bankruptcy

Many botched bankruptcy transactions can be traced to the fact that it is important to hire an attorney because of the complexities involved in bankruptcy proceedings. Individuals and businesses that don’t seek legal counsel to guide them through the maze of legal complexities – pre- and post-bankruptcy – increase their chances of becoming one of those botched bankruptcy filings. It is a fitting advice to individuals and businesses that they can learn lessons from successful bankruptcy transactions, from failed transactions, from any transaction. All raise different challenges. The goals of the Bankruptcy System are clear. A fundamental goal of the federal bankruptcy laws enacted by Congress is to give „the honest but unfortunate“ debtors a financial „fresh start“ from burdensome debts and a „clear field for future effort“. In experts‘ view, each successful bankruptcy filing has two common traits: a thorough legal strategy and attention to core discipline and transitional risk.

Legal Strategy

Individuals and businesses that steer their way through a successful bankruptcy process keep their eyes peeled for such relief opportunities from burdensome debts as a matter of getting a financial ‚fresh start‘. As the experts have put it, bankruptcy is a generalized term for a federal court procedure, a legal process that is designed to help consumers and businesses get that ‚fresh start‘ by relieving them of burdensome debts, but you as the filer typically has to prove that you are entitled to it.

Failure in a bankruptcy transaction is often created by the lack of a disciplined approach which constitutes proper attorney representation. Among the different types of bankruptcies, Chapter 7, Chapter 11, and Chapter 13 proceedings being the most common for individuals and businesses, the do-it-yourself approach does not cut it as a legal strategy. Chapter 7 bankruptcy normally falls in the liquidation category. This means that if you own property, it could be taken and sold in the process of liquidation in order to pay back your debts. However, as a benefit of this type of bankruptcy proceeding, any unsecured debts (debts that are not guaranteed by collateral, such as credit card debts) can be forgiven in Chapter 7. But things like child support, taxes that are due, and alimony payments cannot be wiped out.

Chapter 11 bankruptcy is intended primarily for the reorganization of businesses with heavy debt burdens, most often associated with corporations but available to small businesses as well. Consumers may file for Chapter 11 in some rare instances. „Chapter 11 allows the debtor to propose a plan for profitability post-bankruptcy, which may include trimming costs and seeking new sources of revenue or income, while temporarily holding creditors at bay“. In contrast, Chapter 7 bankruptcy often involves liquidation of debtor’s assets to repay creditors. Chapter 11 therefore has certain advantages for those that qualify with the opportunity of putting a plan in place to restructure and reorganize, which however, could be more time consuming and little more costly than other forms of bankruptcy filing.

Chapter 13 bankruptcies also offers reorganization opportunities and those that qualify for Chapter 13 bankruptcy filing are probably be able to keep their property, but must submit and stick to a time-sensitive repayment plan (generally, three to five years).

Core Discipline and Transitional Risk

Experts familiar with bankruptcy proceedings say they like their clients to think about a bankruptcy strategy as a core discipline and a transitional risk that needs to be professionally managed. It can’t just be ‚let’s go out and file a bankruptcy.‘ You can’t cut corners in the bankruptcy process. It’s always best to discuss your options with a seasoned business bankruptcy legal professional familiar with every legal ramification from Chapter 7 and Chapter 11 to Chapter 13 bankruptcy procedures before making a decision.

Chapter 11 bankruptcy which governs the process of reorganization of a debtor is generally associated with larger corporations but it is available to qualifying small businesses. Small businesses with fewer than 500 employees, as defined by the Small Business Administration, have a chance with Chapter 11 bankruptcy. Bankruptcy courts, however, are stricter over small business Chapter 11 filings than for larger entities, and there are stipulations in place which include the requirement to report on a small business profitability and projected cash receipts and disbursements because the ability of a small business to reorganize effectively is crucial to the actions being considered by the court. Again, following the 1991 U.S. Supreme Court case Toibb v. Radloff, it is upheld that non-business, individual consumers can also file for Chapter 11 bankruptcy. It’s quite an unusual strategy but it’s a strategy that can be pursued by individuals who still have substantial personal earning potential but whose debts exceed the limits set forth by Chapter 7 and Chapter 13. Experts at FindLaw say that „a typical non-business Chapter 11 bankruptcy filer might be a celebrity who just got in over his or her head with bad investments but who conceivably still has earning potential through product endorsements, for example“. Generally, Chapter 11 bankruptcy is considered more debtor-friendly than other types of bankruptcy. When the bankruptcy court is on your side, it can „cram down“ certain forms of debt and can push through a repayment plan over the objections of some creditors.

About the Author:

Kenday Samuel Kamara is a research scholar with advanced degrees in organizational management and decision sciences. Has worked in a consultant capacity in the international development sector. A published author and content development expert/copywriter.

Electricity M

Who is responsible for an energy policy?

There are a number of reasons why the responsibility for (of) an energy policy is fundamentally that of the government. In historical terms, most electricity and gas supply industries (as opposed to production systems) were formerly under the complete ownership and control of governments. In countries like the United States and Germany where the facilities were typically privately owned, they were still operated in accordance with directions given by the government regulator. There is little or no difference between the operation of a state monopoly and the operation of a private sector monopoly under direct governmental regulation.

Given that state control is usually the starting point, it follows that structural problems associated with transforming monopoly markets into liberalized, competitive markets can only be dealt with by the government. The government has to carry out the enabling act (usually legislation) in order to transform the existing structure into whatever structure is demanded by the policy of liberalization and/or privatization. The relationships of the newly created players must also be addressed by government in order to set out the ground rules of the new market. The government creates the policy which in turn is implemented to establish the new market structure, and addresses any structural problems associated with the introduction of competition and new participants.

Structural problems that necessitate the government taking responsibility for energy policies
These structural problems may include the issue of tariff/pricing, barriers to entry (access to networks) owing to the natural monopoly element in the downstream sector, availability of supply, etc. Moreover infrastructures for the industry require medium and long term coordination and guidelines for all players. Centralized policies and guidelines reduce uncertainty while government policies will make up for market deficiencies. Governments have a proper role in setting national energy policy objectives but these should be kept to a minimum and applied in a fair and easy to understand way.

