Lessons from Ira

The Malta Independent

 

Ira made us proud.   Placing second from among 24 European contestants made us re-live the electrifying experience we had when Chiara finished third in 1998.   There again we were so close that we only accepted defeat after the last vote when FYR of Macedonia denied us the 12 points we deserved.   This time it was Lithuania that favoured neighbours Latvia over distant Malta.

“Finishing in the top three positions in two of the last five editions of the Eurovision is no mean feat.”

 

It would not be amiss if we take a lesson from this success which can be applied in the other fields of life.   Firstly we should be proud of ourselves.    We are capable and talented as much as anyone else.   Finishing in the top three positions in two of the last five editions of the Eurovision is no mean feat.

 

Secondly when we work together we get much better results.   Soon after winning the Song for Europe festival in February Ira became a national figure.    Moving around with poise and dignity she diplomatically kept herself above local piques and always was there with the right words and her gorgeous smile.    Winning broad based support across all national divisions came naturally to Ira.

 

The organising committee is a model for continuity that challenges political divisions.  Ciarlo’ Bonnici, the chairman of the organising committee, is at home at Super One as much as he is at Net TV.    Robert Cefai is old hands at this game who puts his experience to national use under administrations of different political hues.   Norman Hamilton, a predecessor of Ciarlo Bonnici, and influential in international song festival circles, put his weight fully behind the project.    Ciarlo’ is wise and humble enough not to refuse help wherever it comes from.

 

The local media stations gave support, encouragement and exposure to Ira.    Stations that normally cannot agree even on yesterday’s weather report, were united heart and soul in making Ira feel that she had all Maltese behind her ambitious mission to win the Eurovision song festival.

“Stations that normally cannot agree even on yesterday’s weather report, were united heart and soul in making Ira feel that she had all Maltese behind her ambitious mission to win the Eurovision song festival.”

 

Thirdly is that when we compete on level playing field with other contestants, much larger and resourceful, we can overcome our natural disadvantages of size, and perform with relative supremacy.

 

Can we carry these lessons to Malta’s political ambition for stable and rewarding relations with the EU.   If the EU were to give the same voting powers to all countries, big and small, as was the case with the Eurovision, then we certainly can.  

 

But this is not the case.   Decisions in Europe are to be taken in future by a qualified majority where the votes of the member countries will be weighted in accordance with their size and economic strength.

 

In a document presented to the Giscard D’Estaing convention the EU Commission is proposing that “Qualified majority voting must become the single procedural rule for decision making in the Council.  It no longer makes sense, for instance, for unanimity to apply to the fiscal and social dimension of the internal market..”

 

Would we participate in the Eurovision if decisions there were made by the qualified majority system? Ira would not have made it in the top ten with this system.   So how can we seriously consider allowing much more serious things to be decided for us by others under the qualified majority system?

 

Bonds for Investors and Bond for Fantasy

The Times of Malta

The fashion is bonds.   With the equity market desperately searching for a solid bottom and with investors disgruntled with the equity performance of the last 2 years the attraction of fixed interest securities is understandable.

“Through disintermediation lenders and borrowers establish a direct relationship through the market cutting out the middleman’s (the bank) cost and keeping both sides happy”

Putting this in the context of falling interest rates forcing depositors to seek a better return from the low rates offered by Banks whilst still benefitting from 15% withholding tax arrangement and without exposing themselves to foreign currency risks, the market is definitely well served from the demand side.   There is huge demand for fixed interest high coupon securities which can provide an easy home for the savings of disgruntled depositors who are unhappy with the low rates that the banks can offer.

From the supply side, the corporate borrowers have noted this and are now approaching the market with notable frequency.   The motivations for the debt issuers are principally three:

1. The Banking system seems unwilling or unable to provide the long term finance on the terms they require and Banks seem more interested to get assets off their books to reduce their reserve requirements and instead invest in assets which demand much less administration and little or no reserve or capital requirements.

2. The Borrowers, even where the banks are willing to provide the finance, are interested more in the market funding in order to lock up their interest cost at current low level for a long term period.

