Introduction:
Since its proclamation, Jordan adopted the free-market economy system where the private sector played the main role in the economic activity. However, during the past years, especially the seventies and the eighties, many factors led to the dominance and expansion of the public sector’s role in the country’s economic activity over the private sector’s. Among these factors were: the increasing demand to develop the infrastructure of the economy; the need to address economic and social problems and the reluctance of the private sector to engage in capital intensive projects, in which the abundance of loans and foreign assistance played a major role therein. The aim of the government was to achieve socio-economic development with fair distribution of its benefits.
The augmentation of the role of public sector focused on infrastructure projects including telecommunications, energy, transport, water, education, health and social care. It also included partnership with the private sector in the development of highly production projects in the mining sector such as Cement, Potash and Phosphate and to a lesser extent in the services, industrial and financial sectors; while the role of the government encompassed the control over market mechanism, the pricing system as well as the protection of national production by various means.
As a result of the dominance of the public sector in various activities, severe economic structural imbalances and remarkable deceleration in the levels of productivity and economic competence were recorded. This contributed to the aggravation of the fiscal deficit in the public sector (General budget and budgets of independent institutions) and induced a high increase in the outstanding public debt and the debt service burden, as well as the deficit in the balance of payments. All these factors led to the economic crisis in the late eighties reflected in the depletion of foreign reserve hence the devaluation of the Jordanian Dinar and a deterioration in the standard of living.
To redress the deteriorating economic situation, the country embarked on national economic reform programs with the main objective of restoring fiscal and monetary stability as well as introducing structural adjustment aiming at creating a favorable environment for sustainable economic development at acceptable and steady rates. Despite remarkable successes in the scope of fiscal stability, building a good foreign reserve and legislative reform, achieving the goals of such programs requires extensive efforts especially in the following areas:
1. Raising the productivity and efficiency of economic projects to improve the competitiveness of the national economy especially in light of the abolishing of customs protection and the move towards economic openness, liberalization, and economic integration on the regional and global levels, in addition to the emergence of various economic blocks such as the European Union and others.
2. Stimulating local savings and attracting new investments to achieve high investment rates, which will lead, on the long run, to a decrease in the levels of unemployment and poverty, especially that the government’s ability to finance new investments out of its own internal resources is limited.
3. Terminating the continuous drain of public funds resulting from Treasury subsidy to loss-making public enterprises. The importance of this subsidy is mounting as the lack of financial aid and soft loans provided to Jordan will not be possible unless taxes are raised.
4. The government is to focus on its main tasks of policy-making, legislation, regulation and supervision while ensuring justice; the government shall concentrate on its core activities such as security, provision of health, education, social services and development and maintenance of the country’s infrastructure.
Achieving these goals is directly related tocorrecting the role of the public sector in the production activity coupled with stimulating and encouraging the private sector in assuming its natural role in the economic activity which is the cornerstone of the concept of privatization. This is a pivotal condition and a prerequisite for supporting and implementing the economic reform process, and hence preparing the country for openness to international markets and in response to the challenges arising as a result of signing the Association Agreement with the European Union and joining the World Trade Organization.
Privatization Strategy
I. Privatization- Definition:
Privatization means the adoption of an economic methodology supported by a strong political will with the main objective of creating a solid and supportive environment for a sustainable economic growth. The process comprises the redistribution of the roles between the public and private sectors whereby the government focuses on its main tasks in policy-making, regulation and monitoring as well as concentrating on its core activities such as defense and security, health, education, social services and preserving the environment, whereas the role of the private sector expands in economic activity to include, and away from monopoly, public sector enterprises that can be operated on a commercial and financial basis.
II. Privatization Objectives
The privatization process aims at achieving the following goals:
1. To raise the efficiency, productivity and competitiveness of economic enterprises through strengthening the market forces and eliminating structural imbalances.
2. To stimulate local private savings and attract local, regional and foreign private investments through opening-up the markets and terminating government’s monopoly.
3. To stop public funds draining in the form of subsidies and loans granted to loss-making and unprofitable enterprises, thus alleviating the fiscal burden off the Treasury.
4. To reduce the need to revert to foreign borrowing to finance the deficits of existing enterprises or financing new projects.
