Political Opinion: The Sale of Public Companies

The sale of public companies has been a hot topic of debate internationally for some time. While the jury is still out, I think we can learn a lot from
05 May 2018 21:23
Political Opinion: The Sale of Public Companies
nSavenaca Narube is the Leader of Unity Fiji. He is also the former Governor of the Reserve Bank of Fiji and Permanent Secretary for Finance. The views and opinions expressed in the article are those of Savenaca Narube and not of the Fiji Sun

The sale of public companies has been a hot topic of debate internationally for some time. While the jury is still out, I think we can learn a lot from what has been done up to now in Fiji.

In the late 90s, the Government im­plemented a very aggressive priva­tisation programme led by the then Minister for Finance, Sir James Ah Koy. I have learnt a lot from that ex­perience as the Permanent Secre­tary for Finance in charge of imple­menting these reforms.

A good example was the reform in telecommunications, which opened up the sector to competition. We are now enjoying the fruits of those reforms with better services at re­duced prices.

There are several motivations for the divestiture of the ownership of public companies to the private sec­tor.

The first and perhaps the most logi­cal is that the company is better run by the private sector than Govern­ment. As we have seen in the tel­ecommunications reform, this ulti­mately leads to better services to the people at lower prices. The people benefit directly from these reforms.

The second is that the sale of pub­lic companies reduces the need for Government to prop up these com­panies in the form of subsidies, grants, and tax concessions. These amounts can be huge. Government will be able to channel these savings to the many priorities that it faces. I therefore support the principle that Government first sell the companies that are not making money. The peo­ple benefit from the re-prioritisation of Government spending.

However, Government is selling public companies that are making money. They sold the ports and is now selling the power. These compa­nies are making profits. So why sell?

The major reason is that Govern­ment needs more and more revenue to fuel its insatiable expenditure plans. The proceeds from the sale of the ports have all been spent. The sale of the power will be spent as well. These are bad economics. Good economic management dictates that we should not spend these one-off revenues. Instead, we should use them to retire our ballooning debt. This is what we did from the sale of ATH, which resulted in a surplus budget which Fiji has not achieved since then.

The third motivation of selling public companies is to remove the monopoly to help keep prices down and the quality of services up. Again, this was the case in the tel­ecommunications reforms.

But it is unlikely that we will get a competitor to our ports company. Apart from small independent pow­er producers, there would be little competition to the new power com­pany. Without this competition, the new power company continues to be a monopoly, which will not keep tar­iffs down. This defeats the purpose of privatisation.

The process of selling our fam­ily jewels is as important as the outcomes themselves. First and foremost, the process must be transparent. These companies are where they are today from the use of taxpayer’s monies. Government must therefore let the people know how the sale of the then FEA (now known as Energy Fiji Limited) is go­ing to happen.

The debate in Parliament on the sale of the then FEA was through emergency procedures. What was the emergency? Government was talking about strategic partners for the then FEA. Who are these part­ners? What nationalities are they? What benefits will these strategic partners bring that Government cannot? Why does Government need capital for the then FEA? A good Government will answer these questions. The people need to know.

It is also important that people receive value for their assets. The valuations of the companies help benchmark the asking sale price. Do we know the valuation of the then FEA? What was the valuation of the ports compared to the sale price?

The sale of public companies must be through open competitive bid­ding. While competitive bidding is transparent, more importantly, it helps us procure the best price. ATH was sold through competi­tive bidding. But we are not told of how the the then FEA is going to be sold. How are the strategic partners chosen or have they been chosen al­ready?

Selling the ports is different from selling the power. Power is an essen­tial commodity. This is a crucial dif­ference. The price of power directly affects people. The issue of afforda­bility of essential commodities like power is very important. Profit will drive private sector owners who are bound to argue that the cost of elec­tricity generation is low in Fiji so there is room for tariffs to increase. There is therefore a real possibility that tariffs will rise rapidly. Con­sumers will pay for the higher profit of the new power company.

Another important issue is sov­ereignty. There are merits in the argument that the ownership of es­sential commodities like power and water should remain with Govern­ment. Fiji is small. We must there­fore protect our national assets from foreign ownership.

The people have every right to know. Government should not use the selling of shares to the FEA con­sumers as a smokescreen to mask the transparency of the sale process and to lessen the value of our hard-earned money.

Feedback: jyotip@fijisun.com.fj

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