Interdepartmental Action Programme on Privatization, Restructuring and Economic Democracy

Labour and social dimensions of privatization and restructuring - Public utilities Water, gas, electricity.
Part II Europe/Latin-America

edited by L. de Luca

Note to the reader: For technical reasons, the tables contained in the original documents are not available in their html versions. A copy of the document can be obtained from the privatization programme documentation

Restructuring and privatization in the public utilities Europe

David Hall

Public Service Privatization Research Unit

Executive summary

The report examines the impact of water and energy (electricity and gas) privatization in Europe on employment, working conditions, industrial relations, and service delivery.

The privatisation of water is not as extensive as is sometimes assumed. In western Europe, only France andthe United Kingdom have predominantly private water systems, and Spain has about one-third. Elsewhere,water is still predominantly run by public sector bodies. The expected growth in privatisation in Italy has not happened. In Central and Eastern Europe (CEE), a number of major towns in the Czech republic and Hungary have set up semi-privatized joint ventures to run water on a concession basis. However, the main trend in CEE is decentralization, as part of wider political reforms, possibly at the cost of efficiency.

Electricity in western Europe still has complex patterns of provision, but publicly owned companies continue to be important. In distribution, municipally controlled companies are the norm. In generation, state-owned companies such as EDF, Vattenfall and IVO have become successful international operators. The United Kingdom remains unique in having privatized its entire electricity industry, and in the takeover of most of its distribution utilities by United States' companies. In CEE, major privatizations have again been restricted to Hungary and the Czech Republic so far, although they cover both generation and distribution. Some independent power producers (IPPs) have been set up in these countries and Poland.

Competition is being introduced more widely, but this does not appear to necessarily favour privatized operators. In Scandinavia, the most successful companies are the state-owned generators. International competition over gas supplies is already significant, as the Russian multinational Gazprom seeks to extend its supply network and downstream operations right across Europe. Central European countries such as the Czech Republic and Poland have actively sought alternative gas supplies.

Efficiency

It is often assumed that privatized companies will necessarily be more efficient and cost-effective than public ones. Empirical evidence, however, suggests that privatized energy and water companies are in practice no more efficient than public ones. On costs, personnel ratios, technical performance and financial comparisons, publicly run water operations appear at least as efficient as private ones.

Environment

Publicly run systems may have a greater incentive to maximise environmental quality, as happens in Germany, rather than seek simple profit maximisation, as happens in the United Kingdom.

Public budgets

The fiscal effects of privatization of water and energy companies should be neutral. However, in practice, the fiscal situation of governments and local authorities is a prime motive for privatization of utilities. If the sale price is right, the annual benefit gained from the amount received should be equal to the value of the dividends lost. The Maastricht convergence criteria for European monetary union accurately reflect this by excluding privatization receipts from calculation of deficits. Despite this, both governments and local authorities have treated receipts from privatization as though they were extra tax revenues, or substitutes for tax revenues. In some cases this has been formalized by specific payments to local authorities, whose legality has been challenged.

The Maastricht convergence criteria encourage privatization because the capital expenditure carried out by a private company does not count against a public authority's borrowing.

A company may derive extra benefit from being able to assume works contracts without further competition. However, the guarantees sought by concession companies may jeopardize the "private" status of such investment.

Employment

The report indicates that the United Kingdom has seen a much sharper fall in employment in energy than other EU countries. This may be at least partly due to the its total privatization of this sector, coupled with its lack of employment protection. In both water and energy, human resource strategies in the British privatized energy and water companies have focused mainly on reductions in the number of employees, to improve profitability. A similar pattern of job reduction emerges in water privatizations in CEE, although jobs may be cut under public management also.

The example of the French publicly owned energy company EDF suggests that it is easier for publicly owned companies to adopt positive strategies for increasing the number of employees. In addition, the example of Budapest shows that governments can negotiate job protection agreements as part of the conditions of privatization.

By contrast, an analysis of British privatized utilities concludes that the widespread job reductions have had the effect of financing higher dividend payments to shareholders. In a number cases in CEE, job reductions have been a key part of the economics of water privatization

The results of a PSI survey show that workers subject to privatization have invariably been transferred. This is in line with the current requirements of EU legislation on transfers of undertakings. International codes on privatization as yet contain no social provisions.

Pay and other working conditions

Trade union surveys, in both water and energy, suggest that there is no general pattern of privatized water or energy employers offering markedly better or worse conditions than public sector employers. However, privatized British utility companies have increased their directors' pay substantially.

Social partnership

Formal consultation procedures may not allow for real influence by the social partners, There is, however repeated evidence of active political campaigning by trade unions as a way of influencing the decision-making process. The case of energy privatization in Hungary provides an excellent example of meaningful involvement of the social partners, which resulted in an agreement protecting jobs and providing for benefits as part of the privatization contract. Its importance was apparent a year later, when the companies were in dispute with the government over prices and profits. The employers tried to reduce labour costs as a way of resolving the conflict, but were prevented from doing so by trade union action to enforce the agreement.

A comparison between the industrial relations practices in French and British energy companies points out a significant difference: the state-owned EDF has a clear positive commitment to increasing employment, whereas British companies see job reductions as desirable ways of achieving savings. This difference can be partly attributed to the narrower economic objectives of privatized utilities.

However, differences in national political conditions are also significant. This factor is reinforced by the apparent readiness of American and other companies to adapt their policies to the conditions of host countries.

Consumers

In water, experience in all countries where water has been privatized, including the United Kingdom and France, suggests that prices are at least as high under privatized management. There is a general upward pressure on prices, due to the requirement for investment to meet higher EU standards.

In energy, available comparisons do not show any clear relation between prices and private or public sector ownership.

Household energy prices do not benefit from competition, unlike industrial consumers. Some energy consumers are more equal than others. The neo-liberal assumption is that competition in the retail market will benefit the consumer through lower prices. This proves true for large industrial customers, who can shop around for cheaper rates and obtain lower prices. In addition, freeing providers from political constraints concerning equality of pricing has allowed them to introduce pricing structures which reflect the economic costs of supply. Large consumers naturally benefit from this process at the expense of smaller ones. Evidence from Scandinavia suggests that domestic consumers are unable to derive this benefit. Domestic consumers may even suffer price increases as a result of competition, as companies compete to win high-volume customers, while being content to increase prices as a deterrent to smaller consumers whose business is less profitable. Moreover, the trading markets may be quite easily manipulated by producers.

Conclusions

The main conclusions to be drawn from the study are as follows:

Privatization on the British model has not happened elsewhere in Europe, either in water or energy. It should not therefore be treated as typical or paradigmatic.

There is no empirical reason to expect that a private utility will be more efficient than a public one. Publicly owned companies are able to operate and compete internationally in energy, at least as effectively as private companies.

A proper comparative evaluation of public and private options should be carried out before privatizations ake place, especially where investment is involved. This will ensure that claims about efficiencies and finance are submitted to rigorous testing.

The financial framework used to evaluate privatizations should be carefully examined to strip out distortions such as the costs of convergence with Maastricht criteria, and the use of utilities as a hidden tax mechanism.

The employment consequences of privatization following the British model are severe, and should be carefully evaluated in any consideration of this option.

Transfer arrangements for employees should follow EU law.

Positive human resource policies and industrial relations are facilitated by public ownership. More publicly owned utilities could develop positive job creation plans.

Where privatization takes place, agreements on employment protection should be made a precondition of the process. The case of Hungary provides a model example.

The national framework of industrial relations law and practice is of great importance in determining the behaviour of private companies, even multinationals. The stronger the status of national agreements, the better the protection for employees of privatized companies.

Expectations about consumer prices under privatization should be critically considered. The evidence shows that domestic consumers derive little financial benefit from privatization itself, and that they may become worse off under energy competition.

Contents

Executive summary

Liste of abbreviations

1. Introduction

Meanings of "privatization"

Restructuring

Competition

Summary

2. The extent of privatization

Overview

Water

Water privatisation in the EU

Water privatisation in the CEE

Energy

Electricity and gas privatization in the EU

The United Kingdom's experience

Energy privatization in the CEE

Hungary

Czech Republic

Poland

Slovakia

Gazprom

Monopolies and competition

3. Economic efficiency

Overview

Energy

Electricity international comparisons

Gas

Water

Water costs to consumers

Water personnel ratios

Environmental standards

The problems of water in the UK and France

Evaluated comparisons

Privatisation and risk

Structural considerations

4. Privatization and public budgets

Overview

Financial effects: theory

Maastricht: the convergence criteria

Hidden taxes

Distortions

Works contracts

Public procurement and risk

5. Employment levels, reduction procedures and transfers

Overview

5.A. A Trends in employment

Overall employment levels in gas, electricity and water

Employment in the energy sector

Employment in water

5.B. Handling job reductions/human resource strategies

Human resource strategies in the French energy industry

Job reductions and dividends in the United Kingdom

Job reductions in water privatisations in the CEE

5.C. Employment status and privatisation: transfer of employees

Transfer of staff with privatisation

EU employment rights

European Works Council agreements

Other international codes on privatisation

6. Pay and working time

Overview

Energy

Pay

Working time

Directors' pay in British privatised utilities

Water

Pay

Working time

Pay and conditions in Czech and Hungarian water companies

7. Social partnership

Overview

7.A. Government consultation of social partners

Formal consultation

Campaigns and elections

Hungary: energy privatisation

7.B. Labour relations

France and the United Kingdom: different political frameworks

EDF: industrial relations framework

Internationalisation and company cultures

8. Privatization and consumers

Overview

Water prices

Electricity prices

International comparisons

Electricity prices and competition

Finland

Sweden

Costs and cutoffs in the United Kingdom

The trading market: Norway and Sweden

CEE: tensions over prices

9. Conclusions

10. Annexes

Activities of private water companies in Europe

Activities of international companies in energy in Europe

European directives

11. Bibliography

List of abbreviations

1. General

AFL-CIO American Federation of Labour

CEE Central and eastern Europe

ECJ European Court of Justice

ECU European Currency Unit

EIB European Investment Bank

EMA Electricity Market Act

EMU European Monetary Union

EPSU/EPSC European Public Services Union/European Public Services Committee

ESI Electricity supply industry

EU European Union

EWC European Works Council

FSU Former Soviet Union

FT Financial Times

GDP Gross domestic product

ILO International Labour Organization

IPP Independent Power Producer

PSI Public Services International

REC Regional Electricity Company (UK)

UK United Kingdom of Great Britain and Northern Ireland

USA United states of America

Vak Vodovody a kanalizace (water and sewerage company: Czech Republic)

2. Companies

The text refers to a number of companies, some of whom are only known by a set of initials:

AEP American Electric Power (USA)

AES AESCorporation (USA)

CEGEDEL Compagnie Grand'Ducale d'Electricité de Luxembourg (Luxembourg)

CEZ CEZ a.s. (Czech Republic)

CSW Central and South Western Corporation (USA)

EDF Electricité de France

EdP Electricidade de Portugal

EDS EDS Inc. (USA)

ENEL Ente nazionale per l'Energia elettrica (Italy)

ENI ENIS.p.A. (Italy)

ESB Electricity Supply Board (Ireland)

EVN Energie-Versorgung Niederösterreich Aktiengesellschaft (Austria)

EVS Energie-Versorgung Schwaben AG(Germany)

GDF Gaz de France

GPU GPU Inc. (USA)

ITT ITT (Sweden)

IVO Imatran Voima Oy (Finland)

MVM Magyar Villamos Muvek (Hungary)

NORWEB North West Electricity Board (UK)

NRG NRGInc. (USA)

RWE RWEAktziengesellschaft (Germany)

SAUR Socitété d'aménagement urbaine et rurale

SCVK Severoceske VaK (Czech Republic)

SWEB South Western Electricity Board (UK)

VEW VEWAG(Germany)

2. The extent of privatization

Overview

The privatization of water is not as extensive as is sometimes assumed. In western Europe, only France and the United Kingdom have predominantly private water systems, and Spain has about one-third. Elsewhere, water is still predominantly run by public sector bodies. The expected growth in privatization in Italy has not happened.

In the CEE, a number of major towns in the Czech Republic and Hungary have set up semi-privatized joint ventures to run water on a concession basis. However, the main trend in CEE is decentralization, as part of wider political reforms, possibly at the cost of efficiency

Electricity in western Europe still has complex patterns of provision, but publicly owned companies continue to be important. In distribution, municipally-controlled companies are the norm. In generation, the state owned companies such as EDF, Vattenfall and IVO have become successful international operators.

The United Kingdom remains unique in having privatized its entire electricity industry, and in the takeover of most of its distribution utilities by US companies.

In the CEE, major privatizations have again been restricted to Hungary and the Czech Republic so far, although they cover both generation and distribution. Some IPPs have been set up in these countries and Poland.

Competition is being introduced more widely, but this does not appear to necessarily favour privatized operators. In Scandinavia, the most successful companies are the state owned generators.

International competition over gas supplies is already significant, as the Russian multinational Gazprom seeks to extend its supply network and downstream operations right across Europe. Central European countries such as the Czech Republic and Poland have actively sought alternative gas supplies.

Water

Water privatization in the European Union (EU)

Water and sewage systems are provided by private or mixed operators in a few western European countries, but only in the United Kingdom and France are a majority of the population provided for by private operators, as shown in figure 1.

There are important differences between the two countries:

In the United Kingdom the main water companies were privatized in a single political act in 1989; while in France privatization has developed over the course of a century, although it has grown most rapidly in the last fifteen years.

In France, as in virtually all other west European countries, municipalities are responsible for water supply; whereas in the United Kingdom it is a statutory responsibility of the companies, imposed by the State.

Water in France has been privatized by municipalities awarding concessions or contracts to private companies (gestion déléguée); whereas in the United Kingdom water companies hold state allocated regional concessions.

Nearly all privatized water in France is in the hands of three major groups, which operate throughout the country via a number of local subsidiaries; while in the United Kingdom each company operates only in its own region.

Figure 1. Water supply in EU countries by public or private (including mixed) management, 1996 (percentage of population supplied by each type)

About one-third of Spain is covered by privatized water concessions; most of which are held by companies partly or wholly owned by the French water groups. As in France, some of these concessions date back to the turn of the century, for example in Barcelona and Valencia, but there has been a recent growth in privatization by the local authorities responsible.

A small number of Italians are covered by privatized water concessions; again, these are mainly held by companies partly or wholly owned by the French groups. Privatization has not, however, grown significantly in Italy in the last five years, despite expectations that new legislation would encourage it.

Elsewhere in the EU privatized water (or sewerage) is exceptional. The values in figure 1 for Germany are slightly misleading; the percentages in the "private" column refer almost exclusively to provision by companies which are, in effect, controlled by municipalities.

Water privatization in the CEE

Privatization of water in the CEE has so far been restricted largely to two countries, the Czech Republic and Hungary, with a couple of cases in Poland. Restructuring by decentralization has taken place more extensively.

Under the old regimes, water and sewerage were the responsibility of regional state agencies. As part of the decentralization of state functions, some CEE countries have broken down these agencies and transferred their responsibilities to municipalities. The first example was the break up of the old east German water companies after reunification; which has also been carried through in the Czech Republic, Hungary and Poland.

This decentralization has probably reduced efficiency. In Germany, many observers, including the World Bank team, believe that it was unhelpful to abolish the former east German regional water authorities and create multiple companies at municipal level, as was established practice in the west. In Hungary, the process of municipalization was halted before completion, because of doubts over its effects on efficiency; so five state-owned regional water companies remain alongside 300 newly municipalized companies.

Decentralization has allowed municipalities to create separate water companies to carry out the functions. This in turn allows but does not require municipalities to privatize their water and sewerage system by delegated management, through selling shares in the company to private investors, or awarding a concession to a privately owned and run company. This has happened so far in 12 cases, as shown in table 1. In all cases, a multinational company is involved as the main private shareholder; in ten cases the multinational is one of the French groups; in nearly all cases the company is also partly owned by the municipalities.

In at least two cases, Debrecen (Hungary) and Lodz (Poland), the municipalities have considered privatizing their water and/or sewerage operations, and decided that they could do it more efficiently themselves through a direct municipally owned company.

In other countries, decentralization has either not taken place or has not led to privatization.

Energy

Electricity and gas privatization in the EU

Table 2 sets out a schematic summary of the structure of energy industries in EU countries. The picture is a complex one, with many differences, but some generalizations can none the less be made:

Electricity transmission grids remain in most (EU and CEE) countries in the hands of monopolies, usually public. The exceptions are Belgium and the United Kingdom, where the grids are private monopolies; and Finland, which has two competing grids, one private and one publicly owned.

Electricity distribution is usually carried out by a number of regional utilities which are either municipally owned or joint ventures between municipalities and private companies. The exceptions are France, where distribution is controlled by the state monopoly; and the United Kingdom, where municipalities play no role at all.

Power generation in nearly all countries can now be done by "independent producers"; although in most, one or two producers dominate the industry. These are either private, as in Belgium where Electrabel produces 93 per cent of all electricity, or public, as in France, where EDF dominates.

In gas transmission and distribution, similarly to electricity, we find a transmission monopoly, either public or private; and distribution companies, either municipal or joint. The exception is the United Kingdom, which has private companies with a 100 per cent monopoly of both transmission and distribution.

The development of international grids in both gas and electricity means that the energy industries are becoming international in nature.

Through all these trends, the position of publicly owned energy companies remains quite firmly established. This is true both at the local level of distribution, where the typical pattern of municipal or joint companies still predominates, and at the international level. State owned companies such as EDF, Vattenfall, and IVO are among the most active energy multinationals.

The EU has now adopted an electricity directive which provides for the partial liberalisation of electricity markets throughout the EU. This will reinforce the trend towards competition (see the section on monopolies and competition below) rather than privatization.

The United Kingdom's experience

The United Kingdom is again unique in having privatized its entire gas and electricity industries in the last 15 years. No other country has adopted such a model. British privatizations have also provided a major opportunity for United States-based multinationals to enter the European market by takeovers of most of the regional distribution companies, as shown in table 3.

Energy privatization in the CEE

There are a variety of developments in the region. The general trends are for countries to move towards increasing prices; decentralizing distribution to local authorities; and some privatization, especially of production.

The picture is, however, extremely complex and changing, and is affected by a number of factors, including internal and external political considerations, as well as technical, financial and environmental issues. For our purpose, it is more useful to focus on the three countries which have gone furthest towards privatization: Hungary, the Czech Republic and Poland.

Hungary

Hungary has gone further in privatising production and distribution than any other country. In 1995 it sold to multinationals shares in all the gas and electricity distribution companies, and most of the smaller power generators, as shown in table 4. Trade unions negotiated important protection for employees; and there have been conflicts over the tensions between prices, profits and pay. The electricity transmission grid and the main nuclear power complex remains with MVM, the state owned electricity company.

In addition, Powergen (United Kingdom) has bought an independent generator at Csepel, and AES (United States) has also bought a power station.

Czech Republic

The government has decided in principle to privatize the electricity and gas distribution companies, but has failed to agree on the precise mechanism for doing so. The companies have already been decentralised 34 per cent to municipalities, and 15 per cent in a coupon privatization, with the rest still held by the State. While the debate goes on, the German group RWE has already bought stakes in two distributors. It has acquired 10.33 per cent of the regional electricity company Stredoceska Energeticka (STE), and 11.7 per cent in Prazska Plynarenska, the gas utility for Prague.

The government has sold 33 per cent of the shares in the main generator, CEZ, but to private citizens, not to a multinational. The company remains state controlled and runs the grid.

NRG (United States) is investing in an IPP. The plans involve investment of US$400 million, said to be one of the largest American investments in the Czech Republic.

The Czech Republic has become the first CEE country to sign a long-term gas supply deal which reduces its dependence on Russian gas. The deal is with Norway, but it is more expensive than the Gazprom alternative would be; so independence comes at a price. Norway is now looking for other clients in the region for its North Sea gas.

Poland

The country enacted a new energy law in 1997 which envisages moving to a free market, with third party access (TPA) and an independent regulator, over a two-year period. The law reportedly provides for a high level of employee shares, as a result of union resistance: "The need to buy off union opposition is the main reason why the privatization of highly unionized state companies provides for 15 per cent of the stock of the newly privatized company to be distributed free to the workforce" (Financial Times 26 Mar. 1997).

In energy distribution, the government is proceeding with several pilot schemes, such as the sale of energy distributors in Gliwice and Poznan. Two local heat and power companies are actively seeking foreign investors. Krakow, which tried to privatize its heat and power company two years ago, is now trying again, with EDF as one of the two remaining bidders; and the heat and power company of Bedzin, which is being floated on the stock market. The Polish government has also asked for tenders to build new gas-fired power stations along the line of the new gas pipeline from Russia.

Some major power plants are being developed with the involvement of multinationals. In 1995, an agreement was reached for power plants at Turow to be built and run by a consortium of multinationals, based on guaranteed long-term sales to the Polish national electricity grid company PSE. In 1997, Enron (United States) entered into a build-and-operate deal in Nowa Sarzyna, with a 20-year supply contract signed with the national grid. Talks were in progress in 1997 about a new plant at Belchatow (see below).

An official report has estimated that the investment needs of the Polish electricity industry can mostly be met from internal resources, with bank credits providing some of the rest: "Representatives of the power generating sector believe that the sector will be able to finance at least 70 per cent of outlays needed for modernization from its own sources External sources of financing needed to finance the modernisation of the power industry, including transmission and distribution, require credits from Polish and foreign banks. However, such credits are available on condition that the venture is considered safe and profitable However, the amount of credits which can be raised from this source is restricted." (PAP Business News, 13 Feb. 1997)

The Belchatow power company needs a new 800 mW, US$1 billion plant, and is involved in talks with four multinationals American firms Southern Electric and Community Energy Alternatives Inc, Japan's Marubeni Corp and Sweden's Vattenfall. But they would only be adding the last 20 per cent: "under a preliminary plan, 200 million dollars of investment would be financed through the new firm's new capital while the remaining 800 million dollars would be covered by a syndicated loan or debt issues." And, as at Turow and Nowa Sarzyna, "to reduce the risk for investors the new company would seek to secure long-term energy supply contracts" (Reuters, 15 Apr. 1997)

That report takes the extreme view that environmental standards conflict with simple cost reductions, and that privatization is a way of restoring the "correct" priorities. This would imply that privatization leads to lower environmental standards, and lower of employment.

Slovakia

So far, Slovakia has not privatized, or sought to privatize, any part of its energy industry. Instead, it regularly raises project finance directly from international banks. In 1997, the European Investment Bank (EIB) guaranteed "an ECU 70 million loan to the Slovak power utility Slovenske Elektrarne (SE) for the refurbishment of a power plant at Vojany in Eastern Slovakia." (EC press release, 12 Mar. 1997). This follows a similar loan raised by the Slovak gas utility SPP, and one raised by the Slovak water authorities in 1995.

Other countries in the region are still developing energy strategies and laws.

Gazprom

Gazprom, the Russian owned gas company which produces about one-third of the world's natural gas, actively seeks to extend its network across Europe and establish joint ventures with local companies as it goes. There has often been local political resistance to such joint ventures.

In some former Soviet Union countries, the national gas companies are heavily indebted to Gazprom. In some case, as Belarus, the national gas company has been partly taken over by Gazprom in settlement of these debts. In other cases, such as Ukraine and the Baltic States, countries are resisting this solution and seeking instead western companies, such as Ruhrgas, to become partners and pay off the Gazprom debts.

Monopolies and competition

National and regional monopolies remain in place in many countries, in both the EU and CEE. This Is the case both where traditional state monopolies retain their old dominant positions, for example in France, Ireland, and Greece, and where the industry is dominated by the private sector, as in Belgium.

In countries where state monopolies have been "privatized" by the sale of a minority of shares, this has the effect of spreading the ownership of monopolies, but not of breaking them down. Indeed, the sale of shares in such companies may make it harder to break down the monopolies they enjoy, because investors would lose profits by such a breakup. In May 1995, the Czech Republic suggested that it might remove CEZ's monopoly on the transmission grid, because it was thought that CEZ might have used this power to stop competing generating companies from selling cheaper electricity. The company's planning manager, Petr Voboril, responded by stating that "CEZ would regard any move by the government to hive off its electricity grid network as expropriation Loss of the grid would damage the company's credit rating and would be highly unpopular with shareholders" (Hospodarske Noviny, 9 June 1995).

Competition is being introduced by countries in two main ways. First, through the increasing scope for IPPs to sell power to the grid or to large industrial consumers, as is happening in many countries. This may conflict with privatization. For example, in Hungary, Bayernwerk (Viag), which had bought shares in a regional distributor in the Dedasz area, took a court case in 1997 against an IPP on the grounds that it had purchased a monopoly, and that allowing an IPP to sell to large customers was in breach of that monopoly. Second, the Nordic countries and the United Kingdom are introducing competition in selling electricity (and gas, in the United Kingdom) to consumers. This does not necessarily increase privatization: as table 5 shows, the energy industry in Sweden is still dominated by state owned companies.

3. Economic efficiency

Overview

On costs, personnel ratios, technical performance and financial comparisons, publicly run water operations appear at least as efficient as private ones.

Publicly run systems may have a greater incentive to maximise environmental quality, as happens in Germany, rather than seek simple profit maximization, as in the United Kingdom.

Energy

Electricity: international comparisons

For the electricity supply industry (ESI), a comprehensive comparison of relative efficiency has shown that there is virtually no difference between public-and privately owned comparisons. A recent study (Pollitt, 1995) compared production costs of publicly and privately owned utilities in electricity generation, transmission and distribution in 14 countries (including the United Kingdom, France, Germany, Greece, Ireland, Denmark and Italy, as well as the United States and Canada).

