TOPIC: PRIVATIZATION & CRITICAL TIMES
JULY 25, 2002

Mr. President,
My Fellow Rotarians,
And Guests:

Mr. President, I thank you for the opportunity to address my club again and guests. And express regrets that I was unable to address you as scheduled. Mr. President you would recall the last time I addressed you on the topic “Corruption In High Places,” it caused a few hiccups in this club, resulting in the then-Leader of the FNM and Leader of the CDR being invited to address this club. Mr. President, it is now history, but it is noteworthy that the fresh wind-turned hurricane blew both of them away on May 2nd.  Mr. President my being unable to speak to you last Thursday, while unfortunate for you, it was beneficial for the country, as I was called upon to make a contribution to a debate on a most serious and contemporary topic in our country today. And today I continue with you where I left off from in the Parliament last Thursday.

GLOBAL TELECOMMUNICATIONS CRISIS
I would like to quote for you an excerpt from a recent article in the widely acclaimed Economist Magazine. The article is entitled “The Great Telecoms Crash.” The excerpts are as follows:
 “ Behind the general jitters in stockmarkets lies the biggest and fastest rise and fall in business history. Today, there is no economy but the global network, wrote George Gilder, a technology guru in February 2001. He predicted that two telecoms firms, Global Crossing and 360networks, will battle for worldwide supremacy, but in a trillion-dollar market, there will be no loser. Yet within a year, both had filed for bankruptcy—a graphic illustration of how quickly the industry’s titans have been toppled. There were losers after all: banks and shareholders, who are now smarting from enormous debt write-offs and precipitous declines in telcom share prices.
 The telcoms bust is some ten times bigger that the dotcom crash. It is crucial for both financial markets and world economies that the industry climbs out of its hole. The rise and fall of telecoms may indeed qualify as the largest bubble in history. Telecoms firms have run up total debts of around $1 trillion. And as if this were not enough, the industry has also disgraced itself by using fraudulent accounting tricks in an attempt to conceal the scale of the disaster. WorldCom, which misclassified $3.8 billion in network-maintenance costs as capital spending so as to hide huge losses, teeters on the verge of bankruptcy. If it goes under, it will be the biggest failure in business history, putting even Enron’s demise in the shade.”

My fellow Rotarians and guests, as stated in the Economist article, the WorldCom organization was headed for astoundingly serious problems and in fact did declare bankruptcy on Monday of this week. The article goes on to say:
 “The Telecoms Industry faces years of painful reorganization, as the oversupply of capacity built during the boom years is brought into line with demand, and the mountain of debt is restructured. There will be more bankruptcies among erstwhile high-flyers. In America, there is a risk of a vicious circle: as companies emerge from Chapter 11 having shed their debts, they may undercut debt-laden rivals, such as Deutsche Telekom, which shed it’s chief executive recently.

 The likely winners, it is already clear, are the former Baby Bells in America and the former monopoly incumbents in Europe. Because they own the last mile of the network that runs into homes and offices, these operators have a firm grip on their customers and solid revenues. Compared with their upstart competitors that proliferated after the liberalization of telecom markets during the 1990’s, these firms are relative safe havens. Customers can switch long-distance carriers at the first whiff of trouble, but often have no choice of local provider.

The telecoms landscape could soon come to look much as it did in the days before liberalization. The danger is that the traumatic scale of the telecoms crisis will cause the pendulum to swing back too far in favor of the former monopolies. In the short term, they are likely to attract investment, to pick up the assets of bankrupt rivals, and to lead the way in consolidating the industry. This will provide some welcome stability. But it would be wrong to grant the former monopolies any regulatory concessions now that would protect them from competitors in the future. Once today’s bust is over, too much power concentrated in the hands of the former monopolies could let them raise prices and stifle the deployment of innovative technologies.

 The one thing that keeps would-be monopolists on their toes is viable competitors. It may be hard to imagine just now, but such competitors are sure to re-emerge in telecoms one day. And when they do, governments must ensure that the regulatory door has been left open to let them in.”

