Privatisation and Employment The Dutch Perspective Melle Hendrikse Ministry of Finance, The Netherlands October 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 in restructuring 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.