For generation, the study found that there was little difference, and the results provided "strong empirical support for the view that, given the technology employed, IOUs (privately owned plants) and MUNIs (publicly owned plants) were being operated equally efficiently." (Pollitt, p. 187) A small difference appeared in baseload generators, where the publicly owned companies appeared to be handicapped by relatively less cost-efficient investments, which the author suggests may be due to government influence on investment choices. This, however, ignores any costs and benefits from environmental or other factors involved in these decisions.

In transmission and distribution, the conclusion again was that there was "no significant difference in technical efficiency between the two ownership types" (Pollitt, p. 188)

The study pointed out that there are, however, clear efficiency gains to be obtained from economies of scale and vertical integration. The overall conclusion was that the only possible savings from privatization were long-term cheaper generating costs, as a result of more cost-effective investment decisions: "However, in the short run, given existing technology, we cannot expect privatization to lower costs. We find no evidence for expecting lower costs in the transmission and distribution functions, in the short or the long run. In the ESI as a whole, it is likely that the biggest gains are from restructuring and better government management of state owned electricity assets" (Pollitt, p. 189)

Indeed, the privatization process may itself have created inefficiencies. The generating capacity of the British ESI was split into only two companies for the purposes of privatization. This was more attractive to investors, but empirical evidence strongly suggests that the greatest efficiency would have been achieved by dividing the plants amongst 10-20 operators.

Gas

No similar study has been carried out for gas. Evidence relating to the United Kingdom is that British Gas made considerable productivity improvements following privatization in 1986; but this was a continuation of a trend that started in 1983, under public ownership. It was therefore more attributable to restructuring than change of ownership.

Water

No such comprehensive study has been carried out for water. This section assembles evidence from various sources, suggesting that, if anything, publicly owned companies compare favourably on costs and environmental standards.

Water costs to consumers

Direct cost comparisons between public and private water companies were produced in a study carried out by consultants ITT for the Stockholm water company. Comparisons were made between Swedish and English cities of comparable size. As shown in table 6, every case the publicly owned Swedish company had lower production costs than the privately owned British counterparts.

Water personnel ratios

The table of ratios published by the World Bank (table 7) shows a wide variation in the ratio between staff and connections, and staff and volume of water supplied. These do not suggest any clear relation with public or private provision, either in Europe or elsewhere.

Environmental standards

A World Bank team visiting Germany in 1996 produced a report which was critical of the costs of the present system, almost entirely publicly run, by literally thousands of municipal companies. However, the report highlights the relationship between costs and employment levels on the one hand, and environmental and service standards on the other hand.

The report attributes the costs of water and sewage services in Germany to "insufficient attention to costs, and the high environmental standards There is no way out of the escalating costs driven by the very high environmental standards. More efficiency would certainly help, but would be a one-time gain of perhaps 30 per cent which would not get the industry out of the spiral". The team was critical of the high standards laid down by the EU, saying that "Brussels has constantly ratcheted up mandatory water quality standards, virtually without consideration for the costs that have to be borne if the standards are to be met."

These standards are also internalised in the system: "staff of the utilities we visited reported, with considerable pride, very low levels (between 1 per cent and 5 per cent) of unaccounted-for water the predominant attitude is a simple 'less is better', rather than one based on an assessment of costs and benefits". In the case of the private company Gelsenwasser they say it costs the company "around 20 DM to save a cubic meter, when its revenue per cubic meter is around 6 DM."

The report criticises the usual German practice of installation of standard high-quality sewage piping even in low-density rural areas, a practice justified on the grounds of universal, high standards of service. They contrast, favourably, the practice on the privatized contract at Rostock, where Lyonnaise des Eaux "had examined the relative costs of different options in different settings and had concluded that the least-cost option would be to maintain septic tanks, which would be emptied by the concessionnaire, in low-density areas". They explain the difference in approach by stating that the concessionnaire is paid a flat rate per family served, and thus has an incentive to determine the least-cost option".

The problems of water in the United Kingdom and France

Water and sewerage authorities throughout Europe and the rest of the world face common problems in the need to repair, replace and extend ageing or inadequate systems. There is no strong evidence that private companies are any better than public ones at dealing with issues such as leakage, pollution or drought. Evidence from the United Kingdom and France, where privatized water companies dominate, suggests that private companies are at least as likely to experience problems.

Among the salient problems in the United Kingdom's privatized companies:

The dry conditions of 1995 resulted in widespread water shortages. In one region, Yorkshire, the water company had to employ a huge fleet of water lorries to transport water from a reservoir to households, for nearly a year.

Leakage rates are high in many parts of the country. Thames Water, which covers London, has a eakage rate of over 38 per cent. (This compares with a leakage rate of 40 per cent in Prague, which is currently publicly managed. Yet this leakage rate is cited by Prague's council as one reason why they propose to privatize the management of their water system).

Major pollution incidents in the United Kingdom are often actually caused by the actions of the water companies. Companies including Severn Trent, South West Water and Three Valleys (owned by Générale des Eaux) have been responsible for allowing serious chemical or bacterial pollution of their water supply.

In France, the country's water system was subject to heavy criticism in a 1997 report by the state audit office, the Cour des Comptes. Both the municipally run companies and the privatized concessions were criticized; but the report did not suggest that privatization was a solution to the technical or financial problems of the industry. The report disapproved the:

Inadequate competition when concessions are awarded, in particular the "repeated use of negotiated procedures", allowing operators privileged access to associated works contracts without competition, and "a tendency to roll forward existing arrangements" which results in "substantial profit margins". Générale des Eaux, for example, has held the concession for Ile-de-France for 47 years.

Unacceptable price rises, that have been associated with privatization. For example, at St Etienne prices rose by 124 per cent in 2 years following privatization of the water concession.

System of gestion déléguée, as suffering from "lack of contractual clarity", "supervision which is inadequate or non-existent", and "lack of information to consumers". The report actually states that "delegated management has become an elaborate technique for financing municipal budgets at the expense of the consumer/ taxpayer".

Municipal companies, for being overstaffed, inexpert, and having poor financial management, inadequate invoicing, inadequate controls.

Evaluated comparisons

It is surprisingly rare for privatization proposals to be evaluated against detailed publicly managed alternatives. In most cases where water has been privatized in central Europe, for example, there has been no public sector alternative evaluated as part of the process.

Two towns in central Europe Debrecen (Hungary) and Lodz (Poland) did carry out such a comparison, and both concluded that a publicly managed option was preferable. The key issues in both cases was the relative cost of financing the necessary investments, which worked out as being much lower under public provision. This is the precise opposite of what supporters of water privatization usually argue.

Privatization and risk

In some cases in central Europe, water concessions include clauses which automatically compensate the company if it makes an operating loss. This protects the company against risk of trading losses.

In Rostock (eastern Germany), water prices rose in 1996, because a fall in consumption would have led to losses for Eurawasser, and so "The shortfall automatically activated price-adjustment clauses within the Eurawasser contract" (Financial Times Business Report, 22 Feb. 1995).

In both Pecs and Szeged (Hungary), and in Plzen (Czech Republic), the concession contracts include clauses stating that if the tariffs are not sufficiently high to provide an operating profit, the council must make good the loss for the company.

Structural considerations

The decentralised structure of most European water systems may be the greatest source of inefficiency. The only west European country with a system of regional water authorities is the United Kingdom, and that system was introduced as part of a public sector restructuring. This gives the British system an inherent cost-effectiveness, whether under public or private ownership.

Elsewhere, the devolution to municipal level results in multiple small operations, whether privatized or public. The World Bank report on Germany estimated that restructuring the German water industry along regional lines could save 50 to 70 per cent compared with current costs. Ironically, in the CEE the overthrow of the communist regimes has led to a decentralization of water to municipal level (see Chapter 2 above), which has probably reduced efficiency.

4. Privatization and public budgets

Overview

If the sale price is right, the annual benefit gained from the amount received should be equal to the value of the dividends lost. The Maastricht convergence criteria for the European monetary union accurately reflect this by excluding privatization receipts from calculation of deficits.

Despite this, both governments and local authorities have treated receipts from privatization as though they were extra tax revenues, or substitutes for tax revenues.

In some cases this has been formalized by specific payments to local authorities, whose legality has been challenged.

The Maastricht convergence criteria encourage privatization because the capital expenditure carried out by a private company does not count against a public authority's borrowing.

Financial effects: theory

The transfer of ownership of an asset, including a company, should be fiscally neutral in the long term. The price paid for the asset should reflect the value of the annual revenue from it, including dividends. The interest on the price paid should be equivalent to the revenue foregone.

In practice, political motivation for privatization has meant that the correct price has often not been paid. In the case of France, the United Kingdom and Spain, there is evidence that the price obtained for privatized companies was less than the market value. In such cases, the longer-term fiscal impact is negative; i.e. a public authority's financial deficit is worse than it would have been had the asset not been sold. In the case of the United Kingdom, privatizations were often preceded by the government writing off substantial debt of the privatized corporation. This makes a fiscally negative result more likely.

The receipts from a privatization by sale do reduce public sector debt. In the case of concessions or contracts awarded by public authorities, there need not be any immediate receipts. In a number of cases a sum is paid by the concessionaire; again, this will reduce debt, but not the annual deficit.

In either case, the amount received by the public authority in exchange for the undertaking will not be invested in the undertaking itself. It becomes part of the balance sheet of the authority, not the undertaking.

Maastricht: the convergence criteria

The Maastricht treaty's convergence criteria reflect this theoretical position: "Privatization receipts have no impact on the general government deficit, but they do reduce the public debt" (answer to written question P-2827/96, OJEC 97/C 72/138).

The treaty states that "Member states shall avoid excessive government deficits" (Art 104c.1). Not having an excessive deficit is also one of four convergence criteria for admission to (Art 109j.1) the European Monetary Union . A protocol to the treaty states that the "reference values" used for determining this are: "3 per cent for the ratio of the planned or actual government deficit to GDP" and "60 per cent for the ratio of government debt to GDP". These ratios are based on the standard European accounting definitions. They cover "central government, regional or local government and social security funds, to the exclusion of commercial operations, as defined in the European System of Integrated Economic Accounts (EISEA)".

As a result, privatization sales in EU countries have no relevance to the countries" standing on the Maastricht criteria for government deficits. The impact on the ratio of government debt to GDP is, however, proportionate to the receipts from the sale.

Furthermore, once an undertaking has been privatized, the financing of investment by that undertaking no longer counts as increasing government debt. However, the benefit of this would be offset by any increase in the annual costs of servicing such investments if, for example, the annual cost of financing a new sewage plant by the private sector is greater than financing it by the public sector.

Hidden taxes

In practice, privatization receipts are used at both local and national level as an alternative source of revenue to taxation. These receipts then become used as one-off "windfalls" of revenue, which are applied to reducing taxes or borrowing in other areas. So, for example, the proceeds of the sale of the nationalized industries in the United Kingdom were repeatedly used to finance tax reductions.

One effect of this practice, ironically, is that privatization is used as a way of "laundering" taxation so that it does not appear to be taxation. In France, for example, some local authorities have charged an "entry fee" for water concessions. The successful company has then been able to increase water charges to cover the cost of this fee. This has been criticized by the Cour des Comptes. In the case of St Etienne, a court has declared the raising of such indirect "tax" illegal.

In Spain there is a similar practice, whereby the company that has won the concession pays an annual rent, or "canon". This has the same consequences: the company can charge enough on the water rates to pay the council its annual canon. In Barcelona, there appears to be a similar court case being taken by consumers against the payment of such elements by water consumers.

Distortions

The use of receipts or premia in this way produces a distortion in assessing privatization proposals. A proposal that may be less advantageous in other respects may nevertheless be chosen if it promises a greater payment to the public authority. Such a decision appears to have been recently taken by Budapest town council over water privatization. Although the bid submitted by another consortium was evaluated as clearly preferable in professional terms, the bid by Lyonnaise des Eaux and RWE was accepted. This was because it promised the council an extra 3 billion forints in payment although the price of water to consumers will be higher by 3 forints per cubic metre.

More generally, the effect of such transactions distort any comparison between private and publicly run options, unless the public sector operator is in a position to offer similar inducements.

Works contracts

The price that water companies are prepared to pay for concessions may also be affected by the profit to be made on associated works contracts on the system. All the major water multinationals also own specialist water construction engineering subsidiaries, which can benefit from "capturing" maintenance and works contracts associated with a water concession.

In France, the Cour des Comptes has criticized the number of cases where such works contracts have not been advertized, but have been automatically given to affiliated companies of the concession-holder. Similar effects happen elsewhere.

At Rostock (Germany), for example, the concession firm Eurawasser, which is 50 per cent owned by Lyonnaise des Eaux, awarded the contract for construction of a new sewage treatment plant to Philip Muller, part of Degremont another subsidiary of Lyonnaise des Eaux.

In the Czech Republic, the benefits of works contracts have extended beyond the immediate sector of water. In Carlsbad, Lyonnaise des Eaux is carrying out roads and parks maintenance work for the local council, in addition to the water concession. In Plzen, Générale des Eaux reported that the water company, of which they had become joint owners, "is the town's company for control of delegated works (maîtrise d'ouvrage déléguée), and it is already in charge of public works and the administrative support for the town's accounting system" (GDE: Annual Report, 1993).

In Hungary, the privileged access to the works contracts appears central to the economics of some of the concessions. Générale des Eaux owns 49 per cent of Szegedi Vizmu, the company which runs the water operating concession in Szeged. But a separate works company has been established, which is 70 per cent owned by Générale des Eaux, and just 30 per cent by the council. The water company pays the works company a fixed annual fee, which has been described as "very high", to carry out all the maintenance work. In addition, the works company has exclusive rights to works contracts issued by the water company. This arrangement implies that any profits made by the water company can be passed through to the works company. The high costs of works contracts under privatization was one of the factors that led the town of Debrecen to abandon privatization in favour of a public sector solution. This capture of works contracts by the multinationals is also a general economic issue for Hungary, as it means that the profits on any such work are automatically exported.

Public procurement and risk

The public procurement rules become of crucial importance here (see the section on competition in Chapter 1 above). If a contract is a "true" concession, then the works contracts may be considered "private" investment by the contractor, and so not subject to the requirements of EU legislation on public works contracts. In that case, the company can simply give the business to a fellow-subsidiary of the same group, without advertising it for tender.

However, there may be a conflict of interest for the companies if they try to both protect their operating profits and, at the same time, avoid opening up the works contracts to competitive tender. If the contract clauses provide that the company will be compensated in full if it makes a loss, it is hard to argue that it is conducting the concession "at its own risk". And so it may be much harder to simultaneously claim that the works contracts should be considered as a private investment.

In the Budapest contract, for example, it is reported that a significant part of the contract is a fixed management fee which would make it more like a management contract (gérance) than a concession. Lyonnaise des Eaux claims that this is only a small element and will presumably claim that the subsequent works contracts in Budapest are private investments, which should not be subject to open competition.

5. Employment levels, reduction procedures and transfers

Overview

The data indicate that the United Kingdom has seen a much sharper fall in employment in energy than other EU countries. This may be at least partly due to its total privatization of this sector, coupled with its lack of employment protection.

In both water and energy, human resource strategies in the British privatized energy and water companies have focused mainly on reductions in the number of employees, to improve profitability. A similar pattern of job reduction emerges in water privatizations in the CEE, although jobs may be cut under public management also.

By contrast, an analysis of British privatized utilities concludes that the widespread job reductions have had the effect of financing higher dividend payments to shareholders. In a number of cases in the CEE, job reductions have been a key part of the economics of water privatization.

5.A. Trends in employment

Overall employment levels in gas, electricity and water

Table 8 presents data published in the EU's Labour Force Survey, based on responses from individuals (not from employers). They are published in aggregate form, combining energy and water supply. The totals shown for each year cover only 12 countries, to provide a consistent basis for comparison. Employees in this "utilities" sector represent just over 1 per cent of all employees. The table shows that:

In the two years between 1993 and 1995 the number of employees in gas, electricity and water in the 12 countries fell by 63,000, about 5 per cent. During the same period, total employment in all sectors increased slightly.

Employment in gas, electricity and water in Italy, France and Spain remained stable or grew; while in Germany it fell by 26,000, or 7 per cent; and in the United Kingdom it fell by 72,000 or 25 per cent.

Employment in the energy sector

Longer run data on the energy sector alone show that the United Kingdom accounts for half of the jobs lost in energy in the whole of western Europe since 1990.

In the west European energy sector, between 156,000 and 212,000 jobs were lost between 1990 and 1995. This loss of 14-17 per cent is greater than the average across all sectors of the economy. The United Kingdom accounts for as much as half of all the jobs lost, with cuts of between 30 and 42 per cent.

Table 9 presents unpublished details of the Eurostat data, showing employment levels in the electricity, gas and heating sector alone, for 1990 to 1995. It shows a similar picture: Job losses appear to be even greater than in Table 1 a fall of 212,000 jobs, or by 17.4 per cent. In the United Kingdom job loss is even more outstanding a fall of 110,000 jobs, over half of those lost in the EU as a whole in this sector over this period, or a reduction of 42 per cent compared to the start of the period.

Information from a range of independent sources gives a similar picture. These sources include: the annual reports of major companies; national statistics; estimates by affiliated trade unions. Table 10 shows the main figures, for electricity and gas industries, for the period 1990-95. The main points emerging from this table are:

An overall decline of about 156,000 jobs between 1990-95, or by 14.3 per cent in the countries covered. This certainly understates the numbers of jobs lost, as the figures are missing data on Austria and on some countries after 1994, which are likely to show a greater reduction.

The reduction is worse in electricity than gas; indeed in some countries, such as Spain and Italy, employment in gas has increased.

The job loss in the United Kingdom is far worse than any other country over the period, in both electricity and gas. Further substantial job losses have taken place since 1995.

Overall, the figures point clearly to a major difference between the United Kingdom and other countries in the extent of job reductions. If we assume that there were no major differences between that country and the rest in technical or other trends during the period, then the obvious differentiating factor is that the United Kingdom alone carried out wholesale privatization of its electricity sector during this period (the gas industry was already privatized).

Employment in water

Comparably detailed figures for the water industry are not available.

5.B. Handling job reductions/human resource strategies

Human resource strategies in the French energy industry

In France, the publicly owned EDF and GDF have set themselves explicit recruitment targets, with the explicit goal of increasing recruitment of young workers and expanding the resources available for service provision.

In January 1997, they published an 8-point plan to increase the number of employees, by recruiting more young workers. It is based on both expanding the services to customers, and introducing new forms of work-sharing. If implemented in full, the employers claim it would enable them to recruit 15,000 workers in 3 years. They guarantee that the number recruited will be at least 11,000 double the 5,500 that they would otherwise expect to recruit. The plan includes:

reduction of hours for shift workers, with no loss of pay;

the opportunity for full-time workers on 38 hours to choose to move to 32 hours, while being paid for 35 hours, for a 3-year period;

voluntary early retirement in declining areas, complemented by recruitment of young workers in growth sectors;

75 per cent of recruits put on a 32 hour week, for a 3-year period, with the option of going full time after that.

The plan is being negotiated with the trade unions. Some are in favour of signing, some still have reservations. These reservations concern the extent to which EDF would actually be employing a significant number of extra workers, rather than just replacing older retirees with younger workers.

Job reductions and dividends in the United Kingdom

There are no such agreements by British privatized utilities. On the contrary, job reduction has been seen by these companies as the principal method of achieving savings and providing greater returns to shareholders.

A study by accountants suggests that this is the result of a conscious strategy of providing increased dividends to shareholders by reducing the workforce. The study, which covered all British privatized utilities, including BT, shows that the combined privatized utilities "sacked nearly 25 per cent of its workforce, some 100,000 workers, since privatization. All of these jobs could have been sustained if the cash distributed as dividends had instead been applied to paying wages at the average rate prevailing inside the companies" (Karel Williams et al; The Guardian, 20 Nov. 1995). Table 11 shows their calculations for the energy and water companies.

Job reductions in all sectors have continued since this analysis was published, and mergers and takeovers in the United Kingdom have also brought significant job reductions. For example when North West water took over the regional electricity company NORWEB to form United Utilities, the company announced that it would be shedding 2,400 jobs in order to finance the costs of the takeover.

Job reductions in water privatizations in the CEE

Water privatization in the CEE has brought sharp job reductions (see table 12), which the companies see as central to the financial viability of the project. In the case of Pécs, Lyonnaise des Eaux indicates that 100 per cent of the profits come from reduction in labour costs. With SCVK in the Czech Republic, Welsh Water expected form the outset that "one area for potential cost-cutting is the 2,500-strong workforce" (Business Central Europe, Nov. 1995).

Some job-cutting may take place under public sector management as well. In Budapest, the Budapest Waterworks underwent considerable restructuring between 1994 and 1996, which made the company profitable, despite a 30 per cent fall in water consumption since 1990. The price of water was nearly doubled (from 24.6 forints per month to 45 forints per month), and the workforce was reduced by 18.8 per cent (from 2,738 to 2,224). However, the contract which provides for the privatization of 25 per cent of the company limits further changes: employment levels must be maintained at at least 2,000 up to the year 2001 (a drop of no more than 10 per cent over the next 4 years). The terms of the sale also provide for a bonus in the form of employee shares which can be immediately cashed in.

5.C. Employment status and privatization: transfer of employees

Transfers of staff with privatization

Surveys carried out by the PSI in 1995 on privatization of water and energy asked specific questions about what happened to employees when an undertaking was privatized. In nearly all countries, unions reported that the workers concerned were transferred to the new employer.

In France, when water concessions are privatized, workers are reportedly given three options: to remain municipal employees and be redeployed; to be put on detached duty with renewal of contract every 5 years; or to be transferred and completely integrated in the new enterprise.

Transfers have been the normal practice in CEE countries as well. In the case of Hungarian energy privatization, the transfers, with protection, were agreed between trade unions and the government and written into the contractual conditions of the sale of the enterprises.

However, after the initial transfers have taken place there may still be significant major job cuts. These have then to be handled in accordance with existing procedures for consultation and dealing with redundancies.

EU employment rights

According to the EU's Acquired Rights Directive (EC 77/187), workers must be transferred when privatization takes place. The directive states that when an undertaking is transferred, all workers must be transferred, with their existing pay and conditions. The applicability of this law to the sale of publicly owned utilities was accepted even by the British government, which resisted its application to other forms of privatization, such as contracting out. The transfer arrangements reported in the survey are therefore in line with that EU Directive.

It is also the legal right of workers in most EU countries to be offered redeployment to another position with the original employer. The ECJ ruled in Katzikas (1994) that, under the Directive, workers had an equal right to stay with their original employer if they did not wish to be transferred. The ECJ considered that to force a worker to transfer against his or her will would be tantamount to slavery. The British government, however, passed legislation to nullify the effect of the Katzikas decision in the United Kingdom.

The same Directive also requires consultation with representative organizations of workers before any proposal is introduced which could result in transfers.

European Works Council agreements

Under EU legislation, multinationals with operations of a certain minimum size in more than one country in the EU have to set up a European Works Council (EWC). A number of international water and energy companies have done so, including all three French groups active in the water industry.

The EWC of Générale des Eaux adopted a "Charter of Fundamental Social Rights in 1996. This Charter expresses a firm joint commitment to the fundamental rights set out by the ILO, and states that: "The managers of all undertakings within the group, and the representatives of the employees, shall pay particular attention to, and respect for, the following norms:

prohibition of child labour;

prohibition of forced labour of detained persons or convicts;

respect for freedom of trade unions.

Respect for this latter principle forbids employers exercising any discrimination in respect to one of their employees linked to the fact that the said employee may be a member of a trade-union organization. This duty of vigilance shall be exercised both with respect to activities placed directly under their responsibility and the activities of their own subcontractors and suppliers"

In some European countries, such as the United Kingdom, these last two clauses provide significant extensions of workers" right to organize, even where subcontracting has taken place.

Other international codes on privatization

Most international economic instruments concerning privatization of utilities ignore the protection of employment or workers' rights. The European Energy Charter, for example, contains no social provisions at all.

The Council of Europe's recommendation on privatization of public undertakings and activities includes a section on employee rights. It indicates that where there is a transfer of employees: "The employees' representatives should be provided with full information concerning the conditions of the privatization which are relevant to the employees" interests. The information mentioned in the preceding paragraph should be given in due time before privatization so as to allow the presentation of observations concerning the effects of privatization on employees' interests and the measures planned concerning them.". (Recommendation R (93) 7, section 3). The explanatory memorandum refers also to the EU Acquired Rights Directive 77/187.

6. Pay and working time

Overview

Trade union surveys, in both water and energy, suggest that there is no general pattern of privatized water or energy employers offering markedly better or worse conditions than public sector employers. However, the privatized British utility companies have increased their directors' pay substantially.

Energy

Evidence from a PSI survey of pay and conditions in 1995 suggests that there is no consistent difference between private and public sector pay and other working conditions across different countries.

Pay

In 1995, PSI carried out a survey of the pay and other working conditions of energy workers in western and eastern Europe. The survey showed, not surprisingly, that there was a large gulf between western Europe, and central and eastern Europe.

Within western Europe, there was also a wide range of pay rates. The rates reported in table 15 are basic rates, and so do not necessarily reflect total earnings. Overall, the private sector rates appear to be slightly higher than those in the public sector, but there is no consistent pattern. Public and private sector rates do not show a marked discrepancy.

