“Impact of the ownership form on cost management: A public-private partnership perspective”

ARTICLE INFO Halit Shabani, Vlora Berisha and Vjosa Hajdari (2021). Impact of the ownership form on cost management: A public-private partnership perspective. Problems and Perspectives in Management, 19(1), 305-316. doi:10.21511/ppm.19(1).2021.26 DOI http://dx.doi.org/10.21511/ppm.19(1).2021.26 RELEASED ON Thursday, 18 March 2021 RECEIVED ON Monday, 21 December 2020 ACCEPTED ON Monday, 08 March 2021


INTRODUCTION
Governments around the world are calling for the privatization of public services, especially in recent years. In Europe, the privatization of municipal waste services has become extremely widespread (Germà Bel & Mur, 2009;Germà Bel & Warner, 2008;Dijkgraaf & Gradus, 2007, 2011; Gradus et al., 2014). The main reason for the private transfer of some or all public services is the pursuing for a better performance (Simõnes et al., 2012), as in cost recovery, finances, total cost, economies of scale, efficiency of public accountability and institutional management (Massoud & El-Fadel, 2002). Based on the findings of several recent studies, the main premise of public service privatization lies in issues related to cost concerns and budget constraints (Bel & Fageda, 2009). For Kosovo as a developing country, financial sustainability and cost management of the waste service sector are still challenging. According to MMPH, KEPA, and GIZ (2018), advancement in the field of waste management in Kosovo is still unbalanced. Some regions are more advanced and have significantly better technical capacity and collection level than some other regions and municipalities. This is probably because in Kosovo different licensed operators for waste collection and transport operate, such as: public, private and only one mixed operator: private-public1. EcoHigjiena is the first and only company in Kosovo established under the Public-Private Partnership Agreement. Its activity is in the south-eastern region of Kosovo: Gjilan, Kamenica and Vitina, and has cooperation agreements with the municipality of Novo Berdo. "Public-Private Partnerships (PPPs) stress the transfer and full or partial control of services currently provided by the public sector to the private sector" (Massoud & El-Fadel, 2002, p. 621). A PPP approach presents public-private partnership as "any action that relies on the agreement of actors in the public and private sector and that also contributes in some way to the improvement of the local economy and the quality of life" (McQuaid, 2000, p. 3).
Establishing public-private partnerships in the waste services sector aims to better manage costs and increase performance. Although this statement is supported by many scholars (Lohri et al., 2014;Massoud & El-Fadel, 2002;Simõnes et al., 2012), there are also authors who have proven empirically (Kaseva & Mbuligwe, 2005; Oteng-Ababio, 2010) that governments see the role of the private sector in providing public services with skepticism.
The purpose of this study, therefore, is to examine the effects of public-private collaboration on cost management. The effects of PPP are examined by comparing the costs of a company when it operated as a public operator (before the year 2012) and after 2012 when the company entered into public-private partnership agreements. In this regard, this research contributes to considering the possibility of involving the private sector in waste management as an important sector.
The paper is organized as follows. The first part presents a summary of the study; the second part presents the literature review. The third part describes the Kosovo market for waste collection and experiences of PPP of the "Ecohigjiena Company". The fourth part provides an econometrical model and results of the analysis. The last part contains the conclusion of this study. 1 In Kosovo, there is only one operator with public-private partnership.

