The Privatisation Debate
Not as simple as just selling assets
By Charles Pitt, Political Editor

While the Chamber of Commerce has been active in promoting discussion on the privatisation of some State Owned Enterprises (SOEs), government has no policy to sell off any of its business units. It is unlikely to entertain such an idea in the foreseeable future.
While privatisation should be considered in the long term, perhaps as one of the long term goals under the new 20-year plan being drafted, it is unlikely to gain wider support from the business sector.
Indeed the Chamber in its latest newsletter has asked members for their comments. This new commercial direction is apparently one of the factors which led chamber Vice President James Beer, of Jimco, to tender his resignation.
That resignation has also come as a surprise to the Cook Islands Investment Corporation (CIIC). It oversees the operation of the SOEs.
The Times spoke to CEO Taukea Raui and CIIC Board member Tapi Taio, a former MP and Under Secretary in 1999 to then Prime Minister Dr Terepai Maoate. At that time Taio was also chairman of the CIIC. Both appear staggered that the Chamber is even thinking about the proposition.
EQUITY
Raui pointed out that singly, the business units are vulnerable with the exception of Te Aponga Uira (TAU), which consistently performs to Government expectations. Raui confirmed that government expects a return in the vicinity of 4-5 per cent of equity.
TAU’s consistently outstanding performance gives all units some respectability. TAU’s returns consistently exceed 10 per cent of equity. Singly, some business units struggle to reach this bench mark.
Raui also confirmed that all units to some degree or other are not charging for some services and are absorbing costs or are subsidising costs. The CIIC term this as “social costs.”
COSTS
The question long dogging CIIC is how long can it allow business units to absorb social costs. Especially if there is scope for end users or those who benefit to pay for the service provided or to contribute a portion of the cost?
Some examples of these social costs, confirmed Raui, are the Port Authority subsidising the uneconomic service at Aitutaki Port, free housing and wharfage of Te Kukupa. Another is provision of street lighting by TAU.
Raui agreed that if a business unit such as the Port Authority were to be privatised, social costs would have to met by consumers or that service discontinued.
Also, charges would rise as the company dealt with the true costs of running the operation. Alternatively, recovering the true costs may render the operation uneconomic and unattractive to investors.
SMALL
Tapi Taio says the economy and market is too small for such major assets as the business units to be transferred into private hands. He said when the Maoate led government came to power in 1999, all notion of privatisation was stopped.
Privatisation was one of the five key strategies of the path to recovery plan under the Henry administration of the mid nineties. At the time the Rarotonga Airport was under consideration for sale.
Taio said on their own, most of the business units with the exception of TAU, would struggle to make a profit given that costs would need to be increased to reflect the true cost of operation, stay ahead of inflation (around 2 per cent) and repay bank loans.
In any case government should be aiming to run the units efficiently. No private enterprise wants to buy something currently operating at a loss no matter how attractive the sale price may be.
REPORTS
Full and informed public debate on the merits of privatisation are hampered by the lack of data available to the public. The six-monthly reports on the performance of the business units are not made public and they should be.
With the units not in competition with anyone, none of the data could be said to be “commercially” sensitive.

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