3. Bonds allow borrowers much more lenient repayment arrangement as in many instances no sinking fund provisions are attached to the bond issues whereas the Banks would insist that borrowings are governed by regular instalment repayment plan.

This is a classic case of financial disintermediation where the orderly development of the capital market reduce the excessive reliance on the banking system for investment funding.   Through disintermediation lenders and borrowers establish a direct relationship through the market cutting out the middleman’s (the bank) cost and keeping both sides happy.  Lenders get a better return than they get from bank deposits whilst  borrowers obtain cheaper funding than the banks can supply.  

“Otherwise instead of a strong bond market we will have fantasy of the Bond type”

It looks like a solution made in heaven.   But is it?   The question is can the market remain orderly where the risk assessment and the risk pricing which hitherto used to be made by experienced intermediaries like the banks is now being thrown onto unsophisticated investors who are poorly equipped to price the credit risk and can easily be illusioned to part with their money with the glittering attraction of a high coupon rate?

Maltese investors have a poor record when it comes to risk assessment even where they have available the ready tools of credit rating by international rating agencies.   Their preference for international emerging market bonds and their exposure to defaulting Argentina bears witness to how easily the Maltese investors could be nudged not to look beyond the offer of a high coupon rate.

The Authorities, in permitting the issue of bonds without any attempt at their proper risk rating to guide the novice investor, are clearly permitting the gradual formation of an explosive situation which would ultimately damage the whole market and eventually close market access even to serious and respectful borrowers who deserve support and encouragement.

Without generalising we have had corporate bond issues that have not been properly priced to reflect the risk involved and that were undoubtedly bought by novice investors unaware of the financial risk to which they have committed their hard earned fortunes.

This worries me and should worry all serious market participants.   Consumers of financial services need to be spoon fed the risks attached to the products they are being offered and the Regulators should get out of their way to ensure that they do not simply  rely on authorised documentation which is too complex to be read by retail investors.    The need for credit rating of bonds to be issued for public subscription is urgent and necessary unless the market is to become the dump of borrowing proposals refused by the banking system.

Regulators, so meticulous in authorising advertising of products aimed for sophisticated investors, should be even more meticulous in licensing for distribution of products attractive to the novice or uneducated investor.

Otherwise instead of a strong bond market we will have fantasy of the Bond type.

Naghmlu l-Agenda Taghna

Il-Kullhadd



In-nazzjonalisti jharsu lejn il-kwistjoni ta` l-UE bhala l-uniku salvomo li jista` jsalvahom minn disfatta fl-elezzjoni generali li jmiss. Ghalhekk ma jridu jitkellmu fuq xejn izjed hlief fuq l-Unjoni Ewropeja.

`Irridu nbieghu sitta bhal Mid-Med Bank biex naghmlu tajjeb ghal dejn bhal dan.`



X`jimporta li cifri tal-finanzi tal-gvern juru li fl-ahhar erbgha snin id-dejn u dhul specjali mil-privatizzazzjoni zdid bi kwazi hamis mitt miljun.` Bil kemm naf niktibha cifra daqshekk kbira. Lm500,000,000 jigu daqs kemm inbiegh il-Mid-Med Bank ghal sitt darbiet. Irridu nbieghu sitta bhal Mid-Med Bank biex naghmlu tajjeb ghal dejn bhal dan.

Fi kliem semplici id-dejn nazzjonali qed jizdied b`miljun lira kull tlett ijiem. U waqt li nziedu dejn b`din ir-rata nkwetanti inbieghu l-assi li jaghmlu tajjeb ghad-dejn u bil-flus li ndahhlu inhallsu haqq bicca mil-imghax ghal sena.

