By Lynden Nairn
Recently a popular Bahamian television station hosted a round table discussion on the proposed privatization of BTC featuring Ministers Turnquest, Laing and Maynard and the Honourable Carl Bethel. They are referred to hereafter as the ministers.
The ministers’ statements and positions were such that I thought it would be helpful for people to read and consider what they said and to make up in their own minds whether the ministers should be allowed to make a decision with respect to the sale of BTC, and the future of telecommunications in The Bahamas. Listed below are selected statements by the ministers and my commentary on each. Read and decide.
1. Ministers – “We have asked that we don’t want any forced separation packages and so any price that we got is cognizant upon that.”
By this statement, the ministers suggest that the price of 51% of BTC is driven lower by the fact that the government insisted that there not be any forced separation packages for BTC’s employees. However, the government said previously that the exclusivity period was extended to compensate for the cost associated with not forcing a reduction in staff. Assuming that to be the case, it is untrue to say that the price for 51% of BTC is influenced by no forced reduction in staff. Instead, the cost of retaining the extra staff is compensated for by extending the exclusivity period.
2. Ministers – “A new comer would come into the market…(and could provide Bahamians) with more minutes for less money, where they (Bahamians) get better products with less problems.”
The point the ministers make is that Bahamians, as the ministers said previously on a local radio station, have the financial and intellectual wherewithal to successfully compete against BTC while offering the Bahamian public lower rates and more services. However, rather than allowing those Bahamians to enter the marketplace now, the government would prefer to bring in a foreign company to strengthen BTC so that BTC can successfully compete against those companies that Bahamians will be allowed to form in the future. The government claims that this approach ensures BTC survives and that persons remain employed. Could not the government pursue a deliberate course of privatization and liberalization by mandating a reengineering of BTC, creating an infrastructural arm of BTC, downsizing BTC? Could not all those things be pursued after giving the public notice of a date certain for privatization and liberalization?
The reality is that when they correctly state that Bahamians have the capability to successfully compete against BTC, the ministers effectively argue against 90% of their contributions during the program.
3. Ministers – “They (two companies that submitted bids) put in a bid that reflected a value of BTC that is far different than what we think BTC is worth… and so we just did not think that their offer made good sense for the Bahamian public. So we ultimately rejected all those bids”
The ministers never said what those bids were. The ministers are challenged to provide the Bahamian people with the details of the competing bids as well as the details of the government’s own valuation. When the competing bids are submitted for scrutiny, it would be useful to observe how the government weighed the effect of assuming BTC’s pension liability. Furthermore, notwithstanding what the ministers said at this juncture, we note that the ministers contradicted themselves later during the program when the ministers said that all of the bids along with the independent valuation and the government’s assessment were in the same ballpark. What are we to believe? Both statements cannot be true.
4. Ministers – The control of any company vests with the board of directors, not the shareholders in terms of day to day operations. The shareholders meet once per year.
Surely the ministers know that it is the shareholders who appoint the directors and hence it is the shareholders who ultimately control the company. This is not just legally true but in an environment where there is a single majority shareholder, this reality is easily evident.
5. Ministers – “No group of Bahamians has entrenched experience in telecommunications.”
As previously stated, the ministers said that Bahamians have the capacity to provide the services we need, but the government does not want them to compete against BTC at this time.
6. Ministers – “That means whatever thousand two thousand you have to get to make decisions you need to hear from two thousand owners.”
The ministers seem not to understand that when companies make decisions they need not hear from all of the shareholders individually.
7. Ministers – “I own a company Jones Communication, I work for Jones Communication, I am the CEO. I get a CEO’s salary, but I also own the company. So if the company makes a profit, I also get dividends. That isn’t unusual.”
The ministers equate the payment of a management fee of 2% of BTC’s revenues to paying a salary to a CEO who is also a shareholder of the Company he works for. Nothing else need be said here.