Governments in adopting energy policies have embraced different forms of privatization and liberalization for overhauling the electricity industries. The starting point for privatization and liberalization in most of these countries is quite similar. Important issues to note in this respect include the following: Electricity industry has undergone some form of privatization in many countries. Private sector participation in electricity (outside those countries with regulated privately-owned systems) generally began in the 1980s, leading to the introduction of a degree of competition in the downstream energy industries.

Private sector participation also saw the beginning of a move by government to allow others to participate in the making of energy policy. This has however proved controversial and has led to an intense debate in the United States, particularly in the light of the failure of Enron (at the time of its collapse it was the world’s largest privately owned electricity company) and the involvement of Enron executives in the workings of the Department of Energy and the Vice President’s Task Force on Energy.

One of the reasons for supporting others in participation and in the making of energy policy is that the government, especially in developing countries, needs private sector experience to make energy policies effective and efficient. One of the reasons for opposing the idea of others participating in the making of energy policies is that it may be difficult to get an impartial energy policy maker outside government. This makes it difficult to achieve a level playing field which is necessary for the introduction of competition in the energy sector.

Privatization and liberalization
Privatization and liberalization are key government policies for regulating the energy industries. As a starting point it is important to understand what privatization is all about before discussing the issue of liberalization.

What is privatization?
It is the act of selling existing state assets – no more and no less. It is to be noted however that there is conceptually no need to break up the state company, or to create competition, or to adjust the regulatory structure significantly. All that is needed for privatization is a decision (and then follow up action) to sell the state assets to a third party. Privatization does not require liberalization, although in practice most governments would incorporate an element of liberalization within a privatization policy. Moving a company from the state sector to the private sector, even with regulation, tends to create problems in making future adjustments to the sector.

Privatization without competition implies that there is replacement of the state monopoly with a private monopoly. Privatization alone does not change the natural monopoly element in the downstream energy sector. By itself, privatization does not introduce competition. By itself, privatization does not change the pricing structure of the industry. Private sector monopolies are profit oriented rather than service oriented.

Any efficiency gains are incentivized by regulation, not by markets. Once the decision to privatize has been taken, the state is removed from the direct provision of energy. The sale means that someone else (a new participant) will be providing energy and the role of the state changes from service provider to creator of the enabling legal environment to permit others to provide that service. The function of government changes with privatization.

Privatization will require new laws, if only to change a monopoly status of the incumbent. Typically the incumbent is a state company in which case the law will give the government permission to sell, and probably also to restructure. Restructuring a state company (but leaving its ownership within the state) to meet the future challenges of liberalization is called corporatization, and is a process which attracts great debate. The debate is essentially about the nature of equal (or non-equal) competition between state companies and private companies. The idea of corporatization is unimpeachable, that the state company will be prepared for possible future privatization by being run on the same basis as a private company. But given that state companies and private companies have different objectives, it can be difficult to equate the two.

The objectives of a state energy company may include the following: Availability and accessibility of supply (state companies tend to aim for redundant or excess capacity to ensure provision of service), Creation of employment, Energy supply at reduced/controlled price (the government may subsidize the full cost of energy supplied), Focus on customer service as opposed to profitability, Protection of national interest- the energy industry is usually a key industry in the national economy and the state energy industry is frequently used as an instrument of general economic policy.

While the objective of a private energy company may include the following: Availability and efficiency of supply (extreme care needs to be taken in relation to the incentive to hold redundant or excess capacity), Maximization of shareholder value and profit (adequate return on investment). The business is focused on profitability not just prices and Market leadership.

Having said that, there are examples of companies which are owned by governments but which do not exist simply to reflect the national interest. For example BP was formerly British Petroleum, a company owned by the British government since the purchase of the shares of the Anglo Persian Oil Company by the Minister before World War I. The company does not appear to have ever acted as a state company indeed during the Rhodesian oil embargo declared by the British Government; the company appears to have continued to trade with Rhodesia. The company does not appear to have regarded itself as required to act in the public interest, and accordingly did not have the same need for a corporatization process before its privatization in the 1980s. Similarly, it is difficult to see why state companies which invest abroad are acting in the public interest of their own country; for example Electricite de France (now partly privatized) bought assets in several countries.

Corporatization may not need new laws, but removal of monopoly usually does. Similarly, if the state company is to be broken up legislative permission is usually required. If regulatory changes are to be made (and such changes are inevitable at privatization or liberalization) then it is to be expected that the legislation will also provide for such changes. Normally the regulatory changes are made by secondary legislation, in terms of a consent granted in the primary law.

Conceptual problems with privatization
The primary question is whether or not privatization should take place. This is a policy as well as a political question to be addressed by any individual government considering adjustment of the downstream energy industries. The political aspect of this question can be seen from the tones of the debate that precede every privatization policy of the government. The United Kingdom gas privatization debate in the House of Commons; parliamentary debate over the Gas Bill 1986 in Hansard emphasizes this aspect of the privatization issue.

The other problems of privatization will naturally arise after a decision to privatize has been made by the government, and would include the following: the form of the privatization (i.e. what is created through the sale of the state company) ensuring that government sells state assets for proper value and the new role of government as the creator of a suitable legal environment for business difficulty in sustaining the traditional gains of monopoly provisions especially those in the nature of Public Service Obligations (eg obligation to supply; connection rights; uniform price for similar categories of consumer etc.).

Problem that may arise from the obligation to supply consumers at Uniform Price
The problem is that a private energy company may not agree to supply different consumers at uniform price without government’s subsidy especially as transport costs increase with distance. Supply at uniform price may create losses for the company particularly where the losses cannot be mitigated by increased supply to surplus consumers. This will affect government’s policy of having cheap and affordable energy supplied to consumers which will encourage industrial growth. It is one of the arguments against privatization particularly for a developing country.

The political aspect of the privatization process will require a political decision on the part of the government. An integration of the political and economic aspect of the decision will tend to create a proper balance in theory, for the reform of the downstream energy sector. This balance between political and economic need may however be difficult to achieve in practice. The question of what should be done is therefore difficult to answer as it requires a careful look at each country. The primary function of this paper is to set out the options. Determining which option is „best“ for a country is a matter of economic
evaluation

The electricity world can be regarded as divided into two separate categories. There are those countries which have sufficient capacity (the simple test being that the lights are on); and there are countries which are in short capacity. These two requirements present completely different challenges for liberalization and privatization. Liberalization in category one countries (those with sufficient capacity) is predominantly designed around the concept of delivering the service at lower price. Liberalization and competition are designed to improve efficiency. Privatization is designed to change management and bring in profit incentives to improve efficiency. From a regulatory viewpoint, the key is that the incentive for state monopolies is based on command and control, whereas the incentive for private monopolies can be more subtly directed towards revenues.

