Presentation for Mindanao State University Graduate school about privatization in the Philippines

1. PRIVATIZATION
OF PUBLIC SERVICE

2. WHAT ARE PUBLIC ENTERPRISES
Public enterprises are industries created officially for
economic development, enhancement and protection of the
national interest and institutional response to specific
problems.
-Briones 1985b
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3. WHAT ARE PUBLIC ENTERPRISES
Article XIV, Section 6 of the 1973 constitution sets the general
policy and framework.
“Sec.6 The state may, in the interest of national welfare or
defense, establish and operate industries and means of
transporation and communication and upon payment of just
compensation, transfer to public ownership utilities and other
private enterprises to be operated by the Government..
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4. WHAT IS PRIVATIZATION?
Privatization occurs when a government agency that
provides public services is converted into a privately owned
organization.
Services often remain, they can be delivered on for profit
basis than strictly operated for public benefit
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5. THE NATURE OF PRIVATIZATION
Privatization may be in a form of the following:
▰ Asset divesture : disposition or sale of asset or stakes
▰ Contracting :public fund pays private vendor for public service
▰ Franchises :gives the vendor privileges to act as local monopoly in area
▰ Public-Private :shared responsibility on providing public service
Partnership
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6. THE SCHEMES OF PRIVATIZATION
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Build-Operate-
Transfer
___________
Rehabilitate-
Operate-Transfer
_____________
Build-Transfer-
Operate
____________
Joint Venture
____________
1 2 3 4

7. PRIVATIZATION
The state recognizes the role of private sector on
national growth.
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8. PRIVATIZED ENTERPRISES IN THE PHILIPPINES
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9. Philippine Long Distance Telephone Company
(PLDT)
▰ Established on November 28, 1928
▰ December 1967,Ramon Cojuangco took control of PLDT after buying its shares
▰ During the 1970s, PLDT was nationalized by the government of then President Marcos
and in 1981becoming the country's telephone monopoly.
▰ “Notoriously inefficient.”Eaton, Kent (January 2008). "Politicians and Economic Reform
in New Democracies:
▰ President Marcos was overthrown in 1986, the company was re-privatized
▰ Ramos extended licenses to other telcom companies and ordered to interconnect
▰ Deregulation brought new players and into the market and driving prices down

10. ““The Philippines is a country where 98
percent of the residents are waiting for
a telephone and the other 2 percent are
waiting for a dial tone”
-Minister Lee Kuan Yew
1010

11. Metropolitan Waterworks and Sewerage System
(MWSS)
▰ June 1971, Republic Act 6234 was enacted. It dissolved the NAWASA
▰ In 1997, the Legislature passed into law Republic Act 8041, also known as “The Water Crisis
Act.” The Act, which paved the way for the privatization of MWSS
▰ Prior to privatization, was able to supply water to only 69% of its service area, highest non
revenue water(NRW) in asia.
▰ Prior to privatization, procurement procedures always tended to be very rigid and involved
many sequential processes.
▰ International Finance Corporation (IFC) as an adviser to design of the privatization program.

12. PETRON CORPORATION
▰ Started by Standard Vacuum Oil Company or Stanvac.in 1933.
▰ Stanvac partnership in 1962 gave birth to Esso Philippines.
▰ 1973 ,President Marcos created the GOCC Philippine National Oil Company (PNOC)
▰ PNOC acquired Esso Philippines at the height of the first oil crisis and renamed it Petrophil
Corporation and later renamed Petron Corporation.
▰ Petron Corporation was established in 1973 as a marketing arm of PNOC
▰ In 1993, Petron’s partial privatization started when 40% of its total equity was sold to the
Arabian American Oil Company (ARAMCO).
▰ 20% of Petron’s equity was sold to the private sector through an initial public offering (IPO).
▰ 1998, the Ramos approved RA 8479, the second law on downstream oil deregulation

13. What are the reasons?
Why privatize public enterprises?
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2

14. WHY PRIVATIZE?
1. Reduce government involvement in commercially viable
activities
2. Increase efficiency in the delivery of programs
3. Provide competition
4. Address government’s limited absorptive capacity
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15. 15
The Free Market Economy
A free market economy which is also known as laissez-faire economy
is an economy in which all resources are owned by individuals..
The decision about allocation of the resources are made by individuals
without government intervention.

