6.2. Productivity enhancement
After the water supply industry is privatized, water charges have always been known to increase. The
increase is necessitated by new investment. One way to avoid political opposition to privatization measures
would be to keep water prices low during the period preceding privatization. Before handing the industry
over to the private sector, the Government should consider injecting sufficient funds to meet future capital
requirements. Alternatively, the regulator could make clear to the public the water company’s proposed business
plans before its sale to the private sector. The water utility is required to submit a long-term investment plan
in order to better inform the public about the expansion of the company and the implications on prices and costs.
Before privatization, the Hong Kong Government has to find ways to enhance the productivity of WSD.
Organizational restructuring before privatization would improve productivity and financial conditions. This
would facilitate the sale of the public enterprise. But one immediate consequence of these moves to improve productivity
could be mass redundancy, especially at lowerranking levels. The Government would have to design
an appropriate redeployment scheme and compensation package. If productivity has already increased, the water
monopolist would have less opportunity to raise returns by further cuts in manpower after privatization. This
would allow for more accurate projections of future prices and profits, thus avoiding consumer dissatisfaction
over excessive profits earned by the water monopolists. This would also remove some of the uncertainties over
privatization, making the water utility more attractive to private investors. If the consumers see rising investment,
falling prices, and improved productivity before privatization, they would develop a more favourable attitude
towards the privatization of the water utility.