What is Privatization?
It can simply be defined the process of transferring ownership of a business, enterprise, agency, public service, or public property from the public sector (a government) to the private sector, either to a business that operates for a profit or to a nonprofit organization. Privatization may also mean the government outsourcing of services or functions to private firms, e.g. revenue collection, law enforcement, and prison management.
Privatization could be of five major forms , they are:
1. Share issue privatization (sip): Selling shares on the stock market.
2. Asset sale privatization: Selling an entire organization (or part of it) to a strategic investor, usually by auction or by using the Treuhand model.
3. Voucher privatization: Distributing shares of ownership to all citizens, usually for free or at a very low price.
4. Privatization from below : Start-up of new private businesses in formerly socialist countries.
5. Management buyout or Employee Buyout (MEBO) : Distributing shares for free or at a very low price to workers or management in the organization. (Wikipedia).
What is a Concession Agreement?
Concession Agreement on the other hand is defined by Investopedia is a negotiated contract between a company and a government that gives the company the right to operate a specific business within the government's jurisdiction, subject to certain conditions. Concession agreements may also refer to agreements between the owner of a facility and the concession owners or concessionaires that grant the latter exclusive rights to operate a specified business in the facility under specified condition.
Concession agreement is usually negotiated by government in other to increase the effectiveness of efficiency of government owned properties or assets. Private firms or individuals handle properties better than public agencies most especially if such property or asset has element of private goods in it. This is because of their primary aim which is to make profit. In the private sector, the owner of a concession (the concessionaire) typically pays either a fixed sum or a percentage of revenue to the owner of the entity (government) from which it operates
A common area for concession agreements between governments and private businesses include rights to use certain pieces of infrastructure, such as railways; roads; a water supply system in a city; institutions, e.t.c.
Concession agreement or contract varies, it may be for 10,20 or 30 years. The agreement could be a grant or tax holiday to the firm. It could be government handling a particular section of the asset while private firm handling the rest.
Example of project on concession agreement is the Lekki-Epe expressway, the agreement which was between Lagos state government and Lekki Construction Company for construction and maintenance of the road. Part of the agreement is the toll fee being paid by road users.
The concessionaire is the firm or individual who has been given the concession right to sell or operate assets.
Advantages of Privatization
1. Government generates revenue from sale of assets or properties.
2. There is relief on federation account as fund meant to maintain or service the assets is reduced or no more.
3. Improvement in the performance of the assets being sold.
4. Increase management capability.
5. Ownership expansion as there would be more shareholders.
6. Encourages price market economy as price would be determined by market forces thereby reducing government interference.
Disadvantages of Privatization
1. It may lead to unemployment as new owners could reshuffle staff and lay some off thereby adding to woes of the economy.
2. Increase in prices since the primary aim of private forms is to make profit. Prices could be increased without considering effect on public.
3. Threats to the economy as economic activities are controlled by private firms and individuals, they may dictate government policies.
4. Inequality / inequitable wealth distribution as few people might gain control and concentration of wealth.
Benefits of Concession agreement
1. It improves the efficiency and effectiveness of asset(s) or project(s) in question as private firms handle them better.
2. It reduces the burden on the part of government as thee is lesser projects or activities to cater for.
3. It is better than privatization as it gives government opportunity to get back the asset when contract expires.
4. It hasten provision of public goods.
On the other hand, concession contract could be of disadvantage, some of its disadvantages are:
1. Individuals could be the bearer of the burden. In th sense that, they begin to pay for public goods or pay more rather than what they will if property is with the government.
2. Firms could reduce maintenance rate or level of project when contract is almost over. Thereby leaving a dilapidated asset for the government.
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