The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The government is awaiting "imminent" receipt of a study on how to "optimise" the loss-making state-owned enterprises (SOEs) responsible for virtually its entire first half $188m fiscal deficit.

K Peter Turnquest, deputy prime minister, conceded to Tribune Business that getting such corporations and agencies to at least a "break even" position was "vital to the sustainability of the tax base" as well as these entities themselves given the $400m-plus annual drain imposed on Bahamian taxpayers.

The Minnis administration last year hired the PricewaterhouseCoopers (PwC) accounting firm to analyse the operating structures and business plans of its SOEs, and determine how they can be adjusted to achieve the government's "cost recovery goal". Its findings are expected to be delivered "in the next two weeks".

Marlon Johnson, the Ministry of Finance's acting financial secretary, confirmed to this newspaper that PwC had been asked to set-out how the public sector's worst loss-makers can be made to "function optimally" and hit performance benchmarks relating to efficiency, output and "value added".

The keenly-awaited arrival of PwC's report comes as the Government's latest six-month "fiscal snapshot" revealed that the $186.7m in subsidies to loss-making SOEs over the six months to 2019 year-end almost exactly matched the Government's deficit for that period.

It disclosed that the $188.7m deficit, which measures by how much the government's spending exceeds its income, would have been virtually eradicated if all SOEs were transformed into "cost recovery" or break even entities - something the Minnis administration had promised to accomplish over a three to five-year period.

Robert Myers, the Organisation for Responsible Governance's (ORG) principal, told Tribune Business that The Bahamas' approach to its loss-making SOEs was a prime example of the truism that "insanity is doing the same thing over and over again, and expecting different results".

Urging the Government to "stop throwing money" at the problem, he demanded that it "get these albatrosses from around the taxpayers' neck because they're too burdensome" and have proven "decade over decade that they're incapable of breaking even".

Arguing that The Bahamas cannot afford to "kick the can down the road or maintain the status quo" with its loss-making SOEs, Mr Myers said the country need "to be more courageous in making real change happen".

He added that it needed to focus on privatisation solutions for consistent multi-million dollar losers, such as Bahamasair and the Water & Sewerage Corporation, which still met the Government's policy objectives and the Bahamian people's public interests while removing the Public Treasury's financial burden.

While PwC's findings have yet to be produced, Mr Turnquest signalled the Government still wishes to move in the direction articulated by Mr Myers given the dangers loss-making SOEs pose for a fiscal position set to suffer a $1.6bn debt blow-out over the next four years due to Hurricane Dorian.

"They are looking at the operations of those SOEs to see if their structures are still relevant," he said of the accounting firm's study, "and if their business plans can be adjusted to make them sustainable.

"There's no doubt we have to get our hands around the SOEs, and we have to do a better job of cost recovery. It's vital to the sustainability of these entities as well as the tax base."

Mr Johnson, confirming PwC's hiring, added that the accounting firm had been asked "to look at the options for optimising the state-owned sector". He said: "They should be reporting to us imminently. This report should be completed in the next two weeks, and then we'll put our thoughts together and present it to the policymakers and see what happens from there."

The acting financial secretary described PwC's work as "a census of all the SOEs", covering all corporations, agencies and quasi-governmental agencies". The accounting firm was then charged with taking a deeper look at eight of them, ranging in size from very large to very small, identifying their "key issues" and comparing them to other state-owned bodies.

"We wanted to take a look at several different sizes," Mr Johnson confirmed. "Once that's done it gives us an understanding of how to approach their operating framework to ensure they're operating efficiently, and there are key performance indicators and strategic plans set up to measure output, efficiency and value-added.

"The key for us is to make them function optimally, articulate their outcomes and achieve policy objectives in a way that is quantifiable."

The Government is projecting that Bahamian taxpayers will now inject $425.821m worth of subsidies into loss-making SOEs during the 2019-2020 fiscal year, up from the $413.821m forecast in the Budget. That is due to the Public Hospitals Authority (PHA) receiving a further $12m, taking its yearly subsidy to $235.456m - more than half the total taxpayer SOE outlay.

Other major subsidy recipients are the Water & Sewerage Corporation, at $25m, and Bahamasair at $22.393m, with both the Bahamas Civil Aviation Authority and Public Parks and Beaches Authority due more than $19m apiece.

ORG's Mr Myers said the combined $425.821m subsidy to loss-making SOEs was equivalent to 62.9 percent of the Government's revised $677.5m full-year deficit post-Dorian, which further exposed the drain they imposed on Bahamian taxpayers.

"The Government-owned and managed entities are just dragging us down," he told Tribune Business. "Get these albatrosses from around the taxpayer's neck. They're too burdensome, and decade over decade have proven incapable of breaking even let alone making a profit.

"At some point the Government needs to step back and say: 'This is just proving the theory of insanity; doing the same thing over and over again, and expecting the same results'. Change the way you're thinking; just throwing money at it is not working. Stop the insanity.

"That's a $425m change to your balance sheet. There goes over half your deficit, so do it. Stop talking about it. We have got to step up. We have got to do better. We can't kick the can down the road and keep the status quo. We have to be more courageous in making real change happen.

Mr Myers said there needed to be greater focus on privatising SOEs, and getting the Government out of business, pointing to the Nassau Airport Development Company's (NAD) first-ever profit of $7.5m-plus as one example of where outsourcing/divestment had proven successful.

Citing Bahamasair as an an example, he argued there had to be a structure for privatising the national flag carrier in a way that still met the Government's policy objectives and public interest, such as low-cost Family Island connectivity and a "backstop to ticket prices" for both local and international travel.

"There's got to be some way to do that and drive down the cost to the Government," Mr Myers said. "We've got to come up with creative ways to make this happen and get the burden off the public. It's just monumental, monumental."

The Government's 2019-2020 "fiscal snapshot" said: "Subsidies to public non-financial corporations were boosted to $186.7m from $151.6m in the comparable period of fiscal year 2018-2019.

"Of this total, $120.1m was directed to the Public Hospital Authority (PHA) - an increase of $9.6m over the same period of the last fiscal year, to assist with renovations at the critical care block of the Princess Margaret Hospital (PMH). Subsidies to the national airline carrier and the Water and Sewerage Corporation stood at $11.8m and $24.5m, respectively."

Total subsidies were up by $29m or 17.2 percent year-over-year at $197.8m, with the Government's total expenditure climbing to $1.292bn or 46.7 percent of the full-year budgeted amount due to the cost of relief and recovery efforts associated with Hurricane Dorian.