Miller Report: Privatise it!

Recommends sale of government office building

TOPprivatiseitLEAD

The second recommendation of the
report written by a commission tasked with analysing Cayman’s fiscal troubles suggests
the government orchestrate substantial privatisation and other asset sales.

Written by James C. Miller III and
David Shaw, the report states that privatisation and other asset sales is a way
the government could raise revenue that would not have an adverse effect on the
Cayman economy.

“While the potential to obtain
receipts is limited, such sales and receipts are essential to bridge the financial
transition from excessive spending to more healthy revenue growth,” the report
states, adding that the government should implement a rapid privatization programme
by concentrating on specific enterprises and programmes.

The commission recommended that one
of four criteria be used in determining which enterprises to concentrate on for
privatisation, including if it was already under review for privatisation.  Other criteria suggested was if there was a
viable commercial activity with a revenue source independent of Government
subsidies; an activity for which there was already a considerable global track
record of successful privatization; and a commercial function that is a drain
on government revenues.

“Cayman opportunities fulfilling
the first criteria include the sewage system and the new Government office
building now under construction, and both should be pursued and completed
by…June 30, 2010,” the report states. “The Government estimates that these two
opportunities, plus the sale of two fire trucks, would yield as much as US$85.8
million.”

Other government activities or
assets the commission recommended privatising include the Water Authority, the
Cayman Islands Airport Authority, the Port Authority, the Turtle Farm/Boatswain’s
Beach, the Cayman Islands Stock Exchange and the Cayman Islands Development
Bank. 

“Among the 25 government-owned enterprises/authorities
that operate as pseudo-businesses, the six described above, as well as the
other saleable assets, are the best candidates for privatization over the next
year or two,” the report stated. “In large part this is because all are involved
in a type of commercial activity that is typically performed by for-profit private
businesses.”

The commission stated that in
addition to the six authorities it recommended for rapid privatisation, it
recommended 18 others for

“either for
a phased reduction of the existing Government subsidy or as a candidate subject
to review for competitive contracting of some of its functions”.

The report recommended phased
subsidy reduction for Cayman Airways, CINICO, the Cayman Islands National Museum,
the Health Services Authority, the National Housing Development Trust and the
Public Service Pension Board. 

“While we believe that Cayman
Airways should receive urgent attention and should be required to become
financially self-sufficient within three years, the other five should be
subject to a five-year subsidy payment phase-out,” the report recommended. “If
accomplished in equal, annual reductions, this five-year plan would yield an
annual savings of CI$36 million during the first year of implementation. The
cumulative savings over the five-year phase-out period would be CI$541
million.”

The report also recommended
increased competitive contracting for CINICO, the Stock Exchange, the Cayman Islands
Cultural Foundation, Children and Youth Services Foundation, the Civil Aviation
Authority, the Electricity Regulatory Authority, the Maritime Authority, the
National Drug Council, the National Gallery of the Cayman Islands, the National
Housing Development Trust, the National Roads Authority, the Public Service
Pensions Board, the Sister Islands Affordable Housing Corporation, the Tourism
Attraction Board, the University College of the Cayman Islands, and possibly
the Information Communication and Technology Authority.

“Extensive studies of competitive
contracting in the US and in Europe indicate that cost savings of about 25 per cent
can be expected from such a programme,” the report states.

The report summarised the benefits
of privatization and asset sales.

“Asset sales constitute one-time
infusions of cash,” the report said. “Privatization of enterprises that lose
money and require annual subsidies provide not only one-time gains, but the
avoidance of subsidies and in that sense provide a stream of benefits.

“In the case of transferring
enterprises and their associated assets, the objective is to transfer a resource
from government’s ownership to the private sector in exchange for cash, and in
the case of loss-making enterprises, the avoidance of annual subsidies.”

The commission also recommended restructuring
some of the government’s functions.

“In the course of our work, we
concluded that government is now carrying out functions that are not
necessarily required and that there is considerable over-employment,” the
report stated. “Addressing these two phenomena by either restructuring and
operating jointly with the private sector or by converting them into truly
competitive, efficient enterprises could result in considerable expenditure
reductions as well as increases in government revenue.”

Although the commission said it was
unable to carry out detailed studies on restructuring in the time available, it
thought three units – the Trade and Business Board, the Investment Bureau and
Tourism – could be restructured into agencies and run jointly with the private
sectors.

The commission also thought that
Radio Cayman, the National Pensions Office and Computer Services could be
formed into Government agencies with competitive market pricing, salaries and
pension benefits.

“This would restructure 161 civil
service posts with a more efficient, market-focused outcome,” the report
stated. “We consider that the private business sector in Cayman has much to
contribute, in both skills and money, to making the tourism, trade, and
investment activities on the Islands an increasing success. We received strong
representations to that effect, and we consider that the business community
should be called upon to make those functions even more effective in delivering
benefits to all Caymanians.”

TOPprivatiseitSTORY

The Miller Report suggests the Cayman Islands Government sell Boatswain’s Beach.
Photo: Stephen Clarke
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