Working time

The PSI survey also covered working hours. The number of hours worked per year in western Europe was less in nearly all countries than in central and eastern Europe, especially for white-collar workers.

Table 16 shows the range of different working hours and holidays in western Europe, in order of annual hours worked with basic holiday entitlement. The figures suggest that the private sector agreements have slightly shorter working hours, but there is no consistent pattern. The shortest working week was in a public sector agreement, and the shortest annual hours, with maximum holidays, were also in a public sector industry.

Directors" pay in British privatized utilities

In the United Kingdom, there have been large increases in the pay of directors of the privatized water and energy companies. This has been justified by the companies as reflecting new private sector demands but has caused considerable public controversy.

Water

Pay

In 1994, PSI carried out a survey of the pay and conditions of water workers in western and eastern Europe. The survey showed, in this industry too, considerable differences between western Europe and central and eastern Europe; as well as within western Europe. The rates reported in table 17 are also basic rates. In water too, the private sector rates appear to be overall slightly higher than in the public sector, but without a consistent pattern.

Working time

Table 18 shows the range of working hours in agreements in western Europe, ranked in order of annual hours worked with basic holiday entitlement. The figures indicate that private sector agreements tend to have shorter working hours, but again, there is no consistent pattern. For example, the shortest working week and the shortest working year are both in a public sector agreement. The same is true within countries, where the sector is divided between private and public employers. In both Spain and the United Kingdom, the working hours of public sector workers compare favourably with those of private operators.

Pay and conditions in Czech and Hungarian water companies

More detailed information from the Czech Republic confirms that there is little significant difference between companies where there are multinationals involved, and others companies which are wholly municipally owned. Two out of five privatized companies have withdrawn from the employers' association, and so are not obliged to follow the national agreement. However, the pay and conditions in these companies are said to be comparable to those in the national agreement. In the Czech Republic, the pay of managerial staff in privatized water companies may has risen higher than their counterparts in public companies.

Lyonnaise des Eaux in the Czech Republic has a policy of allowing local managers to decide whether or not to follow the national agreement (in Hungary, all companies are legally obliged to follow national agreements, and so this is not a policy option in that country). However, the company does pay attention to labour costs in the companies' budgets, but says that it does not give any specific directions on pay and conditions.

7. Social partnership

Overview

Formal consultation procedures may not allow for real influence by the social partners, There is, however, repeated evidence of active political campaigning by trade unions as a way of influencing the decision-making process.

The case of energy privatization in Hungary provides an excellent example of meaningful involvement of the social partners, which resulted in an agreement protecting jobs and providing for benefits as part of the privatization contract.

Its importance was apparent a year later, when the companies were in dispute with the government over prices and profits. The employers tried to reduce labour costs as a way of resolving the conflict, but were prevented from doing so by trade union action to enforce the agreement.

A comparison between the industrial relations practices in French and British energy companies points out a significant difference. The state owned EDF has a clear positive commitment to increasing employment, whereas British companies see job reductions as desirable ways of achieving savings. This difference can be partly attributed to the narrower economic objectives of privatized utilities.

7.A. Government consultation of social partners

Formal consultation

Consultation in one form or another seems to have occurred in most cases of utility privatization. One example of a formal consultative structure has taken place in the Czech Republic. According to a trade union report:

"Trade unions participate in the general consultation process in developing legislative standards and decrees. The trade unions also use the tripartite negotiations between the government, the employers and the trade unions. Finally, contentious issues are dealt with in negotiations with Czech Members of Parliament either in the Commission on Energy of the Economics Committeee of Parliament, or directly in the individual committees of parliament." (Report by the Crech Energy Workers Union to PSI Conference, 1996.)

But formal processes themselves may not necessarily be very balanced. In the United Kingdom, the representations of the trade unions were treated as of little interest by the former Conservative government, for ideological reasons.

Campaigns and elections

Both national and international, have been common features of trade union behaviour. In the United Kingdom, for example, a public campaign in 1984 and 1985 did succeed in persuading the government to abandon proposals for water privatization until after the general election of 1987. Similarly, the Italian and Hungarian trade unions have both sought international support for their positions before and after privatization, to some effect.

In at least two cases in central Europe, campaigns by trade unions, in association with local political groups, succeeded in obtaining a decision in favour of public provision rather than privatization of water supply. In Debrecen (Hungary) the local council rejected proposals from both Lyonnaise des Eaux and Générale des Eaux in favour of public provision. The alternative adopted in 1996 involved a fully costed investment plan with alternative sources of finance. In Lodz (Poland) the two rival trade unions worked jointly, again with local politicians, to oppose a privatization proposal. Alternative plans were drawn up, identifying sources of finance for the necessary investments. Local elections went in their favour in 1995, and the public sector provision was maintained.

Hungary: energy privatization

In Hungary, the government consulted trade unions before and during the privatization of the energy sector. As a result, clear protections for employees were built into the contracts from the outset. This experience deserves a more detailed analysis.

Political and economic background

The Hungarian government embarked on a programme of privatization of parts of their energy industry in 1994. The programme proved politically controversial, and was delayed. Two ministers of privatization resigned during this period. At the end of 1995, shares in electricity and gas distribution companies, and some electricity generating companies, were sold to western industrial companies. At the end of 1996, further problems arose over both price and pay increases.

The political and economic issues debated included: how far the industry should be broken up before privatization; how rapidly energy prices would be allowed to rise following privatization; and what rate of return on capital should be used as a benchmark.

Negotiations and guarantees over social aspects

The Hungarian energy trade unions raised a number of concerns about the impact of privatization on employees. Among the main concerns were:

loss of jobs;

retraining and redeployment for displaced workers;

a collective labour contract for the electricity industry;

the future administration of social and welfare facilities in the industry;

opportunities for employees to buy shares.

During the preparations for privatization, trade unions felt that they were not always being properly consulted and involved. Strike action was threatened on at least one occasion. International organizations became involved in asking the Hungarian government to negotiate. In July 1995, the government reached an agreement with trade unions on all the issues that had been raised.

Three specific points in the agreement deserve highlighting:

5 per cent of the receipts from the share states would be used to create a fund for retraining and redeployment of any displaced workers;

the observation of the industry collective labour contract would be a contractually binding condition of the share sales;

employment levels in the privatized companies would be protected.

The government also stated that the companies would be allowed a rate of return of 8 per cent. The status of this has since been disputed, with the companies arguing that it was a guaranteed minimum.

Sale of shares (December 1995)

The first stage of privatization was introduced at the end of 1995. The privatization agency sold shares in regional electricity distribution companies, gas distribution companies, and some electricity generating companies. In each case, the shares sold represented less than 50 per cent of the companies' share capital.

The shares were sold to a number of foreign energy companies, nearly all of them from continental Europe (both British and American energy companies were concerned that the likely rate of return was neither high enough nor guaranteed enough). Purchasers included Tractebel, Electricit de France and RWE. The new owners indicated they were pleased with their purchases, and many of them declared their intention of investing more money in the Hungarian companies. At least in the case of RWE, German managers and trade unionists advised Hungarian colleagues on how to set up works councils and bargaining arrangements that reflected those operating in Germany.

Disputes over price and pay rises (October 1996)

The following year the Hungarian government decided that it could not, after all, allow energy prices to rise as much as had been anticipated at the time of sale. The reason was simple political concern over the impact on people's cost-of-living. The foreign companies protested very strongly over this, and in some cases threatened to withdraw their investments. In the end a compromise was reached.

At the same time, the Hungarian trade unions accused some of the companies of not observing the collective agreement on pay and conditions. The companies had not implemented the increase in pay which was due under those agreements. First RWE, then Tractebel, indicated they wanted to withdraw from the national agreement. The Hungarian energy union appealed for support from international trade unions, especially in the home country of multinational energy companies with whom they were in dispute. This resulted in extra pressure being brought to bear on these companies to observe the national agreement in Hungary. Following this domestic and international pressure, the companies did eventually implement the pay rises.

7.B. Labour relations

France and the United Kingdom: Different political frameworks

At the end of 1996, both France and the United Kingdom had governments of the right. However, the British Conservative government was strongly committed to neo-liberal principles of free labour markets. As a consequence, in the United Kingdom:

there was no national legislation providing statutory or financial incentives for job creation;

the government had "opted-out" of the EU social chapter, to reduce constraints on employers;

the government for a long time resisted the application of the Acquired Rights Directive to contracting out.

In France, however, the government remained committed to observing EU social legislation, and introduced a detailed law, the Loi Robien, which provides financial incentives for job creation by way of reduction in employers" social insurance contributions. Neither of the major private water companies, Générale des Eaux or Lyonnaise des Eaux, however, plans to make use of the law to create jobs. In fact, at the beginning of 1997 they were both pursuing strategies of reducing their workforce in France, through rationalisation of structures.

EDF: industrial relations framework

By contrast, the state owned Electricité de France (EDF) has a positive programme of employee development. A comparative study of industrial relations in EDF and ENEL (both of which are 100 per cent state owned electricity companies) shows that both companies have extensive formal systems for consultation and negotiation with trade unions. In both cases, the companies are legally debarred from making workers redundan. (Comparative study of industrial relations at ENEL and EDF, European Commission, Directorate for Employment, Study 940419, June 1995).

For EDF, this constraint has provided the incentive to develop a human resources policy which matches its workforce to the developing needs of the business. In 1990 it set up a system with three main elements: Human resource planning; in-house job evaluation procedure; and personalised career planning. EDF's aim is "to enable every employee against the background of a job for life to perform a worthwhile job that is always fully compatible with the development of the company." The system thus involves matching employment to the demands of the company, providing individual career development, and involvement of trade unions at all levels. According to the study:

"At EDF, the transition from management based on existing skills to result-oriented management, together with the importance attached to current employees and their continuing training, have resulted in the introduction of an industrial relations programme defining the priorities, values, aims and identity of the undertaking.

This programme is a tangible result of the continuous dialogue and interaction taking place between EDF's management and employees. It attempts to reconcile all the factors relating to the cohesion and development of the company, i.e. economic considerations and industrial relations, the past and the future, national and local aspects, the internal and external situation, collective and individual interests.

The industrial relations programme has been successfully implemented, leading to a national industrial relations agreement (that can also be applied at work-unit level), which puts labour relations on a new footing, and reinforces the management's efforts to combine economic efficiency with good industrial relations."

Internationalisation and company cultures

Privatization of utilities has also brought internationalisation. Companies have expanded outside their original home countries. One issue is whether companies bring with them their own industrial relations practices, formed in their home countries, or adapt to the norms of the host country in which they start operating.

The evidence to date suggests that for the most part companies adjust to the host countries" norms. For example, the major French water companies normally recognize trade unions and observe national agreements in France; but when they started operating in waste management in the United Kingdom they adopted the prevailing practice of British contractors in the 1980s, refused to recognize trade unions, and did not feel bound to follow nationally agreed pay and other employment and working conditions.

In particular, there is no strong evidence that the American companies entering the energy industry in Europe are bringing a different style of management and industrial relations. Southern Company, the first American company to buy a regional electricity distributor in the United Kingdom, SWEB, continues to recognize trade unions and follows a collective agreement although its management has expressed surprise at the length of holiday entitlement. Southern Company has, however, introduced a customer satisfaction bonus, linked to the percentage improvements in customer satisfaction as measured by surveys; similar to the company's practice in the United States. At present, the amounts involved are small, but the practice may be extended. And if complaints to the electricity regulator drop by a certain amount, all staff go into a draw for free trips to Disneyland (Florida). Central and South-Western took over another British electricity distributor, Seeboard; leaving there too the existing management and industrial relations arrangements completely unchanged.

This experience fits with the results of a study of 12 American multinationals across a range of sectors which have invested in Europe in the last 10 years (Labour conditions and investment decisions, Oct. 1996). Carried out for the American trade union confederation, AFL-CIO, it found that the American companies were mostly content to follow European employment practices. The survey found that 85 per cent of their European workforce were covered by a collective agreement; most employees were permanent; and 95 per cent had job protection if the company changed ownership. The survey highlighted differences from American labour conditions: 90 per cent of American companies" European employees have a working week of 40 hours or less; 85 per cent have at least 5 weeks annual leave; and 100 per cent enjoy health coverage under national or company schemes.

The one area where the survey found American firms more resistant to adopting European standards was in their approach to EWCs; most resisted setting up these councils. None of the companies surveyed are active in the water or energy sector, although two operate in public services EDS, the computer services company (which has set up a voluntary EWC), and Marriott, which is active in hospital support services. This same pattern of behaviour has been observed with the first American energy companies to take over electricity operators in the United Kingdom.

8. Privatization and consumers

Overview

In energy, available comparisons do not show any clear relation between prices and private or public sector ownership.

Water prices

In the case of water, there is very little scope for competitive trading. In virtually all cases, the undertakings have monopolies for supplying water and sewage services in a given area. There is little economic scope for long-distance transfer of water resources.

In France, the recent report by the Cour des Comptes confirmed that prices have risen most since 1992 in areas where water and sewage is privately run. Table 19, produced by the La Rochelle commune, shows the range of variations in prices.

In the Czech Republic, the prices of privatized operations are broadly similar to the prices of publicly run utilities (see table 20).

Electricity prices

International comparisons

The available data on electricity prices do not confirm the theory that electricity is cheaper where privatization is most advanced. Table 21 presents international price comparisons published by the UK Electricity Association, which suggest that the variation in price levels does not correlate with the ownership of the systems.

Electricity is relatively cheap for domestic consumers in Greece and Ireland, which have introduced no privatization or liberalization; and relatively expensive in Germany and Belgium, which have substantial private sector involvement. Domestic prices in the most privatized country, the United Kingdom, are about average.

For industrial consumers, France and the United Kingdom, with very different systems, have about the same level of prices.

Electricity prices and competition

As table 21 shows, industrial consumers enjoy lower electricity prices than domestic consumers in all west European countries. This reflects the market principle that large consumers can be supplied more cheaply, and so are charged less. In CEE countries, by contrast, domestic and industrial consumers still pay much the same tariffs, which reflects the dominance of the "universal public service" principle.

Where competition is introduced, the market principle of pricing is reinforced, resulting most likely in a more favourable position for industrial consumers as compared to domestic consumers. Evidence from Scandinavia and the United Kingdom supports this view.

Finland

Finland provides some detailed evidence of this phenomenon. Following the partial introduction of competition in 1996, prices actually rose for many people, and the liberalisation itself is being cited as one cause of this. According to one report: "concern is beginning to grow that the liberalisation of the market, introduced last year with the anti-trust Electricity Market Act (EMA), has played an important role [in increasing domestic prices]" (Power Europe Financial Times Business Report, 4 Oct. 1996)"

The report highlights a number of ways in which liberalization has increased prices:

Household prices have been increased to compensate for cuts in industrial rates.

"Some observers are pointing the finger at local energy boards, claiming that households in particular are seeing price hikes because local energy boards, under competitive pressure, have had to reduce prices to large industrials." A review on Finnish radio found that local energy boards had raised household prices by as much as 28 per cent in 18 months since the EMA came into effect in January 1995; only one board had reduced prices. The Finnish Electricity Association indicated that these figures are exaggerated, but acknowledged that small households had seen average increases of about 8 per cent, small and medium businesses increases of 6 per cent and 3 per cent, respectively, while large companies had enjoyed price cuts between 5 per cent and 10 per cent.

Prices have increased to cover better services and a more commercial approach.

The report quotes Paivi Aaltonen, a senior advisor at the Electricity Marketing Authority, which oversees the implementation of the EMA, who does not believe that deregulation will necessarily signify a big drop in prices: "Before the EMA, the wholesale electricity market was controlled by Imatran Voima", she says. "Stiffening competition has forced local energy boards to offer better services to their customers and to be more price-conscious. This implies higher electricity prices."

Households cannot afford the necessary meters to take advantage of competing electricity suppliers.

"The price in Finland of installing a meter capable of providing the detailed demand readings required by a competitive supplier is usually between FM4,000 and FM7,000 which would more than wipe out any household savings made."

Sweden

The Swedish experience as well is that domestic users have not benefitted from reductions, and will be unable to since the cost of metering is too high:

"Pre-launch expectations that the market would bring 5-10 per cent lower electricity prices for consumers have proved premature. Spot rates have spent much of the year well above turn-of-the-year levels, amid a prolonged dry spell which has pushed up hydro-power prices. Meanwhile, end-prices to consumers have actually risen about 3 per cent due to Swedish government tax increases. A similar rise is planned next year.

Swedish competition authorities are reviewing pricing policy in the wake of complaints from the public. Indeed, consumers have failed to see any perceivable benefit from deregulation. It was intended that individual homeowners would be able to select the power supplier of their choice, but their hands have in effect been tied by the prohibitive SKr500-SKr1,000 cost of installing new metering equipment.

"The incentives for shopping around have been significantly reduced," says Mr Per Axelsson, utilities specialist at Gemini Consulting in Stockholm.

"There is a big disappointment from the retail sector that deregulation has not improved their situation". Mr. Axelsson believes consumer pressure on distributors will result in downwards pressure on prices. Others are more sceptical, given the absence of a direct price regulation mechanism." (Financial Times, 20 Nov. 1996).

Costs and cutoffs in the United Kingdom

Similar effects are expected in the United Kingdom when competition in electricity supplies is introduced in 1998. "In an analysis for the Institute for Public Policy Research of the economics of the electricity market, Professor Catherine Waddams Price warns that low-income households will face higher charges as competition is introduced and companies are forced to unwind hidden subsidies As companies vie for the "best" customers the good payers so the costs of supplying the rest have to be spread across a dwindling group." (The Guardian, 29.12.96).

The same result is expected from competition to supply gas: "the Gas Consumers Council says British Gas has been 'very generous' in the past over supplies to the elderly and poor, especially in winter. Faced with stiff competition from new gas companies, it will toughen its stance on disconnections. The company cannot afford to be left with a rump of poor customers." (The Guardian, 29 Dec. 1996).

Similar effects have already been seen since privatization as a result of the introduction of "pre-payment" meters by the privatized electricity (and gas) companies. A survey by local authorities in south Wales in 1995 "found that more than half of households using pre-payment meters had 'self-disconnected' their supply of gas or electricity, which had been cut off because they had problems buying or finding the tokens to feed the meter For many, this so-called voluntary interruption of their power or heating supply lasts a weekend or longer Two groups, it says, are most at risk those households containing someone unable to work because of health difficulties and those families with a child aged under five in the household The companies benefit by charging upfront these customers, the poorest, for their vital energy supplies and escape the costs of having to chase these people for payment" (The Guardian, 29 Dec. 1996).

The trading market: Norway and Sweden

There is a long tradition of energy trading between Scandinavian countries. Power has been supplied cross borders in response, for example, to power shortages in Norway's wholly hydroelectric system.

Since the start of 1996 there has been an open market for trading electricity between Norway and Sweden. This market, however, has not been working perfectly, and official reports from both countries say that it has been easily manipulated: "the Swedish Competition Authority states circumspectly in its report on the market: 'In a number of cases in 1996 it has been asserted that large power producers in Sweden and Norway have "manipulated" spot prices on the Swedish-Norwegian electricity trading market to their own advantage, for example by reducing the offer of electric power, which increases spot prices. The effect is that electricity trading companies that have little or no power from their own production and buy electricity on or parallel to the electricity trading market through futures contracts have increased costs for electricity purchase.' According to Steinar Undrum of the Norwegian Competition Authority, there are 'noticeable convergences' on the market that indicate possible manipulation, and the weekly market is regarded as easy to manipulate. In addition, he said that there are strong indications that suppliers in southern Norway and particularly in southwest Norway are discussing prices among themselves. During some hours, the price of electricity on the west coast has been NKr 0.5/kWh to NKr 0.60/kWh compared to NKr 0.30/KWh elsewhere in Norway." (Power Europe Financial Times-Business Report, 15 Nov. 96)

CEE: tensions over prices

Increasing energy prices to cover costs, and increase profits, has been a painful process in many CEE countries. The stresses it created are clearly seen in Hungary, where the multinationals are aggrieved with the government for failing to allow prices to rise sufficiently to make the profits they expect.

The World Bank itself in a recent report acknowledges the real difficulties in this process: "there are various reasons why energy sector reforms have dragged. These include a reluctance to raise the average price level in case this contributes to inflation; a reluctance to raise residential prices for social and political reasons and little demand for foreign investment to supply new capacity and thus little incentive for regulation and efficient pricing." (Financial Times Business Report, 10 Feb. 1997).

A further example of energy companies looking at charges to customers comes from Poland, where one company is experimenting with pre-payment meters: "The power company serving the Zoliborz district of Warsaw has installed 30 experimental electricity meters requiring pre-payment in the homes of volunteers. The intention is to see whether being able to see their credits diminish before their very eyes will encourage users to switch off appliances when they are not necessary The pilot scheme is designed to see the order of savings that such a system can generate. Thereafter, it will be a matter of deciding whether a more convenient method of recharging the keys is possible, and whether it would make sense to apply similar methods to businesses, factories, schools and hospitals." (Financial Times Business Report, 31 Mar. 1997).

Pre-payment metering might be a plausible policy for discouraging wasteful consumption if it were applied across the board to all consumers. In practice, it is only applied to those consumers who have been unable to pay their bills, and so exclusively targets those least able to consume wasteful amounts of energy.

9. Conclusions

The main conclusions to be drawn from the study can be captured by the following statements:

Privatization on the United Kingdom model has not happened elsewhere in Europe, either in water or energy. It should not therefore be treated as typical or paradigmatic.

A proper comparative evaluation of public and private options should be carried out before privatizations take place, especially where investment is involved. This will ensure that claims about efficiencies and finance are submitted to rigorous testing.

The employment consequences of privatization on the United Kingdom model are severe, and should be carefully evaluated in any consideration of this option.

Transfer arrangements for employees should follow EU law.

Positive human resource policies and industrial relations are facilitated by public ownership. More publicly owned utilities could develop positive job creation plans.

Where privatization takes place, agreements on employment protection should be made a precondition of the process. The case of Hungary provides a model example.

10. Annexes

European directives

A number of European Union directives affect privatization of utilities and the effects of this on workers. They include:

Acquired Rights Directive;

Procurement Directives;

European Works Council Directive;

Other (e.g. Working Time Directive; Water and Environment Directives).

11. Bibliography

Meanings of "privatization"

A number of different definitions of privatization are used in Europe. In central and eastern Europe (CEE) the term is used broadly to refer to the administrative restructuring of the old state centralist economies, including decentralization of functions to locally elected public authorities. The term is also sometimes used, in both western and central and eastern Europe, to describe the process of creating a separate trading body with its own accounts, even where this body remains 100 per cent owned and controlled by a public authority. In western Europe, it most commonly means the transfer of undertakings from public sector ownership and control to partial or total private ownership and control.

This paper uses different terms to refer to these three processes in the context of water, electricity and gas:

Decentralization of state operations to the municipal level. This has happened mainly to water and energy distribution operations in central Europe, so that local authorities now own and/or control functions which were previously state owned.

Corporatisation or the separation of public corporations from general public utility budgets. There are many examples of it in western Europe, e.g. the German Stadtwerke, the aziende municipali in Italy, or the régies of the French communes. In some cases in central Europe, too, local authorities have separated out the trading functions of utilities while retaining 100 per cent ownership.

Privatization through sales of shares, or through contracting out. Water and energy companies that were previously state or municipally owned have been sold, wholly or in part, to the private sector, for example in the United Kingdom. Partial sales of shares have taken place in Spain, Italy, Hungary and the Czech Republic. Alternatively, public authorities may grant licenses or concessions for a wholly or partly private company to run a utility. The best known examples are the French water concessions.

Restructuring

Privatization is often associated with industrial restructuring, but these are two distinct issues.

In the electricity industry, some European countries have separated the responsibility for generation, transmission, and distribution. However, this kind of restructuring can occur with or without privatization of the different parts; for example, the electricity transmission grid remains a publicly owned monopoly in most countries. Private companies may also act to reverse such restructuring; in Sweden, for example, power generators have taken over electricity distributors to guarantee outlets for their power.

In water, the typical form of restructuring in central and eastern Europe has been for former state regional water companies in central Europe to be municipalized, with the result that a few large organisations have been replaced with many more smaller ones. Very few of these have been privatized, however. In the United Kingdom, by contrast, municipal responsibilities were transferred to new state owned regional bodies 15 years before these regional bodies were privatized.

Competition

Much theoretical writing on privatization assumes that the advantage of privatization is the extra efficiency engendered by competition. There is, however, very little competition associated with privatization of water and energy in Europe, except for power generation.

In all cases of water privatization, the companies, whether public or private, operate licensed monopolies in designated areas.

In nearly all countries, the electricity transmission grid is a monopoly. Electricity and gas distributors, whether publicly or privately owned, have also invariably been regional or local monopolies, although the Nordic countries and the United Kingdom are experimenting with the introduction of competition.

In many countries, electricity generating companies can compete to sell supplies to large customers or the grid. These companies may be private or publicly owned; in Scandinavia, the biggest three companies which are competing in this market are state owned industries. In some cases, the introduction of competition has been resisted by private companies who see their monopolies threatened.

Summary

This paper focuses on privatization in the core sense, as defined above. It compares, where possible, the performance of private and public organizations. Restructuring and competition are considered as empirical issues, where they actually occur. It is not assumed that restructuring is necessarily more efficient, nor that privatized companies necessarily compete more or less than public ones.

Overview

The United Kingdom remains unique in having privatized its entire electricity industry, and in the takeover of most of its distribution utilities by US companies.

