ECONOMICS

Economics



Utility privatisation: lessons from the UK

A report to the government of Turkey' for 'Utility privatisation: lessons from the UK' (Voutsinas, 2008,, 23).

Introduction

Then main purpose of this paper is to act as the economist for a consultancy which has won a commission from the government to produce a report on 'Utility privatisation lessons from the UK' which they will compare with similar reports from other countries (Voutsinas, 2008,, 23).

UK Railway Privatization

The railways in Britain have been privatized under the government of Conservative John Major. As supporter of the idea of ??reducing government intervention in economic activity, Margaret Thatcher rejected the plan of privatization of railways. Nevertheless, her successor was in a desperate search for a political course that would elevate his popularity within his own party, followed by the path of privatization of railways. However, problems have been created not only by a selection of the general course but they largely have been exacerbated by the chosen model of privatization.

As a result of privatization of state-owned, railway once constituted a single entity that was shattered by more than 100 independent companies. Major changes in accordance with legislation enacted in 2003, were as follows:

(A) Separation of the functions of traffic management and railway infrastructure. Railroad tracks and signalling system passed into the hands of a private company Rail track; (Mankiw, 2007,, 482).

(B) Twenty-five operating companies were followed to manage passenger traffic, which were entered into special contracts for work on a network of railways, owned by Rail track. The duration of contracts ranges from 7 to 15 years. A separate company was created to manage cargo movement. And it was decided that the operating companies shall pay the company Rail track for track access; (Mankiw, 2007,, 482).

(C) Rolling stock and locomotives used on passenger operating companies were taken on lease from the three companies to lease rolling stock. These companies are now private monopolies;

(D) Maintenance of ways and alarm systems transferred under the contract by Rail track to other privatized companies.

All of this fragile structure is supported by a series of legal agreements with Rail track, operating companies, the rental company and the companies on the current content. This situation is a real paradise for lawyers and a nightmare for passengers railways!

Cost of Privatization

By the end of the first year of privatization, the figure has more than doubled to 2.1 billion. Twenty-five percent of these subsidies have raised the legal harmonization of prices, shares in the profits of insurance charges and depreciation.

Government Proceeds and Costs of Sale, UK Privatizations.

Company

Year

%

Equity Sale

Expenses

Expenses as %

Net Proceeds

of Sale

Sold

Proceeds

(c)

of Proceeds

(a)

(b)

(%)

(Em)

(£m)

(%)

(£m)

British Aerospace

1981

51.6

149

6(1)

4.0

143

1985

59.0

551(2)

18

3.3

533

Cable & Wireless

1981

49.4(3)

224

7(4)

3.1

217

1983*

22.0

275

5

1.8

270

1985

31.0

933(5)

li6)

1.3

921

Amersham International

1982

99

69(7)

3(8)

4.4

66

Britoil

1982*

51.0

549(9)

lilO)

2.2

537

1985 ...