The privatization debate – should governments allow privatization at all? Is largely in the past, particularly in those (first category) countries looking at liberalization. The debate is less over whether privatization should take place and more with respect to the form of the privatization and how to ensure that the government sells state assets for proper value. The lack of recent debate may however simply reflect the fact that a majority of countries with sufficient capacity have already embraced some degree of Privatization.

In category two countries, the argument is slightly different. Category two countries (those with insufficient capacity) tend to create policies designed to increase capacity. Liberalization does this by allowing new participants into the generation sector, and privatization achieves this goal by allowing the new entity access to new funding sources. In such countries, there is less emphasis on competition at the beginning of the process and indeed recognizing that competition may create undesirable results including price rises. The result is that category two country liberalization and privatization schemes tend to be complex and couched in regulatory restrictions to prevent abuses as the market gradually takes off.

Monopoly, privatization and security of supply
Monopoly systems tend to reduce the complexity surrounding concepts such as security of supply. Security of supply is an extremely simple concept in general terms, it is the risk that the system will be subject to interruption owing to lack of fuel (or lack of the correct fuel), or a lack of capacity. In more detailed terms, Security of supply means different things to different entities depending on the perspective one looks at it from. See below for a sample of the meaning of security of supply.

Government is able to take a very broad view and ask if overall capacity (either for fuel, generation, or transport) is sufficient. However, the individual consumers look at matters differently. Security of supply is the risk that there is no gas or electricity available to them. Conceptually, the consumer’s view is closer to the issue of reliability of supply.

Using that term allows „security of supply“ to be restricted to the broad view rather than contaminate it with the difficulty of looking at countries with a sufficient amount of capacity, but who find that the capacity is simply in the wrong place or is served by an inadequate transportation network. In such cases the problem is one of reliability rather than security. The solution will lie in infrastructure building rather than addressing new capacity.

Monopoly makes security of supply conceptually easy; the government has one place to look to and one entity to direct to address the issue. That entity can also be asked to reflect the government’s view of security of supply. Government views on security of supply frequently start with the idea of self-sufficiency. The state electricity company is directed to purchase domestically produced coal, gas or oil. Privatization by its nature of bringing in the private management and a profit motive tends to make it difficult for government to take a simplistic view of security of supply through equating it with self-sufficiency. The government no longer has the same tools or the instruments to direct purchases.

Privatization, where it is accompanied by a breakup of the monopolist, tends to create more than one company which no longer automatically reflects the public interest. A private company exists to make profit, not to reflect the public interest. Obligations surrounding security of supply can be difficult to reconcile with the interests of an individual energy provider. Governments will try to make the reconciliation through regulatory means (typically a license condition on the participant).

Privatization does not change the natural monopoly element. The natural monopoly element means that regulation of (at minimum) the price of transmission and distribution will continue even after privatization. There will always be a role for public interest regulation. In practice that role is usually greater than simply setting the transmission and distribution price, as it is rare for full competition to be introduced immediately, and usually impossible to introduce immediate full competition in category two countries. Pockets of non-competitive provision will remain and need to be regulated. The usual example is supply prices to domestic consumers.

Natural Monopoly
An industry is said to be a ’natural monopoly‘ if the fixed cost of the capital goods for that industry is so high that it would not be profitable for another company to compete with it. The reason for this is that the economies of scale for that industry naturally require one rather than several companies to provide that service as small scale ownership of the industry will make it less efficient.

Why are utilities like natural gas, water and electricity cited as typical examples of natural monopoly?
For water and natural gas it will be expensive (due to high cost of laying pipelines) to build a second or third set of water, sewerage or gas distribution pipelines within a city or town. The delivery service for both has a high fixed cost and low variable cost. This makes it difficult for a second company to come in and provide that service without doing so at a loss. Thus the initial company to set up the service enjoys a ’natural monopoly‘ status. The same goes for electricity. But deregulation of the electricity sector has made it possible for the generators of electric power to now compete. However the infrastructures, the wires that carry the electricity, remain a natural monopoly because a second set of wires will be very costly to run along the same lines within a city, hence the various companies generating electricity have to distribute it through the same grid.

It is also possible that the first infrastructure owner will be able to set access prices in such a way as to prevent alternative (second) infrastructure being built. New pipes or wires need customers to use them. If those customers are offered better deals by the existing pipe, the new pipe will not be built. Clearly competition law has a role to play in pricing decisions; such strategies may fall foul of predatory pricing provisions.

Liberalization
It is the removal of a monopoly right and the introduction of competition and choice. It is not necessary for there to be privatization first before liberalization. New plant or new entrants may simply be allowed to compete with the former monopolist. But it may be difficult to have fair competition as the regulator may lean favorably to the government entity. This may be worsened where the competing government entity also acts as a regulator.

Types of liberalization
Liberalization may either be partial (limited) or full.

1. Partial or limited liberalization: In the case of electricity supply, there is massive range of options with respect to liberalization. At one extreme is a decision simply to lift the exclusive monopoly right in a particular sector, usually generation. That decision would permit new generators to enter the sector and build new plants, but without a greater degree of liberalization they would be compelled to sell the power to a single wholesale supplier (typically the state company). In such a model there is no competition except competition for the right to build. This is partial or limited liberalization. This is discussed further in my next paper coming up under build-operate-transfer (BOT) arrangements; there is some debate over whether competition for the right to build is equivalent to competition in generation. Generally speaking it is not, although clearly both are aimed at the same goal and that of obtaining the cheapest possible electricity.

2. Full Liberalization: At the other end of the spectrum is an electricity supply industry with full competition in all sectors. Full liberalization involves an understanding of each sector of the industry. Although the terminology to describe the various parts is occasionally different. The most striking similarity is that both are network based – both are reliant on the natural monopoly in the transmission and distribution sectors. Refer to the meaning of natural monopoly.

Very few countries have full liberalization, although some come close. The United Kingdom is regarded as one of the most liberalized energy markets in the world. Others which are near full liberalization are Finland, Sweden, to a lesser extent Norway and Denmark (the other members of Nordpool); and some of the individual US States such as Texas. Other US states have relatively little liberalization, usually dictated by the pre-existing position such as dependence on hydropower.