Competition is being introduced more widely, but this does not appear to necessarily favour privatized operators. In Scandinavia, the most successful companies are the state owned generators.

Water

Water privatization in the European Union (EU)

There are important differences between the two countries:

Water privatization in the CEE

In other countries, decentralization has either not taken place or has not led to privatization.

Energy

Electricity and gas privatization in the EU

Table 2 sets out a schematic summary of the structure of energy industries in EU countries. The picture is a complex one, with many differences, but some generalizations can none the less be made:

The development of international grids in both gas and electricity means that the energy industries are becoming international in nature.

The United Kingdom's experience

Energy privatization in the CEE

Hungary

In addition, Powergen (United Kingdom) has bought an independent generator at Csepel, and AES (United States) has also bought a power station.

Czech Republic

The government has sold 33 per cent of the shares in the main generator, CEZ, but to private citizens, not to a multinational. The company remains state controlled and runs the grid.

NRG (United States) is investing in an IPP. The plans involve investment of US$400 million, said to be one of the largest American investments in the Czech Republic.

Poland

Slovakia

Other countries in the region are still developing energy strategies and laws.

Gazprom

Monopolies and competition

Overview

On costs, personnel ratios, technical performance and financial comparisons, publicly run water operations appear at least as efficient as private ones.

Publicly run systems may have a greater incentive to maximise environmental quality, as happens in Germany, rather than seek simple profit maximization, as in the United Kingdom.

Energy

Electricity: international comparisons

In transmission and distribution, the conclusion again was that there was "no significant difference in technical efficiency between the two ownership types" (Pollitt, p. 188)

Gas

Water

Water costs to consumers

Water personnel ratios

Environmental standards

The problems of water in the United Kingdom and France

Among the salient problems in the United Kingdom's privatized companies:

Unacceptable price rises, that have been associated with privatization. For example, at St Etienne prices rose by 124 per cent in 2 years following privatization of the water concession.

Municipal companies, for being overstaffed, inexpert, and having poor financial management, inadequate invoicing, inadequate controls.

Evaluated comparisons

Privatization and risk

In some cases in central Europe, water concessions include clauses which automatically compensate the company if it makes an operating loss. This protects the company against risk of trading losses.

Structural considerations

Overview

Despite this, both governments and local authorities have treated receipts from privatization as though they were extra tax revenues, or substitutes for tax revenues.

In some cases this has been formalized by specific payments to local authorities, whose legality has been challenged.

The Maastricht convergence criteria encourage privatization because the capital expenditure carried out by a private company does not count against a public authority's borrowing.

Financial effects: theory

Maastricht: the convergence criteria

Hidden taxes

Distortions

More generally, the effect of such transactions distort any comparison between private and publicly run options, unless the public sector operator is in a position to offer similar inducements.

Works contracts

Public procurement and risk

Overview

By contrast, an analysis of British privatized utilities concludes that the widespread job reductions have had the effect of financing higher dividend payments to shareholders. In a number of cases in the CEE, job reductions have been a key part of the economics of water privatization.

5.A. Trends in employment

Overall employment levels in gas, electricity and water

Employment in the energy sector

Longer run data on the energy sector alone show that the United Kingdom accounts for half of the jobs lost in energy in the whole of western Europe since 1990.

The reduction is worse in electricity than gas; indeed in some countries, such as Spain and Italy, employment in gas has increased.

The job loss in the United Kingdom is far worse than any other country over the period, in both electricity and gas. Further substantial job losses have taken place since 1995.

Employment in water

Comparably detailed figures for the water industry are not available.

5.B. Handling job reductions/human resource strategies

Human resource strategies in the French energy industry

reduction of hours for shift workers, with no loss of pay;

the opportunity for full-time workers on 38 hours to choose to move to 32 hours, while being paid for 35 hours, for a 3-year period;

voluntary early retirement in declining areas, complemented by recruitment of young workers in growth sectors;

75 per cent of recruits put on a 32 hour week, for a 3-year period, with the option of going full time after that.

Job reductions and dividends in the United Kingdom

Job reductions in water privatizations in the CEE

5.C. Employment status and privatization: transfer of employees

Transfers of staff with privatization

EU employment rights

The same Directive also requires consultation with representative organizations of workers before any proposal is introduced which could result in transfers.

European Works Council agreements

prohibition of child labour;

prohibition of forced labour of detained persons or convicts;

respect for freedom of trade unions.

In some European countries, such as the United Kingdom, these last two clauses provide significant extensions of workers" right to organize, even where subcontracting has taken place.

Other international codes on privatization

Overview

Trade union surveys, in both water and energy, suggest that there is no general pattern of privatized water or energy employers offering markedly better or worse conditions than public sector employers. However, the privatized British utility companies have increased their directors' pay substantially.

Energy

Evidence from a PSI survey of pay and conditions in 1995 suggests that there is no consistent difference between private and public sector pay and other working conditions across different countries.

Pay

Working time

Directors" pay in British privatized utilities

Water

Pay

Working time

Pay and conditions in Czech and Hungarian water companies

Overview

7.A. Government consultation of social partners

Formal consultation

Campaigns and elections

Hungary: energy privatization

Political and economic background

Negotiations and guarantees over social aspects

The Hungarian energy trade unions raised a number of concerns about the impact of privatization on employees. Among the main concerns were:

loss of jobs;

retraining and redeployment for displaced workers;

a collective labour contract for the electricity industry;

the future administration of social and welfare facilities in the industry;

opportunities for employees to buy shares.

Three specific points in the agreement deserve highlighting:

5 per cent of the receipts from the share states would be used to create a fund for retraining and redeployment of any displaced workers;

the observation of the industry collective labour contract would be a contractually binding condition of the share sales;

employment levels in the privatized companies would be protected.

The government also stated that the companies would be allowed a rate of return of 8 per cent. The status of this has since been disputed, with the companies arguing that it was a guaranteed minimum.

Sale of shares (December 1995)

Disputes over price and pay rises (October 1996)

7.B. Labour relations

France and the United Kingdom: Different political frameworks

there was no national legislation providing statutory or financial incentives for job creation;

the government had "opted-out" of the EU social chapter, to reduce constraints on employers;

the government for a long time resisted the application of the Acquired Rights Directive to contracting out.

EDF: industrial relations framework

Internationalisation and company cultures

Overview

In energy, available comparisons do not show any clear relation between prices and private or public sector ownership.

Water prices

In the Czech Republic, the prices of privatized operations are broadly similar to the prices of publicly run utilities (see table 20).

Electricity prices

International comparisons

For industrial consumers, France and the United Kingdom, with very different systems, have about the same level of prices.

Electricity prices and competition

Finland

The report highlights a number of ways in which liberalization has increased prices:

Household prices have been increased to compensate for cuts in industrial rates.

Prices have increased to cover better services and a more commercial approach.

Households cannot afford the necessary meters to take advantage of competing electricity suppliers.

Sweden

The Swedish experience as well is that domestic users have not benefitted from reductions, and will be unable to since the cost of metering is too high:

"The incentives for shopping around have been significantly reduced," says Mr Per Axelsson, utilities specialist at Gemini Consulting in Stockholm.

Costs and cutoffs in the United Kingdom

The trading market: Norway and Sweden

There is a long tradition of energy trading between Scandinavian countries. Power has been supplied cross borders in response, for example, to power shortages in Norway's wholly hydroelectric system.

CEE: tensions over prices

The main conclusions to be drawn from the study can be captured by the following statements:

Privatization on the United Kingdom model has not happened elsewhere in Europe, either in water or energy. It should not therefore be treated as typical or paradigmatic.

The employment consequences of privatization on the United Kingdom model are severe, and should be carefully evaluated in any consideration of this option.

Transfer arrangements for employees should follow EU law.

Positive human resource policies and industrial relations are facilitated by public ownership. More publicly owned utilities could develop positive job creation plans.

Where privatization takes place, agreements on employment protection should be made a precondition of the process. The case of Hungary provides a model example.

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Direction des resources humaines du groupe: Charter of fundamental social rights, Générale des Eaux, September 1996, Paris.

Duval, G.: "Pour en finir avec la corruption", Alternatives Economiques, No. 136, April 1996, Paris.

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Faross, P.: The Commission's view on the state of electricity competition policy in EU Member States, EC, Jan. 1996, Brussels.

FNLE/CGIL: Il 2000 dei servizi a rete, FNLE/CGIL, June 1996.

Kelly, M.: Labor conditions and investment decisions, AFL-CIO, Oct. 1996, Washington, DC.

McGowan, F.: The struggle for power in Europe: Competition and regulation in the EC electricity industry, Royal Institute of International Affairs, 1993, London.

Pollitt, M., Ownership and performance in electrical utilities, Oxford University Press, 1995, Oxford.

PSPRU: The privatization network, PSPRU, 1996, London.

Rondinelli, D. and Iacono, M.: Policies and institutions for managing privatization, ILO International Training Centre, 1996, Turin.

SOMO: Internationalisation and restructuring of European gas and electricity utilities, EPSC/PSI, 1995, Brussels.

Stoffaes, C.: L'Europe de l'utilité publique, ASPE Europe, 1995, Paris.

Surrey, J. (ed): The British electricity experiment, Earthscan, 1996, London.

Yepes, G. and Dianderas, A.: Water and wastewater utilities indicators, 2nd ed., World Bank, May 1996, Washington, DC.

Privatization in Latin America: Private sector participation in water, gas and electricity utilities

Impact on labour and utility company performance

Enrique Saravia

International Labour Office Geneva

Executive summary

The privatization processes implemented over the last 20 years in various countries of Latin America have affected all sectors of economic life to a greater or lesser extent. Although the change of ownership has not proceeded so quickly in the case of water, gas and electricity utilities as in other fields (telecommunications and industry in general), there has been substantial progress. It should be added that these utilities employ large numbers of workers and that privatization has entailed extensive job losses.

The aim of this study is to analyse the process as it has applied to water and sewerage, electricity and natural gas.

An examination of the present situation, with its shortcomings and its potentials, revealed a wide array of situations and approaches, all of which suggests that, without outside participation, the conventional public sector will have difficulty in coping satisfactorily with the provision of public utilities. This obviously does not mean that privatization should go ahead in any form at any cost. Transfer to the private sector is in itself no better or worse than having the State provide the service. The deciding factor is efficiency and effectiveness in supplying public utility services to those who need them.

Public utilities, concessions, and trends in private sector participation

The constitutions and legislation of Latin American countries classify the three fields of activity covered by this study as "public services". Each is thus regarded as a technical service provided permanently by a public organization in response to a public need, respecting the principles of equality, continuity and adaptability as a means of attaining its objective or protecting the public interest.

The service may be provided directly by the State or indirectly through a concessionaire. The concession of a public utility may be defined as a contract by which a public body (the conceding authority) delegates the management of a public service to a specified entity (the concessionaire), for a given period of time and under the authority's supervision, and agrees with the entity on the scope and duration of the latter's responsibilities, the tasks it has to assume and the payment it will receive from consumers.

The utilities we are concerned with water, gas and electricity have traditionally been regarded as natural monopolies. This, and their public service nature, suits them to concession.

The present trend is for governments to draw up the regulatory framework and consumer protection policies, to ensure environmental protection and to delegate the running of the services to public and private developers. An impartial regulatory body independent of government, consumers and developers controls tariffs, ensures that needy consumers are not excluded and monitors unwanted external effects such as pollution.

The scope for transferring an operation to a private developer depends on the sector in question and the financial returns in prospect. In most countries of the region, however, the necessary legislation for concessions and other forms of delegation is lacking, as is transparent regulation.

Another feature in Latin America is that in many countries the responsibility for public utilities is being decentralized to provincial, state or local level. The hoped-for result is greater efficiency. Difficulties have arisen, however, because the local authorities lack the capacity to prepare, implement, operate and maintain utility projects.

Tarif regimes

Rate-setting is a political function. The general tariff structure must however be agreed on jointly by both contracting parties from the very beginning and set forth in the terms and conditions, with no possibility of amendment by either side unilaterally.

The commonest rate-setting methods applied to concessions in Latin America are rate of return regulation or cost-based service, and price cap regulation or price-based service.

Present investment needs

The outlay required for infrastructure is reckoned to be more than US$60 billion a year, over and above the requirement for maintenance. Annual maintenance costs are almost US$7 billion, taking an average of 2 per cent of the 1993 capital stock.

This situation has led governments to seek the participation of domestic and foreign private developers, which have joined together to invest in public utilities in Latin America. Another form of cooperation that has been encouraged in recent years is association with residents affected by infrastructure works.

Restructuring and privatization of electricity, gas and water utilities

Argentina is the country that has gone furthest in matters of privatization in Latin America since 1990. Electricity, gas and water utilities are among those that have been restructured and handed over on concessions. These measures were accompanied by elimination of the old regulatory provisions and the introduction of new forms of regulation. Rates were set using the latest methods of calculation.

General labour situation

It is fair to say that there was no major impact on water and gas sector workers as a whole. In the gas sector, large-scale movements took place only in Argentina.

After privatization, the number of workers employed by the companies that succeeded GdE fell. By end-1993, the total number was 32 per cent less than before privatization. At SEGBA the drop was of 28 per cent and at OSN 47 per cent. There had also been job cuts before privatization.

Compensation for redundancies and voluntary retirements was financed by the World Bank and Government sources and, in the case of SEGBA, by the company and the new owners jointly.

At OSN and SEGBA, 10 per cent of the share capital was offered to the workers and at GdE 3-5 per cent, under shared ownership programmes.

Unions generally went along with the privatization schemes. That attitude was due to the generous allowances and other benefits on offer and the fact that the unions would not have had much support from public opinion in opposing privatization.

Workers who resumed their old jobs had the advantage of dividends and capital gains on their shares. Employees in the firms that took over from SEGBA received incentive payments and were able to take part in training courses. GdE employees obtained pay rises and OSN employees access to training.

A rapid process of utility privatization is under way in Brazil also, triggered by the new law on concessions passed by the National Congress in 1995. A series of projects in the electric power sector and the water and sanitation sector have since been opened up to private enterprise.

Chile has the longest and most pioneering history of selling public enterprises and transferring to the private sector activities traditionally carried out by the State. Privatization did not involve largescale redundancies; in fact employment rose in some companies. It is worth noting, however, that workforce numbers had been cut drastically in the course of previous reforms, with the result that the large public enterprises employed 40 per cent fewer workers in 1986 than in 1974.

Water and sewerage utilities

In Latin America, 73 per cent of the population lives in towns and cities. There is enormous pressure on the urban environment, therefore, with crisis proportions being reached inthe main urban areas, such as Mexico City, São Paulo and Santiago. The public sector will have to play a central role in controlling air and water pollution in order to avoid adverse effects on health and the environment.

The water and sanitation sector presents huge problems. Efforts have focused on extending coverage rather than on recovering costs or establishing sound institutional and human resource policies. The result has been poor operating performance. In the absence of a rational pricing policy and clear legislative and regulatory systems, the sector has difficulty in attracting private capital.

Sanitation companies also have to overcome serious institutional and labour problems. Overstaffing is at the root of the poor productivity of water utilities. Ratios of 5 to 10 employees per thousand water connections are common, whereas the ratio in efficient water companies is 2 to 3 per thousand.

In the light of these problems, it would seem more efficient to enlist private sector participation. Support for this view comes, for example, from the concessions granted in Argentina for water and sewerage services in its major cities. The city of Cancún in Mexico was able to solve the sanitation problem created by the city's meteoric tourism-generated growth. The semi-public company set up in 1985 by the municipal authorities in Cartagena, Colombia, is another good example. In Santiago de Chile, a number of companies in which the State has a majority holding have, since 1979, brought about a significant improvement in service.

In Colombia, the legislation provides incentives for private firms to join together with local and regional authorities in the task of upgrading water, sewerage and sanitation services. Despite the encouragement, however, little progress has been made because private sector participation is held back by uncertainties stemming from institutional, technical, regulatory and financial problems.

Twelve privatizations have taken place in Colombia during the 1990s. Considering that Colombia has about 1,050 municipalities, the impact of privatization in this sector has clearly been scant.

In Chile, the sanitation services were converted into stock corporations in 1989 but none were privatized. Water and sanitation services are provided by public corporations. This is the case of the Empresa Metropolitana de Obras Sanitarias (EMOS), which contracts various activities out to the private sector. EMOS is considered to be the best company in Chile and one of the best in Latin America.

Labour situation in the sector

In the majority of countries, a strong trade union tradition used to exist in the water and sewerage sectors. The unions at first resisted privatization movements. This resistance was countered by means of three basic strategies: offers of generous compensation for workers accepting voluntary retirement; a promise to re-employ large numbers of workers in the new operating company; and the earmarking of shares in the new company for workers from the former operator.

At the time OSN was privatized in Argentina, the company was overstaffed. Seven thousand six hundred employees were transferred to the concessionaire. Of that number, around 1,800 accepted voluntary retirement. The cost to the central government in compensation was US$37 million. Another 1,700 employees were separated under a similar programme conducted by the concessionaire at a cost of US$50 million. The number of workers employed by the concessionaire, Aguas Argentinas, thus fell by about 4,000 (a drop of nearly 50 per cent) in less than six months. The present ratio of employees to users is approximately 3.5 per thousand.

Since the start of the concession, Aguas Argentinas has worked closely with two unions in planning retirements, renegotiating collective labour agreements and improving details of the shared ownership programme. The company and one of the unions have now signed a new agreement providing for average wage rises of 40 per cent.

In May 1997, in the city of Córdoba, Argentina, the firm Aguas Cordobesas, in which the Compañía Lyonnaise des eaux has a majority holding, took over the provincial capital's water utility. The Sindicato del Personal de Obras Sanitarias (SIPOS) (Union of Sanitation Sector Workers) had filed a criminal complaint in 1995 alleging connivance to the advantage of the consortium led by the Lyonnaise des eaux. The proceedings ended in dismissal of the case. In February 1997, the union had also complained of various manoeuvres by the provincial government designed to undermine the company so that the decline in its public image would bring opinion round to the idea of privatization.

The new company plans to cut the present workforce from 700 to 344, since most of the services will be contracted out. Only 150 employees of the provincial agency that provided the service (DAS) transferred to the new private operator. SIPOS claimed that the workers had decided to remain in the public sector because of the lack of labour guarantees.

In the city of Tucumán, Argentina, the water utility was awarded in July 1995 to the Aguas del Aconquija consortium, led by the Compagnie générale des eaux (CGE). In August 1997, the controlling company withdrew from the concession contract and took issue with the provincial government which, it asserted, was "guilty" of undoing the agreement. The French firm put in a claim for damages and applied for international arbitration vis-à-vis the State of Argentina. Aguas del Aconquija is the first case of a large privatized utility in Argentina being returned to the State.

In Colombia, employees of public utilities, whether private or semi-public, have the status of individual workers and are subject to the rules of the Substantive Labour Code.

The contract between the District of Cartagena and ACUACAR stipulates that water and sewerage services will be provided using workers engaged by ACUACAR who will be regarded as private workers. The new company is free to adopt the procedures it prefers in selecting and hiring workers. It can also use the services of workers' cooperatives, independent contractors and temporary employment agencies.

Of the 1,200 employees of the former public enterprise, nearly 600 decided to accept the voluntary retirement plan proposed by the company. A further 200 left on retirement subsequently and 400 or so were hired over a period by ACUACAR.

The new semi-public enterprise raised productivity appreciably. Whereas the old public enterprise needed 14 employees to service a thousand water and sewerage connections, the new company only needed 4.5.

Electricity sector

The privatization model adopted in most countries consists of splitting the industry into five functions: generating, dispatching, transmission, distribution networks and supply, with deregulation of the system at bulk and retail levels. The completely deregulated bulk sector remains open to competition for generating. The retail part provides large and medium-sized consumers with direct access to generation under freely negotiated contracts and a supply to small consumers at regulated prices.

In Brazil, privatization is targeted mainly at the federal and state levels. About 93 per cent of total power output is hydroelectric in origin, almost all of it produced by the Federal Government and the states, with very little municipal-level participation. Thermal generation is also mainly the concern of the Federal Government and the states. The role played by the private sector in generation is generally minimal.

The transmission lines are almost entirely the property of federal enterprises and state concessionaires, only a small proportion being owned by private operators. The distribution network comes essentially within the sphere of the state concessionaires, with the private sector again holding a minor share. Local authorities are not of much consequence in the electric power market.

The transfer of electrical utilities to the private sector is to be done through the sale of Federal Government and state assets and the award of concessions by the Federal Government.

Recognition of the status of independent producer and producer for own consumption opens up opportunities for private initiative by authorizing the generation of electricity for own consumption or for sale to concessionaires.

In Chile, the first privatizations took place between 1986 and 1989. Before that, a law restructuring the sector and setting forth the basic rules for private sector participation was passed. The existing institutions were rehabilitated and converted into stock corporations in order to facilitate the gradual sale of shares to the private sector. Finally, the shares were sold to private concerns, which included investors with operating experience and with a strategic long-term interest in the enterprise; institutional investors, such as private pension funds; and small investors, including electricity company employees and individuals.

At present, 80 per cent of generating capacity is private, as is all transmission and distribution. ENERSIS, the holding company created by the privatization of the two State electricity utilities, has started to invest heavily in other countries, especially in Argentina, Brazil and Peru.

Labour situation in the sector

In Argentina, circumstances demanded a tighter schedule, which meant that the assets were sold through a series of public calls for tenders while the regulatory framework was being drawn up. Acceptance of the reform was eased by granting employees a 10 per cent share in the privatized companies. Thanks to special compensation payments, a sharp cut in the workforce was possible.

SEGBA reduced its workforce by 22 per cent before privatization. Two thirds of the separations were redundancies or retirements and the rest were the result of special retirement schemes. Those made redundant received an average allowance of US$9,912, which was 10 per cent higher than that required by law. The total amount paid out by SEGBA in this way was US$55.5 million, of which US$52 million was contributed by the new companies. Employees of EDESUR, one of the new distribution companies, obtained US$30,000 in compensation. After privatization, further redundancies and voluntary retirements compressed the workforce by another 28.4 per cent.

The job cuts were arranged through special settlements made possible by the cooperation of the most powerful union, Luz y Fuerza. Employees who were made redundant received compensation based on their length of service and the nature of their work, the average amount being three times the pre-privatization payment. The working day went from six hours to eight but safety was improved and incentive bonuses linked to the company's performance and profits were paid. Adjustment of the workforce brought about a higher rate of labour productivity and an improved customer/employee ratio, as well as a drop in electricity losses.

In Chile, the privatization process included the sale of shares to workers on preferential terms. The number of shares varied. While some of the small subsidiaries of ENDESA were sold in their entirety, workers in the large privatized firms were offered shareholdings totalling 6 to 10 per cent of equity.

Gas sector

Generally speaking, little has been done to restructure the sector. One exception is Argentina, where the gas company, Gas del Estado (GdE), was restructured and privatized in 1992. In preparing for privatization, Gas del Estado was split up into ten companies, two dealing with transmission and eight with distribution.

In Brazil, piped gas is only available in the cities of Rio de Janeiro and São Paulo, where the state enterprises CEG and COMGAS are in the process of being privatized.

Labour situation in the sector

In Argentina, the terms and conditions for privatization of Gas del Estado stipulated that the privatized companies must absorb all the former employees, so there was no retrenchment. A voluntary retirement programme had however been introduced during the preparatory phase of privatization and had attracted 1,170 applicants.

In Brazil, the two privatizations (of Comgás and CEG) took place only recently so it is too soon to evaluate changes. There have as yet been no new redundancies but it is assumed that there will be at CEG, which is overstaffed.

In Chile, there has been no privatization in the petroleum industry, which is the producer of gas. Gas distribution has always been in private hands.

Contents

Executive summary

List of abbreviations

1. Introduction

2. Concept of public service

Principles of public service

Consequences of the concept of public service

3. Concession of a public service

Concessions and the provisions of Anglo-American law

Concessions and natural monopolies

Types of concession

4. Trends in private sector participation

5. Tariff regime

6. Role of the State

Traditional role of public enterprises

Performance of the State as an entrepreneur

Present investment needs

Private sector participation

7. Restructuring and privatization of electricity, gas and water utilities

Restructuring and privatization in Argentina

General labour situation.

Restructuring and privatization in Brazil

Restructuring and privatization in Chile

8. Water and sewerage sector

Overall situation

Labour situation in the sector

9. Electricity sector

Overall situation

Labour situation in the sector

10. Gas sector

Overall situation

Labour situation in the sector

11. Conclusions

Annexes

Bibliography

List of abbreviations

ACUACAR Aguas de Cartagena S.A. (Cartagena de Indias, Colombia)

AGBAR Aguas de Barcelona S.A.

