Privatization of municipal services - Transformation of public enterprises into business companies

Private sector may be an important source of funding for capital projects and transfer of technical and operational know-how and experiences to the field of municipal services, and the state should encourage the private sector's investment in public utility infrastructure. This is the key recommendation from the Draft Strategy for Restructuring Public Utilities Companies in Serbia.

This important document is now the subject of a public discussion, and the deadline for sending written comments and suggestions expired on August 15, 2011. The plan is to ensure a top quality discussion at round tables that will be organized by the Serbian Chamber of Commerce (SCC) in the period between September 1 and October 13 this year, which should be the occasions for hearing as many concrete proposals for the improvement of operations of public utility companies in Serbia in the future as possible.

About 53,000 people work in the public utilities sector, which is about 2.5 percent of the total number of employees in Serbia, whereas the overall property is estimated at RSD 173 billion.

The Strategy's key recommendations are to improve the operating performance of public utility companies, introduce a methodology for determining business tariffs and standards, define relations between municipalities and public utility companies, boost capital investment, enable participation of private capital, as well as to implement a reform of ownership and management structures of public utility companies.

Since the privatization of public utility companies cannot be carried out in the same way as the privatization of public companies, the aims of the reform of public utility companies cannot be equalized with the privatization, that is, transformation of public stakes in public utility companies into private stakes. It is less likely that complete privatization of public utility companies will be possible. That is why it is now necessary to consider the directions of the reform of public utility companies with the aim of their organizational transformation, that is, their transformation into business companies (companies with limited liability and shareholding companies pursuant to the Law on Business Companies), as well as development of alternatives for the entrance of private capital into this sector.

Lazar Krnjeta from KOMDEL says for eKapija that the Strategy for Restructuring Public Utility Companies in Serbia is a quality document, but that it was adopted too late.

As he explains, this document validates certain suggestions made by organizations from this sector, but there are still some obscurities.

The Draft Strategy reads that the possession of all means used by public utility companies should be transferred to local self-governments, which would then define criteria for the regulation of property relations with them. An obligation of all is to gradually transform public utility companies into financially sustainable, market-oriented enterprises that provide not only high-quality services to their consumers but also enough money to finance themselves.

The Strategy also recommends that the state keeps supporting the programmes of public utility companies through technical assistance, whereas financial assistance should be conditioned by good business results that would lead to the improvement of their performance in every aspect.

Dragan Pusara, director of Gradskih Pijace Beograd, says for eKapija that the best foreign strategies envisage transfer of the ownership and management of public utility companies to local self-governments and simultaneous creation of competition in all spheres that are not natural monopolies.

- The ownership transformation envisaged by the Strategy (transformation into business companies) enables a corporate management of public utility companies, thus opening the door to private capital - says Pusara.

Pusara points out that one of the parts of the Strategy that will the most difficult to implement is certainly the determination of the price, that is, tariff policy, which must satisfy the needs of companies for covering the costs and making certain profit, which shall serve as a motive for private investors or certain investment programmes. On the other hand, such tariff policy must also provide municipal services for citizens at reasonable prices.

In order to achieve the objectives of the Strategy, it is necessary to determine and design draft amendments to certain laws, which are essential for implementation of the Strategy - transferring the possession of means used by public utility companies to local self-governments; enabling conversion of public utility companies to business companies; enabling business companies to render services of water supply, sewerage and remote heating.

It is also necessary to prescribe mandatory elements of corporate management, such as: appointing the management, making business plans and service agreements, teaching municipal entities how to monitor public utility companies, etc.

Besides, what is also necessary is to develop a legal framework for the tariff policy and design a support programme for households with low incomes.

Introducing necessary changes to the Law on Concessions, the Law on Public Companies and the Law on Municipal Services is also part of the Action Plan.

M.K.