Tugging privately
The government is on course to sell its 73.72 per cent share in Tug Malta. This newspaper reported the latest development in the company's share sale process, which started last September (May 24). The authorities, said the report, had confirmed that...
The government is on course to sell its 73.72 per cent share in Tug Malta. This newspaper reported the latest development in the company's share sale process, which started last September (May 24). The authorities, said the report, had confirmed that they had accepted the adjudicating committee's recommendation to select Rimorchiatori Riuniti SpA as the preferred bidder for its holding.
The Times recalled that Tug Malta was set up in 1980 "after a number of private companies that used to run a towage service were nationalised". The report included further details given by the Investments Ministry, which is responsible for the remaining state holdings. Talks between the Privatisation Unit and the preferred bidder were to start straightaway.
Originally, 11 companies involved in towage and salvage operations signed a confidentiality agreement with the Privatisation Unit and collected the Request for Proposals (RFP) document. The Times did not report whether the ministry had anything to say about the other 10 bidders .
The Italian company, Rimorchiatori Riuniti, was established in 1922 and provides towage and harbour services in the ports of Genoa and Salerno. The Investments Ministry said it also provides other special towage services and offshore activities including anti-pollution services.
The adjudicating committee works according to the policy parameters set by the government. The declared intention of the government is to take the state out of the corporate sector, to the fullest extent possible.
There are also obligations in this regard in terms of Malta's membership of the EU. Nevertheless, keeping that background under consideration, there is a basic question to ask: Is the government right to try to sell off all the state's holdings, no matter how strategic these might be?
The fracas which resulted in the demise of Sea Malta - whether it was engineered or came about through rigidities and misunderstandings is now immaterial - left the Maltese economy largely dependent on a foreign operator. The quality of the operator is immaterial; it is the structure of the sector that counts. Private foreign operators will only remain in Malta as long as it pays them to do so.
That does not simply mean so long as they are profitable. The degree of profitability also comes into it. That is regulated by opportunity cost. If a private operator faces a persistent opportunity cost, after taking into account any funds it receives to fulfill a public service obligation, it will owe it to itself to reconsider its position.
Unlike various other members of the EU the government seems bent on ignoring this consideration. It has signalled that it does not plan, at least not as yet, to privatise Air Malta. But it has done its best to sell off, on the right terms, its remaining 25 per cent shareholding in the Bank of Valletta.
When that comes about, if combined with a sale of the shares held in the bank by Capitalia, effective control of the banking system will be in foreign hands. That will dress up the figure for foreign direct investment even though share transfers, considered as FDI when the purchasers are foreigners, do not necessarily add value to the economy, certainly not automatically.
This is not an argument in favour of state control and government involvement. It is an attempt to broaden the background of consideration of the basic question posited further up. There is - or should be - a difference between state ownership and the way a governments deports itself in respect to state holdings.
Maltese governments of both political hues tend to keep far too close to public commercial holdings, rather than acting at arm's length and letting the board of directors set policy and oversee its execution. That is not at all evident in Bank of Valletta, where the government respects its minority status, as it used to respect in Middlesea Insurance.
It is not all evident in Air Malta, where the minister is involved not only in setting policy but also in projecting the stand of the company on various issues. To a certain extent, that is inevitable where the state holds a majority shareholding. It is the responsible minister - in the present case, the Investments Minister - who is accountable to Parliament and the people for its performance, even for any small incident that may occur without the minister's involvement or prior knowledge.
The political tendency to seek media exposure runs deeper than that. We even witness the ridiculous situation of some minister visiting a private company, being suitably briefed by the management about its activities, and then proceeding to announce any development therein as if the government, or the minister personally, was responsible for it.
The basic point underlying the question I put above, however, is the wisdom or danger of letting go of local involvement in the country's strategic industries, particularly where, due to market structures conditions, these operate in a monopoly situation.
The irony is that the government is not following its policy in order to try to see lame ducks recovering and taking off on mighty wings.
Tug Malta, for instance, is by no means a lame duck. The Investments Ministry pointed out that, over the past three years, the company underwent a restructuring process to upgrade its service to provide, for the first time, harbour towage in Valletta and the Freeport on a 24-hour basis. Tug Malta took delivery of two new tug boats last year.