Other EU member states are gradually becoming more liberalized as the European Commission compels greater openness, but it should be borne in mind that the EU rules require a minimum level of liberalization not a maximum. It is notable that the examples nearest to full liberalization are all category one countries. It is conceptually difficult to create markets where there is a shortage of capacity; the result tends to be a rise in price. It follows that category two countries tend to be less liberalized. There is also a need to consider the issue of long term power purchase contracts which underpin investment.

Liberalization of the supply and distribution of electricity
Electricity distribution systems are liberalized for different reasons. No two countries will offer the same justification for making a change. Most will offer a series of reasons alongside the enabling legislation, but at the most basic level electricity systems can be put into two distinct categories:

In the first category are those systems which have sufficient capacity to meet demand. Here, liberalization is carried out to create competition between existing facilities in an effort to bring down the price or at least minimize price rises. Into this category fall most of the European Union, the United States, Canada, Australia, and parts of South America. It is not coincidental that those countries were amongst the first to announce privatization or liberalization of electricity industries.

The second category are those systems which have insufficient capacity to meet demand. Numerically this second category is larger than the first, and typically presents a fundamental difficulty. The basic reason to liberalize in the countries in this category is to provide additional access to funds for investment.

Many countries in this category simply cannot afford to build new plant and infrastructure, and are effectively forced to undertake a degree of liberalization to permit (foreign) companies to build new plant.
Liberalization of category two presents‘ greater challenges as it is far from certain that the act of liberalization will lead to lower prices but indeed it may precipitate higher prices to pay for new plant. Contracts to secure investment (PPAs) can also make it difficult to develop competition between generators. This difficulty is often complicated by the existence of a subsidy on the existing consumer price. Omitting that subsidy, as strongly encouraged by the World Bank can lead to significant price rises.

Liberalization has therefore attracted considerable political and social opposition in some countries. It should be possible to set the gains in reliability and capacity against the potential price rises, but it appears to be surprisingly difficult to create that link in practice. The general aims of liberalization are to raise money (where accompanied by privatization); reduce payment of subsidies; lower prices, improve quality and efficiency of services through competition, take liabilities off the government balance sheet and meet other ideological objectives. Though liberalization generally aims to create competition with a view to lowering prices to consumers or at least minimize price rises; there is a strong possibility that in a country which is capacity short, liberalization to attract investment may lead to higher prices particularly where the liberalization programme is accompanied by a reduction or removal of consumer subsidies.

Privatization and liberalization – some distinctions
Liberalization is an entirely separate concept from privatization. Liberalization is the introduction of competition to the industry. In the downstream energy sectors, liberalization can take many forms. Liberalization is not a single concept but is instead a scale; it can be partial or full. It can be applied in one sector but not another; that is it is possible to liberalize generation without liberalizing supply; it is theoretically possible to liberalize supply without liberalizing generation. Although there is no practical example of that latter option, given that the only basis for competing suppliers would be quality of service rather than price.

Liberalization does not require privatization, and although privatization does require liberalization (at minimum in the form of a new entrant), privatization does not by itself create competition. A limited degree of confusion is probably inevitable given that the first examples of electricity industry reform include both elements of both privatization and liberalization, although legally the two concepts are quite distinct. It is important to note in this respect that Chile; United Kingdom; and most European Union countries have undergone some privatization alongside liberalization with the notable exceptions of France (which is yet to privatize fully either of its state downstream energy companies) and Germany (where the monopolies were already privately owned).

The privatization debate is largely ignored now in Europe, and is probably most focused in West Africa (particularly Nigeria) and in the Pacific Rim (particularly Indonesia). State companies continue to play a crucial role in energy provision in numerous countries and some have stated their intention to continue in that mood, despite small increases in the degree of liberalization (e.g. China, India).

Liberalization theoretically requires little or no legislation, given that it is simply the creation of competition in similar fashion to any other industry. But in the case of the downstream energy sector, it is considered normal practice for the government (or the regulator) to maintain control over the identity of the participants. This simply reflects the strategic importance of the sector, and also usually the imperfect competition which the liberalization model creates in practice. Such control is easily established by means of a licensing system established under primary legislation.

The other reason for new legislation underpinning liberalization is that it typically requires little legislation to run a state monopoly. The law may simply grant the monopoly to a state company and then everything else is done by agreement between the state company and the Minister. There is no real need for a law until liberalization is introduced, and a law is needed to establish the parameters of the market as the Minister cannot directly influence a private company.

Principles underlying privatization and liberalization
Privatization is usually driven by a number of competing factors. There are „good“ aims and „bad“ aims, although it can occasionally be difficult to place a particular goal in one camp or the other. Privatizing simply to raise money may be more difficult for a government to justify than privatization as part of a liberalization aiming to reduce energy costs. There are also privatizations designed to take liabilities (primarily subsidies) off the government’s balance sheet, frequently but not always occurring in countries which are capacity short. Other privatizations are designed to support a liberalization programme by breaking up the former state monopoly.

Irrespective of the view on the aims, there are clearly examples of privatizations and liberalizations which have structural integrity and those that do not. Perhaps the classic mistake is the United Kingdom privatization of the state gas monopolist, the British Gas Corporation. It would appear that that privatization was driven by ideology, a belief by the then Thatcher Government that the private sector could by definition provide a superior service to anything that a state company could provide (a belief partly driven by the government’s adherence to the Chicago School of economic thought). In that case, the fundamental structural error was to privatize the company intact, creating a private sector monopoly. The savior of the structural error was the creation of an extremely powerful independent regulator (and the appointment of a regulator prepared to use the full extent of their powers) who oversaw a gradual introduction of competition.

The legislation provided for a liberalized market in 1986. It took a decade for the reality of a competitive market to emerge. That terrible precedent has been an object lesson for numerous privatization and liberalization schemes created since 1986. Most have sought to learn the lessons and avoid the obvious mistakes and it is clearly a mistake to structure privatization and liberalization in such a way that it does not deliver the potential benefits of competition for a decade.

The energy industry is characterized by its natural monopoly element, but creating a private sector monopoly simply adds to the inevitable information asymmetry. The regulator is always second-guessing. The companies, specifically the monopolists know far better than the regulator the precise cost of doing business. They can seek to hide costs in cross subsidies between the various elements of the business. That makes regulation more difficult, and tends to lead to incentive regulation rather than pure rate of return regulation where it is inevitable that the regulator will have to second guess the cost structure of the business.