AGUAKAN Aguas de Cancún S.A. (Mexico)

BLO build, lease, operate

BNDES Banco Nacional de Desenvolvimento Econômico e Social (Brazil)

BOL build, operate, license

BOO build, own, operate

BOOT build, operate, own, transfer

BOT build, operate, transfer

CEDAE Companhia Estadual de Aguas e Esgotos do Rio de Janeiro

CEEE Companhia Estadual de Energia Elétrica (Rio Grande do Sul, Brazil)

CEG Companhia Estadual de Gás do Rio de Janeiro

CELTINS Centrais Elétricas de Tocantins S.A. (Brazil)

CEMIG Centrais Elétricas de Minas Gerais S.A. (Brazil)

CERJ Companhia de Eletricidade do Rio de Janeiro

CESP Companhia Energética de São Paulo S.A. (Brazil)

CHESF Companhia Hidroelétrica do São Francisco S.A. (Brazil)

CHILECTRA Compañía Chilena de Electricidad

CNE Comisión Nacional de Energía (Chile)

CODELCO Corporación Nacional del Cobre (Chile)

COELBA Companhia Elétrica da Bahia (Brazil)

COMGAS Companhia de Gás de São Paulo (São Paulo, Brazil)

COPEL Companhia Paranaense de Eletricidade S.A. (Brazil)

CORFO Corporación de Fomento de la Producción (Chile)

CPFL Companhia Paulista de Força e Luz S.A. (Brazil)

CRA Comisión de Regulación de Agua Potable y Saneamiento (Colombia)

DAS Dirección de Agua y Saneamiento (Córdoba, Argentina)

EDELAP Empresa Distribuidora La Plata S.A. (Argentina)

EDELAYSEN Empresa Eléctrica de Aysén (Chile)

EDELMAG Empresa Eléctrica de Magallanes (Chile)

EDELNOR Empresa Eléctrica del Norte (Chile)

EDENOR Empresa Distribuidora Norte S.A. (Buenos Aires)

EDESUR Empresa Distribuidora Sur S.A. (Buenos Aires)

ELETROBRAS Centrais Elétricas Brasileiras S.A. (Brazil)

ELETRONORTE Centrais Elétricas do Norte do Brasil S.A. (Brazil)

ELETROPAULO Eletricidade de São Paulo S.A. (Brazil)

ELETROSUL Centrais Elétricas do Sul do Brasil (Brazil)

ELIQSA Empresa Eléctrica de Iquique S.A. (Chile)

EMELARI Empresa Eléctrica de Arica (Chile)

EMELAT Empresa Eléctrica de Atacama (Chile)

EMOS Empresa Metropolitana de Obras Sanitarias S.A. (Santiago, Chile)

ENARGAS Ente Nacional Regulador del Gas (Argentina)

ENDESA Empresa Nacional de Electricidad S.A. (Chile)

ENRE Ente Nacional Regulador de la Electricidad (Argentina)

EPEC Empresa Provincial de Energía de Córdoba (Argentina)

EPOS Empresa Provincial de Obras Sanitarias (Córdoba)

ESCELSA Espírito Santo Centrais Elétricas S.A. (Brazil)

ETOSS Ente Tripartito de Obras y Servicios Sanitarios (Argentina)

FENTOS Federación Nacional de Trabajadores de Obras Sanitarias (Argentina)

FURNAS Furnas Centrais Elétricas S.A. (Brazil)

GdE Gas del Estado (Argentina)

GDP gross domestic product

DA International Development Association

DB Inter-American Development Bank

IFC International Finance Corporation

LIGHT Light Serviços de Eletricidade S.A. (Rio de Janeiro)

OSN Obras Sanitarias de la Nación (Argentina)

PPI producer price index (United States)

PPP programa de propiedad participada

ROT rehabilitate, operate, transfer

SEGBA Servicios Eléctricos del Gran Buenos Aires

SIPOS Sindicato del Personal de Obras Sanitarias (Argentina)

VAD value added in distribution

Billion means one thousand million

$ means United States dollar

1. Introduction1

The privatization processes implemented over the last 20 years in various countries of Latin America have affected all sectors of economic life to a greater or lesser extent. We have examined elsewhere the reasons underlying those processes, which are both internal and external to the development of national economies.2 The need to raise the efficiency of the production system in the context of an increasingly competitive international market, combined with the financial difficulties of the State and the public demand for better social services, create relentless pressure for change in the way the State's functions are performed and public utilities provided. When the State is financially and operationally unable to furnish the required infrastructure, the only alternative is to open the door to domestic or foreign private enterprise, or to State-owned utility companies from other countries that have an established reputation for management efficiency, or to community-level organizations. Individually, or through various types of grouping with each other or with the State, or with local entities such as municipalities, those new operators are gradually taking over functions that were formerly the preserve of the public sector. The pace of change varies from one country to another but all, without exception, have plans to move utilities out of the public sector in the medium or long term.

Although the change of ownership has not proceeded so quickly in the case of water, gas and electricity utilities as in other fields (telecommunications and industry in general), there has been substantial progress. It should be added that these utilities employ large numbers of workers and that privatization has entailed extensive job losses.

The aim of this study is to analyse the process as it has applied to water and sewerage, electricity and natural gas. The various institutional forms of privatization are first described briefly. We then go on to discuss the legal status that utilities have traditionally enjoyed in Latin American countries and the methods sanctioned by the law, and currently being applied, for transfers to entities other than the State, giving special attention to the concession mechanism and its variants. This is followed by a look at the present situation in the three sectors concerned; in the few instances where there has been privatization, the situations before and after are compared. As involvement of the private sector has taken place in a wide variety of ways and at diverse levels of government national, provincial, regional and local we selected for more detailed examination a few cases that provide good examples of the topic under consideration, such as the water and sewerage systems in Colombia, particularly those of the city of Cartagena; the water, gas and electricity systems of a number of cities in Argentina and Brazil; and the water supply service in the cities of Buenos Aires, Córdoba and Tucumán. Finally, a number of general conclusions are drawn concerning the experience to date and some recommendations are made for future action.

Our study of the existing state of progress, with its shortcomings and its potentials, revealed a wide array of situations and approaches, all of which convinced us that, without outside participation, the conventional public sector can no longer cope satisfactorily with the provision of public utilities. This obviously does not mean that privatization should go ahead in any form at any cost. Transfer to the private sector is in itself no better or worse than having the State provide the service. The deciding factor is efficiency and effectiveness in supplying public utility services to those who need them.

The primary focus of our attention was the effect of partial or full privatization on the workers currently employed by water, electricity and gas companies.

2. Concept of public service

The constitutions and legislation of Latin American countries unequivocally classify the three fields of activity covered by this study as public services. The concept of public service was defined by French administrative law and assimilated into Latin American judicial systems.

According to law, a public utility is traditionally considered to be a technical service provided permanently by a public organization in response to a public need.3

At a point in time, the State designates the needs that must be met by means of a public utility and specifies the legal regime of the service in each case.4 The service may be provided directly by the State or indirectly through a concessionaire. The ultimate aim is to satisfy a public need. As this public need or interest is the sum total of a number of coinciding individual needs, the public utility usually takes the form of a supply to individual end-users.5

Principles of public service

A public utility must respect the principles of equality, continuity and adaptability in order to fulfil its goal of defending the public interest.

The principle of equality implies that all should have equal access to the public service, that tariffs should be similar in similar situations, that all should pay in the same way for the services received, and that all should enjoy the same guarantees vis-à-vis any advisory, decision-making or complaint bodies that may exist and before any courts of law, in defending their rights against the public utility. This principle expresses the neutrality of the public service, implying that it must be provided without hindrance and must be made available to all citizens.

The principle of continuity means that the service must be available to anyone who needs it under certain specified conditions. This raises the question of whether, in view of the consumer's needs, the right to strike is justified in a public service.

The principle of adaptability refers to the right to have technical progress incorporated in the service and to have the service provided efficiently.6 It implies that neither companies nor consumers can invoke acquired rights in order to oppose a reorganization or cancellation of service decided upon for reasons of technological innovation or upgrading aimed at better serving the public interest.

Consequences of the concept of public service

The judicial consequences of this concept are as follows:

The owner of the public service is the State and that ownership is inalienable;

Ownership is implicit in the simple affirmation that an activity constitutes a public service;

The utility concession is the form in which the State may entrust provision of the service to the private sector;

Such transfer is basically temporary, in the sense that the activity reverts to the State at the end of the concession period;

A concession cannot legally be awarded without specifying a period of validity;

Reversion may take place even during the concession period, by virtue of the State's right of redemption;

Notwithstanding the contract provisions, the State is entitled to modify provision of the service so as to ensure that it is constantly in keeping with public needs;

The concessionaire may not contest redemption or modification of the service but is then entitled to compensation for any loss thus incurred;

The rights of redemption and modification are irrevocable, so they subsist even if the concession and relevant laws and regulations are silent on the matter, and even if clauses in the contract expressly rule them out.7

3. Concession of a public service

As mentioned above, the utility may be provided directly by the State or indirectly through a concessionaire. The concession of a public utility may be defined as a contract by which a public body (the conceding authority) delegates the management of a public service to a specified entity (the concessionaire), for a given period of time and under the authority's supervision, and agrees with the entity on the scope and duration of the latter's responsibilities, the tasks it has to assume and the payment it will receive from consumers.8

Concessions were originally granted by local authorities,9 which would entrust the management of a public utility and, if necessary, construction of the facilities needed for its operation to a private party, subject to certain rules but on that party's own account and at its own risk, guaranteeing in return a payment obtained by charging consumers. This kind of concession still exists for water supply. Nowadays, the concessionaire may be a private party or a legal entity such as a public or semi-public company. The financial risks may also be shared between the conceding authority and the concessionaire.

The conditions of execution and the material and financial resources required are set forth in the concession contract and the attached terms and conditions. The contract contains three types of clause: statutory, ownership and financial.

The terms and conditions define the restrictions of a public interest nature that apply to operation and the guarantees offered in return. They also define property rights, both as regards property that will accrue or revert to the conceding authority at the end of the contract and concerning property that the concessionaire will retain permanently.10

Concessions and the terminology of Anglo-American law

A distinction must be made between the term "concession" as applied to the concept of public service, which is of French origin, and the term "lease" as applied to the Anglo-American concept of public utility, which results in different legal systems and a variety of tariff structures.

In North American thinking, the concept that comes closest to that of public service is the public utility, which refers to any activity affected with a public interest, provided the (federal or state) legislator has so declared it. The concept is now confined to activities which not only fulfil the above condition but also have a close connection with transport and distribution. There are usually two types of company: those that provide a continuous service by means of fixed facilities linking the supplier's plant to the consumer (electricity, gas, telephone and sanitation systems) and public transport undertakings.11

In Anglo-American law, the leasing contract is something very similar to a public service concession. It is important not to confuse it with the English legal term "concession" (which is a privilege accorded by a government, such as the right to use a piece of land or to provide a service in certain public places) or the expression "public service" in the sense of employment in a government department.

A lease is an agreement by which one party, the lessor, gives another, the lessee, the use and possession of assets for a specified period of time and in return for fixed payments.12

Concessions and natural monopolies

The utilities we are concerned with water, gas and electricity have traditionally been regarded as natural monopolies. This, and their public service nature, suits them to concession, which must assure the concessionaire of exclusivity in his area of operation. In principle, that eliminates competition.

It is an old debate. According to Dnes,13 it was in 1859 that Sir Edwin Chadwick, a Victorian social reformer, proposed a franchise solution to the problems of natural monopoly, an approach promoted much later, in 1968, by Harold Demsetz in the United States. Chadwick distinguished between competition "within the field" and "for the field". When competition is not possible within an industry, competition for the right to be the monopolist may be an adequate substitute.

The origin of a natural monopoly is a cost advantage. Better results mean lower average unit costs and only one firm can survive. If there were two firms, one might expand to cut costs and thus eliminate the other. In the past, this type of situation has raised a tariff problem, because the surviving producer may be tempted to set a price well above that which would apply in conditions of competition. This is often the argument for regulating or nationalizing a natural monopoly.

The present trend, according to the World Bank,14 is for governments to draw up the regulatory framework and the policies required to safeguard consumer interests, to ensure environmental protection and to delegate the running of the services to public and private developers. An impartial regulatory body independent of government, consumers and suppliers controls tariffs, ensures that poor consumers are not excluded and monitors unwanted external effects such as pollution.

Types of concession

The commonest types of concession are classified according to the scope of the functions delegated. They are:

Build, operate, transfer (BOT) schemes, in which the concessionaire builds the facilities needed and recovers his investment by charging users. At the end of the fixed term, he transfers the assets to the conceding authority. The best-known examples, because of their size and the amount of investment involved, are Eurotunnel and the Bangkok and Taipei underground systems;

Rehabilitate, operate, transfer (ROT) schemes, which are similar to the above but where the concessionaire merely has to rehabilitate an existing infrastructure instead of building it. Examples are the Buenos Aires water supply and sanitation system and the Maputo export corridor in Mozambique;

Build, own, operate (BOO) schemes, in which there is no transfer of assets by the concessionaire. The Yamal gas pipeline in Russia is an example.

Some intermediate forms are: build, operate, license (BOL) arrangements, an example of which is the Russian long-distance telephone network; build, lease, operate (BLO) schemes, an example being the Hong Kong airport project; and build, operate, own, transfer (BOOT) schemes, which have been adopted for electric power projects in China, Costa Rica, the Dominican Republic and Pakistan.

In France, some modified forms of the conventional type of concession have come into being. According to Auby,15 they are:

The straight concession, in which the concessionaire builds the facility, maintains it and operates it on his own account and at his own risk, deriving his income directly from the users;

The affermage or leasing contract, in which the State delegates the management of an existing facility to a lessee, who obtains payment directly from the users. The responsibility for modernization and renovation work is divided between lessor and lessee according to the terms of the contract;

The régie intéressée, in which the State delegates the management of a facility to a contractor, who receives in return a performance-linked payment. The contractor charges consumers for his services and passes the proceeds on to the delegating authority, which then pays the contractor according to results;

The gérance arrangement, in which the State delegates the running of a facility to a manager, who receives in return a previously agreed payment. The contractor charges users for his services, passes the proceeds on to the State and receives the agreed payment;

The bail emphytéotique administratif avec convention d'exploitation, which is a kind of long-term lease and operating agreement. The Act of 5 January 1988 empowers local authorities to confer a right in rem over public property for the purpose of providing a public service, under the legal arrangement known as emphyteusis. The authority leases out a piece of its public property to an "emphyteuta", who is charged with the task of building a facility and running it under the terms of an operating contract inseparable from the emphyteutic lease. The term varies from 18 to 99 years;

The "marché d'entreprises de travaux publics", in which the authority assigns to a company the task of building a facility and, in some cases, managing it. In return, the contractor receives periodic payments from the authority over a fixed term, at the end of which full ownership of the facility accrues to the authority.

The above system of delegating operation of a utility is current not only in France but also in Belgium and Spain, although in these two countries groups of municipalities award the concessions.

In Germany, preference is still given either to direct management or to management through publicly owned companies (Stadtwerke). The same is true for the Netherlands (Wateringue) and Italy (azienda municipalizzata). In the United Kingdom, licensing and contracting-out are the usual practices but some concessions are now seen (e.g. Eurotunnel, road-building and some urban infrastructures).16

4. Trends in private sector participation

According to the World Bank study referred to above, the scope for transferring an operation to a private developer depends on the sector in question and the financial returns in prospect. Some energy sector activities, such as electricity generation and distribution in large urban areas, attract private operators. Others, such as rural electrification and distribution in small towns, will probably remain in the public sector for some years. Even there, however, it should be possible to benefit from the experience of private operators though management contracts.

Some investments that involve long lead-times and a high degree of risk, such as large hydroelectric schemes, are likely to be implemented by the public sector. Similarly, energy-sector projects affecting more than one country involve risks that private developers are reluctant to take. In such cases, joint public-private enterprise may be the answer.

The same study claims that, in the water and sanitation sector, competition may be introduced by allowing specialized private companies to apply for leasing contracts and concessions. In most countries of the region, however, the necessary legislation for concessions and suchlike, and transparent regulation, is lacking.

Another feature in Latin America is that in many countries the responsibility for public utilities is being decentralized to provincial, state or local level. The hoped-for result is greater efficiency in keeping with local needs and preferences. Difficulties have arisen, however, because the local authorities lack the capacity to prepare, implement, operate and maintain utility projects.17

An interesting recent development in Brazil was the enactment of a new law (No. 8987 of 1995) governing concessions, which provides for the following forms:

Concession of a public utility;

Concession of a public utility after the completion of engineering work: construction in whole or in part, maintenance, repair, expansion or improvement so that the concessionaire's investment can be paid back from the proceeds of operation within the specified term;

A public utility permit (permissao), by which the conceding authority delegates on a basis of precarious tenure provision of a public service to an individual or a legal entity having proven ability to perform the function, on the latter's own account and at its own risk.

The effects of this law are reflected in table 1, which shows the relative participation of the federal, state and municipal governments and the private sector in public utilities at the present time.

Table 1. Brazil: participation of various sectors in utilities, present situation

Utility Degree of participation

Federal State Municipal Private

Electricity

Hydro generation High High Low Low

Thermal generation High Medium Low

Transmission High Medium Low

Distribution Low High Low Medium

Gas distribution Medium High Low

Water and sewerage High Medium

Source: Piccinini, Mauricio Serrao: "A infra-estructura nas diferentes esferas do setor público e a participaçao da iniciativa privada", Revista do BNDES, No. 6, December 1996, p. 88.

The possible future participation of the private sector in utilities is shown in table 2.

Another interesting case is that of Colombia, where a law (No. 142/94) on the subject of utility management was passed in 1994. The law provides for five types of contract: (i) a concession for the use of natural resources or the environment; (ii) a professional management contract; (iii) a contract for the transfer of ownership or use and enjoyment of assets exclusively intended for the provision of a public utility service; (iv) a contract regulating shared or interconnected access to assets; and (v) a contract for the expansion of a utility service. Contracts of types (ii) to (v) with public utility enterprises18 are governed by private law whereas concessions come under public law in conformity with the General Statute on Government Contracting.19

The statute defines a concession as a juridical act carried out by a public enterprise with the purpose of entrusting a party known as the concessionaire with the operation, running, organization or management, in whole or in part, of a facility or asset intended for public service, together with all the activities entailed in operating the facility or providing the service adequately, on the concessionaire's account and at its risk, under the supervision and control of the conceding authority, in return for payment in the form of fees, tariffs, or rates or of an interest in operation of the facility, or of a periodic or single sum or percentage, or in any other form agreed by the parties.20

Contracts for professional management through shareholdings are entered into by public enterprises that hold capital in public utilities, for the management of their shares, holdings or investments in those enterprises, with trust companies, financial corporations, high-level cooperative bodies of a financial nature, or companies established specifically to manage public utilities. The tariffs are an outcome of the competitive tendering process.

Contracts for the transfer of ownership or use and enjoyment of assets are governed by private law and may be concluded between a public utility enterprise and a third party for the following purposes: to transfer ownership or use and enjoyment of assets intended for the provision of services; to contract out any activity for the provision of water supply or sewerage services; to allow one or more users to carry out the necessary works so as to receive or render a utility service; to pay for the goods and services received with shares in the enterprise.

Contracts regulating shared access or interconnection apply in cases where two or more utility enterprises unite, or join together with major suppliers or users, to share access to the source or to interconnect facilities that are essential for a utility service, in return for a reasonable payment. This type of contract may also be concluded between a public utility and any of its major suppliers or users. If for any reason the parties cannot come to an agreement, the authorities may make access a servitude.

Contracts for the expansion of a utility service are used when, in special circumstances, an entity wishes a public utility enterprise to extend its services and undertakes to bear the cost of the works involved by paying the enterprise a sum fixed by the latter, or carries out the required works itself in accordance with a project approved by the enterprise.21

5. Tariff regime

Rate-setting is an eminently political function which entails weighing the interests of the utility against those of the consumer. More specifically, the general tariff structure must be agreed on jointly by both contracting parties from the very beginning and set forth in the terms and conditions, with no possibility of amendment by either side unilaterally.22 The principal methods of tariff regulation are presented in table 3.

Table 3. Tariff regulation methods

Method Description

Rate of return regulation, e.g. Allows tariffs to rise to within Brazil (before new law on maximum permitted rate of concessions) return

Price caps, e.g. Argentina, Sets ceiling prices Brazil (new law on concessions), Chile, United Kingdom

Yardstick regulation, e.g. Spain Individual suppliers are rated against efficiency standards

Contract regulation, e.g. water Regulation is done by the supply in France parties (local authorities and suppliers). Disputes are settled in court

Of the various methods of regulation listed in table 3, those applied to concessions in Latin America are described below.

Rate of return or cost-based regulation

The tariff is calculated so as to cover the concessionaire's operating costs, plus a rate of return on the investment.

It has been pointed out that, with this procedure, the basis of the calculation may be inflated by means of unrealistic or spurious costs or investments. The criticism has also been made that it does not induce the concessionaire to cut costs. According to Gomes and Monnerat,23 however, it is not wholly lacking in inducement for greater efficiency because the conceding authority can question the concessionaire's management and prevent unjustified cost increases from being reflected in tariffs.

Nevertheless, this is considered difficult to achieve in practice because it requires constant monitoring of management and continual negotiation between the two sides.

Price caps or price-based regulation

This method is used in Argentina, Chile and the United Kingdom. The new law on concessions in Brazil introduces it for new concessions, including the cases of existing concessionaires, such as Light and ESCELSA.

The ESCELSA contract provides that tariffs, once fixed, cannot be changed unless events external to the concessionaire's management alter the economic and financial balance of the contract. Adjustments or revisions requested by the concessionaire may be granted by the conceding authority at the latter's discretion.

Because of the uncertainties surrounding future tariffs in very long-term concessions, the Light contract followed the approach adopted in other countries where price caps are applied. Fixing of the initial tariff is accompanied by an automatic adjustment rule valid for a given number of years. The evaluation of prospects for productivity gains is left to the conceding authority.

During an initial period, the advantage of all such gains goes entirely to the concessionaire. In return, real cost increases, if any, are not passed on to the consumer, except in unusual circumstances such as sharply higher purchase prices for energy or changes in the concessionaire's tax burden or legal expenses. The corollary is that tariff cuts may be imposed by the conceding authority if such externalities result in reduced costs. After the initial period, tariffs may be revised every so many years. In the intervening periods between revisions, the adjustment rules described above again apply.

The aim of this system is basically to give concessionaires an automatic incentive to improve productivity, while at the same time enabling consumers to benefit from such improvements through the tariff cuts introduced at times of revision.

6. Role of the state

In contrast to the interventionist policies followed from the early post-war years right up to the 1970s, recent privatization endeavours have centred on reducing budget deficits, maximizing economic efficiency and underpinning stabilization measures by curbing the role of State enterprises that were originally created in furtherance of interventionist policies. Robert Devlin has made a detailed analysis24 of the reasons motivating the privatization policies of Latin American governments. They are, explicitly or implicitly, as follows:

1. Structural factors

(a) Ideological reasons. The idea that the role of the State in the economy should be secondary to that of private enterprise came to the fore in the 1980s. It drew its inspiration from the privatization programmes led by President Reagan in the United States and Prime Minister Thatcher in the United Kingdom and was sustained by the urging of the international financial agencies, particularly IMF and the World Bank.

(b) Need to increase internal efficiency. In some countries, the service provided by public enterprises had not been satisfactory. The fiscal deficits engendered by the first oil crisis in 1973 hampered granting of the traditional budgetary relief and aggravated the difficulties faced by these enterprises in meeting their objectives.

(c) Changes in sectors regarded as "strategic". Technological and administrative changes cast doubt on the justification for natural monopolies in many public utilities and gave rise to domestic competition or a system of State-regulated concessions. In addition, the idea of strategic sectors for development which was a guiding principle of post-war economic policies was overtaken by changes in world trade and, in many cases, by the evolution of national economies.

(d) More mature positioning of the private sector. One of the aims of development policies was to create a class of domestic entrepreneurs and a domestic capital market. This aim was achieved in a number of countries and private developers can now take over the prime role from the State in certain sectors. The strategy and methods of transnational corporations have also changed over the last 20 years, with the result that the mistrust those companies traditionally aroused in Latin America has been shaken off.

(e) Perceived need to project coherence (in opening activities to the private sector). The presence of the State in the form of public enterprises may give rise to doubts as to its impartiality as a regulator, especially in sectors where it competes with the private sector.

2. Cyclical factors

(a) Need for political credibility. By introducing privatization, countries with a strong tradition of State intervention endeavoured to prove their attachment to the prevailing economic model on the international scene, so as to secure the trust of investors.

(b) Means of easing the financial crisis and promoting stabilization. The pervasive financial crisis together with the huge and growing public debt culminated in pledges to scale down the State apparatus. The letters of intent signed with IMF, which served as a passport to external debt rescheduling, contained clauses to that effect.

(c) Severe investment constraints of public enterprises. From the early 1980s onwards, developments in international financial markets and the weight of public debt were such that new funding became difficult to obtain internationally. This jeopardized the implementation of projects that were essential for the proper functioning of public enterprises.

(d) Benefits of catalytic effects on the economy. As Keynesian policies were abandoned or became impossible to apply, other ways of stimulating investment had to be found. It was felt that a resolute programme of privatizations would encourage repatriation of capital and attract foreign investment, thus boosting the economy.

(e) Strategy to placate foreign creditors. Compliance with the undertakings made in the letters of intent drawn up with the World Bank would facilitate debt rescheduling and spur investment.

The impetus for privatization also stems from the need to trim the role of the State. In that connection, there seems to be a certain inevitability about the privatization process because, apart from any underlying ideological reasons as there were during the interventionist period the decisive reasons derive from the need to adapt to a fast-changing world which calls for a mutation in the unctions of the State and the way it performs them.25

These considerations have all been relevant in the countries of Latin America since the beginning of the 1980s.

It is a well-known fact that privatization has produced vastly different results in different countries. Each instance has its own history and its own workings, which makes general conclusions elusive. There is always something to be learned from countries that have carried out privatizations, however, in spite of the paucity of data on each case, the difficulty in comparing situations that are not parallel, and the lack of insight into repercussions,26 especially as regards labour.

