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Privatisation and Employment

This report from the Ministry of Finance in the Netherlands examines the impacts of privatisation on employment, detailing a two-phased approach and addressing issues like job security, benefits, and pensions. It outlines measures to mitigate negative consequences and highlights a case study of a successful privatisation process. The report concludes with recommendations for improving governance in state-owned enterprises to ensure smooth privatisation processes and minimal employment disruptions.

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Privatisation and Employment

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  1. Privatisation and Employment The Dutch Perspective Melle Hendrikse Ministry of Finance, The Netherlands October 10, 2002

  2. Explicit two-phased approach towards privatisations • Restructuring phase: • Transformation of public entity into private entity • Shares owned by the State; State is regular shareholder • Regulatory framework in place (or at least a.s.a.p.) • Privatisation phase: • Usually five years or more after restructuring • All usual forms (IPOs, private sale, etc.) • Public offerings in various tranches • Only in exceptional cases restructuring and privatisation at once

  3. Problems in restructuring phase Consequences for employment and employees in restructuring phase rather than privatisation phase • Loss of status as civil servant • Job security, lay-offs (both short and long run) • Change in primary and secondary benefits • Change in job content

  4. Starting point in restructuring • Extensive social safety net in place • Traditionally good relationships with labour unions and workers’ councils • Existing collective labour agreements provide clear framework for future labour conditions

  5. Possible additional measures • Additional social plan for redundant personnel • In co-operation and negotiation with unions and workers` council • Return guarantee to government • If necessary and feasible • Small and medium-size companies • Usually 2-3 years • Commitments for employee stock ownership plans • Larger companies • Should not block private sale

  6. Problems in privatisation phase • According to current policy, privatisation shall not take place unless: • SOE has been restructured properly • Commercial and financial track record has been established • Public interests have been safeguarded by means of law, contracts, concessions, etc. • An ideal privatisation is nothing more than the technical ending point of a broader process of becoming independent. SOEs should function as regular companies before they are offered for sale. Therefore, major problems should not arise during privatisation.

  7. Pensions • In the actual privatisation (second phase) the main employment problem relates to pensions. • Pension schemes of employees of state-owned enterprises are executed by the ABP (General pension fund for civil servants) • If State ownership falls below 50%, the company should leave ABP and enter a private fund

  8. Dutch pension system • Largely based on a savings system (instead of current workforce paying for the older generation) • This means that financial settlement with ABP is necessary • Financial settlement is unfavourable for the company concerned

  9. Pension transfers Reserve 100% of Commit- ments 100% of Commit- ments Costs 85-95% of Commit- ments ABP Individual Collective transfer transfer

  10. Pension problems • Unclear prospects for partially state-owned enterprises • Collective pension transfers not legally taken care of

  11. Good policy, but…the current case of NOB • NOB: Dutch Broadcast Production Company • Legally restructured in 1989 • Privatisation intended for around 2000 • Blocked by deteriorating results in 1999/2000: • High labour costs, compared to competitors • Bad relationship with customers, due to mix of monopoly and market activities • No earlier measures taken due to overwhelming assets (real estate) allocated in restructuring phase

  12. Measures taken • Experienced supervisory board member appointed as new CEO • Good housekeeping within the company restored • Restructuring: split into three parts (monopoloid broadcasting functions, commercial production company and real estate)

  13. Drastic employment measures • Collective labour agreement renegotiated: • salaries reduced with 20 % over five-year period; • job cuts: 450 out of a total of 2000 • Result: • privatisation process of real estate almost completed • privatisation of commercial production envisaged for 2003

  14. Concluding remarks • The case of NOB is relatively exceptional. Generally effects on employment in both phases (restructuring and privatisation) are limited. • The total number of employees of state-owned enterprises account for no more than 1-2% of the total Dutch workforce. • In order to prevent problems in privatisation process, more and more emphasis professional governance by the State is necessary.

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