Once privatization opportunities are identified, they must be evaluated in detail to determine whether they should proceed to the implementation phase. Each privatization opportunity is put through exhaustive analyses, such as financial feasibility, legal review and cost/benefit analysis. These analyses will require obtaining additional data. Moreover, each privatization opportunity will be tested against the evaluation criteria established earlier. There are three principal elements in this phase.
1. Analyze the Legislative and Regulatory Constraints.
2. Determine the General Marketability of Each Privatization Opportunity.
3. Develop Deal Structures for Each Privatization Opportunity.
ONE: Analyze the Legislative and Regulatory Constraints. Because privatization is a relatively new tool for governments, most government legislation and regulations are not geared to facilitate the use of privatization. Therefore, early in the privatization process, task forces should identify the potential roadblocks to privatization. Depending on the particular privatization opportunity, or privatization techniques, existing legislation may require modifications. If this step is ignored, or not thoroughly explored, a government could invest time and money to develop privatization opportunities that will eventually be "killed" by existing legislation.
Another reason to explore legislative constraints and opportunities in this phase is that if existing legislation has to be modified, or new legislation introduced, in order to implement a privatization opportunity, the time required for implementing privatization will be substantially longer. If short-term results are expected from a certain privatization opportunity, it needs to be known early on which privatization opportunities, if any, will require the additional time to modify or introduce enabling legislation.
TWO: Determine the General Marketability of Each Privatization Opportunity. Private markets, such as the capital markets, land and building development markets, and sports and entertainment markets are continually changing. The ups and downs of a market will substantially affect the level of interest of private companies in structuring and implementing a public/private partnership with government.
Even if private-sector interest exists, the requirements, or terms of a "deal structure" could be affected by a market change occurring a few weeks or months earlier. Therefore, current insights and access to these markets is important.
If a privatization opportunity involves several markets, companies in one market could be interested but still face new, or more rigorous requirements in another market. A member of the privatization advisory team needs to have a pulse on the anticipated markets.
A prime example of this situation is a city's need for a convention hotel near their convention center in today's market. While a building developer may be interested in working with the city, attracting financing for a hotel could be difficult. This situation is compounded by the financial instability of some hotel operators. Thus, a government could discover that an apparently viable privatization opportunity on paper is actually highly risky and unlikely to be financed. It is best to discover this before the local government has made a sizable investment of time and/or money in the pre-development phase.
THREE: Develop Deal Structures for Each Privatization Opportunity. Alternative privatization plans, or conceptual public/private "deal structures" are developed for each opportunity that has passed up to this stage. These plans illustrate how the government and the private sector would share project responsibilities, costs, risks, and the projected economic return. These alternative plans provide governments with a large amount of flexibility. The alternative privatization plans range from a public/public partnership of two or more governments, to a plan where the private sector takes on nearly 100 percent of the responsibilities, costs, and risk.
The government selects one or all of the alternative privatization plans to be quickly tested for financial feasibility. The surviving alternative(s) would be comprehensively analyzed to cover issues such as:
Sources of Public and Private Finance;
Legal and Regulatory Issues;
Public/Private Financing Instrument(s);
Implementation Schedule; and
Level of Control of Each Party.
Each privatization opportunity is then evaluated against the established 35 to 50 criteria, and ranked from 1 to 10 to provide the government with a sense of how well each opportunity meets their needs and objectives.