Traditional role of public enterprises

As mentioned previously,27 during the years when State intervention was in favour (from the post-war period to the middle of the 1970s), the belief was that public enterprises would bring in a revenue to the government; they would generate profits that could be used to finance investments in priority sectors of the economy. The prevailing ideology held the private sector in little esteem and it was felt that a powerful public sector was a precondition for rapid and sustained development. Control over certain strategic industries was necessary to guide the economy, overcome bottlenecks and counterbalance private monopolies. Added to this were arguments of national security, particularly as far as heavy industry was concerned.

While patrimonialist and technocratic considerations popularized the idea of public ownership, there were sometimes also redistributive aims, to bring about better income distribution, create jobs and iron out regional imbalances.

Public enterprises also played an important role in building the physical infrastructure needed for industrialization and in creating a heavy industry. From 1950 up to the early 1980s, thousands of public enterprises were set up in the developing countries. They accounted on average for one quarter of gross fixed capital formation.

Performance of the State as an entrepreneur

With a few notable exceptions, the performance of public enterprises was disappointing. They either lost money or made less than they should have, in spite of their advantages in terms of access to capital, subsidies and protection from domestic and foreign competition. In essence, their weaknesses were: poorly defined, over-numerous or contradictory objectives; bureaucratic interference; highly centralized decision-making; insufficient capitalization; mismanagement; excessive labour costs and a heavy turnover of directors and managerial staff.

Efficiency in the public utilities we are concerned with was very poor. Energy losses, for example, stood at around 20 per cent, and unaccounted water at over 50 per cent of production.

Governments' patience with public enterprises grew thin as economic conditions worsened and financial crises became endemic. Also, exhortations to privatize, first heard at the end of the 1970s, particularly from the Reagan Government in the United States and the Thatcher Government in the United Kingdom, began to affect the ideological climate. The mood turned away from public sector intervention in the economy towards private enterprise. These ideas spread throughout the world under the influence of the international financial agencies, especially the World Bank and the International Monetary Fund.

Present investment needs28

The outlay required for infrastructure is reckoned to be more than US$60 billion a year, over and above the requirement for maintenance. The region's total capital stock in infrastructure is estimated at almost US$350 billion. Of this amount, the energy sector accounts for US$170 billion, transport US$100 billion, water supply and sewerage US$60 billion and telecommunications US$20 billion. Annual maintenance costs are almost US$7 billion, taking an average of 2 per cent of the 1993 capital stock.

The annual investment requirement is equivalent to 4.4 per cent of GDP. During the 1980s, the major countries in Latin America were in a position to invest 3 per cent of GDP in infrastructure, while in the 1970s they invested 4.1 per cent.

Private sector participation

The above situation has led governments to seek the participation of domestic and foreign private developers. In a number of important cases, State enterprises from European countries have joined together to invest in public utilities in Latin America.

Non-State participation takes various forms. The simplest is the service or management contract. A broader arrangement is the leasing contract, by which systems are leased out and operated by private companies while investment and financing remain within the public sector. Greater efficiency gains have been recorded with long-term concessions and build-own-operate-transfer (BOOT) schemes.

Private sector participation started in Chile and Argentina. Some trials are under way in Bolivia, Jamaica, Mexico and Peru but the legal and regulatory systems there are not yet completely ready. The other countries are still at the preparatory stage, as the political will, legal framework and institutions are still weak.

Another form of cooperation that has been encouraged in recent years has been association with residents affected by infrastructure works. An interesting example is provided by the city of Córdoba, Argentina (see table 4), where local by-laws have been introduced to foster such arrangements. The by-laws in question are Nos. 7992 of 30 April 1992 (for natural gas), 8546 of 24 July 1990 (for sewage) and 8894 of 1 April 1993 (for drinking water).

The arrangement works as follows. The municipality appoints what is known as a Promoting Entity, made up of residents affected by the works, to construct a water supply system. The Promoting Entity is designated by the Residents' Association or by a cooperative specially formed for the purpose or already in existence. Competitive bids are called for (with a minimum of three bidders and participation by the Residents' Association and the Sanitation and Gas Board in assessment), and then a contract is signed by the Promoting Entity and a contractor or arranged by force account. The Promoting Entity may make and collect payments. It must include an authorized professional who has powers of signature and is jointly liable with the Entity. The debt outstanding at the time the accounts are rendered may be transferred without charge to the municipality. Non-contributing residents are not allowed to use the system until they have paid the appropriate sum.

As far as sewage is concerned, the local authority undertakes to install and finance the trunk

sewers, i.e. those with a diameter of more than 300 mm; the total amount of the works is then

prorated over the whole area as connection becomes effective.

Table 4 summarizes the main points of the above-mentioned by-laws. It indicates the maximum length of pipe that can be covered by any one residents' project, the minimum percentage of residents required to constitute a promoting entity, and the permitted margin that can be added to the cost of the works for unforeseen risks.

Source: Córdoba City Council.

7. Restructuring and privatization of electricity, gas and water utilities

Restructuring and privatization in Argentina Argentina is the country that has gone furthest in matters of privatization in Latin America since 1990. Electricity, gas and water utilities are among those that have been restructured and handed over on concessions.

Attention was first directed towards the utilities supplying greater Buenos Aires, which were restructured financially.29

At the same time, the old regulatory measures were abolished and replaced by new ones, as shown in table 5. The names of the new regulatory agencies mentioned in the table for each sector are: Ente Nacional Regulador de la Electricidad (ENRE), Ente Nacional Regulador del Gas (ENARGAS) and Ente Tripartito de Obras y Servicios Sanitarios (ETOSS). The table also indicates the regulatory measures that each agency may adopt, as well as the regulatory systems that can be applied.

1 Generation.

As stated previously, it is essential for concessions to include clear and flexible tariff schemes. In the case of the Argentine utilities, rates were set using the latest methods of calculation, as described in table 6.

Prospective concessionaires were expected to have a certain minimum amount of assets and experience in the field, in addition to satisfying other specific requirements.30

Various methods of transfer to the private sector were used, depending on whether generation or distribution of electricity was involved. The direct sale of assets was preferred for generation and 95-year concessions for distribution. In the case of gas, it was decided to grant concessions both for transmission and for distribution. Concessions were also given for water and sewerage services. The proportion of equity sold ranged from 51 to 90 per cent. No equity was transferred in the case of OSN. Table 7 gives an overview of the transaction methods, criteria and types.

On the basis of these requirements, various privatizations were carried out.31

As a result of the transactions, the Treasury received a revenue in the form of cash payments, debt assumed by the buyer or concessionaire, and the public offering of shares. The breakdown of proceeds is shown in table 8.

In addition to the income from privatization, the Government also began to collect revenue from taxes. None of the three utilities had previously paid tax. The amount of tax paid by each of the three companies from 1993 onwards is shown in table 9.

The financial performance of the three companies improved significantly after privatization (see table 10). SEGBA saw its 1991 deficit of US$563 million replaced by a surplus of US$54.1 million in 1994. Gas del Estado, which had reported a loss of US$841.1 million the year before privatization, registered a post-tax profit of US$505 million in 1994. OSN for its part moved from a loss of US$23 million in 1992 (the year of privatization) to a post-tax gain of US$25 million in 1994.

What was the effect of privatization of the three companies on each of the parties concerned? The Government benefited from the proceeds of transfer, the tax revenue obtained as a result of profitable operation, the savings from not having to pay the usual subsidies, and its enhanced credibility in the eyes of the public.

Consumers for their part gained the advantage of a quantitative improvement in the services offered by the companies. SEGBA expanded its energy distribution by 31 per cent between 1989 and 1994; GdE increased the quantity of gas distributed by 10 per cent during the first six months of operation on concession, which helped to avoid a possible fuel shortage; and Aguas Argentinas, which replaced OSN, boosted water supply by 10 per cent and sewerage by 8 per cent in the period from July 1993 to October 1995.

The public also enjoyed qualitative improvements in service. For example, Aguas Argentinas brought the number of outstanding complaints for leaks and supply cuts down from 1,600 in May 1993 to 700 in September of the same year. It also reduced the response time for complaints from 80 to 48 hours in the case of water supply and from 140 to 80 hours for the sewerage service.

As far as rates are concerned, SEGBA lowered its prices by 10 per cent (including fixed charges) between September 1992 and February 1995 for all categories of consumer except the low-income housing sector. The nominal rate for that sector rose by 30 per cent and the fixed charges for all consumers rose by 28 per cent. In the case of GdE, there was an increase in tariffs. Residential consumers did not have to pay more, however, and residents of Patagonia received a subsidy to maintain rates at pre-privatization levels. At OSN, the price of water fell by 27 per cent. This was followed by an increase of 13.5 per cent, which still left a favourable margin of 17 per cent compared with the tariff before concession.

Investors gained both from the profitable operation and from the appreciation of share prices on the market.

Lastly, creditors benefited from the enhanced credibility and solvency of the companies.

Workers who resumed their posts profited from the changeover. Those who were made redundant were given allowances, training, etc. They also received a part of the companies' equity in the form of a special class of shares, as explained below.

Table 11 summarizes the impact of privatization on each of the parties concerned.

General labour situation

It is fair to say that there was no major impact on water and gas sector workers as a whole. In the gas sector, large-scale movements were confined to the case of Argentina, yet in GdE (with 10,273 employees) and OSN (7,500 employees), there were no redundancies at the time of privatization. SEGBA cut its workforce before concession by 22 per cent, from 20,271 to 15,806.

After privatization, the number of workers employed by the companies that succeeded GdE fell (see table 12). In December 1993, the total stood at 6,958, representing a drop of 32 per cent since privatization. At SEGBA the drop was of 28 per cent (from 15,806 to 11,307) and at OSN 47 per cent (from 7,500 to 4,000).

Those made redundant or choosing voluntary retirement were offered allowances of between US$7,000 and US$10,000. These were financed by the World Bank and Government sources and, in the case of SEGBA, by the company and the new owners jointly. The World Bank stipulated that the Government should conclude agreements for the voluntary retirement of certain workers before the PERAL loan could be disbursed.

There were wage rises at GdE and SEGBA. OSN employees were given training opportunities.

At OSN and SEGBA, 10 per cent of the shares (known as Class C shares) were reserved for the workers. At GdE, the proportion was 3 to 5 per cent, owing to the large size of the company compared to the number of employees. The shares were channelled through shared ownership programmes (programas de propiedad participada PPP).32 The share price was the same as that paid by strategic investors. Dividends from the shares were kept in special trust funds until such time as the amount equalled the total value of the Class C share package. Full ownership was then accorded to the employees.

Worker shareholding which is an integral part of almost all privatization projects in Latin America has been the subject of various comments. It is generally regarded as a tactic designed to co-opt employees into the process and quell union resistance.33 Robert Devlin states that "the implicit motive for the offer usually seems to have been to sap workers' resistance to privatization" and that "the strategy has worked fairly well". He further points out that if the intention was to obtain effective worker participation, the percentage of equity transferred should have been sufficient to allow them "to secure and maintain representation on the board of directors of the privatized company" or simply to arrive at a formal understanding on profit-sharing.34

The trade unions, with one exception, accepted the privatization plans. The reasons for that acceptance were the generous allowances and other benefits on offer and the fact that the unions would not have had much support from public opinion in opposing privatization.

Workers who resumed their old jobs had the advantage of dividends and capital gains on their Class C shares. Employees in the firms that took over from SEGBA received incentive payments and were able to take part in training courses. GdE employees obtained pay rises and OSN employees access to training. Those who lost their employment (47 per cent of the total at OSN) obtained some benefits such as allowances and training.

In Argentina, Act No. 23.696/89 accords preference in the acquisition of companies subject to privatization, to "employees on the permanent payroll of the entity to be privatized, whatever their rank, who are organized or who themselves organize a shared ownership programme or cooperative, or other legally constituted intermediate entities" (art. 16, item 2).

Chapter III of the same Act establishes the shared ownership programmes (PPPs)35 and provides that participants in these programmes can be employees on the permanent payroll, users of the services provided by the company to be privatized, and producers of raw materials whose industrial processing constitutes the activity of that company (art. 22).

Decree No. 2074 of 1990 states that PPPs are applicable when they are "compatible with the nature of the privatization or concession in view".

The system has been meticulously regulated but has had very little effect. The record shows that, of all the PPPs envisaged under the Act, the only fully operational one is the one comprising employees of the two private firms that took over the services previously provided by the State-owned national telecommunication company (Entel). In the company formerly called SOMISA and which became Aceros Paraná, the PPP controlled 20 per cent of the capital. When this company merged with others in the Techint group to form SIDERAR, the PPP share in the capital fell to 14 per cent.

With these exceptions, PPPs did not make much headway.36 The reasons advanced for their lack of success are "(a) the scant interest shown by the Government and buyers in implementing the programme, and (b) the use of PPPs solely as a means of curbing resistance to post-privatization 'adjustment'".37

The employees received shares in any case. The resulting ownership structure was as shown in table 13. The table also indicates the type of investor (strategic, public, government or employee), the procedure by which each group could acquire its holding (direct sale for strategic investors and employees; public offering for public investors) and the percentage held by each group in the total share capital.

Restructuring and privatization in Brazil

A rapid process of utility privatization is under way in Brazil also. It started after approval by the National Congress of the new law on concessions, as mentioned previously. As from then, a series of projects in the electricity sector and in the water and sanitation sector were opened to private enterprise. The total investment in the completion and construction of hydroelectric and thermal power stations and in the construction of gas pipelines was estimated at US$5,690.5 million and in water and basic sanitation works at US$133.7 million, making an overall total of US$5,842.2 million.

The Banco Nacional de Desenvolvimento Econômico y Social (BNDES) will part-finance the projects. The state of progress as of August 1996 is shown in table 14.

In the privatizations carried out by the Rio de Janeiro State authorities, employee participation in the privatization process was arranged through representatives elected in the following manner.38

(a) Election by direct vote by employees of the company;

(b) Selection of the leader of the employees' association;

(d) Selection of an employee to sit on the board of directors.

The representative is preferably appointed by a direct vote by the employees no later than 60 days after the economic and financial assessment services of the company to be denationalized have been contracted.

Qualifying employees were offered packages of 1000 ordinary shares, which corresponded to 10 per cent of the State's holding in the equity of the privatized company, at a discount of 30 per cent on the minimum prevailing price.

Restructuring and privatization in Chile

Chile has the longest and most pioneering history of selling public enterprises and transferring to the private sector activities traditionally carried out by the State.

Under the military regime, especially from 1973 to 1975, the companies taken over during the period of Popular Unity government (1970-73) were restored to the private sector. Between 1974 and 1981, enterprises and banks that had been nationalized mostly in the 1971-73 period were sold. At the time of the economic and financial crisis in 1981-83, a number of enterprises and banks reverted to or came into the hands of the State. They were subsequently reprivatized between 1984 and 1986.39

During the period from 1985 to 1990 when the democratically elected government came to power some of the large enterprises founded by the State and operating in sectors hitherto regarded as strategic were privatized. Most were subsidiaries of CORFO structured as public stock corporations. Some were divided into subsidiaries, or affiliated companies were set up to deal with certain activities before privatization.40

The companies were in deficit in 1973, a situation that had changed by 1983. However, the incentive was no longer to eliminate a source of public deficit. The Ministry of Finance presents four arguments for privatization: (a) "the importance of private ownership as a pillar of free society and a market economy"; (b) the increased efficiency observed in companies coming under private management; (c) reprivatization and recapitalization of banks and enterprises affected by the crisis; (d) the advantage of having a larger stock market, which brings greater stability to the capital market. A further stated aim is to widen share ownership.41

Privatization in Chile was not associated with extensive job losses; in fact, as Devlin points out, employment rose in some companies. It is worth noting, however, that workforce numbers had been cut drastically in the course of previous reforms, with the result that the large public enterprises employed 40 per cent fewer workers in 1986 than in 1974.42

8. Water and sewerage sector

Overall situation

The World Bank reports that, with 73 per cent of its people living in towns and cities, Latin America is the most urbanized region in the developing world, and there is great pressure on the urban environment.

Water and air pollution reach alarming proportions in the main urban areas, such as Mexico City, São Paulo and Santiago. The constant decline in the quality of water and sewerage services has been such that cholera reappeared in 1990 after more than a hundred years' absence.

Drinking water has become a scarce commodity and its supply is under serious threat; rules governing use and conservation therefore need to be tightened.43

The water and sanitation sector presents huge problems. Unlike electricity and telecommunications, it is considered a social service. Perhaps for that reason, efforts have focused on extending coverage rather than on recovering costs or establishing sound institutional and human resource policies. The result has been poor operating performance because of the lack of maintenance and systematic training. In the absence of a rational pricing policy and clear legislative and regulatory systems, the sector has difficulty in attracting private capital to finance its annual investment needs of US$12 billion. This sum is equivalent to nearly 1 per cent of the region's GDP, considerably more than the 0.2 per cent invested during the 1980s. The public sector will have to play a central role in controlling air and water pollution in order to avoid adverse effects on health and the environment, especially as market-based investment in this sector is still at the embryonic stage.44

The basic sanitation companies also have serious institutional and labour problems to cope with. Overstaffing accounts for the low productivity of water utilities. Ratios of 5 to 10 employees per thousand water connections are common, whereas the ratio in efficient water companies is 2 to 3 per thousand.

Public utilities in this sector suffer from political appointments, undue political interference, and an inability because of inadequate incentives to attract talent and skills. Political appointments and low pay combine to produce a high turnover of senior executives, low productivity and a lack of discipline in the workforce.45

There were two trends that had a negative effect on water and sewerage institutions over the last 10 years. One was decentralization to municipal and provincial or state authorities that lacked the capacity to manage such services. The other was neglect for permanent maintenance and efficiency. Losses consequently grew to 50 per cent of production (compared with 20 per cent in well-managed systems and as little as 8 per cent in some cases).46

In the light of these problems, it would seem more efficient to enlist private sector participation.

Support for this view comes, for example, from the concessions granted in Argentina for water and sewerage services in its major cities (Buenos Aires, Córdoba, Rosario, Santa Fe, etc.). Another striking example is the city of Cancún in Mexico, which was able to solve the sanitation problem created by the city's meteoric tourism-generated growth. The semi-public company set up in 1985 by the municipal authorities in Cartagena, Colombia, is another good example. In Santiago de Chile, a number of companies in which the State has a majority holding have, since 1979, brought about a significant improvement in service.

Despite these advances, it should not be thought that private sector participation alone can make up for the chronic shortage of investment capital or the lack of a suitable regulatory framework.47

In Brazil, basic sanitation is provided by the municipalities. There are in general three types of arrangement: (a) concessions granted to state sanitation companies for periods of 25 to 50 years. There are at present 27 companies of this nature which supply water to around 78 per cent of the urban population and sewerage services to around 64 per cent. Looked at differently, a service is provided to 4,753 (or 64 per cent) of the 7,327 towns that have mains water and to 686 (or 44 per cent) of the 1,544 towns equipped with a sewerage system; (b) direct management through autonomous departments. In this way, 1,008 municipalities serve 2,024 (28 per cent) of the 7,327 towns with water and 583 (38 per cent) of the 1,544 with sewerage; (c) direct municipal management, through autonomous bodies which receive technical and administrative assistance from the National Health Foundation under the Ministry of Health, and which in 1993 supplied 625 towns with water and 185 with sewerage services.

The role of the private sector is minimal in all of these operations, since there are only a few instances where some components of the sanitation system (usually water production, treatment and distribution) have been contracted out. The trend is nevertheless towards greater participation by private enterprise.

There are already some noteworthy examples in this respect. Private companies (both Brazilian and foreign) are installing and operating water supply and basic sanitation services in a number of cities in the State of São Paulo, namely, Ribeirao Preto (where the total investment is of US$43.3 million), Itú (US$18.5 million) and Limeira (US$45.3 million). In the city of Campos, Rio de Janeiro State, a concession involving a total outlay of US$26.6 million has been awarded for the water and sewerage system.48

In Colombia,49 the numerous water and sewerage utilities vary in size. Those that provide a service to at least 8,000 users are termed large scale. Examples in this category are the Empresa de Acueducto y Alcantarillado de Bogotá and the Empresas Públicas de Medellín,50 which provide the best models of business management in the country's public sector, and some regional enterprises. Most companies fall into the medium-sized or small category, however, and they are the most vulnerable and most inefficiently managed.

The institutional structure of many of these companies was rudimentary and their operating costs were high. By and large, management had serious problems in taking financially sound investment decisions because of the shortage of resources, the paucity of funding sources, its inability to evaluate investment and operating costs, the low level of productivity, particularly of labour and service sales, and the constant political interference in the way companies were run.

Companies generally operated in a politico-bureaucratic atmosphere incompatible with efficient management, which affected operation, costs and the proper functioning of the water and sewerage services.

In 1994, when preliminary studies were being made to amend the legal framework of the services sector, the water supply coverage of rural areas was lower than in the other countries of Latin America and only 8 per cent of the rural population had access to a sewerage system. As for water supply, the three largest cities in Colombia, Bogotá, Medellín and Cali, have a coverage of around 94 per cent, while for sewerage the proportion is 87 per cent. There are deficiencies in waste management, however, and in controlling substances that are harmful to the environment.51 The above percentages are exceptional, because the coverage of services in rural areas is still very limited. Table 15 shows how the coverage of water and sewerage services developed between 1985 and 1993 in the four main cities of Colombia, in cities with more than 100,000 inhabitants, in other urban areas and in rural areas.

Supervision and control of the agencies providing water and sewerage services was performed by bodies that were not sufficiently well-structured or efficient to enable the sector to respond adequately to the country's needs. Regulation focused on tariffs rather than on ensuring efficient service at a reasonable cost. Monitoring took the form of an ex post check on spending, compared with the budget, without considering whether it was well founded or not.

The sectoral studies point to the fact that resources are needed to expand and improve the systems. The domestic capital market in Colombia is small and does not possess the means to invest in projects involving huge sums of money or lengthy payback periods. Also, the financial conditions of domestic funding sources for infrastructure projects are not particularly attractive. Interest rates are high52 and loan periods too short,53 whereas the conditions offered by international banks are more favourable.54 Links with foreign capital are therefore sought.

For Latin America as a whole, a study has been made comparing the operational and financial performance of water and sewerage utilities before and after private sector participation. The cases examined are the cities of Buenos Aires, Cancún, Cartagena and Santiago de Chile. In the last mentioned city, no concessions were granted to private companies but some services were contracted out. Operating revenues and gross income rose in all cases except Cancún. There was a similar improvement in the working ratio (net operating costs divided by operating revenues). The number of employees per thousand connections fell in all cases. Table 16 gives details.

Annex V presents a comparison of the principal features of private sector arrangements in the cities of Buenos Aires, Cancún, Cartagena, Santiago and Corrientes (Argentina).

For some medium-sized cities in Latin America, Rodríguez and Velásquez55 have given examples of the various types of entity providing services and the coverage recorded by each (see table 17).

The Colombian Government, with the aim of improving the efficiency and effectiveness of water and sewerage systems, has been encouraging privatization since 1994 in particular. The legislation provides incentives for private firms to join together with local and regional authorities in the task of upgrading water, sewerage and sanitation services.

Despite the encouragement, however, little progress has been made in involving private enterprise in the management of utilities. Private sector participation in water and sewerage services is held back by uncertainties stemming from institutional, technical, regulatory and financial problems.

Of the privatizations launched in medium-sized cities and towns, some have already foundered and those that are still afloat have had to overcome formidable obstacles. Big cities56 have shown no interest in privatizing, partly because they possess the largest and most efficient utilities in Colombia and partly because the inducement was insufficient.

The legislative framework still leaves the way open for local authorities to continue providing the service themselves, without necessarily setting up independent companies or decentralized public entities. It allows public enterprises responsible for operating and maintaining water and sewerage systems to retain ownership of the assets but contract certain functions out to specialized private firms in the areas of technical, commercial and operational planning.

The public enterprises are still responsible for financing all the engineering work, providing the working capital and bearing the trading risks.57 The contractor for his part obtains payment from the rates charged for the service.

Twelve privatizations have taken place in Colombia during the 1990s. Two of them started before Act No. 142/94 came into effect and the other ten are the outcome of the incentives contained in the new legislation.

Considering that Colombia has about 1,050 municipalities each of which must have at least one entity responsible for providing water and sewerage services, the impact of privatization in this sector has clearly been scant.

The first fruit of the new regulations appeared in 1994 in Cartagena de Indias and the second in October 1996. The privatizations launched in Santa Marta, Riohacha and Neiva were broken off halfway. Today, five processes are at various stages of negotiation in the cities of Barranquilla, Palmira, San Andres and Buenaventura and at the Tibitoc dam (see table 18).

At present, two concessions are under way in Cartagena and Barranquilla and a leasing contract in Florencia. The most successful of these is that being carried out by the Spanish company, Aguas de Barcelona, in Cartagena de Indias (see table 19).

In Chile, the sanitation services were converted into stock corporations in 1989 but none were privatized. The companies announced that they would offer concessions to private developers for areas that they could not cover themselves.60

Water and sanitation services are thus provided by public corporations which are autonomous trading companies affiliated to CORFO and which hold concessions awarded by the Sanitary Services Board.

