MILVERTON REYNOLDS
MANAGING DIRECTOR,
DEVELOPMENT BANK OF JAMAICA
PRIVATISATION OF GOVERNMENT ASSETS:
WHAT INFORMS THE PROCESS
SIXTH REGIONAL CONFERENCE
ON INVESTMENTS AND THE CAPITAL MARKETS
THE JAMAICA STOCK EXCHANGE
JANUARY 27, 2011
JAMAICA PEGASUS HOTEL
KINGSTON
GOOD AFTERNOON LADIES AND GENTLEMEN.
FOR MOST OF US, AT THIS TIME OF THE DAY WE ARE BEGINNING TO FEEL A LITTLE BIT RESTLESS AND DISTRACTED BECAUSE WE ARE LOOKING FORWARD TO LUNCH.
SO I AM NOT SO SURE THAT THIS IS THE BEST – OR EVEN A GOOD – TIME TO BE TELLING YOU ABOUT SOMETHING AS COMPLEX AND AS HEAVY AS PRIVATISATION.
SO WITH THAT IN MIND, I HAVE TRIED TO MAKE MY PRESENTATION AS LIGHT AS I COULD WITHOUT REDUCING THE IMPORTANCE OF THE ISSUE AND I HOPE THAT IT DOES NOT SPOIL YOUR APPETITE.
I WOULD LIKE TO THANK THE JAMAICA STOCK EXCHANGE FOR THIS OPPORTUNITY TO SHARE WITH YOU SOME DETAILS ABOUT THE JAMAICAN PRIVATISATION PROGRAMME.
AS YOU ARE ALL PROBABLY AWARE, THE DEVELOPMENT BANK OF JAMAICA IS THE LEAD AGENCY THAT IMPLEMENTS THE GOVERNMENT’S PRIVATISATION PROGRAMME.
MANY OF YOU MIGHT ASK ‘WHAT IS PRIVATISATION? WHAT DOES IT REALLY MEAN?’
PRIVATISATION IS DEFINED AS THE TRANSFER OF OWNERSHIP OF STATE ASSETS TO THE PRIVATE SECTOR, THEREBY PLAYING A CRITICAL ROLE IN NATION BUILDING.
BOTH DEVELOPED AND DEVELOPING COUNTRIES HAVE ENGAGED IN PRIVATISATION ACTIVITIES TO MEET VARIOUS OBJECTIVES THAT INCLUDE, FOR EXAMPLE, RAISING ADDITIONAL REVENUE, REDUCING THE PUBLIC DEBT AND STIMULATING THE PRIVATE SECTOR.
AND, IN KEEPING WITH THE THEME OF TODAY’S CONFERENCE ACTIVITIES, PRIVATISATION IS ALSO ONE OF THE MOST IMPORTANT WAYS A GOVERNMENT CAN HELP TO CREATE BUSINESS OPPORTUNITIES FOR ENTREPRENEURS, ESPECIALLY DURING TOUGH ECONOMIC TIMES.
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SO, LET ME GIVE YOU A BRIEF SYNOPSIS OF THE BACKGROUND OF THE JAMAICAN PRIVATISATION PROGRAMME.
IT BEGAN IN THE 1980s WHEN THE GOVERNMENT OF THE DAY RECOGNISED THAT SEVERAL GOVERNMENT-OWNED COMPANIES AND ASSETS HAD BECOME A STRAIN ON FISCAL RESOURCES, LARGELY BECAUSE THEY WERE INEFFICIENTLY MANAGED.
PRIVATISATION BECAME A STRATEGIC METHOD TO RID THE GOVERNMENT OF INEFFICIENTLY MANAGED COMMERCIAL ACTIVITIES THAT LED TO HUGE LOSSES AND WHICH COULD BE BETTER PERFORMED BY THE PRIVATE SECTOR.
THEREFORE, PRIVATISATION WAS AN EXCELLENT STRATEGY TO ACHIEVE ECONOMIC GROWTH AND DEVELOPMENT.
