Thursday, May 03, 2018

Privatising Anguilla's Electricity

Anglec is the familiar name of the Anguilla electricity company.  Structurally, it is a statutory corporation whose shares are owned mainly by the government of Anguilla and its agencies.  In 1991, when Anglec was formed, government gave it the assets of its Electricity Department.  In exchange, government got most of its shares. The Commonwealth Development Corporation (CDC) which had earlier invested in the electricity service also became a shareholder.  Government purchased CDC’s shares in 1998, becoming the sole shareholder in Anglec.  Dividends were paid to shareholders for the first time in 2002.  That dividend yield was 2.8 %.  It was paid to the sole shareholder, government.
In 2003, in the face of public protests, government offered 6 million shares to the public.  A total of 17 million of Anglec’s authorised 30 million shares have now been issued.  Government holds 40%.  The local banks and the Social Security Board purchased 40%.  A number of individuals purchased 20%.  Either directly or through its subsidiaries government now owns 80% of the shares.  In 2010 the dividend was a high of about 6%.  In 2015, the last year of its published accounts, the dividend was about 2.5%.
In the 2003 Prospectus, the stated objectives of the share issue were to improve the quality and reliability of the electricity supply, develop the professional and technical skills of employees, maintain stable and affordable prices, and achieve financial viability.  It was hoped that the Public Utilities Commission would begin to regulate tariffs by the year 2004.  (This never occurred.  To this day Anglec’s rate-setting continues to be supervised by the government’s Ministry of Infrastructure.)  Electricity rates are said to be among the highest in the region.
There are several valid arguments against privatisation of electricity.  One is that maintenance teams that were once fully staffed will be dramatically cut to reduce costs.  The effect of such cuts will be an increase in equipment failure, leading to a rise in outages.  Consequently, a privately owned electricity company may be able to blackmail government into a bailout or allowing an increase in the rates with a threat of blackouts.
The privatisation of electricity is not something that citizens normally demand or want.  Once shares are offered to the public, there is typically little interest in public participation.  On the contrary, privatisation frequently gives rise to bitter protests.
At the time in 2003, many persons objected to this transfer of the Electricity Department to a private company.  It was said that electricity was a basic human right and should not be run like a commercial enterprise.  Ownership by a government department meant that social welfare concerns could be brought to bear.  However, the majority of us knew that the Government’s Electricity Department was running the service very inefficiently and that there was a lot of waste.  We hoped that putting management under a Board of Directors would ensure the service was better managed than by the government bureaucracy.  So, the privatisation proceeded.
We were soon to be disappointed in the management of Anglec.  As each administration took power after a general election, they appointed political hacks to the Board of Anglec.  These political Boards have made a mess of management.  Such political boards are now recognised to be generally unprofessional and unsophisticated.  They wrongfully dismiss employees, resulting in litigation that causes the corporation millions in damages.  Some high-ups engage in serial sexual harassment of junior female employees.  Management seems ineffective in halting this abuse.  Staff say that repeated complaints are ignored by the Board.  Morale has been falling and dissatisfaction is rising.  It is time for this to change.
The government of Anguilla now proposes to sell all of its shares in Anglec in order to raise money to meet its expenses.  This proposal has caused a renewed controversy among the talk-shows in Anguilla.  The radio waves are filled with words of condemnation against this supposed “giving away” of a national treasure.  We hear warnings that this planned privatisation will bring doom to Anguilla.  It is said to be a betrayal of the people by its own government.  That is the controversy that I want to look at today.