This is the case of the Empresa Metropolitana de Obras Sanitarias (EMOS), which was founded in 1977 and converted into a joint stock company in 1989. The company operates four concessions serving Greater Santiago and 21 surrounding districts. The concessions cover an area of 450 km2 and a population of 5 million inhabitants (approximately 40 per cent of the country's total population). EMOS contracts various activities out to the private sector.61

EMOS is considered to be the best company in Chile and one of the best in Latin America. The coverage rates for drinking water and sanitation services are 100 per cent and 97 per cent, respectively; the ratio of employees to connections is low (2.1 per thousand); metering is almost universal and the proportion of unaccounted-for water is less than 22 per cent. Net profit in 1994 was equivalent to 37 per cent of sales revenue and the annual dividends paid out in the last three years averaged US$21 million.62

The Chilean Government sets aside an annual amount for subsidies to low-income families. These apply to the fixed and variable charges on the first 20 cubic metres of water consumption each month, and cover 25 to 85 per cent of the bill. The subsidies are attributed to about 450,00 families (18 per cent of all users) and are worth a total of US$25 million a year. As far as EMOS in particular is concerned, the subsidies amount to US$4 million a year, which represents about 2.3 per cent of the company's turnover.63

In the Valparaíso conurbation, the Empresa de Servicios Sanitarios de Valparaíso (ESVAL) operates in similar fashion.

Labour situation in the sector

At the time OSN was privatized in Argentina, the company was overstaffed (with roughly 8 or 9 employees per thousand connections). Seven thousand six hundred employees were initially transferred to the concessionaire even though it was generally recognized that half of that number would have sufficed for the needs of the service. Of that batch, around 1,800 accepted voluntary retirement. The cost to the central government in compensation was US$37 million. Another 1,700 employees were separated under a similar programme conducted by the concessionaire at a cost of US$50 million. The number of workers employed by the concessionaire, Aguas Argentinas, thus fell by about 4,000 (a drop of nearly 50 per cent) in less than six months. The present ratio of employees to users is approximately 3.5 per thousand.65

Since the start of the concession, Aguas Argentinas has worked closely with two unions (the Unión de Trabajadores de Obras Sanitarias del Gran Buenos Aires and the Federación Nacional de Trabajadores de Obras Sanitarias) in planning retirements, renegotiating collective bargaining agreements and improving details of the PPP. The company and one of the unions (the Unión de Trabajadores) have now signed a new agreement providing for average wage rises of 40 per cent. According to the agreement, Aguas Argentinas will set aside 10 per cent of its shares for workers to acquire gradually. Between 1993 and 1995, the company provided approximately 150,000 hours of training, to over 12,000 workers.66

A most interesting development took place recently, in May 1997, in the city of Córdoba, Argentina, where the firm Aguas Cordobesas, in which the Compañía Lyonnaise des eaux has a majority holding, took over the provincial capital's water utility.

In October 1994, the provincial governor signed an international call for tenders. Four consortia submitted bids in February 1995. In May of the same year, the Sindicato del Personal de Obras Sanitarias (SIPOS) (Union of Sanitation Sector Workers) filed a criminal complaint against the interministerial qualification committee and the private advisers engaged by the Province. The matter of the complaint was alleged connivance to the advantage of the consortium led by the Lyonnaise des eaux. The proceedings ended in dismissal of the case on 6 December 1996.

The Aguas Cordobesas concession was signed on 22 April 1997. The consortium is composed of the Compañia lyonnaise des eaux (28.9 per cent), Delta SA (14.44 per cent), Inversora Central SA (14.44 per cent), Sociedad General de Aguas de Barcelona SA (11.11 per cent), Banco de Galicia y Buenos Aires (11.11 per cent), Sociedad Comercial del Plata SA Grupo Soldati (13.33 per cent) and Meller SA (6.67 per cent). The consortium has a capital of US$30 million, plus US$40 million of security.

In February 1997, the union complained of various manoeuvres by the provincial government designed to undermine the company so that the decline in its public image would bring opinion round to the idea of privatization. It complained in particular that various items of pay had not been honoured. The judicial authorities for their part took criminal proceedings against the union's general secretary for the alleged offence of "public intimidation", since he had declared that sanitation department workers would carry out repairs only in working-class districts on the grounds that "the rich can afford to use mineral water".

The new company plans to cut the present workforce of the Dirección de Agua y Saneamiento (DAS) (Water and Sanitation Department) from 700 to 344, since most of the services will be contracted out. At first, it was stated that the new company would be governed by the agreement signed by Aguas Argentinas (the consortium that operates the system in Buenos Aires) and the Federación de Sindicatos de Obras Sanitarias, which provides for flexibility in meeting the requirements of the service. Later it was said that there would be a special collective agreement which would specify an eight-hour working day (compared with six hours previously) and an increase of 20 per cent in the basic wage.

One hundred and fifty employees of the provincial agency that provided the service (the DAS) transferred to the new private operator, but the recruitment list remains open. Apart from that, the company has a further 132 employees with whom it will henceforth endeavour to provide a service. Of the latter group, 70 came from the federal capital, where the Lyonnaise des eaux supplies the drinking water.

The number of transfers is half of what had been planned: the company had promised to take on 344 of the 600 employees in the Capital section of the former provincial enterprise (EPOS).

The general secretary of the Sindicato del Personal de Obras Sanitarias (SIPOS) announced that 600 DAS workers had decided to remain in the public sector because of the lack of labour guarantees. He pointed out that disregard for labour rules and the union movement would be compounded by the loss of entitlement to national health services and provincial retirement benefits. He complained that there was no certainty in the stability offered by Aguas Cordobesas, the concessionaire, because the transfer did not respect the promised five years of continuity under the existing agreement but replaced that with a spurious agreement signed by a union (the Federación Nacional de Trabajadores de Obras Sanitarias, FENTOS) that had no authority in Córdoba.

SIPOS states that the future pension scheme is unacceptable to DAS workers, as it rules out continued subscription to the provincial fund and the prospect of receiving a pension from it. They have no choice but to join a private pension fund (the AFJP) or depend on the State pension, which is much lower.

These, the union claims, are the basic reasons why, from a workforce of more than 700, only 130 or so agreed to move to the private company; many of them felt compelled to do so moreover by the out-and-out extortion applied by the Province in paying the "exceptional annual bonus" for 1996 only to those accepting transfer. The general secretary also stated that a considerable number of workers who had their housing on loan because they worked at reservoirs or waterworks were obliged to accept a transfer, otherwise they would have nowhere to live.

He drew attention to the decision to support the right of workers to remain in the employ of the provincial government, which should redeploy them to the regulatory body, the DAS or any other position in which their employment status, wages and career structure would be maintained.

He felt that Aguas Cordobesas would have problems in operating the service, since a minimum of 344 suitably qualified workers were required and transfer consent had only been obtained from 20 unskilled workers, 57 clerical staff, 9 technicians, 14 line staff and 31 executives.

Finally, he contested the intervention of the national union and maintained that SIPOS was the one and only representative of all sanitation sector workers in Córdoba, with the exception of Río Cuarto, which has its own union.67

Another case in point is the city of Cruz del Eje in the province of Córdoba, Argentina, where the provincial government transferred the water and sewerage utility to a cooperative called Cuenca del Sol. The concession term is 15 years and the 29 employees of the former utility were transferred with their consent to the new concessionaire.

The French firm put in a claim for damages and applied for international arbitration vis-à-vis the State of Argentina under the terms of the Mutual Protection of Investment Treaty signed by France and Argentina. The case was taken to the International Center for Settlement of Investment Disputes (ICSID) in Washington, DC, and although the CGE left the tribunal the task of estimating compensation, it pointed out that in two years of concession it had invested US$50 million in Tucumán.

The CGE based its action on "the unilateral and extensive modifications made to the concession contract by the Tucumán authorities, which constitutes an antecedent of judicial insecurity that cannot be tolerated" and the "serious obstacles placed in the way of sound project execution", quoting as examples "the uncertainty regarding the scope of the concession, changes in the tariff regime and improper regulations".

The conflict between Aguas del Aconquija and the Tucumán government dates back to June 1996, when the company was forced by a reinterpretation of the contract to reduce water rates by 20 to 30 per cent.

Aguas del Aconquija is the first case of a large privatized utility in Argentina being returned to the State.

From the very beginning of the concession, the main difficulty encountered by the consortium had been that of bill collection. It is estimated that only half of the consumers paid their water bills regularly. In the last months, the company's average turnover was US$4.5 million a month, with an operating loss of US$1.2 million per month.

The good relations prevailing between the new concessionaire and the union in the case of Buenos Aires contrast with the conflicts in the city of Córdoba. The concessionaire's managing company is the same in both cities (the Lyonnaise des eaux) but the unions are different. The Córdoba union protested, moreover, at the unwarranted (or "spurious" in the words of the union's general secretary) interference by the Buenos Aires union.

The conflicts appear to have weakened the workers' defences. While the Buenos Aires union did win some advantages, the Córdoba union lost all the complaints it had filed and obtained no benefits for labour.

The Tucumán case is symptomatic. The dispute between the provincial government and the concessionaire, in the course of which the government unilaterally reduced tariffs, led to the contract being rescinded. As the dispute has to go to foreign arbitration, the prejudice suffered by the people of Tucumán is likely to be great. This highlights the importance of negotiating contracts thoroughly, avoiding one-sided political actions, and remaining open to discussion an unfamiliar attitude for Latin American governments generally so as to avoid adverse repercussions on the population.

In Brazil, when CEDAE (in Rio de Janeiro) was privatized, there was no restructuring programme in anticipation of the reform. The reason put forward by company staff was that the corporate spirit among employees precluded effective negotiation. The company was said to have a workforce opposed to anything that was not to its own advantage; there was no room for discussion; there was an internal resistance that could refute any kind of information. The company's pay scale was also reputed to be well above market rates. Wages were the highest in Brazil for that branch and the State contributed four times more than employees to the company's pension fund.68

In Colombia, employees of public utilities, whether private or semi-public, have the status of individual workers and are governed by the following rules: they are subject to the rules of the Substantive Labour Code; their pay may be linked to the utility's performance and earnings in accordance with the company's incentive plan; the utility may not assume responsibility for pensions directly but is obliged to affiliate its workers to an organization specializing in pension matters. In the case of workers who already subscribe to a plan, the utility must show that it has made the necessary financial provisions to meet its obligations as regards pensions. It cannot continue to operate otherwise.69

The Cartagena de Indias utility privatization is the first one to come under Act No. 142/94. In spite of the opposition from its unionized workers,70 the project had the support of the national and international agencies involved. The World Bank, the National Department of Planning and the District of Cartagena agreed to draw up the necessary plans before changing the form of management. Public opinion was in favour of liquidating the Cartagena District Company and replacing it with a new one.

The contract between the District of Cartagena and ACUACAR stipulates that water and sewerage services will be provided using workers engaged by ACUACAR.71

The parties agree to take all the necessary steps to ensure that ACUACAR workers are regarded as private workers. They will therefore be subject to the general rules contained in the Substantive Labour Code and other labour legislation.

The new company is free to adopt the procedures it prefers in selecting and engaging workers. It can also make arrangements with workers' cooperatives, independent contractors and temporary employment agencies. Priority will go to the cooperatives formed by workers of the public-sector utility in liquidation, when they are deemed suitable.

In order to overcome the workers' opposition to privatization, generous compensation was made available to those who accepted voluntary retirement and positions in the new workforce were offered to the rest.

Of the 1,200 employees of the former public enterprise, nearly 600 decided to accept the voluntary retirement plan proposed by the company and financed jointly by the District of Cartagena and the central government. A further 200 left on retirement subsequently and 400 or so were hired over a period by ACUACAR. At the same time, the company bore the costs of fees paid for services by outside contractors.

Before the private sector came on the scene, pension obligations were covered by the public utility out of its gross operating revenues. ACUACAR did not agree to assume old labour liabilities, with the result that the pension costs, which represented almost five months of operating income,72 were shouldered by the municipal authorities of Cartagena de Indias. The new semi-public enterprise did however boost productivity appreciably. Whereas the old public enterprise needed 14 employees to service a thousand water and sewerage connections, the new company only needed 4.5.

ACUACAR thus launched a new organization with a new workforce in which 95 per cent of the workers were selected from the old payroll according to their aptitude. As Rivera (1997)73 states, this shift in pension liabilities, combined with the gains in productivity, explain the favourable results obtained by the new enterprise, which for the first six months of operation reported net earnings of US$1 million, compared with the loss of US$5 million recorded by its predecessor.

ACUACAR started out with 200 employees, 190 of whom came from the old company, eight from Aguas de Barcelona and two from new recruitment. Most perform technical, administrative and financial functions. Payroll costs which in the former Cartagena District Company amounted to over US$10 million dropped to US$3.5 million. The Ministry of Development reports that the number of employees as of December 1995 was 385.

9. Electricity sector

Overall situation

After telecommunications, energy is the easiest sector to finance. Subdivision of the sector into generating, transmission and distribution, and consequent private sector participation, is practically complete in Argentina and Chile and is under way in such countries as Guatemala, Jamaica and Peru. Reforms are in process in Brazil, Mexico and other countries. The annual funding requirement is estimated at US$24,000 million, or 1.8 per cent of GDP. During the 1980s, investment in the main countries of the region averaged 1.6 per cent.

The privatization process started in Chile in 1980 and in Argentina in 1992. A law enacted in 1982 restructured the sector and laid down the basic rules. The first privatizations took place between 1986 and 1989. In Argentina, they began in 1992.

The "Southern Cone" model has been applied in Peru (since 1993), Bolivia (1995) and Colombia (1995). It consists of splitting the industry into five functions: generating, dispatching, transmission, distribution networks and supply, with deregulation of the system at bulk and retail levels. The completely deregulated bulk sector remains open to competition for generating. The retail part provides large and medium-sized consumers with direct access to generation under freely negotiated contracts and a supply to small consumers at regulated prices.

The reforms in Chile and Argentina have improved both systems. There was an influx of new generating companies, the quality of supply improved and prices fell in constant terms.

In Argentina, 15 generating companies have been privatized, while transmission is handled by one company alone and distribution by three regional companies.

The non-profit-making body in charge of dispatching is jointly owned by various actors (generating, transmission and distribution companies together with users), and the system operates on the basis of using the most efficient facility in terms of marginal cost.

In Brazil, which accounts for over a third of the installed capacity in Latin America, privatization is targeted mainly at the Federal and state levels, involving assets of around US$100 billion. It is estimated that an average annual outlay of the order of US$6 billion is needed to meet consumption requirements, both in terms of increased generation through new concessions and in terms of the corresponding renovation and expansion of transmission and distribution.74

Brazil has an installed generating capacity of 55,512 MW, including the Brazilian Itaipú unit (of 6,300 MW), which is not to be privatized, and 142 stations with a capacity of more than 10 MW. The last-mentioned group is made up of 103 hydroelectric stations and 39 thermal. About 93 per cent of total output is hydroelectric in origin, almost all of it produced by the Federal Government and the states, with very little municipal-level participation. The majority of the 62 electrical utilities belong to states and are active in generating, transmission and distribution. The major generating companies at state level are Cesp (São Paulo), Cemig (Minas Gerais) and Copel (Paraná).

Thermal generation in the public sector is also mainly the concern of the Federal Government and the states. It is installed in isolated areas not connected to the grid, chiefly in the north and north-east, and is also used as a stationary reserve and for peaking purposes in the south and south-east. The role played by the private sector in generation is generally minimal, being confined, with a few exceptions, to small hydroelectric stations and cogeneration.75

The transmission lines are almost entirely the property of Federal enterprises and state concessionaires. A small proportion is owned by private operators, and has been particularly since the privatization of ESCELSA and Light. The distribution network comes essentially within the sphere of the state concessionaires. The private sector holds a minor share of the distribution market, the more weighty enterprises being ESCELSA, which is the distributor in the State of Espírito Santo, privatized by the Federal Government in 1995; Light, which was privatized in 1996 and operates in part of Rio de Janeiro State; and Celtins, the Tocantins State distributor. There are also smaller distributors, such as those operating in São Paulo and the south of Minas Gerais. Local authorities are not of much consequence in the electric power market.

The transfer of electrical utilities to the private sector is to be done through the sale of Federal Government and state assets and the award of concessions by the Federal Government. In practice, however, the sale of Federal generating companies will be contingent upon paying off the liabilities of state distributors, preferably by selling those companies to private investors.

In recognizing the status of independent producer and producer for own consumption, Act No. 9,074/95 and Decree No. 2,003 of 10 September 1996, which provides regulation, open up opportunities for private enterprise by authorizing the generation of electricity for own consumption or for sale, by large consumers, who can thus gain paying access to the transmission and distribution networks.

In Chile, the first privatizations took place between 1986 and 1989. Before that, in 1982, a law restructuring the sector and setting forth the basic rules was passed.76 The legislation thus provided for participation by the private sector. The existing institutions were rehabilitated and subjected to more stringent management. They were then converted into stock corporations in order to facilitate the gradual sale of shares to private operators. Finally, the shares were sold to private concerns, which included investors with operating experience and with a strategic long-term interest in the enterprise; institutional investors, such as private pension funds, with a long-term interest in the reliability of the returns offered by the electric power sector; and small investors, including electric company employees and individuals.

CHILECTRA, which was a subsidiary of CORFO, was split into three parts a generating company (CHILGENER) and two distributors (CHILQUINTA and CHILMETRO), which were privatized in 1986 and 1987 as independent companies. The distribution activities of ENDESA were allocated to various subsidiaries, which were then sold as units. ENDESA is still active in generating and transmission but some of its power stations were converted into companies and privatized (Pullinque, Pilmaiquén and Pehuenche, but not Colbún-Machicura). The newly founded EDELNOR company absorbed ENDESA's generating and transmission activities in the northern interconnected system, with one exception.

ENDESA started to sell its shares in 1989 under the scheme to promote wider shareholding. At first, it kept Pehuenche S.A. and EDELNOR as subsidiaries but the latter subsequently reverted to the State. ENDESA thus consisted of its generating and transmission facilities in the central interconnected system and its subsidiary Pehuenche. It also kept around 8 per cent of its holding in its former subsidiaries, now privatized, and in EDELNOR S.A.77

In the central interconnected system, 86 per cent of generation is in private hands and the remaining 14 per cent in the hands of COLBUN, the principal State generating company. ENDESA and Pehuenche own 65 per cent of the installed capacity and CHILGENER S.A. another 14 per cent. The balance of 7 per cent is held by a series of small enterprises and companies producing for their own consumption. The system's transmission network is the property of ENDESA.

In the northern interconnected system, 89 per cent of generation is performed by mining companies producing for their own consumption (chiefly CODELCO) and 11 per cent by EDELNOR, the public enterprise that is also owner of the transmission system.

In the rest of the country, the systems are partly private and partly State-owned. Distribution is all done by private operators, except in the region of Aysén.

The Government recently announced its decision to divorce its generating assets from its transmission assets in the central system, with a view to privatizing generation.78

Labour situation in the sector

The procedure adopted in Argentina was different to that followed in Chile (and described above). Circumstances demanded a tighter schedule, which meant that the assets were sold through a series of public calls for tenders while the regulatory framework was being drawn up. Acceptance of the reform was eased by granting employees a 10 per cent share in the privatized companies. Thanks to special compensation payments, a sharp cut in the workforce was possible.

Before privatization, SEGBA cut its workforce of 20,271 by 4,465 to 15,806, a reduction of 22 per cent; 2,965 employees left on termination or retirement and the rest under special retirement programmes. Those retrenched were given an average of US$9,912 in compensation, which was 10 per cent more than the sum required by law.

SEGBA paid out US$55.5 million to a total of 5,601 employees. Of this sum, US$52 million was provided by the new firms. Employees of EDESUR, one of the new distribution companies, obtained US$30,000 in compensation.

After privatization, more redundancies and voluntary retirements followed. The workforce of 15,806 was cut by a further 28.4 per cent, to 11,307 (see table 20).

The working day went from six hours to eight but safety was improved and incentive bonuses linked to the company's performance and profits were paid.

Adjustment of the workforce brought about a higher rate of labour productivity and an improved customer/employee ratio, as a comparison of tables 21 and 22 shows. Energy losses also fell, from 25.9 per cent in 1991 to 12.5 per cent in 1995.

In September 1997, Córdoba provincial government introduced a voluntary retirement scheme for the 3,500 employees of the provincial energy company, EPEC. The scheme offers an allowance of 100 per cent of the basic wage for each year worked. The Luz y Fuerza union announced that it did not recommend acceptance.

In Brazil, according to the President of the electrical trades union, SINERGIA, the aim of restructuring was more to improve efficiency than to prepare the way for sale. The number of electricity consumers had risen by 40 to 50 per cent in the last 10 years and yet the number of employees in the sector had fallen by about 20 per cent.

There had been some adjustments after privatization. No redundancies had been imposed but CERJ, ELETROBRAS, ESCELSA and Light had offered severance incentives. There had also been adjustments before privatization but the scale of the incentive schemes had been smaller.

Job cuts of about 30 per cent had been applied in privatized electricity companies during the post-privatization period, with redundancy compensation financed out of the new companies' cash flow.

After privatization, collective labour agreements had been reviewed annually. Provisions had generally been brought into line with the labour market, where pay was more closely related to employee performance.79

Table 23 illustrates the personnel movements that occurred in preparation for or during the privatization process. The reductions were sizeable in all cases, modifying the customer/employee ratio.

The companies took various steps to adjust the workforce and to provide both training and retraining.

FURNAS, the Federal generating and transmission company for the centre and south the most highly industrialized and most densely populated region in Brazil practically stopped recruiting as from 1994. This measure was accompanied by incentives for retirement and voluntary departure. At the end of 1995, in addition to its regular staff, the company had 1,413 contract workers carrying out technical and operating tasks, an increasingly common arrangement referred to as "temporary replenishment of the workforce".

At the same time, the company conducted training and development programmes in management, designed to boost productivity by cutting costs and maximizing output.

ELETROSUL, the generating and transmission company for the south of the country, organized voluntary retirement programmes which in 1995 attracted 282 applicants.

CHESF, the generating and transmission company for the north-east, also introduced retirement incentives which brought about the departure of 1,119 employees in 1995, or 12.5 per cent of the workforce. At the same time, it opened training centres in the cities of Recife and Salvador. In 1995, 58 per cent of the workforce attended training courses.

ELETROBRAS, the Federal holding company for the electricity sector, cut its workforce by 10 per cent in 1995 by means of a voluntary retirement plan. In the same year, 74 per cent of its workers received training.

Control of CERJ, the distributor in various parts of the interior in Rio de Janeiro State, was sold in November 1996 to a group comprising CHILECTRA (Chile), EDP (Portugal) and ENDESA (Spain). Before privatization, it had 5,700 employees. A voluntary retirement scheme introduced in February 1997 drew applications from 45 per cent of the workforce. Today the company employs 2,160 workers.

ESCELSA, which was the first electricity distributor to be privatized, supplies Espírito Santo State. Since privatization, the number of workers has dropped from 2,500 to 1,717.

A controlling share (65.64 per cent) in COELBA, which distributes electricity in Bahía State, was sold in July 1997. Before privatization, the company went through a drastic job-cutting operation, which slashed the number of employees from 7,231 in 1992 to 4,763 in 1997.

CEMIG carries out electricity generation, transmission and sales activities in Minas Gerais State. It owns the biggest distribution system in Latin America, totalling 244,471 km in length, and serves nearly 4 million consumers in 682 localities. To counter a problem of overstaffing, a voluntary retirement scheme was introduced. As a result, the number of employees dropped from 19,891 in 1992 to 14,800 in 1997.

Privatization of the three generating and distribution companies in São Paulo State, CESP, ELETROPAULO and CPFL, will start at the end of 1997. In 1995, they had 50,700 employees. Since then, 15,100 (29.7 per cent) have left and, according to company plans, another 4,700 are due to be separated.

CEEE, the distributor in Rio Grande do Sul State, has been owned by that State since 1961, when it was expropriated from the United States company, Bond and Share. The State's legislative assembly approved the privatization project by 36 votes to 19. CEEE has 8,420 employees and serves 2.7 million consumers.

The electric power workers' union is combating the privatization of CEEE by means of announcements in the media. However, it has already taken steps to adapt to future developments. It has convened meetings to amend its statutes and enable private sector employees to be affiliated. It has set up an investment club through which workers and retirees will be able to buy up to 10 per cent of the shares in the future concessionaire. On 19 April 1997, a meeting attended by 200 union leaders founded an association (ELETROAÇOES) for that purpose. Each member will subscribe a sum of about US$110 for a period of 96 months. The union's president states, "We are still against privatization but we must be prepared for it".

In the case of CHILGENER, one of the 11 generating companies, employment dropped between 1983 and 1986, when it was still a public enterprise, but rose again in the years following privatization. Real wage increases and productivity improvements were recorded.81

10. Gas sector

Overall situation

Natural gas plays an intermediate and increasingly important role between the energy and transport sectors. There are plans for some major projects, such as the gas pipeline linking Bolivia to Brazil and others from Argentina to neighbouring countries.

Generally speaking, little has been done to restructure the sector. One exception is Argentina, where the gas company, Gas del Estado (GdE), was restructured and privatized.

In preparing for privatization, Gas del Estado was split up into ten companies, two dealing with transmission and eight with distribution. The distribution companies can compete with one another and have an incentive to buy gas from the fields nearest their markets at the best price. Gas del Estado is to disappear. Prices will be totally deregulated after a transition period. The conditions for obtaining a World Bank loan were (i) natural gas prices were to rise to at least 90 per cent of international levels; (ii) privatization of at least two of the distributing companies was to be completed and the tendering process launched for the others; 10 per cent of gas production also had to be in private hands; (iii) regulation had to be organized in the same way as for the petroleum sector; and (iv) gas prices had to be maintained in each calendar month at a level of 90 per cent of the fuel-oil price. These conditions were more than fulfilled, with the partial exception of (iii).