LITERATURE REVIEW
Stakeholders' involvement is important to reach consistency in the management of municipal solid waste (MMSW). However, there is still discussion on the importance of the private sector in providing solutions to improve MMSW. The debate over the privatization of the waste collection sector is shifting from an ideological debate to a more appropriate discussion of political and economic factors Germà Bel   , based on empirical studies conducted in North America and Europe, prove that governments should be "pragmatic managers" tasked with managing costs, markets, and political interests simultaneously. However, the empirical results, especially the recent ones in the role of privatization and in particular in terms of "cost advantage", are very mixed.
According to Henry et al. (2006), Kenya as a developing country through the approval of private sector involvement (privatization of some of the public services) has increased efficiency in waste management. In some areas of this country, mainly where businesses operate and areas where the rich live, 47% of them have stated that they are able to pay a higher fee for better waste services. For the same country, but the research was conducted in 1997 by Esho (1997), similar results in percentage terms were found, 50% of the inhabitants in the following areas have stated that they are able to pay higher fee to operators because they look forward to having a cleaner environment.
These assertions by citizens alleviate some of the disadvantages of the private sector involvement that "Private waste management treatment can be an expensive venture that can only be supported by high monthly payments" (Henry et al., 2006, p. 92). However, perhaps this disadvantage of the more expensive tariff lies with private operators when they involve their operation in areas where residents' incomes are lower (Henry et al., 2006).
There is still serious debate that "cost reduction is the main benefit of privatization". Bel  Bel and Warner (2008) support the idea that public-private mixing, inter-municipal cooperation, and dynamic contracting (inside and out) can achieve better results for the waste collection sector.
In their study, Dijkgraaf and Gradus (2011), from panel data for the years 1998-2010 of 5,886 operators, found that the cost advantages from privatization are reduced in the long run. Dijkgraaf and Gradus (2011) pointed out that the cost advantage of PPP cooperation is greater compared to privatization. Guerrero et al. (2013) highlighted that stakeholder involvement is essential for efficient waste management. Bel and Mur (2009) found that "inter-municipal cooperation" reduces costs in municipalities with smaller populations. In terms of inter-municipal interaction, Bel and Warner (2016) found that strong factors pushing inter-municipal cooperation are fiscal constraints, spatial and organizational factors. However, Allers and de Greef (2018) study the case of the Netherlands, which is known as a concrete case of inter-municipal cooperation. Analyzing the panel data for 2005-2013 they found no evidence that inter-municipal cooperation smoothes the average total costs of municipality. In fact, the study found that inter-municipal cooperation increases expenses in small and large municipalities, holding unaffected the expenses in medium-sized municipalities. Whereas Massoud and El-Fadel (2002) highlighted the fact that in Lebanon the PPP form of ownership has emerged as a promising alternative to improve the performance of the waste management. In this country, the form of private ownership goes beyond the form of public ownership. In Tanzania

Public-private partnership approach
There is no general definition of the concept of Public-Private Partnership. However, the European Commission defines this concept as follows: "PPPs are forms of cooperation between public authorities and the private sector that aim to modernize the provision of infrastructure and strategic public services. In some cases, PPPs include financ-ing, designing, building, renovating, managing or maintaining an infrastructure asset; in others, they include the provision of a service traditionally provided by public institutions. While the main focus of PPPs should be on promoting efficiency in public services through risk-sharing and utilizing private sector expertise, they can also alleviate the immediate pressure on public finances by providing an additional source of capital. On the other hand, public sector participation in a project can provide important safeguards for private investors, especially the sustainability of long-term cash flows from public finances, and can include significant social or environmental benefits in a project" (European Union, 2017, p. 6). • risk allocation (sharing of risks) between parties; • contribution of each party involved; and • maintenance and management of the asset, which is the subject of the enterprise.  To improve the efficiency of waste collection and reduce the cost for 1 collection team (CT), the company hires a maximum of three workers (CT = 1 truck +1 driver +2 loader); 1 CT empties 25 containers 1.1 m 3 per hour, and the team works on 2 honors as needed.

METHODOLOGY
Empirical analysis is performed to find out the relationship between ownership (public and mixed: private-public) and cost management of "EcoHigjena Company". The analysis is conducted by comparing the costs of the company before the year 2012 3   The dependent variable for this study is the Total Cost minus the costs of wages and vehicles maintenance. Since these costs can diverge, it was necessary to see the impact of these costs on the total cost. The average age of waste transport vehicles in Ecohigjien is 13 years, so it is supposed that maintenance for them is more frequent, in this way they can influence the total cost. The total cost can also be influenced by the population in the Gjilan region (as a representative of the amount of waste generated). The cost of the company at the same time and the quality of service can also be affected by the frequency of waste collection and control variables such as population density, landfill, wages and maintenance of vehicles.
A detailed presentation of the model can be shown by the following equation:

RESULTS
Regression analyses were used to analyze the impact of Public-Private ownership, public ownership and other control variables on the total costs of the company. The T-test was used to confirm the hypotheses raised for this study, since the main premise of this research aims to measure the impact of ownership on the total costs of the company. The variables are analyzed by dividing them into three cases: In the first case, all the variables are measured to see how they affect total costs throughout the whole time series (this case is labeled as the "model 1 total"); then, the second case, which includes only the years when the company was a public company (labeled as "model 2 PP"), and the third case labeled ("model 3 PPP") includes the years when the company is under mixed ownership, which means public-private. The results (see Table 4) show that R 2 in all three cases is 99%, which means that the independent variables explain the dependent variable (total costs). The value of R 2 is a very satisfactory value for this study.
The results of the first model (model 1 total) show that all variables are statistically significant. Wage expenses are an important indicator in increasing the total costs of the company by increasing them by 1.12%, which means that for every employee in the company, the costs decrease by 0.49%. Based on the results that indicate that wages expenditures are an important indicator in increasing the total costs of the company, and after the PPP agreement, the company has changed a strategy To understand the impact of ownership on Total Cost of EkoHigjiena, the cost behavior of the company before the year 2012 will be analyzed when the company was public owned, and then it will be compare with the cost behavior of the company after the year 2012 when the company started PPP Based on the recent literature, the effect of this variable is expected to be undetermined The ownership variable is used as a dummy variable coded with 0 when the ownership is public and with 1 when the ownership is mixed PPP