Privatization leads to a change in the role for government. The state is no longer the provider of energy, but rather is the creator of a suitable legal environment in which others will elect to enter the business of energy production and supply. Privatization also means as said earlier on, that it is difficult to sustain the traditional gains from monopoly provision. Monopoly is traditionally granted on various conditions being imposed in the public interest. Typically these conditions will include an obligation to supply, and an obligation of universal service.

It is apparent that energy policies have resulted in positive but modest gains in the electricity industry. However it has not shown visible lasting benefits to consumers. Its merit has included restructuring of monopoly through the independent regulators, initiating competition and innovation, creation of opportunities for a rise in employee remunerations via increased efficiency and emission control through the development of the electricity market. It has also improved the policy making mechanism of the industry, ensuring expensive policies are adequately scrutinized and criticized before implementation. This scrutiny is unlikely in a monopoly system, and has so far brought important benefits by increasing choices and creating a greater responsiveness to consumer needs.

About the Author:

Ashford Watkins is  a research analyst at the National Oil Company of Liberia and a graduate of the Center for Energy Petroleum, Mineral Law and Policy (CEPMLP) University of Dundee with a MBA degree in International Oil and Gas Management.

customer service

We all know the basic fundamentals in delivering exceptional customer service; good communication skills, a friendly personality, patience, empathy and smiling is important. However these qualities alone will not create a customer focussed environment.

Many businesses, government agencies and non-profit organizations are becoming more aware of the need to identify who their customers are and take strategic steps to create a positive experience.

Too often we concentrate all our efforts and energy on customers; not as much effort is considered with employees. An important fact to consider is that employees are the very people that serve your customers. They also influence the culture in your organisation. Overlook employees and they will eventually become tired, burn out, negative and dispassionate.

It is important that your customer service strategy considers your customers and employees with equal importance.

While the exact nature of a customer service strategy will vary from one business to another, there are a few basic factors that should be considered in any setting.

  • Identify your customers
  • Assess the needs and wants of your customers
  • Establish a Customer Service vision – this step is important for everyone to understand their role in achieving the vision. Consider incorporating the organisations values and behaviours – its acts as a foundation on what you are all about.
  • Implement and communicate your Customer Service standards and expectations – include marketing and delivery
  • Accountability – it is important for all staff to be held accountable in achieving the standards and expectations.
  • They need to understand how „their“ service will affect the company’s overall performance. It is a cultural expectation.
  • Training – Focus on how the organisation expects each employee to behaviour in any given situation. Training should include; how to respond to complaints, managing angry customers, addressing customers needs, how to speak and interact with customers.
  • Focus on recruiting and retaining good employees
  • Reward and recognition – create a system for acknowledging and rewarding employees. Positive reinforcement for desired behaviours.
  • Measure your Customer Service satisfaction levels regularly
  • Review your strategy and modify as required

Take the time to develop and implement your customer service strategy. Organisations with an exceptional service culture did not achieve this by accident. They have strategies that encompass their business goals, these goals also impact corporate objectives and priorities. A well defined and executed strategy is the first step in achieving an exceptional service culture.

government

Before we begin to assume and pass judgement on Private and Government Sector it is important to understand the variations between them.

The simplest way to tell the difference is to see who is in charge!

The private sector usually consists of companies that are privately owned and operated; this may include non-profit organisations and charities.

The government sector consists of various divisions, departments and sectors owned by the government. And depending on the country it includes provincial, state, federal, municipal or local governments.

Government departments tend to focus on providing social services to the public as mandated by law and legislation. Whereas the private sector is not so transparent and their focus lies in maximising profits and results.

There are varying degrees of accountability but managing government and private organisations varies significantly.

Although government sectors may appear to be more accountable, the administration process wreaks havoc with their decision making. They tend to lean toward an „avoidance“ culture. This may be due to them being under constant public scrutiny. This also supports the assumption that their commitment tends to be weak and as a result accountability is influenced.

Private business on the other hand will take whatever action is necessary to appease their customers whilst remaining focussed on achieving results and profits.

It is not surprising that the corporate culture in government and private sectors are worlds apart.

Creating a great organisational culture leads to results and efficiency. It’s all about best practice and positive outcomes. In a government setting this would lead to greater productivity, fewer resources in less time and positive customer feedback.

Workers who are happy, motivated and feel empowered will achieve greater results, improve the image and reputation of the company. It will also improve customer satisfaction and feedback as opposed to workers who are unhappy, frustrated and disempowered.

I recently had great pleasure in speaking with an innovative government body. They have been focussing on numerous strategies including restructures and applying service delivery models similar to the private sector. They are at the stage where they are exploring more ways to improve their culture, ethics and values. So committed to this change that they prefer to employ people from the private sector. So far the results have been positive.

This has made me wonder about how many private companies would be eager to employ people from the government sector? Would these workers fit in with the established culture that is unique to the private sector?

Another key factor to consider is „Skills“; afterall all employers focus in appointing the right person for the job. Of course another thing to consider is „Best Fit“. The private sector is more focused on commercial behaviour; motivated by profit and results – whereas the government sector is not so forthright, they are more familiar with due process, beauracracy and compliance. Both areas have different views on work ethic, motivation and decision-making ability.

Lets face it – every work place comes with drama and politics; a dear friend once told me that you take the good with the bad and simply get on with it. But it is the culture of the organisation that will ultimately deliver outcomes. Culture; whether it is toxic or healthy is the glue that holds everything together. It acts as a compass that steers everyone in the right or wrong direction.

About the Author:

Loretta has managed customer interaction in private and public sector across multiple industries for 25 years. She is recognized for her specialist knowledge in Contact Center Management. She offers advice, education and inspiration to Call Centre Professionals across the globe. Her enthusiasm and energy is contagious. Be sure to get the latest information and blog posts by visiting http://www.contactcentreportal.com

 

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CITM Logo longBecome a Certified International Turnaround Manager in TMS’s online certification program. Our experienced trainers guide you through the online lectures. Together with access to our online certification program you will receive the most relevant books about corporate restructuring and turnaround management.

