The long road to privatization
By CANDIA DAMES
Guardian News Editor
One dozen years later, tone of BTC debate unchanged
In 1999 when initial attempts at privatizing the Bahamas Telecommunications Corporation led to massive demonstrations that saw protestors clash with police, former Prime Minister the late Sir Lynden Pindling noted that “double-talk on the privatization of BaTelCo has caused mistrust, chronic insensitivity — and
lack of respect has bred contempt.”
He opined that this was “fueling sustained civil disorder.”
“Much of what used to work is breaking down,” Sir Lynden said. “Civil society is manifestly under the gun in more ways than one. We cannot go on this way. Quite obviously, we cannot succeed this way. In the interest of peace, sanity and democracy in industrial relations, the time has come for all parties concerned to step back, take a deep breath and reassess the situation and, after reassessment, a new beginning can be made.”
More than a decade later, we are at a similar point. The latest efforts of the Ingraham administration to sell the state-owned telecommunications company have resulted in a degree of civil disorder, and industrial relations are again strained.
But unlike in 1999, the Government of The Bahamas today is on the brink of inking the final deal with a partner to purchase, not 49, but 51 percent of Bahamas Telecommunications Company’s (BTC) shares.
The road leading to this point has been long, uncertain and at times treacherous.
It was on February 11, 1998 in a communication to Parliament that the Ingraham administration formally announced its intention to privatize BaTelCo.
But that announcement was no surprise.
Manifesto II outlined the Free National Movement’s recognition that the rapid technological advances being realized in the production and supply of utilities, such as telecommunications services, made it increasingly difficult for public monopoly providers to remain at the cutting-edge of technology.
The Ingraham-led government was — and still is — of the view that it is the private sector that should be the main engine of economic growth and development, and that as far as possible, the role of government should be limited to that of providing those services which the private sector is unwilling or unable to provide, and ensuring that there exists an environment conducive to broad-based economic growth and development.
It was anticipated that the government would proceed to privatize the corporation during 1999.
But privatization plans date back even further, according to Prime Minister Hubert Ingraham.
In 1997, under another incarnation of his government, he said at an FNM rally that, “Before the FNM came to office, the PLP government was secretly negotiating to sell BaTelCo to Cable and Wireless of the United Kingdom and they said not a word to the Bahamian people about it.”
Addressing the recent Bahamas Business Outlook forum, Ingraham repeated the statement.
Today, we are told the Ingraham administration is just days away from concluding an agreement with Cable and Wireless for the majority of BTC’s shares.
BTC has come a very long way in its growth and development, although it is still lagging behind on some telecommunications advances.
BTC evolved out of BaTelCo, which grew out of the Telecommunications Department. That department dates back to 1892. It was on June 9, 1966 that Parliament passed the Bahamas Telecommunications Corporation Act, transforming the department to a corporation.
While the players and the approach to privatization are somewhat changed since the late 1990s when the buzzword was on everyone’s tongue, much of the language is the same.
At that 1997 FNM rally, Ingraham underscored that neither the government nor BaTelCo, from its own resources, can keep up with technological advances in telecommunications.
It’s a point he has made repeatedly in this most recent attempt to privatize.
In the late 1990s, the thinking of the Ingraham administration was to keep a majority interest in BaTelCo in Bahamian hands.
“I propose that we make available a minority interest in BaTelCo to a communication giant,” Ingraham told rallygoers. “That is why I propose we keep ownership of the majority of BaTelCo in Bahamian hands.”
Ingraham said at the time that he did not want to put this country in the position where it has to sell BaTelCo because the government is broke, and as a result receive less for the full monopoly.
“I do not want this to happen for The Bahamas,” he said. “I want us to remain ahead of the game.”
THE GROUND WORK
In February 1998, the government secured the services of the London-based telecommunications group Deutsche Morgan Grenfell to advise it on the privatization of BaTelCo.
Then Deputy Prime Minister Frank Watson told Parliament that the government expected to complete the privatization of the corporation within 12 months.
The Bahamas, he said, was in “the enviable position” of being able to earmark and commit all the proceeds from the sale of the shares in BaTelCo to national debt reduction.
Today, the government expects to get $210 million plus stamp taxes from Cable and Wireless for 51 percent of BTC.
While initially the prime minister had indicated the money would be earmarked to build a badly needed hospital, the rough economy and the resulting strain on government finances have led to a change of plans. The government intends — as it did in 1998 — to use the proceeds to pay down the debt.
Watson, who at the time was the minister responsible for public enterprises, said it was not possible for a publicly-owned facility, such as BaTelCo, to indefinitely maintain an effective monopoly in telecommunications.