Number of clients
To measure the number of customers, the data of active clients provided by the company were taken Based on the literature and recent studies, a positive correlation between the number of clients and the total costs of the company is expected

Number of employees
To measure the impact of wage costs on the total cost, the number of employees as a control variable was taken Positive relationship between the number of workers and the total costs of the company is also expected

Landfill
Since the distance of the landfill can affect especially the fuel costs, the connection of the transfer station and the regional landfill in the total cost was analyzed It is expected that the effect of this variable to be observed in the total cost

Salary costs
Since wages are a variable, it is expected to affect the total cost Salary costs are expected to have a positive relationship with the total cost of the company

Maintenance costs
Vehicles maintenance costs are significant because the vehicles of transport in this company are on average 13 years old and the need for maintenance is greater A positive effect between vehicle maintenance costs and company costs is expected as well by increasing the number of new employees. This new strategy has affected incretion of efficiency and, at the same time, the receivables of the company have increased. Increasing the number of employees with new employees means lower wages in contrast to the workload of older employees who receive money based on the years of experience gained within the company. EcoHigjiena is a company that collects waste for its clients, and the collected waste must be disposed of in the landfill. Based on the results, these disposal costs increase total costs by 0,25% for EcoHigjiena. Repair expenses reduce total costs by 0.38%; according to International Accounting Standard No. 16 (IAS 16), repair expenses increase the value of vehicles, so in this case this justifies the result that in the long run repair reduces total costs of the company. The region of Gjilan has a population of 121 inhabitants per km2, which means that it is dealing with a high dentistry. With such a dentistry, although the number of clients is statistically important, for each client of the company, total expenses increase by 0.002%. Based on the main premise of this paper, which is the impact of ownership on total costs, and by analyzing this variable, it is seen that it is a very important variable, which is statistically significant and, at the same time, shows that PPP ownership of the enterprise affects total costs to reduce them by 10%. Such a result is also consistent with the findings of Germà Bel and Mur (2009) Figure 2 is analyzed. Figure 2 shows that the company's pre-privatization costs have been increasing every year and after privatization have maintained a distribution balance.
The results from Model 2 PP (see Table 4), when the company Ecohigjiena before 2012 was publicly owned, show that all variables turned out to be statistically significant except landfill costs. All results have turned out to be the same as those of the Model 1 labeled total, except in the case of the number of employees where in the public model  (PP) and the mixed model (PPP) they have turned out to have an impact on total costs by increasing costs by 7% and 5%, respectively. Depositing expenses in the PP model have turned out to be statistically insignificant because Figure 3 shows that these costs have not had any major fluctuation, these costs remain approximately the same but when the company has shifted ownership to PPP, it can be seen that these costs have a volatility, making the depositing costs increase the total costs by 1.14%. The main difference between these three models is seen in the PPP model, because the wage expenses seem to be not a very important factor in defined total costs of Ecohigjiena Company after the PPP agreement. This result can be explained by the fact that after the PPP Agreement, the company has changed its strategy by hiring new employee with minimal initial wages. Figure 4 shows that the main difference between the two models about wages expense is that when Ecohigjiena was PP, the wages expenses were lower compared to PPP, but when analyzing the distribution, a linearity is noticed in terms of wage expenses after the PPP agreement.  Expenses before PPP Expenses after PPP From a statistical point of view, it turns out that the number of clients is statistically significant, but in economic terms, this does not mean that there is any major impact given to the number of clients on total costs

Number of employees
Number of active employees in the company Ecohigjienta The number of employees, although it is expected to have a positive sign on the so called total model 1, has turned out to have a negative sign

Wage expense is taken from Questioners with EcoHigjiena
There is a positive relationship between wages and total costs

Repair is also taken from Questioners with EcoHigjiena
There is significant and has negative sign in total cost

Deposit expense is taken from Questioners with EcoHigjiena
Variable landfills meet all expectations both in terms of sign and sustainability, and its impact on total cost Ownership PPP Ownership is a dummy variable Ownership has a positive impact on total costs. It has cost stability with mixed ownership as opposed to when it was public    No. workers mix