Normally, in the West Indies, electricity rates are controlled by an independent statutory Public Utility Commission (PUC).  Normally, no public utility can increase the rates without securing the consent of the PUC.  An electricity company should not be allowed to exploit the consumer by unreasonably increasing rates.  On the other hand, the electricity company should not be driven into bankruptcy by not being able to increase its rates to make a reasonable profit.  Such a system (of putting a PUC in the middle between the consumer and the utility company) is designed to install an independent and transparent institution to ensure fairness to both the consumer and the utility company.
In Antigua, for example, the Antigua and Barbuda Public Utilities Authority (APUA) controls the increase of rates for electricity, telephone, internet, and water.  In Anguilla this is not so.  In Anguilla there is a Public Utility Company.  But, its mandate is limited to the telephone companies.  If Cable and Wireless or Digicell want to increase their rates, they have to get the permission of the PUC.  But, in Anguilla that process does not apply to electricity or water.  There is no independent body to control the rates charged by the Water Corporation of Anguilla or Anglec.  These two utilities are under the control of the government’s department of Infrastructure.  This department is headed by a Minister of government, a politician.  In other words, electricity and water prices to the consumer are controlled by the political directorate.  There is no independent body to supervise increases rates in Anguilla.  Just as Anglec cannot increase rates without the permission of government, so any purchaser of government’s shares in Anglec will not be able to increase the rates without political permission.  I ask the question, which politician will permit electricity or water rates to be increased if there is likely to be a public outcry?
Anglec holds a Public Supplier’s Licence.  This provides for Anglec to submit a claim to government to increase rates.  The rules are that if the requested increase is refused, Anglec can submit its claim to an independent arbitrator.  That arbitrator is the High Court judge assigned to Anguilla.  You may well consider that a lawyer or judge is not the best qualified person for determining the justification for an increase in rates.  This is a technical area that requires to be dealt with by suitably qualified experts in the field.
When the Anglec shares were originally issued to the public there was a conditional promise that dividends would be in the range of 6%, or EC$0.15 per share.  This promise was subject to a number of conditions.  I am told by private investors that level of dividend is seldom met.  Over the past twenty years the average return per annum has been more like 4%.  In other words, this investment has not lived up to the promises (conditional as they were) that were originally made.
There is an overriding reason why government should be encouraged to divest itself of the remainder of its shares in Anglec if it can do so.  Given the culture in Anguilla of Ministers appointing unqualified cronies to the Boards of statutory corporations, any effort to take the appointment of such a Board out of the hands of a politician and put it in the hands of the shareholders is to be encouraged.  The present and continuing appalling lack of morale among the staff of Angec because of the unprofessional and oppressive conduct of some in high office requires that they be all swept out of office and replaced by persons chosen on the basis of merit.
The sooner that Anglec is fully privatised the better for all of us.  Any objection to such a long needed and overdue reform is nothing but the most blatant political posturing.
But, tell me again, based on the history above, without fundamental restructuring, which honest and well-advised foreigner is going to invest tens of millions of dollars in purchasing government’s shares in Anglec?

