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Could SOE loss-makers have curbed costs more?

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Gowon Bowe

• Top banker challenges Gov’t on subsidy minimisation

• Warns increasing Lucayan ‘sunk costs’ not recovered

• And voices concern over ongoing capital spending cuts

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian banker yesterday questioned whether loss-making state-owned enterprises (SOEs) did everything they could to curtail costs amid the quadrupling of subsidies at COVID-19’s peak.

Gowon Bowe, the Fidelity Bank (Bahamas) chief executive, told Tribune Business that the astronomical hand-outs to Bahamasair and the Water & Sewerage Corporation “require so much more” by way of detail and explanation than was contained in the Government’s recently-released 2020-2021 full-year fiscal “snapshot”.

While querying whether funding provided to the Public Hospitals Authority (PHA) was sufficient “to get us where we need to be”, he added: “Did Bahamasair follow a similar pattern in terms of reduced hours and payments to reduce the burden on the public purse, or did persons - in cases where there was an absence of consistent flights - maintain their salaries while the private sector made difficult decisions?

“Did cost curtailment take place? That is not articulated. Did state-owned enterprises take steps to reduce their subventions from the public purse at the peak of COVID-19? I have no supporting the Water & Sewerage Corporation to ensure people have water, but did they do all they needed to make the subsidy required as little as possible?”

Significant doubt surrounds whether SOEs take action to reduce their subsidies, and dependence on taxpayer support, to the bare minimum amid the pandemic’s peak last year. Tribune Business reported yesterday that the Government spent more than $118m in combined subsidies to keep Bahamasair and the Water & Sewerage Corporation afloat during that time.

The duo, which have long bled the Public Treasury, required triple the amount of taxpayer support originally estimated in the May 2020 Budget. Bahamasair, which was originally allocated a $19m subsidy, saw this figure quadruple to $78.2m for the 12 months to end-June 2021 after it was grounded for much of that period by COVID-19 lockdowns and other health measures and restrictions.

And the Water & Sewerage Corporation, for its part, required $40m from the Public Treasury - a sum nearly double its initial $20.3m allocation. “Subsidies to public non-financial corporation were higher by $39.6m (9.9 percent) at $439.7m over the comparative fiscal year,” the fiscal “snapshot” revealed.

“This primarily included transfers of $238.9m to the Public Hospital Authority (PHA) for operational activities and to support COVID-19 remediation efforts; $78.2m to Bahamasair; $38m to the National Health Insurance Authority; $40m to Water and Sewerage; and $36.7m to the University of The Bahamas.”

And the subsidies did not stop there. For so-called “current transfers” rose to $180.2m or 123.2 percent of the budgeted amount, meaning they more than doubled. A significant contributor was payments to keep the Grand Lucayan hotel operating while it awaited the closure of its sale to the ITM Group/Royal Caribbean consortium - a deal that will now have to be picked up by the new administration.

“Current transfers not elsewhere classified widened by $21.8m (13.8 percent) to $180.2m (123.2 percent of the budget), reflecting additional operational support to Lucayan Renewal Holdings ($13.6m), Nassau Flight Services ($5.7m) and the Airport Authority ($5.5m),” the report added.

“Transfers of $3.4m in scholarship funding was made to Bahamas Technical and Vocational Institute (BTVI) alongside a $3.9m reduction in international scholarships as the Government encouraged domestic education opportunities amidst global COVID-19 health and safety protocols and travel restrictions.”

Mr Bowe told Tribune Business that the Government, on behalf of Bahamian taxpayers, was investing “a lot of sunk costs into Lucayan Renewal Holdings that will not be recovered” in the event that it manages to close a sale.

“When it was originally acquired, the strategy was that the purchase price and operating costs would be recovered in the sale,” he said. “Now it’s subsidised because the acquirer will not be taking up sunk costs it gains no benefit from. What is the contributed amount of sunk costs that will not be recovered, and what will be recovered, because that contribution is increasing?”

The Fidelity Bank chief also voiced concern that the Minnis administration has continually employed capital spending cuts “as the mechanism by which we reduce our deficit” and keep it in line with Budget forecasts.

The last fiscal year was no different, with the “snapshot” confirming: “Capital outlays for fiscal year 2020-2021 contracted by $2.7m (0.7 percent) to $369.5m when compared to fiscal year 2019-2020. Government’s decision to scale-back non-priority initiatives, to offset the elevated COVID-19 recurrent spending, resulted in achievement of 71.7 percent of budget.”

However, Mr Bowe argued that it was potentially dangerous to starve much-needed infrastructure projects of financing. “Capital expenditure is the element that benefits your economy,” he told Tribune Business. “It’s expenditure that benefits the country in terms of readiness to take advantage of economic opportunities.”

Pointing to World Bank studies that suggest countries should invest a minimum of 5 percent of their annual gross domestic product (GDP) in infrastructure designed to support further growth, he said that the Government should have deployed more COVID-19 assistance spending here to boost the economy and provide jobs for semi-skilled and unskilled workers at the pandemic’s height.

Comments

Dawes 1 year ago

Until a Government gets rid of Bahamasair they will never be serious about dealing with our economic problems.

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Socrates 1 year ago

Airlines are where you put money, not make it. Bahamasair is a bad idea that has gotten progressively worse and a luxury a small 3rd world coubtry cant afford. Western is a good example why.

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sheeprunner12 1 year ago

Hey Smart Guy Bowe ......... Why did the FNM Govt not give you one of those chairmanships in 2017???? ............... Pick one (BPL, WSC, Bahamasair, BOB, ZNS, BAMSI etc)

For all of them what can you cut?????? ........... CBA contracts??? ....... Overtime??? ....... work hours??? ......... vehicle fleets/fuel?? ........ annual bonuses??? ......... medical plans??? ...... retirement packages & pensions?????

For all of the SOEs, the answer to the above (list) is ......... NO

There is only one solution ........... Government sell-off (aka privatization/PPP)

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