Asia-Pacific Network: 4 April 1999
ECONOMICS: RESTRUCTURING PUBLIC ENTERPRISES
'The outcome of a user-pay system is that those who cannot afford to pay will have to either go without these services, or find other means of accessing them. These may include extra-legal means.'
By GANESH CHAND
THE FIJI Government's rush to restructure public enterprises raises significant fundamental questions on both the logic and the motivation for this.
The successive governments since 1989 have stated time and again that they will continue to first corporatise and then sell the government enterprises. The Finance Minister has been bolder and stated to the effect that the business of government is not to run businesses.
More recently the Commerce Minister in a letter to the editor stated that the moves to privatise were well thought out. The issue is: were they really?
Since 1989, the Government began gradually corporatising and eventually selling off businesses which it owned. Numerous companies which the government owned - like the Shipyard, Air Pacific, Post and Telecommunications Company, Air Fiji, the Fiji Electricity Authority, Government Printery, CAAF, PAFCO, National Bank, Fiji Pine Commission, and the Video Unit - have been targeted. Some have indeed been sold, some to foreign companies, while others are in the process of being sold off.
The recent sale of Telecom Fiji and the National Bank, and the earlier sale of the Shipyard and Air Pacific have raised serious concerns with the tax payers, consumers and the public.
The Telecom sale, and the associated report that the FNPF will engage NZ Telecom as a partner, is worrying. In New Zealand, only recently an independent study showed that there NZ Telecom had extracted in one year about $400m more than what it should have from consumers. Such massive exploitation are to come to Fiji if Telecom NZ is brought into Fiji as a partner. Telecom NZ has a corporate relationship with the American giant AT&T.
The problem is that numerous government ventures corporatised and/or privatised have remained monopolies/oligopolies. With corporatisation and privatisation, these ventures have begun extracting massive rents from consumers. The phone, postage, and electricity companies are some such examples. The water supply and health departments are also embarking on this path.
In the private sector, numerous other key sectors continue to extract monopoly rents. The inquiry report into the banking industry released recently has shown clearly that the monopoly power of the ANZ and Westpac banks have been used to the detriment of consumers. These two banks between them control 75 per cent of the banking industry market.
The petroleum industry is another which, despite the price control on landed costs, has been extracting monopoly rents.
While the sale of Government-owned ventures brings in revenue for the Government, it also has resulted in a declining control which Fiji has on productive assets. The Government also loses a source of dividend income. For foreign owned ventures, profits made here will go out of the country.
The outcome of the privatisation/corporatisation policies is that the consumers would be forced to pay whatever the producers demand. Called "user-pay", the aim is that those who use the services must pay for these, irrespective of whether they can afford to pay or not.
The outcome of a user-pay system is that those who cannot afford to pay will have to either go without these services, or find other means of accessing them. These may include extra-legal means.
It is in fact correct that most public enterprises in Fiji haven't been performing well. But is this lack-lustre performance the reason enough to dispose public assets?
The key to performance is management. The boards of enterprises and the management team are ultimately responsible for the performance of the enterprises.
In Fiji, since the military coups, the appointments to the boards and to management positions have been so politicised that these positions are now seen as rewards for loyalty to the establishment. Ethnic discrimination, provincial biases, and political patronage have taken root strongly.
In such a system, the government is really in a bind. The sons of Kadavu saga is just an illustration of the fact that it is extremely difficult to get off the tiger's back once on it.
The second fact of commerce is that enterprise revenue is a product of the unit price of the product and the quantity sold. In an economy which is sliding down, much change can not be expected in terms of quantity sold. The natural resort for the enterprises, therefore, is to raise prices of the products.
This will be the ultimate outcome of the privatisation process.
The Fiji Electricity Authority restructuring case can be used as an example. Most of the projections on the quantity side (number of customers, units of electricity sold) of the FEA Business Plan for the years 1996-1998 have not been realised. The way to get out of this bind, if a return of 10 to 15 per cent is to be realised, is through raising of the prices and charges.
When the Economic Sector Committee was informed by FEA that prices and charges will rise significantly, the FEA was serious about this. Later denials are illogical, and in fact designed to mislead the public.
More serious is the fact that the FEA is planning to proceed with the restructuring despite the fact that the FEA Reorganisation Bill has still not been passed. The fact that 3 entities have been created, staff appointed, and office space rented before the Bill empowering the entities to operate is a serious legal matter.
Allegations and counter allegations of the motivation for doing this abound. One strong view is that the restructuring and the shift of the FEA from Lautoka to Suva has less to do with any commercial reality of the FEA than to the fact that the FNPF Plaza needed tenants desperately. The new entities are housed in the FNPF Plaza. The FNPF chief executive is on the board of the FEA. Rents paid are in the vicinity of $4,000 per month; no official function of the office exists. Simple sounding logic may often go a long way to explain the decision than complex webs often built by consultants.
Similarly, a marketing manager for Mega-Power has been appointed from abroad - at a package of well over $100,000. No work for this person exists at the moment.
There are numerous other revelations, some bordering on the scandalous. A Mega-Power Board member, for example, has been appointed to the Finance and Corporate Manager position in the same entity. Such insider dealing needs to be known to the public.
There is also the view that a foreign power generation organisation is interested in power generation in western Fiji.
Between 70-80 per cent of FEA customer base is residential while commercial customer base is around 20 per cent. Yet, FEA revenue base is largely commercial.
It is only logical, therefore, that if a private power generation enterprise was to enter the market, it would target the commercial customers rather than residential customers. Seizing commercial customers from the FEA would leave FEA high and dry; residential customers would be forced to pay more.
One may say that the establishment of another power generation company will provide competition. But this will be competition in name only.
On the more human side of the restructuring is the impact this will have on workers. No reorganised enterprise in Fiji so far has maintained the same employment size. What has happened without fail is that the salary bill of the top 5-10% of the employees has risen while that for the ordinary workers fallen. Moreover, significant lay-offs have taken place. FEA will not be an exception.
The case of the FEA restructuring is yet another evidence that the restructuring, if allowed to proceed in the way it is proposed, will result in a disaster for the consumers, the employees, and the nation.