IN 1991, THE GOVERNMENT FORMALLY COMMENCED THE LIBERALISATION AND DEREGULATION OF VARIOUS ASPECTS OF THE ECONOMY AND EMPLOYED PRIVATISATION TO FURTHER LIMIT ITS INVOLVEMENT IN COMMERCIAL ACTIVITIES.
EXISTING PRIVATISATION OBJECTIVES AND POLICIES WERE REVIEWED AND THE GOVERNMENT CREATED A NEW FRAMEWORK FOR THE PRIVATISATION PROGRAMME BY TABLING MINISTRY PAPER NUMBER 34 IN 1991.
THIS PAPER OUTLINED THE PRIVATISATION PROCEDURES AND MADE THE NATIONAL INVESTMENT BANK OF JAMAICA (NIBJ) THE CENTRAL IMPLEMENTING AGENCY FOR THE PROGRAMME.
IT ALSO EXPANDED THE OBJECTIVES OF THE PROGRAMME TO INCLUDE:
- REDUCING THE DRAIN ON GOVERNMENT’S FISCAL RESOURCES
- SECURING ENHANCED ACCESS TO NEW AND APPROPRIATE TECHNOLOGIES, FOREIGN MARKETS, AND CAPITAL; WHILE
- EXPANDING THE OWNERSHIP BASE AND DIRECT PARTICIPATION IN THE LOCAL ECONOMY.
IN 2006, THE NIBJ’s OPERATIONS MERGED INTO THE DBJ AND THE DBJ TOOK OVER THE PRIVATISATION RESPONSIBILITY.
MORE THAN 30 YEARS AFTER THE PROGRAMME STARTED, AND THROUGHOUT THE TENURE OF SUCCESSIVE POLITICAL ADMINISTRATIONS, VIRTUALLY ALL SECTORS OF THE ECONOMY HAVE BEEN TOUCHED BY THE PROGRAMME.
YET, THE PRIVATISATION PROGRAMME CONTINUES APACE.
FROM MANUFACTURING TO TOURISM TO AGRICULTURE, AGRI-BUSINESS, PUBLIC UTILITIES, LAND AND SERVICES RIGHT ACROSS THE SPECTRUM, A SYSTEMATIC PUSH WAS MADE BY THE GOVERNMENT TO PRIVATISE THE ENTITIES WHICH IT OWNED AND TO TRANSFER THEM TO PRIVATE OWNERSHIP.
SOME OF THE VERY EARLY SUCCESSFUL PRIVATISATION TRANSACTIONS INCLUDE THE SALE OF THE GOVERNMENT’S MAJORITY SHARES IN THE NATIONAL COMMERCIAL BANK, CARIBBEAN STEEL LIMITED, CARIBBEAN CEMENT COMPANY, AND THE JAMAICA PUBLIC SERVICE COMPANY.
IN RECENT TIMES, WE HAVE SEEN THE PRIVATISATION OF MAJOR ENTITIES SUCH AS THE SANGSTER INTERNATIONAL AIRPORT, THE GOVERNMENT-OWNED ASSETS OF THE SUGAR INDUSTRY, AIR JAMAICA AND THE JAMAICA PEGASUS HOTEL.
AND, LADIES AND GENTLEMEN, SINCE ITS INCEPTION, THE PROGRAMME HAS EARNED JAMAICA OVER US$1 BILLION AND MORE THAN J$4.5 BILLION FROM THE SALE AND LEASE OF APPROXIMATELY 120 GOVERNMENT ASSETS.
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LET US NOW LOOK AT WHAT ELSE INFORMS THE PROCESS
FIRST, I WOULD LIKE YOU TO KNOW THAT THE PRIVATISATION PROCESS IS NOT DONE IN AN AD HOC MANNER.
THE BOARD AND MANAGEMENT OF THE DEVELOPMENT BANK OF JAMAICA DO NOT GET UP ONE MORNING AND DECIDE THAT ALL IS NOT WELL WITH A PARTICULAR ENTITY AND THEREFORE IT MUST BE PUT ON THE CHOPPING BLOCK.
