Privatization means the transfer of ownership or management of a project/industry from the government to the private sector for increasing competition among companies which in turn would brings forth capital flow to the market, by generating additional foreign investments and job opportunities. In Kuwait, significant changes are happening in the economic and political scenario which would indicate a shift to a strategy that, as opposed to trying to protect economy from the rest of the world, aims to take advantage of opportunities offered by participating in the international trade.
However, if the privatization is to be beneficial for the country the laws should elucidate the guarantees and incentives for investment in the country; should define the structural frame work and shall simplify the procedures for establishing new projects. A comprehensive legislative and organizational framework supporting the privatization process through the amendment of existing laws and promulgation of new laws would be necessary. Proper laws for stock trading and taxation are essential for encouraging these kinds of investments. The laws should be revised to create a free market guaranteeing equality and fair play; counteracting monopoly and hoarding. The laws governing privatization is vital for the development and sustenance of the country because privatization deals with the government property.
Privatization strategy of Kuwait
Among important initiatives for privatization, the government has revamped the commercial laws and there is a proper controlling authority for this purpose, the Kuwait Investment Authority (KIA), takes care of the players in the market. In 1992, the KIA implemented a three-phase privatization program that aims to reconstruct the economy and minimize the dependence on oil income.
The legislature’s role
Choosing the most appropriate mode of privatization for each project relative to the operating conditions and requirements of the concerned sector is the major role of the legislature. There may be proper schemes from the government to attract both local and foreign investors. Preservation of the rights of all parties i.e., the investor, the government, the consumer and the working class is the responsibility of the legislature. The legislature should take care of the investor who is the active player in the deal because without him there would not be any new venture. New and existing laws should be helpful in maintaining the investor’s enthusiasm so that he will continue doing similar business. To a certain extent the government interference should also be curtailed or minimized so that the interference will not turn out to be tyrannical. Moreover, the laws should simplify the process of establishing and registering companies. While laying the groundwork for similar projects, enacting legislation to license private investments in the telecommunications and electricity sector, transparency and integrity should be kept in pace with the international standards. The customers should not be ignored and the interests of the laborers or the working class should be protected. Any law which denounces the rights of the consumers should be avoided or else the country would face the problems of monopoly and adverse quality standards.
Methods of Privatization
There are two different but effective laws for privatization; one method is to issue a single code encompassing all privatization measures and the second method is to draft different laws for different projects; In order to instigate the privatization process and to strengthen the capabilities of the government to successfully execute the privatization program, an institutional framework and its mechanisms have been formulated by Kuwait adapting the following methods;
Sale of Government Shares.
Sale of government shareholding through Kuwait securities Market in cases of joint stock companies or in such other manner that ensures the maximum possible revenue to the government.
Among the tenders submitted the most suitable bid would be selected in relation to standards specified for this purpose. Special tender committees are formed if required based on the nature of the project. Law No. 37 of 1964 (modified by Law Nos. 13 and 31 of 1970 and 1977, respectively) concerning Public Tenders (the “Tenders Law”) provides that any procurement made by the Kuwait Government, with a value in excess of KD 5,000, must be conducted through the Central Tenders Committee procedures in order to ensure competitive pricing.
The terms of the contract shall govern the relationship between the parties and only those companies proficient in a particular area of business would be given a chance to propose. Under this mode the public facilities would be managed by the private sector for specific period of time. Normally, this will be for a short term which may or may not be renewable.
In this kind of arrangement, the government would lease public facilities to the private sector for a certain period of time for a price agreed amongst the parties. The private investors would run the whole project by themselves without any governmental interference and the rent would be paid to the government per the terms agreed in the lease deed. This is generally applicable for projects which were initially owned by the government and hence there are certain specific rules which are to be complied with.
Cooperation with the government:
The government may cooperate with certain prominent players in the market to generate more revenue and generally the income allotment would be based on capital contribution of each party. In rare cases, the government may sell part or all of its property to an investor and authorize him to use it. However, the government should be convinced of the intentions and interests of the players.
Though one cannot deny the fact that there are certain economic activity which needs special skill and technical know-how which cannot always be found in the public sector there is also the threat that the private sector would be more interested in the profit than the well being of the society. The government while seeking more financial gains through economic and social development should not sacrifice the well being of its people and an institutional framework for privatization should always be in place.
To be precise, privatization in Kuwait involves both the reduction of the government’s stake in some existing public sector companies, or creating new opportunities for the private sector to invest in strategic industries previously supported by government funding. The aim is not privatization which strikes out government intervention or its role in the economic activity but to coordinate with the private sector which is more capable to run the project which at the end make the market active and generate more job opportunities.