A UK guide to restructuringTop SA corporate tax lawyer, Michael Katz of Edward Nathan & Friedland, takes a look at the privatisation process
THE objective of this brief article is to give some observations on the objectives of the restructuring of state assets in South Africa and the methods by which it can be achieved.
I have relied on the experience in the United Kingdom and in this regard have found very useful the book entitled Selling the State - Privatisation in Britain by Cento Veljanovski.
As explained by Veljanovski, the major objectives of privatisation which emerged during the debate in the United Kingdom include the following:
As Veljanovski points out, during the early days of the debate in the United Kingdom the objectives of privatisation appear to be purely financial and managerial.
It seems that the original impetus for privatisation came from a desire to discipline the nationalised industries by subjecting them to market forces. This in turn derived from the realisation that the administrative methods of controlling and monitoring the performance of the nationalised industries had largely failed and in its existing institutional form would continue to do so.
Veljanovski points out that from these relatively esoteric beginnings, privatisation began to acquire a set of more specific and often conflicting objectives.
In this regard some commentators have pointed out that a less tangible yet nonetheless politically important objective which drove the privatisation process was the desire of the government to create a more entrepreneurial society.
With the sale of British Telkom another reason, or as Veljanovski points out ration-alisation, for privatisation emerged. "Regulation of private monopoly was seen as a more effective and efficient form of production than nationalised public monopolies.
"Private monopoly produces goods and services more cheaply, and any abuse of monopoly power can be controlled by the setting up of a new framework of regulation administered by a new regulatory agency and competition law. Thus, for the public utility industries, privatisation means a change from public production to what is regarded by the government as more efficient, private but regulated production."
Finally, in the context of the philosophical approach to privatisation in the United Kingdom it is instructive to reflect on the following observation of Veljanovski: "The benefits which are expected to flow from privatisation are, in the government's view, numerous.
"Customers will benefit from the prospect of higher standards, greater efficiency in the provision of services, a charging policy designed to pass on efficiency savings and keep bills down, and the opportunity to hold shares.
"Employees, because they are given an opportunity to buy shares in their own companies at preferential terms, will identify with their businesses and have greater job satisfaction and better motivation; so industrial relations will improve."
The philosophical justification for the restructuring of state assets also provides an indication as to the methods of achieving it. Should it be an outright sale, or should it be an offer of shares by the privatised entity so that the money comes into that entity?
If the raising of money is the objective of privatisation then the former method will be selected' whereas if some of the other objectives referred to above are important then the latter method will be selected.
Furthermore, outsourcing and sub-contracting of state activities also flows from some of the objectives referred to.
As appears from the comments set out above, once a public entity is privatised it is essential that it be subject to a regulator and the normal competition laws of the land.