My fellow Rotarians and guests, it is in view of this complex dilemma and backdrop, as written in the Economists Magazine, that I wish to briefly address a most critical and contemporary subject facing the Bahamas today. I wish to address the subject of “Privatization & Critical Times.”

My fellow Rotarians and guests, this is the subject that I addressed last Thursday in the Parliament, as we debated the vesting of assets from Batelco into a new company named Bahamas Telecommunications Company to now be named BTC. As a result of the present status of the global telecommunication business, outlined by the Economists Magazine, I am compelled to also inform you that our decision and manner in which we privatize in the Bahamas is not only subjected to global trends.

 It is likewise subjected to, and compounded by, specific issues surrounding the privatization of Batelco and the initial manner in which it was started. It is a governmental and civic duty for Bahamians to now decide how to make privatization work for the Bahamas, at a time that is not as advantageous, as it was two or four years ago.

My fellow Rotarians and guests, the protracted state of privatization during this critical stage of global telecommunications, must be taken very seriously when we understand what happened to Batelco during the initial stages of the previous Administration’s attempt to conclude the process. We know that the previous FNM Administration had foreshadowed in 1996, prior to the 1997 General Elections that it was their specific intentions to privatize Batelco in it’s second term in Office.

After being re-elected they aggressively moved to privatize Batelco. They promised to have it privatized by the end of 1998. And then in 1998, they committed to privatizing Batelco in 1999. In 1999, they brought a Bill to Parliament with its intentions being found in the title of, An Act to Create A New Regulatory Framework For Telecommunications In The Bahamas To Remove Monopoly Rights Of The Batelco Corporation And To Establish A Licensing Regime For Telecommunications.

However by that date of December 8, 1999, the government had already had numerous false starts, made and broke many promises, terminated people and then they had to admit that they were considering rehiring persons to fill the same vacancies of those they terminated. They likewise by that time had promised on numerous occasions to have a strategic partner by a specified time period, promised to buy out certain articles in the Union Contract to make privatization attractive to a strategic partner and then reneged on the time period in which they would buy out the Union Articles. But still they set another target date for privatization for the end of the year 2000.

By that time period in December of 1999, the previous Administration had already caused mass hysteria in the Batelco Corporation by informing all 2200 employees to apply for separation packages. And if they didn’t, those to be terminated would risk being terminated without receiving the same kind of separation package if they did apply. The previous Administration likewise by that time had led the charge in creating for themselves a very hostile relationship between Batelco Union Officials, themselves and the employees and subsequently causing a hostile relationship between employees and management.

My fellow Rotarians and guests, this is the climate in which all the efforts by the previous Administration was found to be wanting and thwarted, during a time when the global telecommunications industry was prosperous, vibrant and pliable to the wishes of the World Trade Organization’s stringent demands that for any country’s government to join their organization, it must be prepared to privatize their State-owned entities in order to bring those entities into uniformity with global standards and global costs.

One may easily convince oneself that hindsight is 20-20, as we stare today down the barrel of a critical time period for global privatization. However, if one were to examine the consequences of the protracted efforts of the previous Administration to privatize Batelco during a less hostile global climate; we would find many things the previous Administration did that showed their lack of foresight.

My fellow Rotarians and guests, as a result of the previous Administration’s approach to privatization and the problems that ensued, the quality of service performed by Batelco declined in many areas. Under the micro directives of the FNM Government, the management of Batelco tried to discharge it’s duties to the public and found itself paying huge sums of overtime because they were not allowed to hire or reengage former employees.

In this regard, the following figures show how the Batelco consumer was terribly shortchanged. Here is an account of the overtime paid by Batelco between the years of 1999 and 2001: In 1999 the cost of overtime was $5,768,000. In 2000 the cost of overtime was $7,165,000. In 2001 the cost of overtime was $10,150,000. Without including the cost of overtime for this year of 2002 and until the time that privatization is scheduled to take place in late 2003, the cost between 1999 and 2001 has been $23,083,000.