THERE IS A STANDARD PROCEDURE THAT IS FOLLOWED.
IT STARTS WITH THE GOVERNMENT OF THE DAY EXAMINING THE STATE OF THE ECONOMY AND ITS OWN STRATEGIC OBJECTIVES AND DETERMINING THE BEST WAY TO ACHIEVE THEM.
THE RESULTING POLICY POSITION IS WHAT DRIVES THE GOVERNMENT’S PRIVATISATION STRATEGY.
BUT LET ME EXPLAIN FURTHER THAT NOT ALL GOVERNMENT ASSETS, NON-PERFORMING OR OTHERWISE, ARE AVAILABLE FOR PRIVATISATION.
IN OTHER WORDS, ASSETS THAT ARE PRIVATISED ARE THOSE WHICH THE GOVERNMENT DECIDE (1) CAN BE MORE EFFECTIVELY DEVELOPED AND OPERATED WITH PRIVATE CAPITAL AND UNDER PRIVATE MANAGEMENT AND (2) CONSTITUTE AN UNNECESSARY BURDEN ON TAXPAYERS.
SOME GENERAL PRINCIPLES WHICH GOVERN THE PROCESS INCLUDE:
- TRANSPARENCY
- TRANSACTIONS ARE TO BE ARMS-LENGTH AND EQUAL OPPORTUNITY WILL BE GIVEN TO ALL POTENTIAL INVESTORS
- MARKET VALUATIONS WILL BE THE BASIS FOR DISPOSAL PRICES
- PARTIES WITH LIKELY CONFLICTING INTERESTS ARE NOT ALLOWED TO PARTICIPATE; AND
- THE WELFARE OF EMPLOYEES MUST AT ALL TIMES BE GIVEN PRIORITY CONSIDERATION IN THE PROCESS.
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THERE ARE THREE BASIC FORMS – OR MODALITIES – THAT PRIVATISATION MAY TAKE.
THEY INCLUDE:
- THE OUTRIGHT SALE OF ASSETS OR SHARES
- LEASE
- MANAGEMENT OF SERVICES OR CONCESSIONS
OR THE PRIVATISATION MAY BE A HYBRID OF THESE THREE.
THE STEPS FOR THE PRIVATISATION OF ENTITIES ARE AS FOLLOWS:
FIRST OF ALL, CABINET APPROVES A LIST OF GOVERNMENT-OWNED ASSETS TO BE PRIVATISED.
- THEN AN ENTERPRISE TEAM IS APPOINTED AND CHARGED WITH THE RESPONSIBILITY OF OVERSEEING THE PRIVATISATION PROCESS FOR EACH ENTITY
- THE ENTERPRISE TEAM APPROVES THE APPROPRIATE METHOD FOR PRIVATISING THE ENTITY.
- AN INFORMATION MEMORANDUM, PROSPECTUS OR PROFILE OF THE ENTITY IS PRODUCED FOR PROSPECTIVE INVESTORS. THIS CONTAINS ALL THE INFORMATION PERTINENT TO THE ENTITY.
- THE PUBLIC IS THEN INVITED TO SUBMIT A TENDER OR AN OFFER FOR THE ENTITY BY WAY OF AN ADVERTISEMENT.
- AFTER THE BIDS/PROPOSALS ARE SUBMITTED BY THE POTENTIAL INVESTORS, THEY ARE EVALUATED BY THE ENTERPRISE TEAM AND RANKED. THE BEST BID OR PROPOSAL IS RECOMMENDED.
- A NEGOTIATING TEAM IS APPOINTED TO CONDUCT NEGOTIATIONS WITH THE SELECTED INVESTOR OR GROUP OF INVESTORS.
- CABINET HAS THE FINAL DECISION AFTER ALL THE PREPARATORY WORK IS COMPLETED.