There is obvious room to reflect on the outcome of the government's privatisation philosophy. Political fingers, blue or red or whatever else, should definitely be kept from meddling in the operations of state enterprises. But the privatisation model should at least seek to ensure that strategic companies retain an economically relevant domestic shareholding.
Getting the right price or the right strategic investor is not enough. Not by a hefty tug.
The Times recalled that Tug Malta was set up in 1980 "after a number of private companies that used to run a towage service were nationalised". The report included further details given by the Investments Ministry, which is responsible for the remaining state holdings. Talks between the Privatisation Unit and the preferred bidder were to start straightaway.
Originally, 11 companies involved in towage and salvage operations signed a confidentiality agreement with the Privatisation Unit and collected the Request for Proposals (RFP) document. The Times did not report whether the ministry had anything to say about the other 10 bidders .
The Italian company, Rimorchiatori Riuniti, was established in 1922 and provides towage and harbour services in the ports of Genoa and Salerno. The Investments Ministry said it also provides other special towage services and offshore activities including anti-pollution services.
The adjudicating committee works according to the policy parameters set by the government. The declared intention of the government is to take the state out of the corporate sector, to the fullest extent possible.
There are also obligations in this regard in terms of Malta's membership of the EU. Nevertheless, keeping that background under consideration, there is a basic question to ask: Is the government right to try to sell off all the state's holdings, no matter how strategic these might be?
The fracas which resulted in the demise of Sea Malta - whether it was engineered or came about through rigidities and misunderstandings is now immaterial - left the Maltese economy largely dependent on a foreign operator. The quality of the operator is immaterial; it is the structure of the sector that counts. Private foreign operators will only remain in Malta as long as it pays them to do so.
That does not simply mean so long as they are profitable. The degree of profitability also comes into it. That is regulated by opportunity cost. If a private operator faces a persistent opportunity cost, after taking into account any funds it receives to fulfill a public service obligation, it will owe it to itself to reconsider its position.
Unlike various other members of the EU the government seems bent on ignoring this consideration. It has signalled that it does not plan, at least not as yet, to privatise Air Malta. But it has done its best to sell off, on the right terms, its remaining 25 per cent shareholding in the Bank of Valletta.
When that comes about, if combined with a sale of the shares held in the bank by Capitalia, effective control of the banking system will be in foreign hands. That will dress up the figure for foreign direct investment even though share transfers, considered as FDI when the purchasers are foreigners, do not necessarily add value to the economy, certainly not automatically.
This is not an argument in favour of state control and government involvement. It is an attempt to broaden the background of consideration of the basic question posited further up. There is - or should be - a difference between state ownership and the way a governments deports itself in respect to state holdings.
Maltese governments of both political hues tend to keep far too close to public commercial holdings, rather than acting at arm's length and letting the board of directors set policy and oversee its execution. That is not at all evident in Bank of Valletta, where the government respects its minority status, as it used to respect in Middlesea Insurance.
It is not all evident in Air Malta, where the minister is involved not only in setting policy but also in projecting the stand of the company on various issues. To a certain extent, that is inevitable where the state holds a majority shareholding. It is the responsible minister - in the present case, the Investments Minister - who is accountable to Parliament and the people for its performance, even for any small incident that may occur without the minister's involvement or prior knowledge.
The political tendency to seek media exposure runs deeper than that. We even witness the ridiculous situation of some minister visiting a private company, being suitably briefed by the management about its activities, and then proceeding to announce any development therein as if the government, or the minister personally, was responsible for it.
The basic point underlying the question I put above, however, is the wisdom or danger of letting go of local involvement in the country's strategic industries, particularly where, due to market structures conditions, these operate in a monopoly situation.
The irony is that the government is not following its policy in order to try to see lame ducks recovering and taking off on mighty wings.
Tug Malta, for instance, is by no means a lame duck. The Investments Ministry pointed out that, over the past three years, the company underwent a restructuring process to upgrade its service to provide, for the first time, harbour towage in Valletta and the Freeport on a 24-hour basis. Tug Malta took delivery of two new tug boats last year.
There is obvious room to reflect on the outcome of the government's privatisation philosophy. Political fingers, blue or red or whatever else, should definitely be kept from meddling in the operations of state enterprises. But the privatisation model should at least seek to ensure that strategic companies retain an economically relevant domestic shareholding.
Getting the right price or the right strategic investor is not enough. Not by a hefty tug.