Full Divestiture / Privatization

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Full divestiture, also known as, privatization, occurs when all or substantially all the interests of a government in a utility asset or a sector are transferred to the private sector.
A divested or privatized utility or public service is distinguishable from a private commercial enterprise in that the government generally retains some indirect form of control or mechanism for regulation over the privatized utility, in the form of a license granted to the entity to deliver the service to the public.
Full privatization is distinguishable from partial privatization and joint venture arrangements between public and private where the public sector maintains a significant interest. For more, go to Joint Ventures.
For greater analysis and examples of privatization in infrastructure, go to World Bank Resources on Impact of Infrastructure Privatization.
Typically a government intending to divest of utility assets will sell shares in the utility or transfer assets into a special purpose company and sell shares in that company, although divestiture can be via a sale of assets. Whether the divestiture is via an asset or share sale will depend on the circumstances of the utility and local issues such as tax treatment of such sales. The share sale is often favored as it allows the government to retain an indirect or veto interest in the privatized utility through a "golden share". However, a private purchaser may be unwilling to accept all of the existing liabilities of the utility and only be willing to accept a portion of the assets and liabilities. In such case the assets will be transferred to a special purpose company. The prospective purchaser will be interested, however, in knowing that the company has a track record and so the government may be required to run the new company for a few years prior to privatization to establish such track record. Water and Sanitation England and Wales: Licenses for private water / water and sanitation companies Chile: Chilean Experience in Water Power England and Wales: Licenses for private electricity companies Full privatization is often considered to be a more final form of private sector involvement in a utility than a concession. In practice, therefore, there are extensive similarities between the full privatization and concession model, as summarized below:Form of Divestiture/ Privatization
Sector-Specific Privatization Laws and Licenses
Full divestiture of a utility versus awarding a concession
Updated: January 29, 2022