AS YOU WILL APPRECIATE, THE JAMAICAN PRIVATISATION PROGRAMME IS NOW QUITE MATURE AND MUCH OF THE SUCCESS WE ENJOY IS DUE TO OUR CONFIDENCE IN IMPLEMENTING THE PROCEDURES AND MONITORING THE PROCESS.
HOWEVER, WHILE WE HAVE HAD TREMENDOUS SUCCESS IT IS ALSO TRUE THAT IN A NUMBER OF INSTANCES WE HAVE HAD SOME CHALLENGES.
THIS IS PARTLY DUE TO THE CHALLENGING ECONOMIC ENVIRONMENT IN WHICH WE CURRENTLY OPERATE AND, TO A CERTAIN EXTENT, A CHANGING REGULATORY FRAMEWORK AND THE SHIFTING PRIORITIES OF SUCCESSIVE ADMINISTRATIONS.
THEREFORE, A REVIEW OF THE POLICY HAS BECOME NECESSARY TO ENSURE THAT THE GOVERNMENT’S CURRENT PRIVATISATION OBJECTIVES ARE ACHIEVED.
IF YOU RECALL, IN THE BEGINNING THE PRIVATISATION POLICY WAS PART OF A GENERAL STRATEGY TO REDUCE THE FISCAL BURDEN ON GOVERNMENT OF NON-PERFORMING AND NON-CORE ASSETS.
THIS OBJECTIVE HAS REMAINED CONSTANT AND THE CURRENT REVIEW IS TAKING INTO ACCOUNT OTHER ACTIVITIES AND POLICIES IMPLEMENTED BY THE GOVERNMENT TO ELIMINATE BUREAUCRACY AND STREAMLINE THE PUBLIC SECTOR THROUGH ADMINISTRATIVE REFORM.
THEREVIEW OF THE PRIVATISATION POLICY IS LOOKING AT ALIGNING THE ACTIVITIES OF THOSE PROGRAMMES WHICH RELATE TO PUBLIC SECTOR REFORM AND MODERNIZATION, AND THE RECENTLY ESTABLISHED PUBLIC SECTOR TRANSFORMATION UNIT.
AND SO, GOING FORWARD, PRIVATISATION WILL INVOLVE THE RATIONALIZATION AND SOMETIMES DISSOLUTION OF SOME GOVERNMENT ENTITIES.
IT IS IN THIS WAY THAT PRIVATISATION WILL THEREFORE BE ONE COMPONENT OF A WIDER THRUST TO RATIONALIZE PUBLIC ENTITIES AND TO RETURN MINISTRIES AND AGENCIES TO THEIR CORE FUNCTIONS.
THIS IS A BIG TASK AND ALTHOUGH THE DBJ HAS DONE A COMMENDABLE JOB SO FAR, WE RECOGNISE THAT THERE IS ALWAYS ROOM FOR IMPROVEMENT AND WE CERTAINLY DO NOT HAVE ALL THE ANSWERS.
WITH THIS IN MIND, WE ARE FORGING RELATIONSHIPS WITH SEVERAL MULTILATERAL AGENCIES TO ASSIST US IN IMPROVING OUR PROCESSES BY BUILDING ON OUR EXISTING SKILLS AND EXPERTISE; IN OTHER WORDS, INSTITUTIONAL STRENGTHENING.
IN THIS REGARD, THE DBJ IS COLLABORATING WITH, AND HAS RECEIVED VALUABLE ASSISTANCE TO STRENGTHEN OUR INTERNAL CAPACITY FROM THE INTERNATIONAL FINANCE CORPORATION (IFC) OF THE WORLD BANK.
SO, YOU MIGHT WELL SAY THAT THE PRIVATISATION PROGRAMME HAS BEEN SUCCESSFUL IN MAKING MONEY FOR THE COUNTRY BUT HAS THE GOVERMENT ACHIEVED THE WIDER OBJECTIVES THAT INFORMED THE CREATION OF THE POLICY?
