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Be 'Cold' Over $100m Soe Subsidy Slashes

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The government was yesterday urged to make “cold” decisions on whether to retain loss-making state-owned enterprises (SOEs) after it unveiled plans to slash their annual subsidies by $100m within four years.

Gowon Bowe, a former Chamber of Commerce chairman, told Tribune Business it needed to determine whether to “cut its losses” on SOEs that currently cost the Bahamian taxpayer more than $400m annually to prop them up.

Describing the burden they impose as “double whammy”, given both the subsidy burden and the continuing liabilities they pose as a result of the government having to guarantee their debt, Mr Bowe said SOEs had likely come to believe “there are no consequences if they blow their projections” as they can always return to the Public Treasury for more.

He spoke out after K Peter Turnquest, deputy prime minister, reaffirmed that the level of subsidies provided to SOEs by the Public Treasury was “simply unsustainable” - especially given the growing fiscal pressures imposed on the government by a combination of Hurricane Dorian and COVID-19.

Unveiling the 2020-2021 Budget, Mr Turnquest said the government had no choice but to quicken the pace of SOE reform given that the sector’s subsidies were equivalent to 16 percent - almost one-sixth - of its fixed-cost recurrent spending in the current fiscal year.

“Over the past year, we have made some strides in preparing the groundwork for the reform of SOEs,” Mr Turnquest said. “However, the need to accelerate this reform has become abundantly clear with the added pressure of COVID-19 relief on public funds.

“For fiscal year 2019/2020, SOE subventions represented nearly 16 percent of recurrent expenditure. Notwithstanding additional outlays due to the impact of Hurricane Dorian, this level is simply unsustainable. Thus we have asked all SOEs to implement a mix of cost savings and revenue enhancement measures this Budget year.

“As a result, we are budgeting to receive some ten percent, or roughly $21m, in savings from a decrease in subventions to these entities. Over the medium term, it is the intent of the government to further rationalise these entities,” the deputy prime minister continued.

“The main objective is to push SOEs to become self-sufficient, thereby alleviating the need for the central government to subsidise their operations on an annual basis. To this end, we have targeted a $100m annual reduction in subventions over the next four years, as these entities move to optimise efficiency and cost recovery strategies.”

Mr Turnquest warned this might be painful for some consumers of SOE services, adding: “These cost recovery strategies may include the introduction of user fees in some cases, or an increase in existing fees for other SOEs as a way to enhance revenue. Similarly, some SOEs may opt to adopt cost reductions such as merging, reducing operating costs or revamping services with a view to eliminating non-efficient services.”

The government is aiming for a modest 5.7 percent, or near-$25m reduction, in SOE subsidies during the 2020-2021 budget year. The total figure is projected to fall from $432.734m this fiscal year to $407.96m during the 12 months to end-June 2021, with the Public Hospitals Authority (PHA) again accounting for more than 50 percent of the latter sum at $223.456m.

Other major consumers of taxpayer funding continue to be the National Health Insurance (NHI) Authority, whose budget is being increased by $18m to $38m; the University of The Bahamas, whose allocation is unchanged at $30.745m; Bahamasair, which has seen its subsidy cut from $22.393m to $19m; and the Water & Sewerage Corporation, whose capital works allocation has been slashed from $25m to $20.3m.

Elsewhere, the Bahamas Civil Aviation Authority’s subvention has been cut from $19.131m to $15.305m, while the Public Parks and Beaches Authority has seen its subsidy drop from $25.9m to $15.2m. The Broadcasting Corporation of The Bahamas; Bahamas Agricultural and Industrial Corporation (BAIC); and Bahamas Agricultural and Marine Science Institute (BAMSI) have all seen their allocations slashed as well.

Budget figures provided yesterday indicate that the government is looking to steadily cut total SOE subsidies over the forthcoming budget years, dropping them to $382.115m in 2021-2022 and $340.587m the following fiscal year.

Mr Bowe yesterday suggested that the government may have to explore turning some SOEs over to the private sector, either through privatisation or management/operator contracts. He added that, in some cases, a small public subsidy may still have to be provided to ensure Bahamians have continuing access to essential products and services, with the private owner/operator contractually bound to fulfill critical obligations.

“This is one that may sound like an uncaring statement to make, but the government needs to decide whether or not to still be in those businesses or cut its losses,” the former chamber chairman told Tribune Business.

“You need to take a very cold position: Do you need to be in those businesses? If the answer is only because you wanted to make sure a small population was able to access it, you may need to look at a subsidy where it is owned by a private entity.

“Right now they are a double whammy, because the government is providing subsidies and, if they are not efficient, they are still an obligation of the government.... The SOEs see themselves primarily as part of the central government, and there’s no consequences if they blow their subvention. They simply go and ask for more.”

Mr Bowe acknowledged that the SOE issue would likely provoke an economic philosophy debate, especially in the wake of COVID-19. He acknowledged that some will make the argument that continued public ownership of entities such as Bahamas Power & Light (BPL) and Water & Sewerage Corporation had enabled them to provide the sort of relief to newly laid-off customers that privately-owned utilities could not have offered.

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