“Continuing attempts to do so will undoubtedly be swept aside by the tide of technology, competition and market liberalization,” Watson said.
This communication to Parliament followed demonstrations in Rawson Square by BaTelCo workers, wary of privatization.
Watson advised that the government remained “resolute in our commitment and firm in our determination to move forward with deliberate haste in the privatization of BaTelCo.”
Before privatization could happen, the government needed to embark on a downsizing exercise, which proved highly controversial.
In June 1999, it was revealed that the cost of separation packages distributed to disengaged BaTelCo workers was $66.2 million.
Watson revealed in the House of Assembly that other benefit payments due to workers based on the terms of the disengagement agreement amounted to $55 million.
Additionally, employees received from the pension fund their entitlement of $24.2 million.
When it was all over, the total number of employees remaining at the corporation was 1,086, including 713 in New Providence, 182 in Grand Bahama, and 191 in the Family Islands.
Watson said at the time the government was “sympathetic to the employees who are being separated from BaTelCo, many of whom have given years of outstanding, dedicated and faithful services.”
“However, we are faced with the stark reality that the nature of the workplace is changing and changing rapidly, fueled principally by the dynamic advances in telecommunications technology,” he said.
“It is our duty to ensure that The Bahamas is prepared for the challenges that lie ahead.”
Watson also advised that, “Despite the challenges which were encountered over the past several months, we are essentially on schedule with the privatization of BaTelCo.”
The Ingraham government’s fundamental position on privatization has remained clear.
In a privatization position statement on February 12, 1998, the government said,
“We should not continue to inflict upon the public and business community of The Bahamas the unnecessarily high cost to sustain and maintain a government telecommunications monopoly.”
The strong opposition the government is facing from BTC’s unions today is not unlike the fury those labor organizations unleased in the late 1990s when the Ingraham administration moved with “deliberate haste” toward privatization.
In 1998, while the union leaders, after meetings with Ingraham, remained strongly opposed to the privatization of the lucrative corporation, the government also remained unfazed in its stance to sell off a chunk of BaTelCo.
“The majority of the workers feel that there is no need to privatize BaTelCo,” said Robert Farquharson, who at the time was secretary general of the Bahamas Communications and Public Officers Union (BCPOU).
“They are upset that the government has taken this position.”
Farquharson — who later became the union’s president — said at the time that BaTelCo workers had observed the effects of privatization in developing countries “and in practically all of the cases, privatization has not been good”.
As the year progressed, the BCPOU stepped up its opposition to the privatization of BaTelCo.
“We are not satisfied that the privatization of BaTelCo is the only way to encourage state-of-the-art management technology and increased efficiency,” said Shane Gibson, who was president of the BCPOU.
But by 2001, Gibson had a change of heart.
He said BCPOU members were “eagerly” awaiting the sale of BaTelCo because their lives had been “up in the air.”
“The sale of BaTelCo will bring about better services to the public and employees,” Gibson said.
In 1999, Gibson was on the frontline of protests against the sale.
In February of that year, angry protestors stormed Parliament, and Ingraham had to be placed under heavy police guard as they unleashed their fury.
Like many union heads in the late 1990s, the official opposition also expressed serious misgivings about privatization.
In March 1998, Shadow Minster of Public Utilities Dr. Bernard Nottage announced that the PLP was asserting “our complete and total condemnation of the government’s deceptive and hasty approach to the privatization of BaTelCo.”
He said while in principle there was no objection to BaTelCo’s privatization, the party preferred a BaTelCo that is 100 percent owned by Bahamians.
“We are dismayed that the government has summarily dismissed the possibility and has not included it in the terms of reference of its consultant advisors,” Nottage said.
“We and the public need to know the explanation for this decision before any debate is entertained on this matter.”
In the position statement in February 1998, Watson appealed to the leadership of BaTelCo’s unions, and all BaTelCo employees to cooperate fully in the privatization process so as to achieve the best possible results for all.
In January 2002, Ingraham expressed disappointment in the privatization delay.
The prime minister told the nation that while BaTelCo was being readied for sale, the process would not be completed before he left office.
“The final decisions on the sale of the corporation will be made by the next Government of The Bahamas, after the next general election,” he advised.
Under the five-year rule of the Christie administration, privatization was also on the menu.
The administration also planned to use proceeds from the sale to pay down debt.
In September 2002, the government inched a step closer to the privatization of BaTelCo, and announced the formation of the Bahamas Telecommunications Company Limited.
Then Board Chairman Reno Brown told reporters the name change marked the first crucial and very necessary step in the privatization process.