5. To deepen the local capital market while steering private savings towards long-term investments.
6. To facilitate the transfer of advanced technology and modern management techniques required for competitiveness in international markets and to reach new stable markets.
III. General Guidelines
The government shall, while implementing the privatization process, take into consideration the following principles and strategic guidelines:
1. To prepare the conditions for creating and developing a suitable competitiveness environment under the prevailing market economies in an effort to benefit from the advantages gained from competitiveness in the areas of raising managerial efficiency, productivity and lowering prices.
2. To complete the required legislative and regulatory framework supporting privatization either by enacting new legislations or amending existing ones.
3. To establish independent regulatory commissions for sectors being privatized to be responsible for licensing, quality control and control over any possible monopolistic practice to safeguard the rights of both consumers and investors.
4. To gradually implement privatization procedures as follows: restructuring public enterprises and transforming them into shareholding companies totally owned by the government, as mandated by the Companies Law, in preparation to transfer ownership to the private sector. Such enterprises shall, in the preliminary phase develop work culture and implementation of commercial and financial practices observed by the private sector in order to facilitate the privatization process later on.
5. To evaluate the assets of enterprises slated for privatization according to the prevailing accounting standards and in more than one approach with the main objective of determining the value of the enterprise as a benchmark in guiding the privatization process.
6. To choose the best option for privatization of each enterprise, in a way that conforms to the conditions and requirements of the enterprise and the concerned sector, in order to help in achieving the desired objectives within the general basic framework of the national strategy.
7. To ensure transparency and openness in decision-making and implementation procedures of the privatization process.
8. To safeguard the vested rights of all stakeholders, in particular protecting the interests of employees in the privatized enterprises and dealing with all labor issues according to general and just rules subject to regulations and legislations in force.
9. To grant incentives to employees in privatized enterprises through allocating shares to employees at subsidized prices with a grace period, whenever possible.
10. To raise public awareness regarding the objectives of the privatization program and the implementation procedures followed in order to gain public support and ensure more transparency to the program.
11. To retain specialized consultants, whenever needed, to prepare comprehensive studies and reach targeted investors.
IV. Types of Privatization:
The government has adopted various types of privatization in order to avoid any risks that may arise if one method is adopted. These include:
1. Total or partial transfer of ownership of public enterprises to the private sector, which may include, for example: selling shares listed on the Amman Stock Exchange, Public Offering and direct sale to investors or technical (strategic) partners.
2. Concession agreements, through which the government grants the private sector the right to provide a service according to specific terms, as is the case with the privatized Public Transport Corporation.
3. Lease contracts, through which the government remains to be the sole owner of the public enterprise, but at the same time the private sector operates it for its own benefit for a certain fee, as is the case with the Aqaba Railway.
4. Management contracts, where the ownership of the public enterprise remains with government and the management of these enterprises shall be handled by the private sector according to specific management contracts as is the case with the management contract for the Provision of Water and Wastewater Services in the Capital Governorate.
5. The private sector builds the enterprise, operates it for a specific period then transfers it to the public sector at the end of the specified period (BOT).
6. Any other method endorsed by the relevant authorities based on the conditions and specificity of each project.
V. Implementation Priorities:
Jordan’s privatization program’s priority is granted to the privatization of public corporations and projects that can be operated on commercial basis, with the assertion that the government will continue to provide the basic services such as: education, health care, social services, security and environment conservation; although the private sector is allowed to provide the same services.
Accordingly, privatization priorities encompass the following sectors:
· Energy sector.
· Transport sector.
1. Public transport.
2. Railways.
3. Air transport (including airports).
4. Ports Corporation.
· Postal and Telecommunications sector.
· Water sector.
· Television and Radio sector.
· Government shareholdings and official public enterprises and corporations.
The implementation strategy does not necessarily require listing the projects according to a specific timetable, but rather simultaneously, where progress in each transaction depends highly on the nature of the project, the obstacles to be overcome and the extent of required local or international expertise.
VI. The Mechanisms for Implementing Privatization Transactions:
1. The endorsement and announcement of the privatization transaction. The type of privatization could be determined at this stage or postponed until the financial advisor submits his recommendations on the matter.
2. The preparation of the Terms of Reference for recruiting financial and legal advisors required to assist in the privatization transaction.
