Shatha Khalil *
Privatization is a modern economic term , produced by economic developments that have taken place in the world, known as: “It is a process of transferring ownership of business , enterprise, agency, public service, or public property from public sector (a government ) to the private sector ,either to a business that operates for profit or to a nonprofit organization .it may also mean the government outsourcing of services or functions to private firms , for example and revenue collection but the developing countries look at privatization with suspicion and doubt, as considered an economic approach imposed by political and economic forces, as the state provided through the public authority and its wholly -owned facilities and its ministries all services: electricity, water and health , and education and communication mail and roads and bridges, and the establishment of the infrastructure of the country.
But the rapid development witnessed by the world and the increase in the size of the population within countries, led to the complexity of walks of life, and numerous activities; which led to the weight of those responsibilities that make up a burden on those governments; preventing them from providing the best level of services, and from here it was born the idea of privatization .
Although there are some cases of privatization – although it was not known by this label in this period – before the beginning of the twentieth century, but the privatization applied on a large scale during the second half of the twentieth century in most countries of the world; so that the infrastructure facilities turned in particular from the public sector to the private sector, and it prevailed significantly with the beginning of the third millennium.
Today , many developed and developing countries around the world started to turn to the private sector; examples of that is France where its beginning was since 1986 and within three years , 138 company were allocated worth of about $ 20 billion, the Turkish government has also sold more than 63 state – owned company, while in the Arab world , the Egyptian government has embarked on the sale of non-strategic shares of companies of public sector , to individuals and private – sector bodies after the issuance of the public Business sector Act of 1991, as a transitional law aims to transform the public sector companies to the business sector companies as a first step, pave the way in a second step to sell to the private sector, in order to promote the level of services in it, and ease the burden on governments, including the lack of sufficient funds for the development of service sectors , and for several reasons.
While government institutions do not aim to profit, making it far away from the competition to provide the best for the citizen , the privatization is seeking to achieve its main goal in profit, and therefore increasing interest in developing services, using the best scientific methods and modern technology, to provide better services to citizens, and keep pace with the rapid progress in the world, but the state has to put the private sector institutions under its supervision and observation, so as not to exceed the reasonable levels of profit, and to maintain the foundation , which private sector was established for sake of it .
One of the main conditions for the success of privatization is the legitimacy: legitimacy means : ” the availability of proper legal climate for its implementation and its establishment “, and this legal climate regards harmony of privatization processes with the prevailing legal rules in the state that implement those processes, and in particular the constitutional rules, as codified general rules which control of big economic trends, it is unreasonable to carry out privatization if the Constitution does not permit it , or gives great importance to the public sector, and the French constitution is among the constitutions that explicitly legalized privatization, it provided that the legislature should intervenes, and issues a law to implement it .
In addition to the above, the privatization process must be carried out within the framework of legitimacy, ie the provision of social acceptance, which is beyond mere verification of the provision of the proper legal framework to create a general feeling that these operations are taking into account the public interest, and in the framework of justice and equity.
The most important elements of privatization:
• Privatization is the transfer of ownership, and therefore, each process does not include a transfer of it can not be considered such as privatization, which must include the following aspects:
1 the legal form of the general project, as it is shifting from a public institution to a joint stock company, and a shift is not considered as privatization, as long as the majority of the capital of the latter remain owned by the state or a public institution belonging to the State or a public body.
2. Participation of the public project in the capital of private enterprises: as the financial participation of any legal person in the capital of a private company is not considered a privatization, if this contribution does not associated with the transfer of assets that can constitute in itself a project, as well the contribution of one of private sector persons in the public project’s capital is no longer considered also as the privatization.
3 – The liquidation of public project: the liquidation is significantly different from privatization, although they share the one meeting point, where both are a way to end the state ownership of the public project, the liquidation does not mean the rehabilitation of the project, but leaving the business entirely, while privatization of the project means the continuation of it and transfer of ownership to the private sector.
• The privatization is regulated by ((contractual process)), as the transfer of the public project according to the mechanisms of privatization can not be carried out only in agreement, a contractual process that begins in the acceptance by the State, and receive acceptance of one of people’s private law, and the privatization shall not be effective only from the date on which the agreement is concluded , as the administration in this case , transfers the management of the facility to the private sector, with full retention of ownership and the right to exercise the authority of the regulation in return for the right of the contractor to require financial compensation to meet the management of the facility from the beneficiaries of the latter services , that is at the end of the authorization period to give back the facility in a good condition to the management , and examples of this are the contracts of commitment to public utilities and concession contracts and other contracts.
• The mandate is similar with privatization in terms of being a contractual process between the existing management of a particular public facility, and one of private sector entities, but it is different from privatization in depth because the place of mandate is to exploit the facility, not a transfer of ownership, as the administration always retains its sovereignty on it, and all in the matter is that the contractor exploits this facility for a specific period rather than public administration, while privatization is the transfer of the project definitively to the private sector.
