The Challenges of Privatization: An International Analysis

By Bernardo Bortolotti; Domenico Siniscalco | Go to book overview

6 Privatizing Monopolies

6.1 INTRODUCTION

On a worldwide scale, privatization appears to follow a common pattern. In virtually all major regions, however, including Western Europe, Latin America, Oceania, the former Soviet Union, the Middle East, North Africa, and Asia, the percentage of revenue from the sale of utilities appears to be increasing over time (see Figures 6.1 to 6.9).

Despite this common trend, privatization processes evolve at different speeds. As we have seen in the previous chapter, only a few countries have fully privatized strategic sectors such as energy, telecommunications, or transport. The UK went furthest in privatization in the shortest time. The Thatcher government started in 1977 with British Petroleum (BP), the national oil company, followed by companies of the industry sector. By the end of the 1980s, the process experienced an abrupt acceleration, with privatization of water and sewerage, electricity, TLC and, more recently, railways. Similarly, Argentina has rapidly entered the more advanced stage. The privatization process started in 1990 with important sales in utilities. From 1990 to 1996, 88 per cent of sales occurred in strategic sectors, mainly in the electricity and gas distribution sector.

Some ambitious privatization programmes experienced an abrupt interruption despite a promising start. For instance, as we have seen in Chapter 2 , Section 2.3 , French privatization started in 1986-87 in the financial and banking sector. The first sale in the energy sector took place in 1992 with the partial sale of Elf Aquitaine and Total. After a long interruption, the process regained momentum in 1997 with the sale of France Telecom. Notwithstanding some recent announcements, the majority of assets in strategic sectors are still publicly owned.

The Italian experience is similar. The privatization process started in 1985 with partial sales of SIRTI and Alitalia. From 1985 to 1995, sales involved mainly the industry and banking sectors. The first large flotation in the utility sector took place a decade after the start of privatization, with the first divested piece of Eni, the national oil company. Since then, some significant sales have occurred in the utilities (Eni and Telecom Italia). However, the privatization of electricity has been only partial, and the privatization of railways is still wishful thinking.

In this chapter, we argue that regulation is the key to the divestiture of monopolies. The privatization process can then smoothly enter the second stage involving utilities only if governments have injected competition into the market and structured a clear regulatory framework before privatization. A well-defined

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