Setting the Privatization Record Straight

Many still suspect major mistakes were made during Jordan’s controversial privatization drive. A year-long investigation led by Omar Razzaz, chairman of the Privatization Evaluation Committee, has now concluded the sell-off of public assets was by and large smoothly executed, but some deals were marred by negligence, incompetence, and a lack of transparency.

By Dina al-Wakeel

Omar Razzaz was appointed in March last year by a Royal Decree to investigate Jordan’s privatization process, which began in the 1990s and has stirred debate ever since. The well-respected veteran public official led a team of experts to review 19 privatized enterprises and licenses sold, in addition to construction agreements and management.

The deals were reviewed based on their execution and impact. The privatization of Royal Jordanian Airlines came out as one of the best practices in terms of execution, while the Jordan Phosphate Mines Company came out as the worst performer in terms of execution. Although execution started off on the right track witha competitive bidding process, it was later suspended and direct negotiations with a financial adviser who was not even among the bidders, took over. According to the report, the privatization process of the phosphate company “lacked many transparency standards and commitment to best practices.”

As for impact, the telecom industry came out on top, while electricity had an impact that was deemed to be ‘below acceptable’. According to Razzaz, there was a positive correlation between doing it right in the first place and having a positive impact. He added that having a strategic partner was a better option for a positive long-term performance, than a financial partner.

The report also argued that while there was a wide-spread belief that the majority of the country’s assets have been sold, that was simply not the case. Mining rights and concessions, public transport and communications, as well as other resources that are still owned by the state, are worth more than JD10 billion, compared to the JD1.7 billion in direct proceeds that the government made from privatization.

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The report did come up with many recommendations, on the strategic, the legislative, and the execution levels. At a strategic level, it called for credibility, transparency, clear objectives, and ensuring fair competition. It also called for the introduction of a new Public Private Partnership Law and the merger of the service sector’s regulatory bodies, while enhancing their performance and independence within the legislative level.

At the execution level, the report called for fair tendering and renewal of fixed term contracts while avoiding direct negotiations, as well as more attention to laid-off workers and retirees.

Venture met with Razzaz to discuss the government’s hoped for response in terms of policies and procedures now that the findings have been revealed.

What do you think the government should do now that the report is out?

Our mandate was to do the evaluation. So it is not our position to tell the government what to do. Having said that, I think the government was eager to receive the report. Various branches of the executive have taken up various issues that we have pointed out. The Anti-Corruption Commission has formed a committee to follow up on the report. The Upper House is reviewing the results, and we have an extensive session with them. The Lower House has also had a session with the government asking them how to follow up on the recommendations.

The report made some serious accusations regarding some of the deals, including the one concerningthe phosphate industry. Are you calling for the prosecution of those who were involved in those deals?

This is the toughest question we get and we have to explain that our mandate was to evaluate a process not to investigate. We don’t call for prosecution because that’s beyond our terms of reference. We don’t have the power to investigate, to interrogate, and therefore we cannot accuse a specific person of wrongdoing. But we have been very clear where there was a violation of the law, where there was gross negligence, and when we felt that a transaction did not rise up to the international standards of best practice. So we really have different terms for different problems, whether a decision or transaction is illegal, in violation of the law, and whether it does not serve the public interest. And here we tried to distinguish between making a bad judgment with the benefit of hindsight, or whether that person or that committee should’ve known at the time that this was not in the public interest. We identified violations of the law, there were few, not many, phosphate is one of them.

So do you think it was mainly incompetence or corruption?

Much of it we think was incompetence. That’s what’s worrying for a lot of the forthcoming transactions in the future. Unless public sector reforms improve the capacity of decision making and negotiating, a lot of these issues will stay with us. We are unable to verify anything that’s related to corruption, again because corruption accusations would require proving several things, not just that it’s not in the public interest but that there’s an intention and there’s a private benefit that has accrued.

Where our work ends, is exactly where the work of Anti-Corruption Commission and the general prosecutor begins, because we have looked at documents in an analytical way, and pointed out where the problem is. Many of the cases are already being investigated, but I think the methodological approach we brought to the table brings additional clarity to those who are investigating these reports.

But this report proves that many of the criticisms of the privatization scheme has merit, particularly, as you pointed out, with cases like the Umniah license deal and the phosphate company. How is the public expected to trust in future deals and how will this report impact public opinion?

Many of the rumors indeed had a base. The problem I think in Jordan is not that they were baseless, it’s that rumors became generalized about everything. In the absence of transparency, and with no documentation, the way the stories evolve, they start to tarnish everything related to that company and then every other company that had gone through privatization, that’s the problem. The public became so uncertain and so cynical about everything that relates to any aspects to public-private partnership. And that’s disastrous for the future because we cannot grow in Jordan, we cannot do the megaprojects, we cannot invest without some sort of public-private partnership and you need the public to be with you on this—not carrying banners of support—but with you in believing of the value of the partnership and  holding both the public and private sector accountable.