Tuesday, April 10, 2018

Two Editorials

£60 million of Humanitarian Aid
There are two recent editorials in The Anguillian newspaper that I want to comment on.  They are critical of the conditions that come with the £60 million (EC$250 million) of humanitarian aid that the UK has offered to Anguilla post-Hurricane Irma.
The editorial on page 2 of the issue of 30 March asserts that “it is difficult to reasonably conclude that the UKG, by stipulating stringent conditions for the release of the grant funds, is acting primarily in the interests of Anguilla and its people.”  The piece then goes on to criticise the “insistence on the placement of a UK official within the Ministry of Finance . . . who would have considerable responsibilities over the public finances of Anguilla.”  This is described as a “slap in the face of the Minister of Finance and his finance officials.”  The proposal is said to be “abhorrent to all right thinking Anguillians as it can only be seen as seeking to diminish the dignity of resilient and persevering Anguillians.”
The editorial on page 2 of the later issue of 6 April continues to play the same theme.  The author urges that when the aid was originally offered, “it was taken at face value with no mention whatsoever of onerous and discouraging conditions.”  Then, “All of a sudden enter Mr Ben Merrick, Director of Overseas Territories, and Lord Ahmad, the Minister of the Overseas Territories, springing the surprising conditions on the people of Anguilla.”  The UK Government is urged to “quickly release the promised 60 million pounds in humanitarian aid . . . and exercise faith in the Anguilla Government and the highly-qualified and responsible local financial and economic experts in the Ministry of Finance.”
These two editorials are part of an expected smokescreen.  Humanitarian aid by way of a gift of money that is not subject to safeguards over its spending is money that is often thrown away.  Which donor country in its right mind would release any sum of its own taxpayers’ money, far less such a significant amount as £60 million, to a government which many, including Anguilla’s Chief Auditor, believe has proved itself incapable of properly accounting for its own taxpayers’ funds, unless it puts in place the most stringent safeguards?
The UK conditions in question were analysed in my two-part ‘Anguilla: Sustainable Recovery and Resilient Development Post Irma’ published on my website on March 11[1] and March 18.[2]  They were both published in recent weeks in The Anguillian newspaper.  In my view, few of the conditions that are asked of us in Mr Merrick’s letter are unreasonable.  None of them is new.  Nearly all of them are conditions that we should have imposed on our Ministry of Finance when they were spending our own money.  The only shame is that instead of us imposing those conditions on ourselves we had to wait for someone else to force them on us.
As for the threat of imposing an all-powerful ‘Chief Financial Adviser’ on us, we were warned about this since the year 2015 when we were first threatened with its imposition by Order in Council.[3]  We opposed the creation of a ‘finance tsar’ then and, as I explain below, we should oppose it now.
Such an appointment is not a matter of “seeking to diminish the dignity of resilient and persevering Anguillians.”  Those emotional words are an appeal to false patriotism.  There is a real principle at risk here.  As a matter of background, while it is true that some of our past Ministers of Government were irresponsible in their handling of public funds, they did it under the negligent supervision of the UK appointed Governor.  The Governor had the constitutional power to insist on our Ministers and senior Administrators, such as Permanent Secretaries and Heads of Department, following the existing provisions of the Financial Administration and Audit Act.  Instead, successive Governors neglected their duty to ensure good governance.  The Chief Auditors complained about these defects for years as they repeatedly refused to give our Public Accounts a clean certificate for just this reason.  No Governor or British official it seems took notice.  There was no one else in our system of government to follow up on the Chief Auditor’s complaints.  It is only in the past two years that, for the first time in the history of Anguilla, a Public Accounts Committee (the PAC) has begun to meet and to call public officials to account for their spending of public monies.  We can hope the PAC will begin to demand that the Chief Auditors complaints are heeded.
The principle that is at risk here is that, as a developing society, we must constantly strive to improve our systems of government.  Where we are negligent or ineffective in this struggle, it is the constitutional duty of the FCO to help us stiffen our spines.  They can do this by loudly and openly insisting that we follow the correct path, instead of apparently shutting their eyes to our financial transgressions.  They can tell the Governor to do his duty in insisting Ministers follow the law.  In this way, with our own efforts propped up by the guidance of those UK administrators (theoretically with more experience in good governance than us), our democratic institutions will grow in strength.  Imposing, instead, a ‘finance tsar’ who will simply set aside bad decisions of our Ministers of Government and bad laws of the House of Assembly (after those decisions were made in ExCo under the chairmanship of the Governor) will teach us nothing except how to become very angry and insubordinate.  The appointment of an all-powerful Chief Financial Officer, however named, will amount to an increase in the democracy-deficit in our society, not to an improvement in our democratic systems.  In my view, no good can come of such an imposition.
Calling such an appointment a “slap in the face” is mere propaganda.  Those words are designed to appeal to our nationalistic emotions and to stir up a misguided patriotic fervour.  They are used in an attempt to “pull the tam down” over the collective eyes of the FCO.  The idea behind these editorials is that the FCO will be made so guilt-ridden that they will release the funds to us with no effective controls put in place for their proper use.  We must sincerely hope they are smarter than that.
And so to return to the so-called “stringent conditions” that we must meet to receive the grant.  I am not going to repeat why the conditions in question, even if stringent, are right and reasonable.  I already did that in the two articles referred to above.  If we can meet the conditions, and the grant begins to be disbursed, this will be “the best-managed economic reform and infrastructure development programme ever enjoyed in Anguilla.”  If we can maintain the conditions, even after the grant is exhausted, we will be well on the way to proving that we can handle public funds responsibly and in accordance with law.  What an improvement that would be on the existing practice!

