Privatisation and EmploymentThe Dutch Perspective

Melle HendrikseMinistry of Finance, The NetherlandsOctober 10, 2002

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

Problems in restructuring phase

Consequences for employment and employees inrestructuring 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

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

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

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.

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

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

Pension transfers

100%of

Commit-ments

100%of

Commit-ments

85-95%of

Commit-ments

Costs

Reserve

ABP Individual Collective transfer transfer

Pension problems

Unclear prospects for partially state-owned enterprises

Collective pension transfers not legally taken care of

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

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)

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

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.