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Privatization of Public Utilities

This is all about the privatization of public utilities in the Philippines, why we need to privatize, and what are its pros and cons.

Charisse Del Rosario

on 15 September 2013

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Transcript of Privatization of Public Utilities

Privatization of Public Utilities
Definition of Terms
Different forms of Privatization
Some public utilities that were privatized
Water Service
Charisse del Rosairio
9- St. Milburga

the process of transferring ownership of a business, agency, service, or property from the government or the public sector to the private sector either to a business that operates for a profit or to a non-profit organization
Public Utilities
an organization which provides the basic necessity to the people which includes water, electricity, energy, transportation, or telecommunications

Privatization of Public Utilities
the process of transferring the ownership of an organization that provides the basic necessity to the public from the government to the private sector
refers to when a government enters into agreements contract with private vendors (either profit or non-profit) to provide basic needs for the people
The government sets the standards of services and terms of the agreement, but the management of providing the service is the responsibility of the private vendor
In short, public funds pay private vendors for the public services
Public-Private Partnerships
refer to areas where public agencies and private service providers share the responsibility for providing government services
they work together to achieve a common goal like during calamities
refers to when the government gives the private vendor privileges to act as a local monopoly within a given area.
Consumers must choose if they wish to purchase the service or not, but cannot choose between multiple vendors offering the same services
Example: the water service of the MWSS and Maynilad
Asset Sale
The government sells assets- which could include infrastructural equipment, land, or other goods- to private companies.
Private Donation
The government relies on private donors to provide funding to public services
The government stops regulating services they monopolize to allow private companies to offer the same services thereby encourage competition
Build-Operate Transfer
The private vendor builds the infrastructure and assumes responsibility for operation and maintenance.
After a predetermined time, the facility is transferred to the government
- now owned and operated by the MWSS and Maynilad
Electrical Service
- in the rural areas of Marinduque, Romblon, Tablas, and Masbate,
- now operated by DMCI holdings and 3i Power Gen.
National Power Corp. now owned by Meralco
Some infrastructures under LGUs
- such as construction of public markets, road, and garbage collection
Short Overview of the Philippine Privatization Program
During the reign of Marcos
Cronies took over practically all the economic activities from the long established public utility to agriculture to manufacturing.
These institutions became very vital in consolidating its political and economic power and converted them to government-owned & controlled corp. (GOCC)
The government was unable to pay its US$ 28B foreign debt (80% was owned by the GOCCs).
The World Bank (WB) and the International Monetary Fund (IMF) specified privatization to limit participation of public enterprises in the economy, as a solution
During Aquino's reign
Pres. Cory issued Proc. no. 50, which provided the policy and framework for privatization.
The 1991 Local Government code empowered the local government units (LGUs) to transfer certain functions and services to private sectors, such as construction of public market, roads and garbage collection.
During Ramos' reign
The bulk of the privatization though was implemented in 1991-1998 under his program, Philippines 2000
These proclamations paved the way for the privatization of The Metropolitan Waterworks and Sewerage Services (MWSS) and the National Power Corp. (NAPOCOR)
During Erap's reign
- he included local government units' (LGUs) assets and activities that can be best handled by the private sector
During GMA's reign
- the Electric Power Industry Reform Act (EPIRA) finalized the privatization of NAPOCOR
During PNoy's reign
- wants to use more the Build-Operate Transfer (BOT) because this will mean no cash out for the government
Other Laws related to Privatization
Advantages and Disadvantages of the Privatization of Public Utilities
2 Build-Operate Transfer (BOT) Laws
- legalized private sector participation (PSP) in infrastructure
RA 6957 (1993)
- created the Philippine Infrastructure Privatization Program (PIPP)
- allowed the entry of independent power producers (IPPs) into the energy sector
RA 7718 (1994)
- expanded the PIPP
- signaled the so-called second wave which covered other infrastructure sectors (ex: transport, water) through a package of government incentives, including the liberalization of specific industries
- Government-run institutions are bureaucratic
- It may only improve it function when its poor performance becomes a political issue
Increased Efficiency
- Private vendors have a greater reason to produce more goods and better services to reach more costumers, hence increasing profits
- A public organization would not be as productive due to the lack of funds because it must consider the other areas of the economy
- A private business can focus all necessary human and financial resources into a specific function
- A government-owned institution does not have the necessary resources to focus its goods and services
- The government may put off improvements due to political issues and special interests- even in cases of companies that are run well and better serve their customer's needs
- A government monopolized function is prone to corruption; decisions are made primarily for political reasons, personal gain of the decision maker, rather than economic ones
- Managers of private companies are accountable to their owners' shareholders and to the consumer. Therefore, their business can only exist as long as customers' needs are satisfied
- Managers of government institutions are accountable to the broader community and to political "stakeholders". This can reduce their ability to directly and specifically serve the needs of their customers, and can bias investment decisions away from otherwise profitable areas
- A government institution tends to run an industry or company for political goals rather than economic ones
- Private companies can sometimes more easily raise investment capital for the improvement of services
Lack of market discipline
- Poorly managed government institutions are protected from the same strictness imposed in private companies
- Private companies can go bankrupt, have their management removed, or be taken away by competitors
- An elected government is accountable to the people, therefore its primary objective is to safeguard the assets of the nation
- The profit motive is only secondary
- The government is motivated to improve its performance as well as run businesses to contribute to the state's revenues
- Government officials and employees are bound to uphold the highest ethical standards
- The public does not have any control of private companies if they will manage their public utilities
Cuts in essential services
- Private vendors of basic services could abandon its social obligation to those who are less able to pay, or to regions where this service is unprofitable
Concentration of Wealth
- Profits from successful private enterprises end up in private, often foreign, hands instead of being available for the common good
Political Influence
- The government can more easily exert pressure on government-owned institutions to help implement government policy
- Private companies' only goals is to maximize profits
- A private company will serve the needs of those who are most willing (and able) to pay, as opposed to the needs of the majority, and are thus anti-democratic
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