To set a high standard for turnaround management professionals, the Turnaround Management Society has developed an education program for practitioners, academics, and others interested in turnaround management. We currently offer one certification, the Certified International Turnaround Manager (CITM), with four levels, A to D, depending on the theoretical knowledge demonstrated as well as practical experience gained.

 

Qualification Levels:

CITM – Level A

To acquire Level A the candidate must demonstrate mastery of the International Turnaround Management Standard™ (ITMS) as well as general knowledge about crisis situations and classifications, early warning signs, and crisis prevention.

CITM – Level B

To acquire Level B of the CITM program the candidate must have successfully achieved Level A and must also demonstrate that they have studied and solved different case scenarios in which the ITMS™ can be applied.

CITM – Level C

To acquire Level C certification the candidate must have passed all tests required for Levels A and B, and in addition have at least 10 years’ direct work experience in the crisis management or turnaround management industry. During this time a mentor must provide expertise and advice to the candidate and observe whether the candidate follows and upholds the ethical guidelines. A candidate who already has ten or more years’ work experience can apply for Level D.

CITM – Level D

A Level D Certified International Turnaround Manager, after meeting the requirements for Levels A, B, and C, must demonstrate intense and substantial knowledge of the industry and have 15 years work experience in crisis management or turnaround management. Only a Level D CITM can serve as a mentor to a Level C candidate.

To get more information about our online certification courses and levels please visit our online training website.

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A strong business turnaround requires creating a plan your creditors will use; then, you must prioritize whose debts you will pay. It is your responsibility to apprise your creditors of your business turnaround plan and company forecasts so they can extend loans, grant more, or even forfeit some of the debts.

Be Forthcoming with Creditors
The goal of creditors is simply to make back their investments in some form, and they understand that this objective may not be reached should you be overly burdened with their debts. If you provide current updates on your business turnaround plan and methods for turning your company around, then they will be more apt to help you on your way or at least alleviate some of your burdens. Business turnaround plans often depend on creditor concessions.

For your business to become profitable, your creditors may have to make certain concessions and financial sacrifices or else their investment may go sour. However, you must look at the situation from their perspective. If they don’t receive any information about your company’s financial well being, forecasts and benefits of turnaround plans, then they may not put their full trust in you and they may refuse these concessions. That is why an open and honest relationship with your creditors is so key, which your business turnaround plan should note.

Show your books. Prove how extending certain loans or forgoing some debts will result in their receiving back their investment. Keep them regularly updated. Make your own concessions in order to appease your creditors. A business turnaround depends on this open and trusting relationship – it is very unlikely that you will achieve financial success otherwise.

Prioritize your Creditors
That is not to say that all creditors are the same. The reality of business turnaround plans is that you will have to prioritize your creditors and sort out which ones are important to your business. If they don’t like your business turnaround plan, then everyone loses; thus, your business turnaround plan will require that you choose which creditors get paid and which will not.

You must separate creditors into two groups, the former of which include individuals and companies integral to your business. Those are the people you need to impress, to share your plan with, and to have an honest relationship. You should personally meet with these specific creditors and sell them your business turnaround plan. Be honest and show them how they will be repaid.

The people and firms in the second group, however, are simply not a priority and you should make every attempt to get out of those debts – hiring a debt negotiator is a common practice for such situations. It is very important that you separate these firms and people into the two groups, and you must act carefully. Before you potentially end a relationship with a creditor whose business isn’t essential and thus whose loan isn’t a priority, you must be absolutely sure that you can negotiate a good settlement.

Keep the Goal in Mind
The goal is redeveloping your business so your company becomes profitable again. Additionally, most firms price in the chance of their debts being vitiated; in other words, this is a practice that companies understand, expect, and factor in with their prices.

Thayne Carper spent 4 years of college competing in student business plan competitions. He’s never won a business plan competition and was ultimately dropped from his college’s entrepreneurial program for lacking potential. Today, he is one of the youngest published experts on the topic of business turnarounds and cost reduction.

Uturn

CEOs and CFOs often feel like they are following in the footsteps of Don Quixote when they try to restructure business operations in Europe. In theory, the formula for a restructuring in Europe is the same as the US – control cash, adjust pricing, renegotiate contracts, reduce employees, eliminate poorly performing divisions or products, accelerate collection efforts and restructure the balance sheet. In practice, implementing those actions in Europe can seem like an impossible dream.

Too often, European management or advisors will raise an unending series of roadblocks and reasons as to why they cannot implement change. To complicate matters, when they do decide to act, they often lack the urgency demanded by the deteriorating situation. A half-hearted or botched attempt at a turnaround can further cripple the business, alienate customers and demoralize employees.

To create lasting change in a distressed European business, turnaround efforts must go beyond goal setting and conference calls with European management asking for progress reports. The initial focus should be:

1) getting complete buy in from ALL the stakeholders your company and
2) retaining operationally skilled turnaround managers that have experience with the business and legal challenges of Europe.

All turnaround professionals know that getting buy-in from stakeholders is the most difficult part of any turnaround. In addition to insuring that internal company constituencies are aligned with the restructuring goals, substantial effort must be made to insure that shareholders, lenders, employees, vendors and, most importantly, customers, understand and embrace the turnaround plan.

Finding a manager who can trim expenses or improve a specific process is not terribly difficult. Finding an operationally gifted manager who can quickly envision and produce dramatic, enterprise-wide improvements in Europe can be. Companies that lack someone with this skill set should recruit from outside. Whether hiring a full time employee or a turnaround expert, you should look for an experienced hands-on manager who can document strong operational results in situations in which he or she personally led the restructuring efforts. The 3 keys to a successful European turnaround are:

1. an effective management and financial control system,
2. a comprehensive employee plan and
3. cross-Atlantic business alignment.

Developing and implementing a carefully crafted management and financial control system is critical to the long-term success of an operational restructuring. An effective management control system begins with written strategic and operational plans that are specifically designed for your European business. It must go beyond ordinary financial controls and include clear ownership for revenue generation, new organizational charts and job responsibilities with no operational holes, procedures for measuring activities and results, accountability and reward systems that encourage employees to act in the best interests of the company.

This management and financial control plan should not go on your bookshelf to get dusty. It must be continually communicated throughout the organization until it is embraced as the centerpiece of the new structure of the business.

