Dimensions of Privatization

Privatization efforts are occurring in several different regions, nations, and industries. Although some clear patterns have emerged, there are many different forms and variations of privatization. One example of an aggressive attempt at privatization is when a government completely divests itself of all state-owned enterprises to the public and fully removes itself from the control and management of these enterprises. There are also several less substantial forms of privatizing. At the other extreme, a government may implement a deregulatory policy which allows an industry only a marginal amount of greater autonomy or may just contract out a service that was formerly performed by government workers, such as trash collection. Privatization can also be achieved without doing much of anything. If, for example, the private sector is growing while the public sector is shrinking, privatization is being achieved through attrition.

Recent efforts have also varied considerably in terms of the speed at which companies have been privatized. In some cases, recent privatizations have been sweeping--involving the transformation of state-owned petroleum monopolies into completely privatized companies, almost overnight. However, more typical is the case of gradual privatization. Even in the most far-reaching privatization efforts--such as in the United Kingdom--several years have gone by between the time government committed itself to privatizing industries and the full transfer of ownership to the public.

The role of the foreign investor has been an important factor in the privatization process. In some political jurisdictions, few, if any, restrictions have been placed on foreign investors. In the Australian state of Victoria, for instance, when five of the state's electric distribution companies were auctioned off, all were purchased, at least in part, by U.S. companies. Countries such as the United Kingdom and Argentina have also been at the forefront in allowing relatively nondiscriminatory treatment of foreign investors. In other cases, restrictions on foreign investment have been inhibiting. Several of the former Communist regimes, for example, along with China, have undertaken relatively moderate and often vacillating steps towards opening their energy sectors to foreign investment. In general, these countries have relied on joint ventures with state-controlled enterprises as an approved vehicle for foreign investment in their energy industries.

Governments have often undertaken a vast restructuring of energy industries prior to the transfer of ownership to the public. In Russia, for example, privatization has involved the creation of eleven vertically integrated petroleum companies, along with a large natural gas-producing company and a large transmission company. In other countries, a restructuring has ensued largely after the transfer of ownership from state to private hands. In the United Kingdom, a merger and acquisition frenzy ensued following the recent privatization of electricity generation, transmission and distribution industries, as well as in the natural gas transmission and distribution industries.

It should be noted that the privatization of an industry does not mean that governments relinquish their authority to regulate these industries. In many cases, the politically sensitive issue of what allowances could be made to electric utilities being privatized in their freedom to adjust residential electricity rates has placed constraints on the privatization process.