ECONOMY

The privatisation dilemma

Process is back at square one, but lessons learned so far should be heeded and applied

KRISSANA PARNSOONTHORN

Egat's privatisation has faced strong opposition. A dog was used to send the message "I won't sell the nation's assets" at one rally by Egat employees.

Privatisation of state enterprises has moved at a snail's pace amid growing labour union resistance and is now on hold in the run-up to the general election. The lack of progress is a source of frustration for the Thai Rak Thai government, which has made maximisation of state assets one of its key policy platforms.

It hasn't been for lack of trying by Prime Minister Thaksin and his marketing-savvy right-hand man, Finance Minister Somkid Jatusripitak, who have been preaching the privatisation gospel to business community members.

The main goals of privatisation are to maximise asset values and increase the competitiveness of state agencies to offset rising public debt, which was 2.8 trillion baht or 58% of gross domestic product when Mr Thaksin took office in early 2001. The ratio has since shrunk to 45%, mainly reflecting the improving economy.

The government's plan called for 59 state enterprises to undergo operational, financial and strategic restructuring to boost their asset value ahead of privatisation. Total assets of the enterprises were at 4.6 trillion baht or 90% of GDP, against total liabilities of 4.3 trillion baht.

A total of 19 top-performing agencies were supposed to be listed on the Stock Exchange of Thailand by the end of this year, raising one trillion baht from share sales in the process.

Foreign investors would be allowed to become strategic partners of some state enterprises through the purchase of IPO shares. Participation by foreign investors was envisioned as a major driver for the SET as well, as many of the state enterprises would be heavily capitalised.

More than three years into Mr Thaksin's term, only three state enterprises _ Internet Thailand, PTT and Airports of Thailand (AoT), have been privatised and listed their shares.

Now the process has ground to a halt with the government's failure to overcome marathon protests by employees of the Electricity Generating Authority of Thailand (Egat), considered one of the jewels in the state enterprise crown. The Egat IPO, originally scheduled for May, was expected to be one of the largest in the history of the market, raising as much as 300 billion baht.

Egat union leaders successfully derailed the IPO process by raising concerns about possible inequities in allocations of the shares. They said the public had to look no further than the offering by energy giant PTT, which benefited a handful of politicians and their relatives.

Although the government rushed to allay concerns by saying that retail investors would have initial access to IPO shares for state enterprises ahead of institutional and foreign investors, it could not stop the daily protests. Finally, it decided reluctantly to indefinitely postpone the privatisation of state enterprises. The result has been an ebbing of foreign confidence in investing more in Thai stocks.

Critics have also demanded that the government more clearly inform state enterprise employees about the benefits of privatisation and what the public would get from the process.

The public, meanwhile, is losing trust in Thaksinomics-style privatisation. It sees little improvement in the quality or service delivery of state enterprises, while those in the inner circles _ including management, politicians and employees _ still enjoying special privileges.

Sceptics have also observed that the unions' vigorous opposition stems in part from the realisation that their members would have to work harder and likely for fewer benefits in a competitive, private-enterprise environment. There would be no time off to stage protests either.

Take the case of Egat. The government laid down a plan for the utility to loosen its monopolistic grip on power generation. To do so, Egat would be forced to squeeze more money from customers, pushing up power bills, in order to generate profits for investors lucky enough to acquire its shares.

Fierce debates over privatisation are hardly unique to Thailand. In some countries with more centrally planned economies, the change has been far more wrenching. Genuine privatisation is considered a way to break government monopolies and force enterprises to compete with private companies in the free market. Consumers are supposed to benefit from lower service fees and higher quality, while government resources will be managed with greater efficiency.

But privatisations to date in Thailand _ such as Thai Airways International, PTT and AoT _ have only been partial. The government, through the Finance Ministry, remains a major shareholder of the listed enterprises and frequently intervenes in their management and operations, notably at the national airline.

The question now is what the government should do next about privatisation. The theory is admirable but the challenge is in implementing a plan that will benefit all involved parties _ the government, the public, state enterprise employees and new investors.

The Thaksin government's best strategy would be to solicit comments and suggestions from all sides and adjust the privatisation method to serve the most needs and benefit all.

After that, the government should come up with a clear-cut action plan, not just a verbal promise. It should not be in a rush to privatise state enterprises _ examples abound worldwide of disasters resulting from hasty decisions. Better to wait until they are really ready and make sure that genuinely free competition will result.

For their part, state enterprise managers should inform their staff in advance about the necessity of privatisation and how the process will affect them. As well, the public should be given sufficient information as transparency is a must in the privatisation process.