Editorial | Offset public-sector wage bill with shares
While an IPO, as thus far articulated, for a piece of the National Water Commission (NWC) is unlikely to be the surest way to raise the level of capital required to fix the company, this newspaper believes that divesting other government companies, or parts thereof, via the stock exchange is not a bad idea.
That is one route by which the administration can pursue fiscal consolidation in accordance with its compact with the International Monetary Fund (IMF), including lowering the Government's wage bill as a proportion of gross domestic product (GDP), while meeting its obligations for higher salaries to public-sector workers.
As we have argued more than once, an IPO for the NWC, along the lines declared by Horace Chang, the minister with responsibility for water, aimed at giving Jamaicans "a real stake in their assets", is likely to be unattractive and, therefore, unable to deliver on its broader objective of raising capital for investment.
Indeed, for its 2013-14 fiscal year, the NWC lost around J$7 billion on its ongoing operations and $10 billion overall. That loss not only increased its accumulated deficit to J$26 billion, but wiped two-thirds off its equity, down to J$5 billion.
Yet, by some estimates, the NWC requires upwards of J$50 billion to overhaul an old, frail infrastructure and to expand its service, which it cannot adequately cover either from cash or from borrowings, given the Government's commitment to contain a national debt that, despite the sharp drop of recent years, is still 124 per cent of GDP. The obvious option, if the Government is to raise the capital to fix the NWC, is to find a deep-pocketed entrepreneur, with experience in water management and distribution, to whom it is willing to sell a majority stake. The administration can then design a scheme to make water affordable to the most vulnerable, perhaps using the model for electricity as a starting point.
The thinking behind this model, or for public-private partnerships, is not dissimilar to what informed the recent divestment of the Kingston Container Terminal, whose future development will require big capital.
There are other entities for which straight IPOs will be efficacious. A profitable business like the Norman Manley International Airport is one of them. The Urban Development Corporation (UDC), with its stack of assets just waiting to be unlocked for profits, is another.
Their divestment, if the Government proceeds on this course, will likely coincide with the implementation of the IMF obligation to reduce the Government's wage bill to nine per cent of GDP, a time when the freeze on public-sector wages has been lifted, and the administration will find it politically difficult to trim large numbers of staff.
In that regard, the administration might examine the feasibility of offering shares in divested companies in lieu of wage hikes as part payment for outstanding increases. Designing a formula for this that falls within the criteria of an IMF agreement can't be beyond the creativity of the authorities. At the very least, it would have the advantage of easing the cash demand on the national coffers.