APPROACH TO RESTRUCTURING OF PUBLIC ENTERPRISES

6.1. In General

Based on the classification of public enterprises described in Section 4, some enterprises will be in need of restructuring. Many of those enterprises not suitable for immediate divestment will require restructuring. Priority should be given to the larger enterprises, as they can have the largest impact on Government.

The objective of restructuring should be to improve the economic efficiency of the enterprises. To achieve a restructuring, it is necessary to establish policies and procedures for:

• introducing commercial business planning in enterprises
• financial restructuring
• management of Treasury support
• improving information systems in enterprises
• strengthening public enterprise sector supervision
• introducing decentralized management
• merging enterprises
• liquidating non viable enterprises

6.2. Corporate Planning

Assistance in preparing corporate business plans in the larger enterprises will be a crucial element in the process of commercialisation of those enterprises as well as justifying transitional Treasury support. Members of our proposed team have experience of training and developing corporate planning functions in enterprises as well as in detailed preparation of plans.

6.3. Financial Restructuring

Corporate planning will be important in designing appropriate capital structures for enterprises which are heavily indebted and/or which envisage major capital investment. Members of our team have all the relevant experience to be able to advise on the optimum capital structures and the financial instruments available. We would also provide training on the topic of capital structure for the Executing Agency and selected enterprise managers.

6.4. Treasury Support

Some enterprises may have been the recipients of various forms of Treasury support. The Executing Agency has an important role in recommending the criteria for eligibility for support and the level of support granted. A key ingredient for success will be the establishment of close working relationships with Treasury, the banks, line ministries and the individual enterprises themselves.

6.5. Management Information Systems

We would aim to help development of management information systems (“MIS”) in three areas: the systems required by the Executing Agency; systems at the ministry level for enterprise monitoring; and systems at the enterprise level, requiring standard guidelines and reporting formats.

6.6. Performance Contracts

Performance contracts provide a good way to implement commercial discipline in public enterprises. Experience has shown that satisfactory institutional arrangements are a prerequisite to the successful application of performance contracts. This tool of monitoring and control is very likely to become a standard feature for all major enterprises and certainly for those which provide non-commercial alongside commercial services.

6.7. Decentralized Management

It is vitally important in the shift towards more market oriented enterprises that state enterprise management are freed to respond as effectively as possible to competition. It is also critically important that legal and procedural safeguards be introduced to protect state enterprises against undue Government intervention. We believe that a key success factor in the reform of public enterprise process, is the ability to establish a fine balance between necessary operational autonomy for the enterprise and accountability to the Government.

6.8. Merger of Enterprises

It is possible that in certain cases, an optimum situation may result from the merger of two or more enterprises. The Government owns all the public enterprises and is free to merge Units or assets as it sees fit. The object of this option is to create maximum value for the Government. Once a successful merger was completed, the surviving enterprise could itself be privatized.

6.9. Liquidation

Some enterprises may simply be shut as fundamentally non viable. All assets can be sold. Assets will be sold in the local or international market, depending on circumstances. Mechanisms must be put in place to provide incentives to managers and officials charged with selling such assets to get the highest price possible. Care must also be taken that assets sold do not disrupt the market.

6.10. Supervision, Monitoring and Regulation of Restructured Enterprises

6.10.1. In General

Enterprise sector supervision needs to be developed so that the Executing Agency has effective procedures for managing the restructuring component of the reform program. The key building blocks for developing and introducing effective supervision include: MIS, the institutional framework, performance contracts, and the regulatory framework.

6.10.2. Supervision during Restructuring

The process of parastatal reform and restructuring can be a complex one. Close supervision during the period of restructuring is important. Supervision is needed to maintain orderly business practices, manage the restructuring process, and prevent abuses.

6.10.3. Supervision after Restructuring

After reform and restructuring, the enterprise should be subject to a high level of supervision to ensure that the commercial disciplines are maintained and that the traditional failures of parastatal ownership are avoided. Such supervision should encompass the full range of financial accounting, marginal analysis, productivity measures, management by objectives, and a complete and regular review of inputs, outputs and outcomes.

6.10.4. Regulation of Restructured Public Enterprises

Certain enterprises operate in areas of natural or statutory monopoly. These may require an ongoing regulatory regime to protect the consumers. To the extent that competition can be and is encouraged, the need to regulate is minimised. The experience of Admiralty International and associated individuals and firms in this area is extensive.