29 Contracting arrangements are another option; in Argentina, 5000<sup>surplusYPFworkers started</sup> 200 private businesses providing YPF with various contract<sup>services;thisapproachhas been</sup> tried in Egypt and Algeria as well. In an electronics SOE in Alexandria, carpentry and maintenance services were contracted out, with those previously<sup>employedin thesetasksgiven,</sup> free, the tool and workspace to do the job as private suppliers.<sup>Theywerealso given,without</sup> bidding, one or two year contracts to provide the service, before<sup>thecontractswouldbe re-bid</sup> competitively. This gave the former workers a chance to learn<sup>thebusinessand competewith</sup> more experienced bidders.

77. In countries with rapidly growing economies and a well-developed<sup>privatesector,</sup> measures such as severance pay and employee share ownership<sup>schemesmightbeallthatare</sup> needed. By contrast, in low-income and transition economies where<sup>stateenterprisesdominate</sup> the labor market and where alternative employment is hard to find,<sup>thekeyistoimprovethe</sup> overall investment climate, including labor market reforms, so as to<sup>generategrowthand private</sup> sector job creation, thereby facilitating the needed adjustments<sup>andthemovementof redundant</sup> workers to other jobs.

# (v) **Environmental implications**

78. Wasteful resource use and the poor financial situation of<sup>SOEshasmeanthigher</sup> abatement costs, less investment in both modern technology and<sup>pollutioncontrol,andhigher</sup> pollution intensity. Recent research indicates that SOEs pollute more<sup>thanprivatefirms(Wang</sup> and Wheeler, 1996; Dasgupta, Huq, and Wheeler, 1997). A four-country<sup>survey of pulpmillsin</sup> Thailand, Bangladesh, India, and Indonesia shows that state-owned<sup>plantsmake far lesseffortto</sup> abate pollution than their private counterparts (Hartman,<sup>Huq,and Wheeler,1997).</sup> 79. Efforts to improve the environmental performance of state<sup>enterpriseshavebeenmade,</sup> but, as in most other SOE reforms, back-sliding is common. Cash-strapped<sup>SOEskeepusing</sup> older and dirtier equipment. Moreover, SOEs escape environmental<sup>regulationand enforcement</sup> to a greater extent than private firms. For example, in<sup>Indonesia'sProgram for PollutionControl,</sup> Evaluation and Rating (PROPER) program, SOEs were more compliant<sup>thanprivatefirmswhen</sup> the program began, but after 18 months the record of the two types of<sup>enterprisesdid notdiffer</sup> significantly. As SOEs are less susceptible to outside<sup>pressure,publicinformationexerts less</sup> influence on their behavior. State-owned enterprises can thus be<sup>expectedtolagbehindother</sup> firms participating in PROPER in the coming years (Hartman, Huq, and<sup>Wheeler,1997).</sup> 80. Recent research shows that privatization offers<sup>anopportunityforenvironmental</sup> improvements (Box 8). Private firms tend to invest in<sup>newtechnologytoimproveefficiency,</sup> comply with regulations, and respond to pressures from<sup>variousstakeholdergroups. Torealize</sup> the full environmental benefits of privatization, governments<sup>needtoincorporateenvironmental</sup> considerations into privatization transactions and<sup>developpolicyandregulatorysystemsthat</sup> ensure compliance and continued improvements (Lovei, 1999).<sup>Concernsaboutsubsequent</sup> delays in the privatization process must be weighed<sup>againstthe factthatsuch effortsclarifythe</sup> risks and potential future costs and treatment of any liabilities, particularly<sup>insectorssuchas</sup> mining, chemicals, and petroleum refining. Privatization and environmental<sup>agenciesgenerally</sup> lack experience in this regard. As much as possible, the work<sup>shouldbeoutsourcedto</sup> consultants and mechanisms for including regulatory<sup>authorities established.</sup>