16. 16
The INVISIBLE HAND
Economy will comparatively work and function well if the
government will leave people alone to buy and sell
freely among themselves.
He assumed that an economy can work well in a free
market scenario where everyone will work for his/her own
interest.
He suggested that if people were allowed to trade freely,
self interested traders present in the market would
compete with each other, leading markets towards the
positive output with the help of an invisible hand.

17. 17
The INVISIBLE HAND
In a free market scenario
• no regulations or restrictions imposed by the
government,
• if someone charges less, the customer will buy
from him.
Therefore, you have to lower your price or offer
something better than your competitor

18. 18
Benefits of Free Market Economy
GREATER INNOVATION DUE
TO COMPETITION.
______________________
Spurs companies to develop
better products at lower costs,
offers consumers more
choices
GREATER ECONOMIC
GROWTH
______________________
Economies of scales and free
trade has boosted production and
increased employment
GREATER ECONOMIC
FREEDOMS
______________________
Incentivizes stakeholders such as
entrepreneurs, investors and
financiers to take active part in
business and help the economy
grow

19. PRIVATIZATION
The state recognizes the role of private sector on
national growth.
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20. Public Sector and Privatization
in the Philippines
Background
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21. Timeline of Privatization
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“In the Philippines, the primacy of the private sector has been a long held tradition.
Although there was a spurt in the growth of the public enterprise sector during the
post war years as the government took an active role in the rehabilitation of the
economy.
This was quickly followed by a divestment program during the mid 50’s and
early 60’s because of the poor financial performance of state enterprises.”
Public Enterprise Reform: The Case of the Philippines, 1986-1987
Philippine Institute for Development Studies

22. Establishment of Public Sector Enterprises
22
Timeline President No of PSE
1951 Elpidio Quirino 13
1966 Ferdinand Marcos 44
1975 Ferdinand Marcos 120
1985 Ferdinand Marcos 303
1987 Corazon Aquino 171
Presidential Commission on Reorganization (PCR).
Medium-Term Phillippine Develoment Plan, 1987-92, Republic
of the Philippines, 1986. p.393.

23. At the start of 1985, President Marcos reorganized a committee
to review government corporate sector…but was not completed
because of changes in administration in 1986. There were
continuous efforts from the new government in privatization…
A Philippine Investment conference was held in 1987 which
resulted for the government to receive $300 Million economic
recovery loan from WB. Which were used to rehab DBP and PNB
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24. ▰The bulk of privatization was implemented in years 1991-1998
during the reign of President Ramos.
▰Electric Power Industry Reform Act was finalized during the time of
President Arroyo
▰The use more Build-Operate-Transfer (BOT) during the time of
President Noynoy Aquino
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25. “The call for privatization in economic affairs comes a time when it
requires a closer re-examination of the role of the government in
ecnomic development.
The scrutiny is focused not only on the operations of the government
but more importantly on the very reason for involvement of
government in economic and commercial activities as in the case of
PSE or alternatively GOCC.”
Zinnia F. Godinez
ASEAN ECONOMIC BULLETIN
March 1989
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26. ▰Asset Privatization Trust
▰Executive Order 215 of President Cory Aquino in 1987 ALLOWING THE PRIVATE SECTOR TO GENERATE ELECTRICITY
▰RA 6957 “AN ACT AUTHORIZING THE FINANCING, CONSTRUCTION, OPERATION AND MAINTENANCE OF INFRASTRUCTURE
PROJECTS BY THE PRIVATE SECTOR, AND FOR THE OTHER PURPOSES”
▰RA 9136 “AN ACT ORDAINING REFORMS IN THE ELECTRIC POWER INDUSTRY, AMENDING FOR THE PURPOSE CERTAIN
LAWS AND FOR OTHER PURPOSES “
▰RA 8041, “THE WATER CRISIS ACT”
▰RA 8479, AN ACT DEREGULATING THE DOWNSTREAM OIL INDUSTRY AND FOR OTHER PURPOSES
▰RA 7718, “AMENDED BOT LAW”
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FOR REFERENCES