I WOULD RESPOND WITH AN UNRESERVED AND RESOUNDING ‘YES!’
BY PRIVATISING GOVERNMENT OWNERSHIP IN
- THE NATIONAL COMMERCIAL BANK
- THE JAMAICA PUBLIC SERVICE COMPANY
- AIR JAMAICA
- THE SUGAR INDUSTRY
- SANGSTER INTERNATIONAL AIRPORT
- THE JAMAICA PEGASUS HOTEL AND SEVERAL OTHER ENTITIES,
THE STRAIN ON GOVERNMENT’S FISCAL RESOURCES HAS DEFINITELY BEEN REDUCED.
THERE IS NO DOUBT THAT WE HAVE SECURED ACCESS TO NEW AND APPROPRIATE TECHNOLOGIES, FOREIGN MARKETS, AND CAPITAL; AND THE OWNERSHIP BASE AND DIRECT PARTICIPATION IN THE LOCAL ECONOMY HAVE, WITHOUT QUESTION, BEEN EXPANDED.
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SO WHERE DO WE GO FROM HERE?
I WOULD SAY THAT WHILE THE REVIEW OF THE POLICY IS GOING ON, WE WILL BE DOING MORE OF THE SAME FOR SOME TIME TO COME.
WE ARE NOW IN THE PROCESS OF PRIVATISING THE GOVERNMENT’S INTERESTS IN THE COFFEE INDUSTRY, SEVERAL TOURIST ATTRACTIONS, THE NORMAN MANLEY INTERNATIONAL AIRPORT AND SEVERAL SMALLER ENTITIES AND I HAVE NO DOUBT WHATSOEVER THAT THOSE WILL BE SUCCESSFUL.
WE INVITE AND ENCOURAGE YOU TO PARTICIPATE IN FORTHCOMING OPPORTUNITIES AS THEY ARE ANNOUNCED.
THE DEVELOPMENT BANK OF JAMAICA IS FULLY COMMITTED TO CARRYING OUT ITS RESPONSIBILITIES UNDER THE PRIVATISATION PROGRAMME AS WE HAVE DONE SINCE ITS INCEPTION.
THE PROCESS HAS BEEN OPEN, TRANSPARENT AND ABOVE BOARD AND WILL CONTINUE TO BE CHARACTERISED BY THE HIGHEST LEVELS OF INTEGRITY.
THIS HAS BEEN POSSIBLE BECAUSE IN AN EFFORT TO CONDUCT THE PRIVATISATION TRANSACTIONS IN A SMOOTH AND EFFICIENT MANNER WE HAVE HELD CONSULTATIONS WITH SEVERAL AGENCIES SUCH AS THE ATTORNEY-GENERAL’S OFFICE AND THE MINISTRY OF FINANCE WITH WHOM THE DBJ HAS ESTABLISHED A SOLID WORKING RELATIONSHIP.
ANOTHER SUCH AGENCY IS THE OFFICE OF THE CONTRACTOR-GENERAL. WE HAVE RECEIVED A TREMENDOUS AMOUNT OF ASSISTANCE AND ADVICE FROM THE STAFF OF THE OCG WHICH HAVE MADE OUR WORK MUCH EASIER.
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SO LADIES AND GENTLEMEN, LET ME CLOSE BY ASSURING YOU THAT JAMAICA’S PRIVATISATION PROGRAMME IS PLAYING A VERY IMPORTANT ROLE IN THE DEVELOPMENT OF OUR ECONOMY.
I HOPE THAT MY PRESENTATION HAS GIVEN YOU A BETTER UNDERSTANDING OF THE PRIVATISATION PROCESS AND HOW THE PRIVATISATION PROGRAMME IS ALIGNED WITH THE OVERALL OBJECTIVES FOR ECONOMIC GROWTH AND DEVELOPMENT.
WE ARE VERY PROUD OF THE WORK WE DO AND WE FULLY INTEND TO CONTINUE ON OUR CURRENT PATH.
THANK YOU.