Thursday, March 29, 2018

FSC Resignation


Landline: (264) 497 2139
Cellphone: (264) 235 8654

29 March, 2018

His Excellency the Governor
Mr Tim Foy
Government House
Old Ta

(By email)

Your Excellency,
Re: The Anguilla Financial Services Commission (the FSC)
I note with sadness that I have not received any acknowledgment of my letter to you delivered at my meeting with you of 20 February past which I attended together with the other non-executive members of the FSC Board.  The purpose of the meeting was to draw to your attention a number of matters of concern regarding the lack of good governance in the government of Anguilla generally and in the Ministry of Finance in particular, and our resulting fears for the future of the FSC.
I appreciate (via feedback from the Chair to whom you spoke) that you did not find the matters appropriate to be raised by Commission Board members.  I disagree.  The Commission’s functions are set out in law and include the duty to advise the Governor on matters relating to or connected with financial services business and also in relation to financial services, companies or any other structure or arrangements.  No financial services industry can thrive in a jurisdiction lacking an effective, non-corrupt public service.
The issues around our meeting aside, the Board is also concerned to have had no return of the Director’s contract – agreed by you informally by email but not confirmed, though the contract was sent to you some weeks ago.
The risk of an imminent departure of the Director is worrying, particularly in the light of Mrs Hatton’s term of office concluding without your offering to renew it.  You have defenestrated the FSC.
I therefore resign from the Board with immediate effect.
I copy this letter to your superior at the FCO in the hope that someone will take your failures regarding the situation with the FSC seriously.
Yours sincerely,

Don Mitchell
cc: Mr Ben Merrick

Saturday, March 24, 2018

Lord Ahmad of Wimbledon

It has been such a pleasure to see BV Islanders of every persuasion rallying around to resist British imperialism.[1]  There have been many radio talk-shows and presentations to the public.  They show our people maturing as a nation as we come together to fight a common enemy.  All patriots are invited to rally round.  The ex-patriots are invited too.
How dare Lord Ahmad ask our Chief Minister if he really understands the seriousness of our own financial position?  The good Lord Ahmad has never even visited to see our position.  What does he know of us?  Does he think we are children to be spoken to in this way?
The £300 million grant was never intended to be used for fiscal engineering.  It was promised to us as emergency hurricane relief.  We are entitled to it free and clear.  They never said there would be conditions.  They tricked us.  They continue to abuse us in an evil, exploitative colonial system.  The £300 million is reparations.  They owe it to us.
After all, for decades the British Governor sat in the chair in Executive Council.  He observed our Ministers misusing our own taxpayers’ money.  He said nothing.  He was complicit in every bad decision they made.  What right does Lord Ahmad have now to insist that we properly use and account for British taxpayers’ money?  None at all.  It is payback time.
The British gave us the secretive, manipulative system we struggle under.  Why do they talk now about transparency, integrity and accountability?  The Chief Auditor has for many years refused to give our public accounts a clean certificate.  The FCO could have insisted on high standards then.  But they let us carry on our little ways.  What has now changed?
Come on, Lord Ahmad, no more stalling.  Just drop the moolah on us.  We will very efficiently share it around amongst ourselves.  Let all the big contracts come to us and our friends.  It will work its way down through all the crevices and crannies in society.  That is how trickle-down economics works.  That’s the way to stimulate the economy.  Look at it as our version of quantitative easing.
We have done it before.  We can do it again.  Just give us the £300 million without any conditions.  Or, we will report you to the United Nations as colonial exploiters.  Worse, we will go independent!  Once we are independent we will have no restrictions on begging for international money.  No one will check our accounts to see how we spend it.  We will at last be masters of our own ineptitude.  That will show you.