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The Malta Business Weekly Le Meridien Phoenicia Business Breakfast
Last week's business breakfast organised by The Malta Business Weekly and the Le Meridien Phoenicia was entitled "Privatisation 2000: Ensuring transparency in privatisation" and the guest speaker was Alfred Mifsud, a well known financial consultant and former chairman of Mid-Med Bank.
The business breakfast was extremely well attended and the audience included executives from government-owned companies that are in line for privatisation, trade unionists, people in finance, industrialists, diplomats and journalists.
Mr Mifsud began his speech by saying that privatisation was perhaps the only issue over which there existed a consensus in the country. "This has been the case since 1996," he said, adding that before that it was only the right wing and the business community which was in favour of privatisation. Mr Mifsud said that privatisation is generally regarded as better for efficiency. "Privatisation is often linked with liberalisation, which also addresses inefficiency. There is also the public deficit of the country which must be addressed. It was the deficit which mostly brought about the change in the country's attitude to privatisation. Many believe that it is better to privatise than to increase taxes," he said.
Mr Mifsud said that consumer awareness and communications have increased the expectations of people over their right to get a better product. Technology then has made privatisation possible, he said, as it has broken down barriers, and encouraged competition in areas once considered as a national monopoly.
"About six years ago, for example, the telecommunications sector was considered a national monopoly but this is no longer the case. The utilities sector is still considered as a national monopoly but technology could possibly change this in the coming years," he said.
Mr Mifsud said that the only disagreement in Malta regarding privatisation was over the details. As a nation, he said, we need to build on this consensus across the political spectrum.
Mr Mifsud said the way Mid-Med Bank was privatised had damaged the consensus over privatisation because a transparent process was not adhered to.
Since then, however, after the resistance put up by Mid-Med's private shareholders, the Malta Stock Exchange took steps to protect Maltese shareholders. "The by-laws have been changed so that the listing of public companies now requires not more than five per cent of the shareholders to oppose a deal, for the deal to fall through. If more than five per cent of the shareholders object, no listing is allowed," he said.
Mr Mifsud said the government's White Paper on privatisation was a very good document. "It stops just short of being too detailed because that would embarrass the government over the Mid-Med deal but between the lines one can see some criticism of the Mid-Med deal," he said.
Mr Mifsud emphasised that the privatisation process in Malta required strong regulation. "In a small country such as Malta, where the number of the participants is limited by the size of the market, the need for a very strong regulator is more essential than in bigger countries," he said.
Mr Mifsud said that in the telecoms sector, for example, nobody knows what is going to happen and everybody suspects everybody else has hidden agendas. He called for a strong competent regulator to be appointed.
The former Mid-Med chairman emphasised that proceeds from privatisation should not be used to battle the country's structural deficit. "What will happen when there are no more assets to be sold and the structural deficit crops up again," he asked.
Mr Mifsud said that a massive re-training programme was needed to avoid people ending up jobless as a result of privatisation.
After Mr Mifsud completed the first part of his presentation, the chairman of the water Services Corporation, Michael Falzon, said that it was normal for shares to go up in value as a result of privatisation. Mr Mifsud replied that it did not mean that shares should be underpriced when sold. The price of Mid-Med's shares were low when they were sold to HSBC, he explained.
Mr Mifsud said that when Maltacom was partially privatised the share price remained within a 10 per cent range of the issue price for the first six months, which is what normally happens. He said that beyond six months, the price of the shares is difficult to control.
The secretary general of the Federation of Industry, Edwin Calleja, questioned whether the utilities sector should still be considered a natural monopoly. "Both Enemalta and the Water Services Corporation are inefficient and the government has to continually subsidise them. These two utility companies should be at the top of the list of companies to be privatised or at least popularised, which would take them away from the government and the politicians," Mr Calleja said.
Mr Mifsud disagreed saying that the monopolies themselves were inefficient.
"If you place a government-owned monopoly into the private sector, that would still not make it efficient. The only difference is that the inefficiency will be driven into the private sector," he said.
Mr Mifsud cited the example of Maltacom which has 1500 employees but which really needs only 600. "Maltacom is a monopoly and had to pay the price for this by giving jobs to more people than it needed. It is very dangerous to think that the solution is to shift a public monopoly to the private sector. What is needed is an adequate regulatory framework and a massive retraining scheme on a national basis, with the consent of the unions." He admitted, however, that certain employees were simply not re-trainable.
Michael Mallia, managing director of L. Farrugia & Sons, pointed out that Enemalta's inefficiency has multiplier effects all around the country. Mr Mifsud agreed but said that industry had to calculate its costings correctly.
The director general of the Chamber of Commerce, Tony Borg Cardona, asked Mr Mifsud what type of privatisation model he would opt for. Mr Mifsud said that each company should be considered as a separate case and a model for company might not be good for another company. "There is only one airport in Malta and therefore MIA should not be fully privatised," Mr Mifsud said. He again referred to the sale of Mid-Med Bank to HSBC saying that the Korean government had negotiated with HSBC to sell it one of its banks but this fell through because HSBC offered to buy the bank for a low price, "in spite of the fact that the bank in question was not in a good financial situation".
The deputy secretary general of the General Workers' Union, Mario Cutajar, expressed his reservations on privatisation.
He said that utilities were basic necessities and it is only followers of Thatcherism who want these to be privatised. "Efficiency is not a monopoly of anybody. The Posts Department used to be the most efficient of government departments but now that it is being run on commercial lines yesterday I received a letter which was posted on 7 December 1999," he said.
He referred to recent government claims of mismanagement of public funds at the law courts, and to the sorry spectacle of government employees leaving their places of work early. "How can you say that inefficiency is caused by ownership? In the UK, as a result of Thatcherism, the utilities were privatised but what happened then?" he asked. "Privatisation is nothing but an ideology and it is important for the unions to emphasise the social aspect of privatisation. After all, privatisation is not just about the transfer of capital, but people," he said. Mr Cutajar thanked The Malta Business Weekly for inviting trade unionists to the business breakfast.
Mr Mifsud replied that he had emphasised the social aspect in his speech. "Restructuring is inevitable but it must be done within a social context. In this day and age we have to compete in the globalised economy we can only do so if we are efficient," he said.
GWU President James Pearsall said that privatisation is often regarded as the solution to everything. "Malta is a country where perceptions and prejudice count a lot. The union is perceived as being against the private sector but in reality it is not against the private sector," he said. Apart from selling public companies to the private sector, there is also a third way, tried in New Zealand, which is selling public companies directly to the citizens.
Mr Pearsall said the social partners must sit down and discuss all the issues together but should also keep politics out of the picture. He said that although the government says it wants to reduce the number of people employed by the public sector it is still employing people at MIA and it does so on the eve of elections.
Michael Mallia pointed out that as a manager he never looks at restructuring in terms of redundancies. With regards to ownership and efficiency, he pointed out the example of Zammit Clapp Hospital. This hospital obtained its fame as an efficient hospital because its original plan was to keep ministerial interference out. But later, ministerial interference crept in and he consequently resigned as its chairman.
Mr Mallia also mentioned Air Malta as an example. Air Malta had employed some 300 to 400 people before the 1987 elections. Air Europe manned the same number of planes with half the workforce.
He said that privatisation was not an ideology. "We need privatisation because we need to keep up with the world economy. If privatisation works, then we should go for it," he said.
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