By Ramesh Beeharry
In order to stop squandering taxpayers’ money that can be put to better use, Government would be well advised not only to keep away from future forays in non-governmental business
My friend Keshraj never tires of saying that we the people elect governments to govern and not run businesses. But what do we see instead? Governments of all colours appear to be obsessed with operating businesses that have little to do with the business of running a government. For example, soon after the Lepep government came to power in Dec-2014, it saddled the country with two financial institutions which are being kept afloat with Rs 6.5bn of taxpayers’ money.
Unfortunately many government-owned business entities tend to head south; and have to be bailed out by the taxpayer. The reason is that each government tends to appoint “its people” with doubtful credentials to high positions of responsibility. Consumed by their own self-delusion that they have been picked for their expertise and business acumen, these people are unlikely to have the humility to seek guidance in matters beyond their intellectual grasp. This often results in wrong decisions amateurishly taken and which can, and has, cost some institutions hundreds of millions.
SBM. This bank is a listed company on the Mauritius Stock Exchange. So an alien would be forgiven for thinking that it is a public limited company with full autonomy. The truth however is somewhat different. It is in fact a government-controlled bank. In their defence the authorities might point out that Government owns only 43pc of the shares and that would be absolutely true. But what they won’t tell you perhaps is that they also own a further 15pc through SBM Holdings. Consequently with 58pc of shares Government exercises absolute control over the Bank.
For the year 2018, SBM has made impairment provisions of Rs 3.6bn as a result of dodgy foreign business. Older readers will recognize this is an euphemism for what the old-fashioned banker would call “Bad and Doubtful Debts”.
Two major loans stand out. A loan of Rs 2.4bm made to a Kenyan company went sour and there was no collateral taken against it. Another borrower from Dubai as well as his guarantor disappeared with Rs 942m. But did the collateral disappear with the guarantor or was there no collateral taken in the first place? Anyway what was the Lending Committee up to? It is doubtful whether a wholly independent commercial bank would have made any loan of this magnitude without taking adequate collateral of quality. But then SBM is a quango (a semi-public administrative body outside the civil service but receiving financial support from the government, which makes senior appointments to it); and different rules seem to apply!
MAUBANK. This Bank came into being in Jan-2016 with the merger of the MPCB and the National Commercial Bank (ex-Bramer). It is 100% owned by the government (read taxpayer).
Figures for the three years of the Bank’s existence are near impossible to find. In fact my searches have only yielded a MBA Profile of Banks. According to this report, in 2017 the Maubank made profits of Rs 141m on investments and loans of Rs 21bn! With poor performances like these and accumulated losses of Rs 4bn, it is little wonder that the bank adopts a low profile.
It is also very little wonder that the Rs 3bn of taxpayers’ money injected by Government at the outset remains unpaid. At the rate it is going, many experienced bankers privately wonder if the taxpayer will ever get his money back — forget any dividends! they say.
Occasional media reports paint a horror story. Like the case of the ex-Officer of the Mauritius Post and Cooperative Bank who was sacked and sued for Rs 150m by the Bank for allegedly recommending toxic loans of Rs 1.3bn (Defi 25-Jul-2016). But once again, the public is left wondering about the role played by the Lending Committee (LC) when the loans were granted. After all any officer can recommend a loan, but it is the LC’s responsibility to ensure that it is bona fide, with adequate and proper collateral.
As it happens, in March 2019 the two parties settled outside of court and the Bank reportedly paid the Officer Rs 6.7m in compensations. But what the public wants to know is what happened to those supposedly toxic loans? Did they become non-toxic in course of the last three years, or did the taxpayer have to write off Rs 1.3bn? In the absence of published figures, it is impossible to say how many other skeletons may be hiding in the bank’s vault.
DBM & NIC. It is common knowledge that the situation at the Development Bank of Mauritius has never been ideal for years. Now we have the problematic NIC (National Insurance Company: ex-BAI) to contend with. This company was set up by the Lepep government in 2015. Sure enough it posted profits of Rs 58.4m for Year-ending 30-Jun-2016, but there is something fishy when its auditors refuse to sign off the accounts. Perhaps the SICOM knew something when it refused to take over this institution.
Last month, in an understatement that only politicians are capable of making, Minister Seesungkur stated that, whilst the situation at the NIC is not ideal, there is no need to panic. On the other hand, MMM’s leader Paul Berenger is convinced that the Company is heading for losses totalling Rs 500m by the end of the financial year! At this rate it may take the Company years to repay the Rs 3.5bn that it has borrowed from the Bank of Mauritius.
Air Mauritius. If there is a company whose performance graph looks like a see-saw, MK is it. The results seem to reflect the business acumen of those appointed to lead the Company. Think of the “hedging” sagas which cost the airline billions of Rupees. The Company took a hedging contract against rising fuel prices in a market where there was downward pressure on fuel costs due to decrease in demand generally coupled with a decrease in demand by the USA as a result of the advent of fracking in that country.
The consequence of the monumental cock-up was that the then PM ordered MK’s Chairman to vacate his chair pronto. But the damage had been done and the hedging continued to eat away into MK’s profit for several years. Alas, because of bad decisions like the hedging episode, MK’s result resembles a roller-coaster — up one time, plunging the next.
For the first nine months of 2018, the Company reported losses of Rs 1bn. Possibly taking the public for unthinking fools, the outgoing Chairman explained this away by pointing to (high?) fuel costs. Except that the average closing price of Brent crude was as low as USD 71 last year. On the other hand MK managed benefits of Rs 400m in 2011 when the average cost was USD111. That is 36% higher than 2018!
Hence for the true reasons for those horrendous results, one needs to look elsewhere. Some of the reasons may be found in over-staffing, top-heavy management, perks for relatives, free tickets to ex-directors who have served the Company for relatively short lengths of time, general waste and, in the words of the Chairman, outdated management methods.
However, for some thinking people the most important reason has to be the precipitous acquisition of eight new aircrafts in the last couple of years. That is two A330-900-neo and six A350-900. As per Airbus published price list 2018, these babies cost +USD 2.50bn in total. So the losses made in 2018 is only the beginning. The billions needed to service the loans/leasings will test MK’s ability to keep out of the red for many, many years to come! (According to IATA, aircraft purchase costs are usually amortised over 20 years.)
Vindication. I am sure that the reader will agree that these few examples totally vindicate Keshraj’s statement. Therefore, in order to stop squandering taxpayers’ money that can be put to better use, Government would be well advised not only to keep away from future forays in non-governmental business, but also divest itself of those that it already has under its control. These sales would not only bring in much needed cash into the Treasury, but also ensure tax income from profits every financial year in the future. What a certain PRB would qualify as a “win-win” situation!
* Published in print edition on 31 May 2019