27. Advantages and
Disadvantages of Privatization
Definition
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28. Advantages
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29. 29
Advantages in Privatization
INCREASED EFFICIENCY
______________________
• Increasing profit becomes
a better reason to produce
more goods and better
services
SPECIALIZATION
______________________
• Focused human and
financial resources into a
specific function.

30. 30
Advantages in Privatization
IMPROVED PERFORMANCE
______________________
• Less bureaucracy.
LESS PRONE TO CORRUPTION
______________________
• A government
monopolized function is
prone to corruption.
• Ex. Decisions made for
political reasons &
personal gains
CLEAR ACCOUNTABILITY
______________________
• Managers of privatize
enterprise are accountable
to shareholders and
consumers.
• Enterprise will exist as
long as needs are satisfied

31. 31
Advantages in Privatization
REMOVAL OF POLITICAL
GOALS
______________________
Goals are economical rather
than “political”
ACCESS TO CAPITAL
______________________
Private can sometimes make
it easier to raise investment
capital
Less budget concern to the
government
IMPROVED DISCIPLINE
______________________
Application of private
company management
practices

32. Disadvantages
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33. 33
Disadvantages in Privatization
ABANDONMENT OF SOCIAL
OBLIGATION
______________________
• Cutting of services to those
less able to pay or a
service area is not
profitable
INABILITY OF PUBLIC
CONTROL
______________________
• The public does not have
any control of private.
• The government should do
more to safeguard itself
against opportunistic
behavior of the companies.
CLEAR ACCOUNTABILITY
______________________
• Managers of privatize
enterprise are accountable
to shareholders and
consumers.
• Enterprise will exist as
long as needs are satisfied

34. What to watch for in
Privatization
Definition
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35. USE CHARTS TO EXPLAIN YOUR IDEAS
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Careful
Planning
Analysis and
Policy Setting
Set-Up
System/Entity
/ Legal
Framework
Selection of
Operator
through
competitive
bidding
Consultation
Chua.,C.K. Economics and Management in Developing Countries

36. IN TWO OR THREE COLUMNS
Policies
▰ level of government
(municipal, state or
national) responsible for
the privatization project
▰ decide on service
economics policies,
including service
standards, tariffs and
subsidies.
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Regulatory Framework
▰ set up systems to
manage the
implementation process
▰ should be aided by a
toolkit of incentives and
penalties to align
operator performance to
desired objectives and
targets.
Politics
▰ There is a need to build consensus
through public education and
consultative mechanisms
▰ governments need to ensure
transparency in award and
oversight of privatization schemes,
as well as manage any potential
adverse impact of privatization.
Chua.,C.K. Economics and Management in Developing Countries

37. Conclusion
Should the government privatize?
37
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38. “The Privatization program has proceeded less swiftly than interested
parties may desire, but due care must be excercised in the disposition
of assets that belongs to the people. We must get the most we can to
the people, in as fair and transparent manner as possible, leaving no
room for smallest possible doubt about the integrity of the procedure
and the people involved…
-President Corazon C. Aquino
“Action Agenda for a Better Future”
SONA, July 25, 1988 38

39. WHAT IS PRIVATIZATION?
While privatization can indeed generate significant welfare gains to
people by tapping on the private sector’s know-how and efficiency,
it is extremely difficult to navigate the multitude of challenges to achieve
a successful privatization. As we learn from the successes and failures of
past privatization experiences, we are seeing a trend where privatization
works best if the three key stakeholders of the process play their part:
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40. Roles of Stakeholders
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Government
-To provide good policies
and fair and transparent
frameworks
Private Enterprise
-implement best
practices to increase
efficiency and seek
opportunities in the
bottom of the pyramid to
serve the poor

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THANKS!