

37
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

38
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)?

39
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