3. The announcement, in various local and international media of the government’s intention to invite expressions of interest from qualified financial and investment firms.
4. The evaluation of the Expressions of Interest upon the receipt of the offers and the preparation of a short-list of pre-qualified firms. The firms are subsequently contacted to submit their offers according to the bidding documents sent thereto.
5. The technical and financial offers submitted by the pre-qualified firms are evaluated in order to choose the best offer in light of the predetermined terms and standards thereof.
6. The retained financial advisor shall conduct a comprehensive study of the specific project, including its conditions and any key constraints, as well as recommend the best privatization option.
7. The financial advisor shall prepare the necessary documents needed to complete the privatization transaction, such as agreements, including terms and conditions for concerned parties to abide by.
8. The financial advisor shall prepare the Information Memorandum regarding the project being privatized in accordance with prevailing legislations.
9. The initiation of the implementation procedure of a relevant privatization transaction, in light of the type of privatization adopted. This includes announcing the project, invitation for expressions of interest, short-listing the pre-qualified investors and informing them of all the project details in preparation for receiving their final offers and consequently evaluating these offers and awarding the tender accordingly.
VII. Utilization of Privatization Proceeds:
Although public enterprises or government’s shareholdings in certain companies are accumulated assets over the past few decades, they resulted in a heavy debt burden on the national economy. Therefore, the proceeds accrued from the sale, lease or management of these projects are commonly owned by all citizens and their predecessors as well as future generations to come.
Accordingly, the privatization proceeds shall not be utilized to finance current expenditures of the government, but such proceeds shall be deposited in a special account with the Central Bank, and confine their utilization to the following fields and according to clear and specific priorities, basis and mechanisms:
1. Address labor issues in companies or enterprises undergoing privatization through settling their ensuing compensations and financial rights, training, re-training and rehabilitation of those employees as well as finding them alternative job opportunities.
2. Settlement of Government debts incurred by the privatized public companies or enterprises.
3. Financing new investments in infrastructure and social sectors where the private sector cannot solely invest in.
VIII. Institutional Framework:
In order to regulate and institutionalize the privatization process, and launch the privatization process while enhancing the government’s institutional and technical capacities for implementing the program, the following institutional framework and mechanisms have been identified:
1. The Higher Ministerial Privatization Committee:
The Committee is chaired by the Prime Minister or his Deputy, with the membership of economic ministers, heads of departments, and concerned institutions including the President of the Audit Bureau and the Chairman of the Executive Privatization Unit. The Committee shall be entrusted with broadly drawing general policies for privatization and endorsing decisions or forwarding recommendations to the Council of Ministers in addition to the general monitoring and follow-up roles.
2. The Executive Privatization Unit:
The Unit was established at the end of 1996 within the Prime Ministry, entrusted with the main tasks of: recommending public enterprises candidate for restructuring or privatization; participating in the implementation of the privatization procedures in collaboration with specialized advisors, concerned ministries and institutions, including opting for the best privatization option for each transaction and forwarding optimal recommendations to the Higher Privatization Committee in this regard; participating in recruiting advisors and developing qualification standards and evaluation criteria for all received bidding offers.
3. Supporting Committees and Task Forces:
i. Steering Committees:
A steering committee is usually formed for each project with the following set-up: The concerned Minister or General Manager as Chairman, and the membership of: Chairman of the Executive Privatization Unit and other representatives. The main task of these committees is to supervise the privatization transaction and facilitate communication and coordination with all concerned parties, in addition to recommending to the Higher Privatization Committee the necessary measures to be taken.
ii. Task Forces:
Task forces will be formed for each transaction to include technical experts from the concerned enterprise and representatives from the Executive Privatization Unit and other experts, entrusted with the follow-up on the valuation of the project, preparation for privatization in addition to forwarding recommendations to the concerned Steering Committees.
iii. Special Tendering Committees:
Such committees are only formed in certain cases for a special project if the transaction requires so. The committee will consist of members with a representative from the Government’s Tenders Department, and shall set the tendering rules and procedures to be followed in a bidding process. The decisions of these committees are subject to the approval of the Council of Ministers.
* It is worth mentioning that the government is committed to strengthen and develop the institutional framework of privatization, as well as drafting the privatization law. The new institutional framework will be enforced upon the endorsement and issuance of the Privatization Law.