The privatization of Gas del Estado took place in December 1992. The State received US$300 million in cash and approximately US$3 billion in public debt securities, at face value. The treasury also benefited from the transfer of current liabilities (US$380 million) and medium- and long-term liabilities (US$900 million).

The transmission and distribution companies derived from the splitting-up of Gas del Estado are listed in table 24, with an indication of the percentage sold.

Table 24. Argentina: gas, transmission (T) and distribution (D) companies, percentage sold

Company Type Procedure sale

Transportadora de Gas del Sud S.A. T 70%

Transportadora de Gas del Norte S.A. T 70%

Distribuidora de Gas Pampeana S.A. D 70%

Distribuidora de Gas del Litoral S.A. D 90%

Distribuidora de Gas del Centro S.A. D 90%

Distribuidora de Gas Noroeste S.A. D 90%

Distribuidora de Gas Cuyana S.A. D 60%

Distribuidora de Gas del Sur S.A. D 90%

Distribuidora de Gas Metropolitana S.A. D 70%

Distribuidora de Gas Buenos Aires Norte S.A. D 70%

It is calculated that the financial impact of this privatization was considerable, as shown in table 25.

In Brazil, piped gas is only available in the cities of Rio de Janeiro and São Paulo (see table 26), where the state enterprises CEG and COMGAS are in the process of being privatized.

The São Paulo State government has already launched the privatization of the Companhia de Gás de São Paulo (COMGAS), which supplies 275,000 consumers in the São Paulo metropolitan area. The market will expand dramatically at the beginning of 1999, when the Bolivia-Brazil gas pipeline comes into operation and the State of São Paulo will receive an additional 4 million cubic metres of gas a day. The Shell group has acquired 20 per cent of the ordinary voting stock which previously belonged to the São Paulo municipal authorities. The purchase was made on 15 February 1997 at a cost of US$74 million.

In Brazil, the two privatizations (of Comgás and CEG) took place only recently so it is too soon to evaluate changes. In the case of CEG, the new concessionaire has still not taken over the company and the old management is still in charge. There have as yet been no new redundancies but it is assumed that there will be at CEG, which is overstaffed. In 1996 there were 360 redundancies and in 1995 other redundancies and voluntary retirements, with the result that the workforce is now 45 per cent of what it was in 1994.

In Chile, there has been no privatization in the petroleum industry, which is the producer of gas. Gas distribution has always been in private hands.

11. Conclusions

Although, as indicated above, the record of water, electricity and gas utilities in Latin America shows a wide diversity of situations and trends, some generic conclusions can be drawn about the privatization processes and their impact on the labour market:

A first observation is that the need for greater efficiency in national production in order to respond to an increasingly competitive international market, together with the crisis in public sector finance and the clamour for better social services, are the main driving forces for change in the way the State's functions are performed and public utilities provided.

Domestic or foreign private enterprise, or state-owned utility companies from other countries that have an established reputation for management efficiency, or community-level organizations, individually, or through various types of grouping with each other or with the State, or with local entities such as municipalities, are gradually taking over functions that were formerly the preserve of the public sector.

Apart from any underlying ideological reasons which also existed during the interventionist period the decisive reasons derive from the need to adapt to a fast-changing world, which calls for a mutation in the functions of the State and the way it performs them.

As in other economic sectors, privatization was not preceded by an analysis of its advantages or a forecast of results. The decision to privatize was taken in response to a number of difficulties being encountered by the State and the process went ahead without further discussion.

The constitutions and legislation of Latin American countries classify water, sewerage, electricity and gas supply as public services, the concept having been defined by French administrative law and assimilated into Latin American judicial systems.

The process of privatization had some social justification in the fact that the public-sector utilities were unreliable and people did not get the service they wanted. In situations where utilities functioned satisfactorily examples being some water companies in Chile and Colombia there was no privatization.

Senior management is favourably inclined towards privatization because it feels that company performance is handicapped by the excessive control imposed by the government and the difficulty in obtaining funds for infrastructure maintenance and expansion.

World Bank policy had an effect on privatization in that it set conditions for loans intended to finance severance allowances. Its influence continues, moreover, through the fact that, in lending for construction and maintenance, preference is given to private companies or companies earmarked for privatization.

The present trend in reorganizing utilities is to delegate utility management to public and private developers. An impartial regulatory body independent of government, consumers and developers controls tariffs, safeguards the interests of users, ensures that poor consumers are not deprived of scarce resources, and monitors unwanted external effects such as pollution.

In Latin America, the responsibility for public utilities is being decentralized to provincial, state or local level. The hoped-for result is greater efficiency in keeping with local needs and preferences. Difficulties have arisen, however, because the local authorities often lack the capacity to prepare, implement, operate and maintain utility projects.

Another form of cooperation that has been encouraged in recent years is association with residents affected by infrastructure works. An interesting example is provided by the city of Córdoba, Argentina, where local by-laws have been passed to foster such arrangements.

There was little trade union participation in the various phases of the privatization process and union opposition often consisted more of words than of action. The unions did take legal action in some cases, but without result. None the less, one effect of the initially firm opposition to privatization was that better conditions could be negotiated for the workers and the individual and social impacts of unemployment softened. Generally speaking, outright opposition gradually gave way to support for the process. A great number of union leaders in the privatized enterprises are now happy with the new situation.

Giving workers the opportunity to buy shares was clearly a tactic to co-opt them into the process.

The retrenchments had a severe impact on the labour market and aggravated the regional and national unemployment rates.

Workers who resumed their jobs gained from the changeover. Those who were made redundant received severance allowances and training, as well as shares in the companies.

There was a general improvement in performance in all the companies studied. All the indicators are positive and the public satisfaction rate has risen.

The following conclusions refer to water and sewerage utilities in particular.

The problems of the water and sanitation sector are considerable because, being regarded as a social service, it has placed more emphasis on extending coverage than on recovering costs or establishing sound institutional and human resource policies. The companies generally suffer from overstaffing, while productivity is low and discipline weak.

Public utilities in this sector also have the burden of political appointments, undue political interference, and conditions that do not provide enough incentive to attract qualified workers. Political appointments and low pay combine to produce a high turnover of senior executives.

Over the last 10 years, many water and sewerage utilities were transferred to municipalities and provinces or states that were poorly prepared to run them.

Water losses rose, to as much as 50 per cent of production in some instances.

In the majority of countries, a strong trade union tradition used to exist in the water and sewerage sector. The unions at first resisted privatization movements. This resistance was countered by means of three basic strategies: offers of generous compensation for workers accepting voluntary retirement; a promise to re-employ large numbers of workers in the new operating company; and the earmarking of shares in the new company for workers from the former operator.

Once concessions had been signed, the companies entered into negotiations with the unions on the subject of retirements, collective labour agreements, and worker shareholding. In Argentina, the company concluded a new collective agreement with the union involving an average pay rise of 40 per cent.

In some cities in Argentina, Brazil, Colombia and Mexico, the legislation contains incentives for private enterprise to collaborate with local authorities in providing water and sewerage services but the uncertainties arising from problems of an institutional, technical, regulatory and financial nature make private developers hesitate. Some privatization processes have collapsed for that reason.

As far as electrical utilities are concerned:

The "Southern Cone" model is the most widely applied. It consists of splitting the industry into five functions: generating, dispatching, transmission, distribution networks and supply, with deregulation of the system at bulk and retail levels. The completely deregulated bulk sector remains open to competition for generating. The retail part provides large and medium-sized consumers with direct access to generation under freely negotiated contracts and a supply to small consumers at regulated prices.

Job reductions were applied in accordance with special agreements facilitated by the readiness of unions to negotiate. Employees made redundant received compensation based on their length of service and the nature of their work. After privatization, further redundancies and voluntary retirements followed.

The adjustment measures led to a higher rate of labour productivity, improved customer/ employee ratios and reduced power losses.

With regard to gas utilities:

In Argentina, the terms and conditions for privatization stipulated that the privatized companies must absorb all the former employees, so there was no retrenchment. A voluntary retirement programme had however been implemented during the preparatory phase of privatization.

In Brazil, the two privatizations that have been put into effect took place only recently so it is too soon to evaluate changes. There have as yet been no redundancies but it is assumed that there will be.

In Chile, there has been no privatization in the petroleum industry, which is the producer of gas. Gas distribution has traditionally been in private hands.

In the majority of countries, there were a lack of

1. Local authorities generally do not possess the water and sewerage information systems they would need to set targets, which could be translated into reasonable commitments consistent with their resources and risks.

2. National and local governments usually copy the schemes adopted in other parts of the country or the world, without trying to assess their applicability locally and without consideration for the fact that the concession mechanism is not always viable.

3. Many of them embark upon complex administrative processes with no prior preparation or advice. They therefore draw up privatization projects in which many of the financial and operating forecasts are badly made and somewhat unrealistic, and they have no clear idea what form of privatization would best suit their particular circumstances.

4. They hesitate to make the necessary tariff changes because in the majority of cases that would increase the cost of services, which would be unpopular and hence better avoided. This factor creates serious problems in improving the viability of projects.

5. Their bargaining position is weak compared to the experts at the negotiating table and the foreign operators, and the fewer the bidders the weaker it is. They thus end up accepting the other side's conditions and assuming all the risks.

6. From a procedural point of view, a frequent feature is the paucity of bidders. One reason for this is that nationals have no experience of operating water and sewerage systems, which limits the choice to foreign bidders who in any case only have a short time to formulate proposals.

7. The second reason is that one of the requirements for taking part in international bidding is to have experience of managing water and sewerage systems. This rules out nationals.

Notes

1 The author acknowledges the valuable help provided by: Renata Bloch, who took part in interviews, collected and processed data and prepared a number of tables; Elsa María Ardila Guzmán, who carried out a case study on Colombia in line with the author's specifications; and Guillermo Marianacci, who contributed an extensive amount of documentation on the case of Córdoba, Argentina. The author also wishes to thank the persons, institutions and enterprises mentioned in the text for the useful data and information they provided. Without the support of all those contributors, the work would not have been possible. However, the responsibility for the opinions expressed in this paper lies entirely with the author.

2 Saravia, Enrique: Proceso de privatización en Argentina y Brasil: consecuencias en materia de mercado de trabajo y desempeño empresarial. Prácticas utilizadas para el ajuste de personal. Geneva, ILO, 1996; O sistema empresarial público no Brasil; gênese e tendências atuais. Brasilia, IPEA/ECLAC, 1988. "The Brazilian Privatization Programme". Review of the School of Public and Environmental Affairs, Vol. 10. No. 2, spring 1989, Indiana University, Bloomington, pp. 18-24.

3 Hauriou, Maurice: Précis de droit administratif. 9th ed. Paris, 1919. Quoted by Gordillo, Agustín A. in Tratado de derecho administrativo, Vol. 2, Buenos Aires, Macchi, 1975, pp. XIII-3. See also: Sayagues Laso, Enrique. Tratado de derecho administrativo 6th ed. Montevideo, Fundación de Cultura Universitaria, 1988, Vol. 1, pp. 57 et seq.

4 See Morand-Devillier, Jacqueline: Cours de droit administratif. 10th ed. Paris, Montchrestien, 1991, pp. 374 et seq.

5 See Gordillo, op. cit., pp. XIII 14-22.

6 For the principles of public utility, see: Auby, Jean-François. La délégation de service public. Paris, Presses Universitaires de France, 1995, p. 123; Jeanneau, Benoit: Droit des services publics et des entreprises nationales. Paris, Dalloz, 1984, p. 36 et seq.

7 Argentina. National Audit Office: Análisis jurídico de la tarifa en el servicio público de transporte y distribución de gas. Technical Document No. 3, Buenos Aires, 1995, pp. 40 et seq.

8 See Auby, op. cit., p. 16 et seq.; Cassese, Sabino: Le basi del diritto amministrativo. Turin, Einaudi, 1989, p. 165; Jeannau, op. cit., p. 596; Morand-Devillier, op. cit., p. 396; Sayagues Laso, op. cit., vol. 2, p. 11 et seq.

9 The first concession was apparently awarded in 1554 for improvement work on the canal linking the River Durance to the Rhone (Morand-Devillier, op. cit., p. 395).

10 See Jeannau, op. cit., p. 597.

11 Argentina. National Audit Office. Análisis jurídico de la tarifa en el servicio público de transporte y distribución de gas. Technical Document No. 3, Buenos Aires, 1995, p. 37.

12 For more detail on leases, see Vuylsteke, Charles: Techniques of privatization of State-owned enterprises, Vol. 1. Washington, DC, World Bank, 1988, pp. 36-40.

13 Dnes, Anthony: "Franchising and privatization", in Public Policy for the Private Sector, Special edition, June 1996. Washington, DC, World Bank, p. 17.

14 World Bank: Meeting the infrastructure challenge in Latin America and the Caribbean. Washington, DC, 1995, p. 12.

15 Auby, op. cit., p. 16 et seq.

16 Auby, op. cit., p. 113 et seq.

17 World Bank, op. cit., pp. 3-4.

18 Public utility enterprises are entities that have the task of providing a public utility. Under the terms of Act No. 142/94, such enterprises may be publicly owned, when the capital is entirely in the hands of the State, local authorities or decentralized bodies; semi-public, when the State, local authorities or decentralized bodies hold 50 per cent or more of the capital; or private, when a majority share is privately held.

19 Colombia: Act No. 80 of 28 October 1993.

20 Colombia: Act No. 80 of 28 October 1993, article 32.X

21 Ardila Guzmán, Elsa María. Los sistemas de agua y alcantarillado en Colombia: una reflexión sobre el proceso de privatización. Santafé de Bogotá, 1997, pp. 12-16.6.

22 Auby, op. cit., p. 598.

23 Gomes, Frederico Birchal de Magalhaes and Suely Barbosa Monnerat. "A questao regulatória nas privatizaçoes da Light e da ESCELSA" in Revista do BNDES, No. 6, Dec. 1996, p. 192.

24 Devlin, Robert: "Las privatizaciones y el bienestar social en América Latina" in Muñoz, Oscar G. (ed.): Después de las privatizaciones: hacia el Estado regulador. Santiago, CIEPLAN, 1993, p. 179 et seq. Comments on each of the causes are the author's but they agree to some extent with those of Devlin.

25 Saravia, Enrique, op. cit., p. 1.

26 Nankani, Helen B.: "Privatizaçao em países em desenvolvimento: liçoes a tirar" in Finanças & Desenvolvimento, Washington, DC, Mar. 1990, p. 43.

27 Van de Walle, Nicolas: "Privatization in developing countries: a review of the issues" in World Development, Vol. 17, No. 5, May 1989, pp. 601-615.

28 The data on this subject are taken from World Bank: Meeting the infrastructure challenge in Latin America and the Caribbean. Washington, DC, 1995.

29 See table in annex I.

30 See annex II for details of asset and experience requirements.

31 See annex III for table showing the financial results of each transaction and the winning bidders.

32 For further information on these programmes, see below.

33 Rondinelli, Dennis and Max Iacono: Policies and institutions for managing privatization: international experience. Geneva, ILO, 1996, p. 171.

34 Devlin, op. cit., pp. 202-203.

35 The PPPs originate from the employee stock ownership plans (ESOPs) devised in the United States in the 1950s and introduced for the first time in 1956 by the lawyer, Louis O. Kelso. ESOPs were encouraged by the United States Congress from 1973 onwards. In 1986, a Presidential task force was set up to promote ESOPs in Central America and the Caribbean. In 1987, the United States Government introduced the Federal Employee Direct Corporate Ownership Opportunity Plan (FED-CO-OP), which was intended to offer financial benefits including the possibility of setting up ESOPs to Federal employees affected by the privatization decided on by the Government under OMB Circular A-76. The World Bank and the IDB include ESOPs among the measures they recommend to borrowing countries.

36 According to information emanating from the Ministry of Economic Affairs, formal steps to create PPPs are being taken at Aerolíneas Argentinas, YPF S.A., Transener S.A., Cammesa S.A., Centrales Térmicas del Litoral S.A., Hidroeléctrica Piedra del Aguila S.A. and Transnoa S.A.

37 Lozano, Luis F. et al.: Los trabajadores y las privatizaciones: cómo se implementa un programa de propiedad participada. Buenos Aires, Atlántida, 1992, p. 139. This book contains a detailed analysis of the elements that make up a PPP and of the results in practice.

38 Resolution No. 18 of 20 August 1996 of the State Denationalization Programme Steering Committee.

39 Saez, Raúl E.: "Las privatizaciones de empresas en Chile", in Muñoz, G. Oscar: Después de las privatizaciones: hacia el Estado regulador. Santiago, CIEPLAN, 1993, p. 77.

40 ibid., p. 93.

41 ibid., p. 92.

42 Devlin, op. cit., p. 205 (footnote).

43 See annex IV for a table describing the characteristics of direct water use in the main cities of Latin America and the Caribbean.

44 World Bank, op. cit., p. 27.

45 Idelovitch, Emanuel and Klas Ringskog: Private sector participation in water supply and sanitation in Latin America, Washington, DC, World Bank, 1995.

46 World Bank, op. cit., p. 44.

47 Rivera, Daniel: "Private sector participation in the water supply and wastewater sector: lessons from six developing countries", in Directions in Development, World Bank, Washington, DC, 1996, p. 2.

48 Piccinini, Maurício Serrao: "A infra-estrutura nas diferentes esferas do setor público e a participaçao da iniciativa privada", in Revista do BNDES, No. 6, Dec. 1996, pp. 98-99.

49 Ardila Guzmán, op. cit., pp. 5-6.

50 Which is considered to be one of the 100 most efficient companies in Colombia.

51 Colombia: La revolución pacífica, plan de desarrollo económico y social 1990-1994.

52 Around 45 per cent per annum in real terms.

53 Two-year grace period and seven years for debt repayment.

54 Loan periods of 10 to 12 years, real annual rates of 12-14 per cent in hard currency, equivalent to 30-32 per cent real annual rate.

55 Rodríguez, Alfredo and Fabio Velásquez (eds.): Municipio y servicios públicos: gobiernos locales en ciudades intermedias de América Latina. Santiago, Ediciones SUR, 1994 (Estudios Urbanos).

56 Santafé de Bogotá, Medellín and Cali.

57 The trading risks of a water and sewerage utility relate to unpaid bills or arrears in payment for services rendered, the uncertain prospects of making a reasonable profit and fluctuations in demand on the market.

58 The term semi-public (or mixed-economy) company applies to legally constituted commercial companies with capital subscribed by state and private sources, engaging in activities of an industrial or trading nature in accordance with the rules of private law.

59 In December 1995, before privatization, the number of employees was 122.

60 Saez, op. cit., p. 104.

61 Rivera, op. cit., p. 16.

62 Rivera, op. cit., p. 25.

63 idem, p. 37.

64 idem, p. 56.

65 Idelovitch, op. cit.

66 Rivera, op. cit., p. 46.

67 La Voz del Interior (newspaper), Córdoba, 7 May 1997.

68 Interview with CEDAE, 17 Feb. 1997.

69 Ardila Guzmán, op. cit., pp. 18-19.

70 Claims submitted to the Constitutional Court over a period of three months (including 65 that required fast processing) were all settled in favour of the company.

71 Ardila Guzmán, op. cit., p. 23 et seq.

72 Roughly US$8 million.

73 Rivera, op. cit.

74 The energy losses of concessionaires in the sector are high, the reasons for this being both commercial: lack of meters and thefts of energy, and technical: system inefficiency, particularly in distribution. According to information provided by Eletrobras, average losses in 1995 were 15.7 per cent, but in the worst cases they exceeded 25 per cent.

75 Exceptions are the Juba I and II private hydroelectric stations producing for own consumption in Mato Grosso State and belonging to the Itamarati Group, with a capacity of 84 MW. Construction of the stations, which are in operation, was financed by BNDES.

76 The Electrical Services General Act (DFL No. 1 of 1982).

77 Saez, op. cit., p. 93; Blanlot, Vivianne. "La regulación del sector eléctrico: la experiencia chilena", in Muñoz, Oscar: Después de las privatizaciones: el estado regulador. Santiago, CIEPLAN, 1993, p. 289-290.

78 Blanlot, op. cit., pp. 295-296.

79 Interview with Mr. Sergio Malta, SINERGIA President. Feb. 1997.

80 Devlin, op. cit., p. 202.

81 ILO: World Labour Report 1995. Geneva, 1996, p. 62

Annexes

Annex I. Argentina: electricity, gas and water companies, financial restructuring (billions of US dollars)

Enterprise Total liabilities 'at the date of privatization Treasury New companies

Amount Percentage Amount Percentage

SEGBA 4.82 4.451 92 0.37 8

GdE 2.66 0.24 9 2.42 91

OSN 0.24 0.24 100 0.00 0

1 Of this amount, US$3.02 billion represents SEGBA's bad debts to other public enterprises, the social security system and the Treasury, and was written off. Therefore, in reality, the Government assumed only US$1.43 billion in commercial and financial loans.

Source: Shaikh, Hafeez. Argentina's privatization program: a review of five cases. Washington, World Bank, Private Sector Development Department, 1996, p. 34.

Ardila Guzmán, Elsa María: Los sistemas de agua y alcantarillado en Colombia; une reflexión sobre el proceso de privatización. Santafé de Bogotá, 1997.

Auby, Jean-François: La délégation de service public. Paris, Presses Universitaires de France, 1995.

Auditoría General de la Nación: Análisis jurídico de la tarifa en el servicio público de transporte y distribución de gas. Buenos Aires, AGN, 1995 (Documento Técnico No. 3)

Bienen, Henry and John Waterbury: "The political economy of privatization in developing countries", in World Development, 17:5:617-632, May 1989.

Bitran, E. and Pablo Serra: "Regulatory issues in the privatization of public utilities; the Chilean experience", in Quarterly Review of Economics and Finance (Illinois), 34:179-197, Special Issue, Summer 1994.

Blanlot, Vivianne: "La regulación del sector eléctrico; la experiencia chilena", in Muñoz, Oscar (ed.): Después de las privatizaciones; hacia el Estado regulador. Santiago, CIEPLAN, 1993.

Cassese, Sabino: Le basi del diritto amministrativo. Turin, Einaudi, 1989.

Colombia. Ministry of Economic Development: Economía del agua y sector privado. Santafé de Bogotá, Tercer Mundo, 1996.

Devlin, Robert: "Las privatizaciones y el bienestar social en América Latina", in Muñoz, Oscar (ed.): Después de las privatizaciones; hacia el Estado regulador. Santiago, CIEPLAN, 1993. pp. 169 et seq.

Dnes, Anthony: "Franchising and privatization", in Public policy for the private sector. Special Edition. Washington, DC, World Bank, June 1996.

Ferreira, David and Kamran Khatami: Financing private infrastructure in developing countries. Washington, DC, World Bank, 1996.

Gomes, Frederico Birchal de Magalhaes and Suely Barbosa Monnerat: "A questao regulatória nas privatizações da Light e da Escelsa", in Revista do BNDES, 6:189-200, Dec. 1996.

Gordillo, Agustín A.: Tratado de derecho administrativo. Buenos Aires, Macchi, 1975.

Guislain, Pierre and Michel Kerf: "Concessions; the way to privatize infrastructure sector monopolies" in Public policy for the private sector. Special Edition. Washington, DC, World Bank, June 1996.

Idelovitch, Emanuel and Klas Ringskog: Private sector participation in water supply and sanitation in Latin America. Washington, DC, World Bank, 1995.

ILO: World Labour Report 1995. Geneva, 1996.

Jeanneau, Benoit: Droit des services publics et des entreprises nationales. Paris, Dalloz, 1984.

Johnson, Bruce Baner et al.: Serviços públicos no Brasil; mudanças e perspectivas. São Paulo, Edgar Blücher, 1996.

Lalor, R. Peter and Hernán Garcia: Reshaping power markets; lessons from Chile and Argentina, pp. 41-44.

Lavore, Fernando A.: "La dimensión de los recursos humanos en la privatización de una empresa pública en la Argentina; el caso SEGBA S.A." 1995. Mimeographed (paper prepared for the ILO).

Lee, Terence R.: "Water management in the metropolitan areas of Latin America" in United Nations Centre for Regional Development: Enhancing the management of metropolitan living environments in Latin America. UNCRD Research Report Series, No. 1, Nagoya, Japan, 1994.

Lozano, Luis F. et al.: Los trabajadores y las privatizaciones; cómo se implementa un Programa de Propiedad Participada. Buenos Aires, Atlántida, 1992.

Morand-Devillier, Jacqueline: Cours de droit administratif. 10th ed. Paris, Montchrestien, 1991.

Nankani, Helen B.: "Privatizaçao em países em desenvolvimento; liçoes a tirar", in Finanças & Desenvolvimento. Washington, DC, March 1990.

Oestmann, Christian: Privatization of public services and public utilities. Geneva, ILO, 1994.

O sistema empresarial público no Brasil; gênese e tendências atuais. Brasilia, IPEA/ECLAC, 1988.

Piccinini, Mauricio Serrao: "A infra-estrutura nas diferentes esferas do setor público e a participaçao da iniciativa privada", in Revista do BNDES, 6:79-114, Dec. 1996.

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Updated by GT. Approved by HH. Last update: 24 January 2000.

Labour and social dimensions of privatization and restructuring - Public utilities Water, gas, electricity. Part II Europe/Latin-America

edited by L. de Luca

Labour and social dimensions of privatization and restructuring - Public utilities Water, gas, electricity.
Part II Europe/Latin-America