HMP Birmingham, the first in the UK to be privatised, faces "significant strategic challenges", a report has found.
Chief Inspector of Prisons Nick Hardwick said HMP Birmingham was "a cleaner, safer and more decent place" since it was privatised last October.
But he warned the prison, operated by G4S, needed to improve its training and drugs programmes.
G4S said it welcomed the report and was considering its recommendations.
HMP Birmingham became the first prison to be taken over by a private company after previously being in the public sector in October 2011.
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Source BBC NEWS