• privatization is a process leading to the transfer of public ownership of the project to the private sector, as the transfer of ownership in the context of the privatization process can only be done to the entity of private sector, a private sector is meant any entity or person other than the public sector, both inside and outside the country, whether a citizen or a foreigner.
• Place of privatization: is public projects, as privatization is not included only in the public project, and the project will not be public only if the state or any person is the owner of a majority of the capital in it, and therefore the transfer of ownership is no longer considered a privatization of which the state or a public person is not the owner of the majority of the capital.
What if the privatization is implemented in the electricity sector in Iraq to resolve the crisis that has not been resolved for decades?
Iraqi economic experts working in the field of energy confirm that electricity has been turned for more than a decade “to the failed experiments” field; that the Iraqi government is required to transfer this file to the private sector in order to prevent waste of public money, and the development of the Iraqi economy and boost it , which is closely connected to the rehabilitation electricity and development of it , as the scarcity of this service and degradation, is reflected directly on the cost of projects and investment programs and linked to lower employment opportunities, helping to pollute the environment, and damaging public health.
The importance of electricity for the future of Iraq is based on fact that the oil and gas industry consumes 10% of the total power in Iraq , which requires more power output by increasing the generation rates, reduce percentage of the waste of production plants and escalating transmission and distribution networks ; which makes the national grid to lose the capacity of new additions of the energy that was much needed by the citizen, which is essential for the sustainability of the national economy and the welfare of the people.
The electricity crisis in Iraq is complex and in which several factors are overlapped , and thus the responsibility does not fall on the Ministry of Electricity alone, but borne by several bodies; which calls for the support and the participation of the private sector and to increase it in this respect.
And the official spokesman of the Iraqi Ministry of Electricity Dr. Musab al-Mudaris pointed out the features the privatization of power distribution sector, and contracts with companies “whether national or foreign,” to support the national electricity system, and the service provided to citizens, and increase the benefits to them, and the private sector and the state in general.
al-Mudaris added that the privatization of the electric power distribution sector, will achieve control of the administration in an integrated manner, and regulates consumption, and eliminates excesses and manipulation by installing smart scales(scale of measurement) , very modern technology for all participants in all their categories; which will increase the level of service provided to citizens , as well as follow – up the process of division and the development of the residential houses , buildings, shops, and the new residential and industrial complexes , as well as accuracy and speed in the installation of scales in a legal and regular way which it helps the citizen to get full share of electric power
al-Mudaris added to privatize the electricity distribution sector , the ministry will achieve its goal in the reduction of the waste which reached 40% in the distribution process, in order the hours of processing, in these areas for a period to reach 24 hours a day, and the ministry ensures to achieve the full collection of the wages of electric power consumption per month by tariff in force which the proportion of government support to reach nearly 94%, for those who consume less than 500 units, which is less support with increased consumption, and it is ” soft amounts and the citizen is able to pay , and the elimination of cases of irregularities and manipulation of scales and this achieves an increase in revenues, thereby contributing to the implementation of new projects within the ministry ‘s plan to control on the irregular excesses over the national network through random construction, which has become a phenomenon and a burden on the state in general and the ministry in particular.
Al-Mudaris pointed out the role of the Ministry of Electricity in the awareness of citizens and educate them, to rationalize the consumption of electric power, and protection of electrical network and equipment through the application of a full periodic maintenance programs, and respond to any emergency, and the distribution of regular speed, thereby maintaining full stability of distribution networks.
al-Mudaris stressed that the Iraqi Ministry of Electricity seeks to reduce the amount of cash paid by the citizen to the owners of private generators, and reduce the consumption of fuel allocated for civil generators (gasoline and gasoline), which the government spends huge amounts of money to secure it to reach up to billions of dinars annually.
It also seeks to preserve the environment from pollution by reducing gases, fumes and smoke issued from those generators, and more importantly, the ministry determines the payment of electricity service to one entity, an investment company representing the Ministry of Electricity, and implement controls and instructions, as the ministry hopes that this project will supply these areas with electricity for a period of 24 hours.
And privatization achieve its goals in this sector , it is important to reach the sufficiency of electricity, to achieve growth rates in the demand for energy within the appropriate rates, and reduce the continuing need, which is reflected in the commercial, industrial and service sectors due to the availability of electrical power, which means reducing costs and increasing government revenue, and the turnover the circle of production in all sectors, which is reflected positively on the economic development of the country.
The involvement of the private sector with the public sector (Ministry of Electricity), in the provision of services to citizens (power distribution), is a cultural phenomenon applied in all countries of the world , whether rich state or poor, and it has benefits and advantages, since contracted by the Iraqi Ministry of Electricity with solid investment companies have successful projects existed on the ground, ensures walking on the right direction in solving the power crisis in the country.
The Iraqi Ministry of Electricity has signed a contract with a private company run by Iraqi minds and implement its projects Iraqi hands, and has a proud history in this sector as the following:
– To end the lost in the distribution process, and collection fees of electric power consumption, as well as educate citizens of optimal Rationalization in the use of electric energy “, and select a payment of electricity service to one entity.