8. Ministers – “The Bank of The Bahamas’ shares is not listed on BISX.”
Indeed, Bank of The Bahamas shares have been listed on BISX since November 25, 2004.
9. Ministers – “We did a valuation. The bidding companies did a valuation. We had an independent valuation done of the company and all of those values came in within the same range.”
This statement contradicts the ministers’ earlier statement. However, it would be interesting to find out from the ministers what the range is. It is doubtful that the ministers compared the offers adequately. For instance, if one offer was for $200 million and did not require the government to assume the current pension liability, was that offer regarded as more or less than Cable & Wireless’ offer of $210 million, but required the government to pay the pension liability of $40 million?
10. Ministers – “In our memorandum of understanding they are saying that we are leaving $15 million on the day of sale and that’s working capital.”
The ministers said that BTC will be left with $15 million. The MOU does not say that. What the MOU says is that BTC will be left with $15 million “net cash”. That word “net” should not be glossed over. The MOU defines “net cash” to be the difference between actual cash and long-term debt among other things. The requirement that net cash must be not less than $15 million means, in fact, that BTC will be left with cash of around $60 million. The ministers ought to know that.
11. Ministers – “With the greatest respect, he (Cable & Wireless) is paying $210 million to you for the equity that you are giving up in the company. He (Cable & Wireless) is putting that in.”
This is one of the sadder aspects of the ministers’ presentation. It is not true that Cable & Wireless is paying $210 million for 51% equity in BTC. The $210 million is paying for the 51% equity in BTC, the $40 million pension liability, the ongoing pension shortfall and the management fee. There is not a single financial analyst or accountant anywhere in the world who would say differently.
12. Ministers – “No you have $217 million then what you say is I have an obligation, I have always had an obligation to the employees of BTC.”
This was one of several attempts the ministers made to explain why they believe the government’s assumption of BTC’s $40 million pension liability should not be netted against the $210 million from Cable & Wireless in order to arrive at the net consideration received. The ministers are clearly mistaken.
13. Ministers – “We have ensured that much of BTC’s real estate assets remain with the government of The Bahamas. We went through an exercise – there are now currently about 49 parcels of land, I think, that we have retained within BTC and everything else was pulled back out and vested with the treasurer of The Bahamas. In terms of the real estate, it’s only the real estate that is necessary towards telecommunications (that remain with BTC).”
All the buildings occupied by administrative and technical employees remain as assets of BTC. This presents 2 issues. First, both the government and Cable & Wireless have already forecasted that up to 33% of BTC’s staff will be disengaged. That means in all likelihood up to 33% of BTC’s office space will no longer be needed by BTC and will therefore be sold. When sold Cable & Wireless will enjoy 51% of the proceeds. Secondly, the government ought to have considered what impact selling all of BTC’s offices and thereafter having BTC rent space would have on the valuation of BTC. If this analysis were done, it would be obvious that that the benefit derived from the proceeds derived from the sale of those buildings and the interest saved as a result of paying down government debt would far outweigh the reduction in BTC’s valuation. Indeed, the net positive impact on the public treasury would be well over $100 million.
14. Ministers – “This is not new to The Bahamas. We have had experience of government corporations hiring foreign managers. We tried it and it failed.”
This was the ministers’ response when asked whether they considered engaging Cable & Wireless to manage BTC. To appreciate whether the ministers are being rational, one needs to consider that response while having regarding for what the government has done at NAD and what is in progress at BEC.
It would be wrong to suggest that everything that has been done in pursuit of BTC’s privatization was wrong. The ministers were correct on two important fronts. First, the ministers were correct that many of the decisions taken by the first FNM government years ago continue to have a net positive impact on BTC. Second, the ministers were correct that the PLP’s deal was a bad deal as well.
If having read the foregoing, one believes that the ministers have the competency to make a decision with respect to what should happen to BTC, one should line up in support of the proposed deal with Cable & Wireless. Otherwise Bahamians should ask for a more thorough and scientific assessment that has at its core objectives, the interest of Bahamians. You decide.