Greece: Cash revenue maximizing privatization of public services, creates very onerous mortgages

The saddest part with the oncoming privatizations of public services in Greece, is that these will most certainly be awarded on the basis of who pays the most, usually a function of governments agreeing on very high tariffs; and not on the basis of who can best help Greece build up its competitiveness… like for instance based on who offer the lowest tariffs.

As one from South-America (Venezuela) I have seen this tragic mistake being done over and over again, only in order to please the short-term interests of governments and creditors.

I guarantee you that all cash-revenue-maximizing-privatizations of public services, create very onerous mortgages, which when these are impossible to serve by the citizens, create all kind of dangers and problems.

Here is an extract from an Op-Ed I wrote in 1997, titled “Hidden taxation through privatization” and that can help explain my point.

“In 1991, when Israel awarded concessions to cellular telephone companies, the criteria for these tender awards was the selection of the operator that offered the best and most inexpensive service to the consumer. In Venezuela, however, the sale of public service companies or the letting of concessions for public service operations are based on the maximization of income for the State by means of a kind of tax, payable in advance, and which will be repaid by the consumer year after year through increased tariffs. The results are there for all to see. In Venezuela, the cost per minute of the cellular telephone service is over ten times that in Israel.

Nobody can or should oppose the theory that the State, through privatization, must transfer to the private sector the relative responsibility for its public services. However, when this transfer is made by maximizing the sales price with the principal intention of filling the State’s coffers, we are effectively confronted by a new and strange version of tropical neoliberalism, invented not to serve the needs of the population, but merely to satisfy the insatiable appetite of the state public sector for income” … (or in this case, the case of Greece, the short-sighted appetite of creditors)

The creditors should know that what the buyers of those privatized services expect, are financial returns way higher than what they as creditors will obtain on their refinanced loans.

You are a bank creditor of someone delinquent on a mortgage against a house that earns you very low interests... and you allow that mortgage to be increased, for instance by a credit-card company charging much higher interest rates? It does not sound very smart!

Bashing the consumer

Once again we are in the midst of a debate about the allocation of a concession for a cellular telephone operation. One part of this debate is relative to whether the law to be applied in this case is the Telecommunications Law of 1941 or the Concessions Law of 1994.

As usual, most of the arguments are a direct function of the commercial interest involved. In this particular case, however, it is even more surprising to find that the General Director of the National Telecommunications Commission (CONATEL) is of the opinion that neither of the two apply, holding the singular view instead that cellular communications are not to be classified a public service.

Again, as is tradition, the debate does not cover the entire communicational spectrum. Once again, the end user of the service is conspicuously absent.

In 1991 Israel bid and allocated a cellular telephone concession to the investor that offered the most amount of lines and agreed to charge the lowest tariff. In Venezuela, however, concessions and privatizations are designed to maximize the income for the State. Results come fast and hard. Recent calculations support the fact that one minute of cellular communications in Venezuela costs ten times what it costs in Israel.

Quality and low tariffs for public services such as electricity, water, communications and transportation are some of the critical elements that must be present in order to maintain the country’s competitiveness. This fact should be taken into consideration by entities such as Fedecamaras and other influential groups that, like any court jester, have in the past applauded a privatization process that must, for all intents and purposes, be classified as fiscally oriented.

The Telecommunications Law, as no other, is evidence of this trend. There is absolutely no mention whatsoever of any obligation or duty of an operator or carrier to provide a good public service at a reasonable tariff. What’s more, when the moment comes to address the regulation of tariffs, apart from the fact that the Law calls for respect for existing agreements, it establishes with utmost clarity that any regulation must consider the “interests of the National fiscal system”.

Don’t think that the Concessions Law is much different. While it logically states that “the concessionaire must be allowed to obtain sufficient income to cover costs and that is fair and equitable”, there is no mention about the need, or even the intent, to structure the concession in such as was so as to minimize the cost to the end user of the service to be offered.

It is high time that we begin to differentiate in a more rational manner between sane economic policies and those that, simply because they are being applied to what has been loosely classified as a “market”, are believed to be the quick road to an economic miracle and are consequently implemented indiscriminately. Much care must be taken when a “market” simply does not exist. This is specially true in the case of public services, which are mostly structured as monopolies, public or private.

Public service companies traditionally offer workers employment stability and therefore also pay salaries that are below the average. Recently, faced with the threat of a national strike, a representative of the national monopoly identified by the initials CANTV, expressed surprise, arguing that the latter was paying salaries over and above the national average. Without wishing to belittle the individual aspirations of its workforce, I remember asking myself who had authorized CANTV to pay its employees salaries above the national average, probably at the expense of a higher tariff for the service offered.