With these types of issues, you have a spectrum of public opinion with five or 10 percent at each extreme who feel very strongly and nothing will change their mind. They’re either pro-privatization no matter what the evidence, or against it no matter what the evidence. The undecided majority, the middle, can be easily swayed one way or the other. In the absence of any information I can tell you that 80 to 90 percent were swayed against privatization. The initial impact of report in the press and the public has been very positive, partly perhaps because people’s expectations were very low, that this will be a document that will rubberstamp and whitewash the privatization experience and say it was fantastic. I think many were very surprised by the candor of the document and it is generating a lot of positive debate on the future.

Was there any interference at all in your work, or any attempts to bend your investigation?

I can explicitly say that there was no interference at all. His Majesty’s instructions for everybody was to form an independent committee, which includes three international development agencies; and  for that committee to have access to all information it asks for, and indeed every available piece that we asked for, we were given; and  that there would be no intervention in our report; and finally that it will be disseminated openly. And I am delighted to say that all of this has been done. Perhaps Jordan is the first country in the region to take such a bold move.

What about the question that everybody has been asking about ever since the privatization process started: where did the money go?

That actually turned out to be one of the simpler questions to answer. Maybe the public didn’t feel it because about 88 percent of it, i.e. JD1.5 billion out of JD1.7 billion, went to pay back Jordanian debt, including the Paris Club, and debts for various companies like Royal Jordanian. This was well documented. There was about JD200 million used for various investment projects that the council of ministers had approved. So we know where the money went.

Some people argue whether paying back Jordan’s debt was a good use of the proceeds? The answer is yes if it is done as part of a fiscal policy to bring the debt down and keep it down.  That’s where the public sector had problems– containing expenditures, and therefore deficit and debt levels. So what we’ve seen happen over the years is replacing foreign debt with domestic debt.  While some factors, such as fuel prices, were beyond the government’s control, Jordan needs to learn how manage such vulnerabilities going forward.

How do you assess the whole privatization process in general?

The Privatization Evaluation Committee avoids labeling the whole privatization process as a success or a failure, because the minute you say it was a success people will point to the failures, if you say it was a failure people will point to the successes. We are most interested in knowing what went wrong and what went right and why, and how we can fix it going forward.

In general the data is in the public domain and relates to 19 companies which were evaluated, four of which had major execution problems, six were acceptable but had some issues, and 9 could be classified as best practice.

Some people will always see this record as a “glass half full,” others will see it as a “glass half empty.” Instead I think Jordanians should strive to “fill the glass up,” i.e. to learn our lessons, reduce our errors, and whenever we do commit mistakes that we evaluate them, try to fix them, and never repeat them going forward.

In some deals the government sold most of its shares, while in others it retained a strategic amount of stock. Is there a best model for privatization?

It varies from one sector to another and from one industry to another. Our conclusion is that in many of the public utilities it’s probably best for government to stay involved as a strong regulator, a partner, or owner who delegates management and operations. One very successful model that we saw is the water company management where the government had hired a foreign firm to manage the water company for five years and that management contract has really helped improve the operation of that sector. So in public utilities we would rather not see a rush towards full privatization. We would rather see management and operations being contracted out to the private sector.

In some sectors like telecom, I think it is clear that all government should do is be an efficient regulator of a competitive market; maximize entry, maximize competition, and watch for prices and possible collusion between operators. In the mining sector there were many problems that we’ve uncovered, mainly in phosphate and, to some extent, in cement. When you have strategic minerals government needs to stay involved, .And indeed government has stayed involved in several companies through minority shares.  But it should strive to stay out of day to day management decisions and focus on strategic matters.

What was the general outcome of these deals for Jordanian customers and labor?

For the majority of the 19 companies, we could say that the impact way positive. RJ, the water company, the whole telecom sector, including Umniah whose presence improved competition, was positive. If we want to look at impacts specifically, the problems was mainly in the, again, phosphate, and the electricity sector as a whole with the exception of Independent Power Providers. So I would say the impact on the consumers has been overall a positive one, the impact on labor overall a positive one because salaries in these sectors have risen faster than the overall economy. Direct and indirect hiring in these sectors has been higher than the overall economy, but that does not mean that every single person in every single company was better off. The majority were better off, but about 10 percent lost their jobs and did not qualify for retirement and did not get retraining support.

Should the report be taken as a reference for future privatization deals, and are you hopeful the government will take action based on the report?

That’s our hope. That’s why we titled it “Evaluating the Past for the Sake of the Future.” I personally would not have participated in this exercise if I felt it was purely an accounting exercise of the past. The Committee wanted to emphasize the future because Jordan still has valuable natural resources, so many utilities to be built, so many projects that require partnerships in energy, minerals, infrastructure, that require public-private partnerships. The lessons we learn will be very relevant for the future.

Now it is possible to have an informed debate based on facts and not rumors.  Now the public would be better able to hold governments in future transactions accountable. We’re talking about national assets and resources that belong to everybody and everybody has the right to know how they are being managed.