In Europe, things work differently. You can’t layoff employees easily. If a decision has been made to terminate employees of a European business operation-perhaps in connection with an overall workforce reduction or a plant closing-careful consideration must be given to applicable laws in all jurisdictions, which can vary widely and differ substantially from U.S. laws.

Although the United States subscribes to the idea of employment at will, most European countries do not. Generally, U.S. employees can be terminated for any reason or no reason at all. In contrast, the statutes in many European countries afford employees significant protection from termination, regardless of whether they are union workers or not. Employers often cannot terminate an employee without citing reasons enumerated in local regulations. Virtually, all countries require that severance or similar payments be made to terminated employees, in some cases for a year or more.

Any European employment strategy must be designed to insure that the employees that are critical to insuring the future success of the business are not only retained, but given the tools and incentives to succeed. Naturally, a restructuring creates stress and anxiety in an organization. The fact that most of the decisions are being made in the US, often create a sense of impotence amongst European employees. It is important to confront that problem by having open and constant communication between the turnaround manager and the European employees. With dogged persistence, you can turn the tide and eventually get the local employees to support the goals of the turnaround (and understand the consequences of failure).

Developing or maintaining a harmonized global business strategy is difficult during a turnaround. If you add the complexities of multiple countries, cultures and languages, the challenge can be monumental.

Executives facing an operational turnaround often develop the plan to align their global strategy in the US and then leave it to the local country management to implement it. This can be a big mistake!

In some instances, the local management created the problem in the first place and are not prepared to solve it. If the US parent is leading the company‘ restructuring plan, then you should have US turnaround managers leading the reorganization efforts of your struggling European subsidairies. This seems obvious, but in our experience it is rarely done – which is part of the reason so many US executives get so frustrated with the pace and results of European turnaround efforts.

It’s a fact. Successfully completing an operational turnaround of your European subsidiaries is harder than restructuring your US operations. In Europe, it takes more imagination and persistence – two things that Don Quixote knew well.

Paul Najar is the co-founder of Mayfair European Advisors which specializes in helping US companies operational turnarounds, merger integrations and market entry and a noted speaker on the European Debt Crisis.

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In all business turnaround situations there are certain steps that are commonly taken to change the fortunes of a failing business.

The owner of a less than successful business may require professional expert help to arrest the business demise and to create value for the organization. The task of managing the required change may be beyond the owner’s skill set or too much emotional sentiment may exist that may preclude the owner from taking the tough ‚business saving decisions‘.

Is there a standard process to be adopted in business turnarounds?

All business situations are different and, therefore, merit different approaches and emphasis on different aspects of the work. However, there are some steps that are generally considered in many successful business turnaround situations and ten of the most relevant are given below:

1. Review and Assess the Present Situation
In a business turnaround it is important to understand fully the starting position. It will be important to gather objective and anecdotal data in order to review the situation and to determine the causes, as well as to comprehend the immediate effects, of the issues impacting the business.

Management accounts, the sales order book, financial arrangements, internal controls, customer service levels, quality and leadership skills are typical areas that will require evaluation and a view taken on.

2. Develop Plans and Business Strategy
After assessing what is required to be changed for the business turnaround to be successful, it will be necessary to develop robust plans and strategy that will achieve success.

Without doubt it will be necessary to comprehensively document the actions to be taken, the timings, the financial impact of those actions and to obtain ‚buy-in‘ from the business owner.

The benefits of writing the business plan include that of a reference against which actual results can be measured and an indication to third parties that the proposed business turnaround plan has been carefully evaluated and is a viable proposition that should be supported. This will be an important and relevant form of communication to investors, staff and others who may need to know what the businesses future plans are.


3. Communicate With Key Employees
For the business turnaround to gain momentum it will be necessary to meet with managers and key personnel. The current business affairs should be explained and the consequences of not taking corrective action should be made known. An outline of the proposed actions to be taken should also be communicated and a request for comments should be sought.

Whilst it may not be possible to answer detailed questions it will be important to elicit the concerns of this group and address them as positively as possible.

Members of this group will critical to the success of the business turnaround. They will be charged with taking the planned actions and delivering the results; consequently it will be imperative that the group act as a team and are committed to the future plans.


4. Communicate With Other Employees
It will be necessary at the earliest opportunity to meet with all employees or their union representatives, particularly if job losses are planned.

A prolonged period of uncertainty, fuelled by rumour and counter rumour, will not be beneficial to the business and whilst bad news may not be easy to deliver, the communication of it in a timely sensitive manner is desirable.

The meeting will also be the opportunity to provide an insight into the future business plans and the part the remaining employees will play.

5. Meet the Bank
The bank and other parties with a financial investment in the business should be advised of the business turnaround plans. If possible meetings should be arranged to discuss the plans and to seek assurances of continued, and maybe, more support for the business.

6. Meet Customers
Dependent upon the severity of the situation within the business it may be necessary to reassure key customers of the business turnaround plans and the benefits that will accrue for them.

This action should be considered mandatory if the cause of the business demise has been poor customer service, poor quality product or any other matter not meeting the expected/agreed customer satisfaction levels.

Begging for a second, third or even fourth chance to ‚get things right‘ may be embarrassing but remember: no customers – no business. Learn from past mistakes, do not promise what cannot be delivered and ensure internal systems, processes and communication channels are raised to a standard that will seamlessly allow business to be conducted in a timely and efficient manner.


7. Meet Suppliers
If the business has failed to settle payable accounts on time, even the murmur of business turnaround activity taking place may result in suppliers imposing draconian payment terms that may jeopardize the business turnaround recovery plan.

If support for the turnaround plan has been gained from the financial institutions and investors, it will be advisable to actively seek meetings with vendors to outline the plans and to seek their continued support.

Re-establishing trust will be critical. Negotiating new or even the continuation of existing, payment terms from a weak position will be difficult, however, all promises made should be honoured or if failure is imminent inform the vendor in advance of how any debt will be discharged.

8. Conserve Cash
Review and improve if necessary the credit management procedures. If possible negotiate extended payment terms to suppliers; examine thoroughly all unused assets of the business and liquidate if necessary.

Options that may be available include selling unused buildings, renting out spare office space, selling unused plant and office equipment, disposing of excess or redundant stocks, factor sales debt and if unavoidable make excess employees redundant.

In addition the elimination of all unnecessary overhead cost should also be actioned.