Bradley Roberts, who at the time was minister responsible for BTC, signed the vesting orders in accordance with a resolution passed in the House of Assembly, which approved of the disposal of the property which BaTelCo owned, to BTC, as well as to the treasurer of The Bahamas and the Public Utilities Commission.
As Brown told it, the transfer of the assets was seamless.
Millions more were pumped into preparing BTC for privatization. But it amounted to yet another failed bid.
As its term wound down, the Progressive Liberal Party government settled on the Bluewater group.
According to documents obtained by The Nassau Guardian, James Smith, who at the time was minister of state for finance, wrote to then Cabinet Secretary Wendell Major on April 30, 2007 advising that the sale to Bluewater had been “approved for execution”.
Smith also advised Major that he may wish to consult with Prime Minister Christie on the matter.
Smith attached a letter from Bluewater, outlining the terms of the pending sale.
In the letter, Bluewater confirmed its offer to purchase a 49 percent interest in BTC from the government.
Bluewater agreed to pay the government $260 million “for 49 percent of the company which represents a valuation of 100 percent of BTC of over $520 million.”
Bluewater agreed to pay $220 million in cash at closing; $25 million at the end of the fifth year following closing and $15 million at the end of the sixth year.”
Under that deal, Bluewater would have been granted mobile and land line licenses with five and six-year exclusivity periods, respectively.
Bluewater would also have been granted full management and operational control of BTC.
While that deal called for the chairman of the board to be a Bahamian citizen appointed by the government in consultation with Bluewater, the telecoms firm would have appointed the deputy chairman, the company’s chief executive officer and the chief financial officer.
Bluewater’s letter also called for the government to make certain payments to the group in the event it violated the exclusivity agreement.
But Bluewater’s plans had a short shelf life.
A day after being sworn back into office in 2007, Ingraham said while the Free National Movement was campaigning, the Christie administration was busy at Cabinet agreeing to sell BTC secretly.
It was then that he vowed that his administration would review every line of the deal “and there is no circumstance under which BTC can be sold on credit — no deal about installment payments.”
“All monies up front,” Ingraham said. “And what you will do after you get it must be clearly stated.”
When the Free National Movement was returned to government in 2007, it again had privatization on its agenda.
In September 2008, Prime Minister Ingraham revealed in the House of Assembly that the government intends to sell a 51 percent stake in BTC and move swiftly to liberalize the telecoms sector in the country. ”It is the government’s intent to cause BTC to be privatized by the end of this year,” Ingraham said.
“Whether or not we’re going to be able to make that date is questionable at the moment because there are many issues that need to be settled.”
The year ended with the government still far off from privatization.
In August 2009, the government-appointed privatization committee said interest in the 51 percent stake was strong, and the due diligence phase of the process was set for a September start.
The government again advised that it was seeking a strategic partner with a strong reputation in the telecommunications industry; the ability and commitment to generate value-added revenue and cost synergies with BTC operations; financial strength and the operational platform to be able to enhance BTC’s underlying network, services, billing and customer service, as well as a history of strong financial performance.
Weeks later, the privatization committee recommended to Ingraham that four interested groups be allowed to bid: Vodafone and One Equity Partners; Digicel Limited; Atlantic Tele-Network Inc. (a consortium which included Colina Financial Advisors as a minority shareholder) and Trilogy International Partners (which was backed by Providence Equity Partners).
Vodafone and OEP ended up with the highest combined score after the committee completed an assessment of the bidders’ financial and technical ability.
At this stage of the process, Cable and Wireless had no interest in purchasing any part of BTC.
There were actually several major telecoms companies that had been described by the privatization committee as the “best prospects” to purchase a 51 percent stake in BTC, but they decided not to participate in the sale process.
Cable and Wireless, AT&T, Verizon, America Movil and Rogers Communications were the groups the committee was most interested in, but they had no interest in the company.
The committee said in 2009 that after a lengthy review of the opportunity, Cable and Wireless decided not to participate, being focused on other organic growth opportunities and financial market conditions.
Last year, CWC was back at the table with the government.
Since the signing of a memorandum of understanding with the Ingraham administration early last month, the company and the government have seen strong opposition.
But it finally appears that the long, tumultuous road that saw numerous failed attempts at privatization is nearing its end.
BTC in short order, it seems, will be owned in the majority by Cable and Wireless.
It’s a move the Ingraham-led government has assured will spell untold benefits for customers craving lower costs and better technology.
But a dozen years after initial attempts were made to privatize BaTelCo, the unions are still not convinced that the government’s approach to privatization is the best one.
It is unclear whether this sharp opposition — including court action — would have any meaningful impact on the process this time around.