The Ministry of Electricity has confirmed the loss of 70% of the subsidized fuel, which provides for 30 thousand of civil electric generator, and it was sold on the black market, Basra Electricity Distribution Directorate said that the investment of collection wages in the province will provide energy for the city completely and at the price of government backed by the state.
– the Iraqi Ministry of Electricity confirmed , the success of the experience of privatization and the collection of electricity, significantly in some parts of Baghdad , where electric power was provided to the neighborhoods of the capital , around the clock and at a lower cost than private generators, as the state support the prices of fuel to run 18,700 civil generator and 6,000 government generators and 1800 generator for the industrial sector , all generators take this fuel at a subsidized price by the General Company for the distribution of petroleum products , which 70% of it was sold on the black market.
– If we read the electricity bill covered by the privatization system for one of the citizens, after two months of permanent electricity and full operation without cut, as needed without any problem, with the economy operating to ease the load on the network; at a rate 2 tons air condition up to 18 hours at least a day plus integration, the reading will be as the following .
– Current reading on Day 12/7/2017 is 11482
– The previous reading on 8 \ 5 \ 2017 is 6866
– two months time period in which the month of June, and almost half of the month of July and without any cut in electricity
– The previous reading minus from the current reading and then divide into 2 to determine the consumption of each month = 11482-6866 / 2 = 2308 unit
– (The answer will be 2308 kW per hour).
– According to the price of Ministry of Electricity , a monthly list covered by paragraph 4 , which determines the price from 2001-3000 with a price 80 dinar and it shall be
–2,308 multiplied by 80 = 184.640 only one hundred and eighty – four thousand six hundred and forty Iraqi dinars.
– The Ministry of Electricity is surprised why the campaign on the first move in the right direction to serve the citizen and to achieve fair revenue that guarantees for the saggy electricity sector to continue to work, as if we count accurately that the value of consumption is 2308 units divided in an increase to (1000 +500 +500 +308) and the cost is calculated as follows: 1000 units * 10 dinars = 10,000 dinars +500 units * 20 dinars = 10,000 dinars +500 units * 40 dinars = 20,000 dinars +308 units * 80 dinars = 24.640 dinars ,the total invoice is (10.000 + 10,000+ 20.000 + 24.640 = 64.640) that any bill must be 64.640 dinars (per month)
– this means that consumption is within the need for a rate of 2 with each electrical house equipment which is less than 5% of the cost spent last summer note that I tried in two months of peak months to go outside Iraq
and the Iraqi Ministry of Electricity, said the black market traders , manipulators of subsidized fuel to stand against the privatization of the collection of electricity, because it when these generators stop , the process of subsidized fuel will stop , which means striking the interests of the beneficiaries of the current situation.
According to local residents in the Zayouna district of the capital Baghdad, they were at the beginning of the privatization of the collection in their area were “afraid” of it but the fear quickly dissipated for the existence of electricity to their homes throughout the day and without cut and affordable.
Specialists in the maintenance department of the Directorate General for Rusafa Electricity Distribution said , that ” the privatization of the collection helped the directorate to avoid a lot of excesses on the distribution network problems because the invested companies took charge to remove it, and resulted in the easing loads on the electrical grid and rehabilitation others in the old residential areas.”
In Basra, where the protests began against a project to privatize the collection of electricity, the manager of power sales in South Electricity Distribution, Engineer Ali Rahim, said that Basra province signed contracts of the privatization of collection of the area north of Basra and the residents of the province will be provided with 24 hours a day of electrical power.
Rahim pointed out that the project, which succeeded in a number of areas of Iraq, and find a rejection by some of them, but we are working in collaboration with civil society organizations, universities and the media to educate the citizen about the project of collection, which will provide electricity continuously.
And concerning the fears of people from the privatization of collection, Rahim said: ” concerns are legalized because they did not try this global system, stressing that it certainly would be a good experience in Basra,” and Rahim added that electricity pricing will remain the same as that approved by the Federal Government and the Ministry of Electricity on January 1, 2016, there will be no financial increase on it.
We conclude that privatization, if implemented in a legal and constitutional way, it would be for the benefit of the country, as necessary taking into account the national independence and the protection of national interests: the privatization should not breach national independence of the country, and this can be achieved especially through the closure of the door to foreigners to control the vital interests in the state, such as energy and telecommunications projects, so some laws provide for the restriction of the right of foreign investors to own projects, and focus on national private companies, working on the labor operation of the sons of the homeland, as is the case for example, in French law, which is not permissible under which the Foreign ownership to exceed 20% of the value of shares, and the same law authorized the Minister of Economy to reduce this percentage if required the protection of national interests, and national interests also realized by exercising certain control patterns by the state on the management of privatized projects, and the most important thing that the state to resort to achieve control over the projects is the gold private equity system, the outstanding and unique shares to give to their owners the right of management and domination of the project.
Economic Unity
Rawabet Center for Research and Strategic Studies