9. Implement New/Update Systems and Procedures
A thorough review of existing systems and procedures will be required to meet the goals of the business turnaround plan. Implement change if necessary; it will be noteworthy to recall that a continuation of old practices will almost certainly result in the same old results.

Positive and profitable change may be required and this should be communicated to employees, so that they understand their roles in the new business environment.

10. Monitor, Measure and Take Action
Throughout the business turnaround process, results should be regularly measured against plan and corrective actions taken if required. Key performance indicators (KPI) should be determined that will give a snapshot of the business performance and be available on a daily, weekly or monthly basis.

The KPIs should include financial and non-financial measures and reflect the important aspects of the business that will determine success or failure.

Finally it will be desirable to pro-actively communicate the turnaround progress to all interested parties – employees, customers, suppliers as well as the financial institutions.

Provided sound business management principles are employed, results measured and positive trends reported, control of the business should be re-established. However, the business turnaround work should not be considered as a one-off. The experienced gained during the turnaround process should be adopted to avoid a repetition of the earlier mistakes made.

David Willetts is a qualified accountant (FCMA) and works through DAW Consulting [http://www.dawconsulting.co.uk] providing specialist financial and management support to business owners. Part time finance director, mentor, business consultant, NED and financial management consultant are typical roles undertaken to help owners take control of and plan their business whether in start up, growth or exit phase. Learn more of how DAW Consulting [http://www.dawconsulting.co.uk] can help your business.

Leader

As a business and turn around consultant with over twenty years experience working with numerous small and medium size companies, business turnaround services are some of the favorite work I perform. I enjoy the challenge and helping a troubled company to succeed again. Unfortunately, sometimes the business owner comes to me too late, and the turnaround strategy turns into a cutting losses strategy, often ending in bankruptcy, restructuring, liquidation or a forced fire sale (quick sale). The best advice I can give business owners is to hire an experienced business consultant immediately, no matter the stage of company growth, economic situation or company health situation. A business consultant can proactively help head off future disaster, help to grow the business and provide essential strategic direction. A good business consultant can help a business develop and implement an effective business plan so that turnaround services are never needed.

The important parts of turnaround strategy development and deployment are leadership, experience and expertise. The success of a turnaround plan rests with the people on the turnaround team and their ability and willingness to incorporate all of the company’s management team and key employees in the process. It is important to have a process structure which can achieve this. As a business consultant, I understand process, but I also understand the importance of experience and fresh ideas in a turnaround situation. It is the expertise of an experienced consultant who can adapt process to a particular situation in order to find unique, creative, successful solutions to a tough situation, using the strengths and experience of the turnaround team and the insights of company managers and employees, finally putting it all together in an agreed upon, synergistic, effective turnaround strategy, plan and program.

The most important thing a business consultant should do upon entering a turnaround situation is to listen, get to know everyone throughout the organization and give them opportunities and avenues to communicate with the consultant and the CEO. The CEO should be doing the same exact thing alongside the business consultant to instill trust, integrity and openness to the turn around process. If the CEO does not hold a position of high esteem with the employees throughout the organization, it is time for him or her to go and be replaced by either a CEO who specializes in turnaround situations or promote someone from within that has this relationship with the company’s people and can adjust quickly to being an effective CEO. With this trust and integrity established, it is time to get to work.

Steps I take as a turnaround consultant include: learn about the business; meet with advisors, creditors, customers and suppliers; evaluate the problems and issues; identify the most pressing and significant problems; identify opportunities; analysis; resource audit; risk assessment; develop the turnaround solutions and the resulting business strategy; acquire and leverage needed resources; deploy with confidence; and obtain and distribute value.

If you follow a similar process and have strong leadership qualities and skills, then, more often than not, the turnaround plan will be successful. However, it isn’t always so; sometimes it is too little, too late, depending on the activity and stage of the dire situation. If that is the case, a major re-structuring, quick sale, bankruptcy, liquidation or other end result will become the end game. While this can leave a hollow feeling among the turnaround team, you will find that if a good turnaround process was developed and implemented, yet failed, employees and customers will understand. They will adapt and move on and so should you. Holding on to what „could be“ is toxic to any future career or new venture. While many may see this as failure and defeat, as a business consultant, I see this as a learning experience. Something which will not be revisited as owners and employees alike clearly understand, in the end, how they got there. The learning experience is invaluable and should be leveraged into many successes in the future. However, if you follow a good turnaround process, with an experienced turnaround team, the end result will very often lead to success and renewed future growth.

Frank-GoleyFrank Goley works for ABC Business Consulting. He is an expert business consultant, business planner and business turnaround consultant, helping companies to succeed for more than twenty years.

 

Dr. Markus Mueller am 25.04.2013 in Bonn

Telekom IT: More than Just an IT Service Provider

Mission possible: Dr. Markus Müller, CIO at Deutsche Telekom, must simultaneously raise the quality of IT, reduce the costs by one Billion euros, and deliver IT projects right on time – all by 2015. And he is well on his way.

I T operations at Deutsche Telekom were originally divided among three divisions. That changed in 2012. The corporation set up a  central IT department under the responsibility and leadership of a single unit, with unified objectives, a consistent portfolio, and low-cost production. The restructuring improved quality and reduced IT costs permanently. Telekom IT has a workforce of 7,300 employees today. Under the direction of CIO Markus Müller, it manages an IT budget of two Billion euros. The responsibility for CRM and billing systems which handle 250 million invoices a year and eleven million customer queries a month belongs to Telekom IT; it also operates the joint platform of the European Telekom subsidiaries and realizes substantial scaling effects. And Telekom IT has a challenging goal: the reduction of IT costs by one billion euros between 2012 and 2015, the improvement of IT quality, and the ontime delivery of IT projects.

At the same time, it must complete an important mission which has been designed to lay the foundation for implementation of the group’s strategy. Determined to make Telekom the “leading telco”, the division is using the broadband network gateway to provide the “IP production platform” for the mapping of new IP products in the architecture. This architecture secures the bundling of fixed and mobile networks. It creates a standardized “power strip” allowing the integration of attractive partner Services and products in the Deutsche Telekom product Portfolio and enables the integration of offers for business customers. The establishment of Telekom IT was desperately needed – and yet it required a massive effort. Dr. Markus Müller spoke to Detecon about the progress that has been made and the targets for the near future.

Download the full interview here:  8_DMR_blue_Transformation_Interview_Telekom_Mueller_E_02_2015