In that three-year period, the average payout for overtime has been $7,694,000 per annum, for diminishing services. And of course, until the matter is resolved, the meter is running. Foresight however would have encouraged the previous Administration to move away from its intractable approach to the process of privatization while also considering consumer satisfaction. In that regard, for the money used during three year’s of overtime, Batelco could have instead engaged three hundred persons during those three years paying them a salary of $500 per week. Reasonable minds and persons of foresight, could easily imagine how the level of efficiency and performance could have been enhanced by Batelco under these circumstances as opposed to what the level has been since the genesis of the concept of egregious overtime by the previous Administration.

My fellow Rotarians and guests, it has now become evident as a result of the revelations by my government concerning the previous Administration’s privatization process of Batelco that serious consequences have fallen on this nation, in the face of the critical state of privatizing telecommunications in the present global environment. In a nutshell, the consequence of this protracted exercise up to May 31, 2002 has cost the Bahamian taxpayer $131 million dollars in separation packages and sundry consultancy fees. In addition $23 million in overtime payments for the three years ending December 31, 2001. Plus my government expects another $6million in additional costs for completion of the process. This is not inclusive of continued overtime payments. Hence the cost to privatize can safely be said to end up costing at least $160 million dollars.

When these approximate costs are placed in juxtaposition to an analysis prepared by the consultant, Deutsche Bank, giving a range of enterprise valuation of a low of $243 million and a high of $555 million, simple mathematics, coupled with a global telecommunications economy in crisis, will clearly dispel any myths that lack of foresight and present circumstances has not placed us in a most precarious situation as we face this critical period.

My fellow Rotarians and guests, this is evident when we take as an example Batelco only being worth $243 to a strategic partner. After spending $160 million to prepare for privatization, simple mathematics tells us that we would have only received $83 million for Batelco as a minimum return on a 37-year monopolistic investment. Likewise, if we look at the maximum selling price of Batelco, as stated by Deutshce Bank’s Valuation Supporting Material, being $555 million in juxtaposition to a $160 million dollar expenditure for the process; simple mathematics tells us that Batelco, would find the taxpayer only receiving $395 million as a maximum return on a 37-year monopolistic investment.

An added dilemma to the critical issue of the privatization of Batelco in the present climate, can be seen in the Sector Policy Statement left in place by the previous Administration that states that the FNM Administration had decided to, “divest itself of a 49% stake in Batelco together with the award of management rights to an international telecommunications operator, or strategic partner with successful experience of operating internationally.” I hasten to tell you that along with my government approaching the privatization process in a diametrically different manner than the previous Administration, the Sector Policy Statement left in place by the previous Administration will be revised to reflect the will of the Bahamian people.

In fact the revising of the Sector Policy Statement is only a small indication of the diametrically different manner in which my government will conduct the privatization process. We will be reaching to attain four basic objectives that are inherent in all serious privatization exercises. One objective is: to promote efficiency by exposing businesses and services to the greatest possible competition and to the benefit of the customer. A second objective is: to spread ownership as widely as possible among the population. The third objective is: to obtain the best value for each industry or service the government sells.  A fourth objective is: to seek to ensure that success in each privatization, generates momentum for succeeding sales.

CONCLUSION
Finally, my fellow Rotarians and guests, it is a corporately accepted edict of the new PLP Government that we can only successfully govern with the consultation of the Bahamian people. It is likewise in that regard that my government is diametrically different from the previous Administration, for on this critical issue of privatization another objective under the new PLP Government, is to seek the views of every citizen. While privatization cannot be seen in a vacuum and with global telecommunication issues staring us directly in the face, the question that my government seeks your consultation on is how to privatize?

This is the critical question needing an answer for the Bahamas to successfully ride out the global telecommunications crisis that now exist and still achieve our objectives as previously stated. And while we all have individual thoughts about, and solutions to, Batelco’s privatization; it will be the questions asked by you, the public and counter questions posed by my government, that will bring about the best possible ideas and improve the chance of the Bahamas successfully privatizing Batelco in the circumstances.

Though my government is very capable of acting on your behalf from our own conclusions; as a government and as citizens, we all must ask the hard questions and make wise decisions concerning privatization. And in the process rescue our profitable telecommunications entity, from what was an impending disaster under the previous Administration.

Mr. President I again thank you for providing me with this opportunity to share my thoughts on Batelco’s privatization.