37115 A Quarterly Publication of the HASHEMITE KINGDOM Jordan Country Unit OF JORDAN October 2001 Public Disclosure Authorized The World Bank Group Privatization: The Jordanian Success Story Background industrial and service sector just starting and others which are companies, including various financial drawing to a close. These transactions Public Disclosure Authorized The World Bank Group has been institutions. Recently the Program has include: Royal Jordanian Airlines; assisting Jordanian privatization since started to consider activities in the Jordan Phosphate Mining Corporation; 1995 in collaboration with USAID and social sectors. postal services; Electricity Sector other development partners. At (distribution and generation); Petra present, the World Bank Group Outcomes Drilling Corporation; Assamara Water manages a substantial trust fund for Treatment Plant; Royal Jordanian Air USAID that supports the Jordan This Program ranks as one of, if not Academy; Ministry of Supply agri- Privatization Program (the Program). the most, successful programs in the business facilities; Customs The World Bank Group has been Middle East region. To date the Department warehouses; and the Water actively assisting the Jordanian following has been achieved: (i) a 33 Authority at Petra. They are scheduled Government through the Executive percent sale of the Jordan Cement for completion in the later part of this Privatization Commission (EPC) in Factories (JCF); (ii) the granting of year and next year. Public Disclosure Authorized crafting a privatization strategy, four bus concessions in the Greater designing an institutional framework Amman area [Public Transport Execution for implementing the Program, and Corporation (PTC)]; (iii) the granting supporting the implementation of the of a concession for the Ma’an Spa; (iv) The Jordanian Government’s Program. a 49 percent sale of the Jordan privatization strategy has a multi-track Telecommunications Corporation approach with appropriate modes for The Program primarily covers the (JTC); (v) a water management each situation: capital sales, e.g., IPO, Jordanian state-owned enterprises contract for the Greater Amman area divestiture etc.; sales to strategic which are concentrated mainly in the [Water Authority of Jordan (WAJ)]; Contents Page Infrastructure Sectors (Transport, (vi) the granting of a concession for Recent Economic Developments 6 Electricity, Water and Aqaba Railway (ARC); and (vii) the Bank Group Operations 9 Telecommunications) and investments divestiture of Government shares in World Bank Assistance Strategy 13 by the Jordanian Investment approximately 44 companies at Corporation (JIC), the state-owned approximately US$113 million. Total Poverty Alleviation in Jordan 14 Public Disclosure Authorized investment agency. The Government proceeds are in excess of US$900 Global Development has substantial share-holdings in a million. There is a large pipeline of Learning Network 17 number of small- and medium-sized current activities, some of which are New Bank Publications 18 Hashemite Kingdom of Jordan The Jordan Investment Corporation (JIC) For non-infrastructure enterprises the “holding company” or “state property fund” approach was used in Jordan in the form of the JIC. In this approach, Government-owned shares in enterprises were held in a corporate entity, which assumed the governance functions on behalf of the Government owner. With the Program, JIC actually evolved from being an investment arm of the Government, to adopting divestiture as its main objective. The key to successful divestiture required that several conditions be met. There needed to be full cooperation between the JIC and the EPC, as the latter provided important technical support and at all times played an oversight role. Management support was critical, but ultimately the commitment and support of the Ministry of Finance was what made the completion of the transactions possible. investors; concession agreements; leadership of the EPC and JIC (see level. This was an essential element management contracts; franchising; Box) paid off. The first breakthrough without which the privatization and other modes including BOT, BOO, came when some of the impeding program would not have moved in and BTO schemes. issues (such as foreign control and Jordan. This support also allowed valuation of assets) were innovatively some of the mo re difficult issues such As mentioned, an organizational addressed in designing the JCF as labor, valuation, and the “Crown structure was created to set policies, transaction and the deal was Jewels” issue, to be resolved more provide oversight and implement the completed in December 1998. The easily. Jordan Privatization Program. Key success of this transaction helped to elements of this organizational bolster institutional confidence and the A First Transaction is Crucial: A first structure included the Higher Ma’an Spa transaction was completed major transaction needed to be Committee for Privatization (HCP), the quickly thereafter. At about the same completed successfully in order to get EPC and the Privatization Steering time the PTC concessions were signed the Program going. In Jordan’s case, Committees. and the WAJ transaction soon this helped to allay many of the followed. One of the country’s largest apprehensions regarding privatization, In spite of the strategy and the transactions, JTC, also began to move provided institutional confidence to institutional arrangements having been and was soon in bidding and pursue other transactions, and put in place, progress in privatization negotiations. The sale of a 40 percent demonstrated the benefits of was initially slow and only began in strategic share for US$508 million privatization. earnest after August 1998. The main was completed in January 2000. issues slowing down the Program in Balance Transparency and Jordan included: the question of the The Lessons Effectiveness: However, in order to absorptive capacity of the Jordanian complete the first major transaction, it financial market; public preferences on A closer look at how Jo rdan managed was necessary to resolve one crucial strategic or foreign ownership; and to activate a stagnant privatization implementation issue that underlies public perceptions of the imp act of program and achieve so much in so most privatization programs - where to privatization on labor and consumer short a time holds important lessons strike the balance between prices. Before privatization could for governments as well as transparency and effectiveness: (i) in proceed, these issues needed to be privatization practitioners. setting up the institutional structure for addressed and consensus built. privatization; (ii) in setting up the Get Support at the Highest Level: decision making process; and, last but During this difficult period, EPC First and foremost, a major underlying not least, (iii) in the design and played a crucial role in moving the and significant contributing factor to structure of individual transactions. privatization agenda forward. The these successes was the emerging and persis tence and steadfastness of the unequivocal support at the highest October 2001 2 Hashemite Kingdom of Jordan · Institutional Structure: The main solid foundation with support from privatization process better and with question here was where to locate the most of the major constituencies in the progressively less external help. responsibility and authority for country. privatization. Locating the Ensure Commitment in Sector privatization responsibility at each · Transaction Design and Institutions: This institutional Sector Ministry would have increased Structure: Here too effectiveness approach of sharing responsibility for effectiveness (provided there was the needed to be balanced with the sake of transparency required the will to privatize at the Sector Ministry) transparency. In trying to ensure that support and commitment of the Sector for individual transactions, but the process was transparent, the to ensure effectiveness. This included reduced it on an overall basis as program sometimes encountered not just Sector Ministries, but also the benefits of experience would not delays and waste. The selection of Civil Service and Enterprise easily be shared. Transferring the financial advisors and other Management. In every case, wherever responsibility for a PE privatization consultants might not always have and whenever there was not support or entirely to the EPC could also increase been optimal, and often process interest at the Sector level, effectiveness, but would meet stiff undermined speed, for example when privatization inevitably stalled, and resistance and could reduce ready buyers had to be put on hold conversely, when the Sector had transparency. In Jordan, the until transactions could be advertised. commitment, the privatization process responsibility was shared between the However, the initial investment in moved forward rapidly. EPC and the Sector Ministries, with transparency paid off in allowing the the EPC providing technical resources later stages of transactions to be Let Privatization Expedite the and support to the process (thus, completed smoothly. Regulatory Framework: Regulatory bringing the benefit of accumulated issues needed to be resolved for experience, for example, in bidding Leadership of the Privatization Unit privatization to be effective. The issue and negotiations), as well as, is Key: The leadership of the EPC has of a regulatory strategy in the context performing