The government, as well as many of the Presidential hopefulls, has announced a new wave of privatizations, specifically in the energy sector. As a result, it is of utmost importance that they remember that a high price obtained for the sale of a publicly owned company like SIDOR is beneficial for everyone, while a high price obtained from the sale or concession of a public service is simply a tax paid in advance to the State, which all of us must then repay via unnecessarily high tariffs for per secula seculorum.

I have read about the supposed “advantage” of tendering and allocating a few megahertz (50 to be exact) at which any investor must then throw an additional US$ 200 million in project development funding. First of all, Conatel hopes to land a US$ 180 million windfall. Then the State wishes to obtain US$ 325 million in income taxes and US$ 470 million in sales taxes between now and the year 2009.

In other words, the tariff structure needed to award the investor a “fair and equitable” income must contemplate not only the US$ 200 million development cost, but also the payment to the State of US$ 975 million. Where the dickens does this leave the end user?

Daily Journal, Caracas, November 11, 1998

How good or bad is your municipality?

I recently had the opportunity to travel to a Central American country. I was impressed by the fact that many professionals, both from the public as well as the private sector, both local and foreign, were basically in agreement as to which municipalities were well governed and which were not.

Evidently, there are a great number of subjective factors that may influence or “color” opinions from municipality to municipality. Some of these we have seen before, such as the mayor’s looks and/or congeniality or how big a share of the nation’s global resources it has been awarded. Certain variables can, however, be objectively evaluated in order to allow a reasonable ranking of municipalities as far as effective government is concerned.

In many parts of the world, including Venezuela, we have seen that expectations of improvements in public services are based on decentralization of power. As a result, it would seem positive to be able to develop a methodology which would help the population measure the results and efficiency of its government(s).

Bad results are immediately evident; their causes are not. An inefficient municipality can easily justify its unsatisfactory performance by alluding to a lack of resources. On the other hand, a below par result can also be hidden behind a surplus of resources. Having to take care of his day to day duties, how is a simple voter to know which is which?

The absence of knowledge or of access to information based on very certain and objective data about municipal government as well as an accompanying aversion to the unknown, attempts against a healthy renovation of the latter’s authorities. This lack of benchmarks and standards of measurement may also mean that results which may seem poor in the short run but that are designed by provide meaningful long-term improvements are not suitably rewarded.

Just imagine the chaos and confusion if our system of education all of a sudden decides to do away with the report card. How would parents evaluate the scholastic capacity of their children, especially when many of them haven’t even heard about the existence of the subjects currently being taught. This is very similar to the confusion of most voters when the time comes to choose their authorities for the next period.

We have about 300 municipalities that hold official elections in Venezuela. Few voters, so much so that I personally don’t know of one, have even the remotest idea whether their municipal government is better or worse that his neighbor’s. A ranking such as that mentioned above would help us comply with our obligations as voters.

Evidently, nobody can say that the measurement of results, however objective, will result in the correct analysis of any particular administration. However, a reasonable ranking could at least go a long way toward becoming a valuable tool to identify extreme situations. It would certainly identify those governments which one should hang on to for dear life and flag those that should go as quickly as possible. For example, the list of ingredients printed on packaged foods such as levels of calories, proteins, vitamins and chemicals is not meant to prohibit ingestion of the food but to inform and allow you to control your diet.

At a time when the country is betting the farm on decentralization, even in the face of certain risks such as runaway federalism, I am under the impression that one of the best possible investments we could make would be the creation of an evaluation committee whose task it would be to review efficiency at municipal levels. This committee or group, in addition to having solid methodological knowledge and ample resources with which to ensure that the job is done, must be totally independent of all political movement and of all people who could aspire to posts in municipal governments.

Perfection is the enemy of good. We don’t have to be overly precise. I don’t doubt for one minute that the 50 municipalities that are ranked at the top of the list would realistically belong at least in the top 150 and that the bottom 50 would really belong in the bottom 150.

A country of this composition that manages through elections to keep 50 good ones and trash 50 bad ones is certainly on the road to a better future than a country that bases its choice primarily on election period jingles. This means taking firm command of our future based on realistic information.

By saying all this, I’m not saying that I want our rights to vote reduced. By having declared myself incapable of saying with reasonable certainty whether things in my municipality are going well or not (in terms of what can be done and what can’t), I don’t wish to disqualify myself as an electoral illiterate. I simply wish someone would give me some spectacles with which to see better. And while you’re at it, throw the state governments in the pot as well.