S`issa il-poplu ghadu jafda is-sistema finanzjarja.` Ghadu jinvesti fil-banek u jixtri stokks tal-gvern.` Allahares le ghax kieku jkollna dizaztru. Izda l-mistoqsija hija ser jibqa` l-poplu jafda is-sistema finanzjarja taghna meta jara d-dejn dejjem tiela u l-assi jinbieghu`

Min tassew ghandu l-interess tal-gid ta` wliedna dawn l-affarijiet irid jiffaccjahom u mhux ikompli ghaddej qisu xejn mhu xejn.` X`jimporta ghal gvern li ma fadalx flus biex ikollna sistema t`edukazzjoni u ta` sahha pubblika tajba ghal min ma jaffordjax servizzi privati`

`Xoghlna huwa li nuru l-qerq ta` min jghid li jrid referendum fuq bazi nazzjonali dwar l-Unjoni Ewropeja u mbaghad qed jippjana biex jaghmel dan ir-referendum bhal salvomo biex jifdih mit-telfa elettorali li qed tistennih`



X`jimporta li kullhadd jammetti li qatt ma kellna pajjiz mitluq daqs illum fej` qed nghixu f`ambjent degradandi u li jaghmel hsara lil sahhitna` Spiccajna biex ghat-tieni sajf fuq `l iehor bicca sewwa mil-kosta ma nistghux nuzawha ghall-ghawm ghax imniggsa mil-muntanja ta` skart li bnejna ikbar mil-piramidi.

X`jimporta li r-rota tan-negozju waqfet iddur Tmur fejn tmur, titkellem ma min titkellem, in-nies tan-negozju li jfornu is-suq lokal kollha jghidulek li qatt ma jiftakru zmien inwiegher daqs illum.` U ma jistax ikun mod iehor.` It-taxxi li jixrob il-gvern qed inaqqsu il-likwidita` mill-idejn.` Kieku l-gvern dawn it-taxxi jroddhom lura f`servizzi socjali jew ghajuniet ohra kieku il-flus iduru ghax f`idejn min ghandu l-anqas malajr jergghu jispiccaw ghand tal-hanut. Izda il-gvern it-taxxi qed juzahom biex ihallas l-imghax li jmur ghand min diga` ghandu u jibza jonfoq ghax il-futur incert. Ir-rota tal-flus waqfet iddur.

Anke hwienet tal-pastizzi illum spiccaw ikollhom ibieghu bid-dejn lil klijenti.` Naf x`jien nghid ghax rajt evidenza personalment.

U quddiem dawn il-problemi kollha il-gvern irid jitkellem biss fuq l-Unjoni Ewropeja. Ghax jekk nitkellmu fuq dawn il-problemi in-nazzjonalisti qas jingabru fl-elezzjoni li jmiss. Imma jekk nitkellmu fuq l-UE forsi dawn il-problemi ninsewhom u naraw it-tlellix ta` miljuni li jigu f`ghajnuna u snobizmu ta` min jahseb li ma nistghux inkunu Ewropej jekk ma nkunux membri shah fl-UE.

Xoghlna huwa li dan nirrezistuh.` Xoghlna huwa li nitkellmu fuq issues li jinteressaw il-hajja ta` kulkjum tac-cittadin.` Xoghlna huwa li nitkellmu fuq affarijiet li juru kemm in-nazzjonalisti ma ghandhomx hila jmexxu u li jridu l-UE biex tiehu hi il-mizuri li ttraskura li jiehu dal-gvern fi hmistax il-sena xalar u nfiq bla razan.

Xoghlna huwa li nuru l-qerq ta` min jghid li jrid referendum fuq bazi nazzjonali dwar l-Unjoni Ewropeja u mbaghad qed jippjana biex jaghmel dan ir-referendum bhal salvomo biex jifdih mit-telfa elettorali li qed tistennih. Kieku verament iridu referendum nazzjonali fejn kullhadd jivvota skond il-kuxjenza u mhux skond il-partit kieku l-ewwel jaghmlu elezzjoni u mbaghad jaghmlu referendum bla shana partiggjana ta` elezzjoni.

Izda r-referendum iriduh bhala arma u ghodda politka u mhux bhala decizjoni nazzjonali.

Xoghlna huwa li l-agenda taghna naghmluha ahna u mhux noqghodu nizfnu ghall-agenda li togghob u tghin lil Gvern biex jahrab milli jaghti kont sew ta` ghemilu.

50 Percent Right!

Di-ve

The Prime Minister is right! Malta`s future relations with the EU should be decided by a specific referendum.` And this has to be a referendum free from partisan politics where the issue is debated intelligently not only by political parties but by all those who have an interest in the matter including the business organisations, the unions and civil society.

`If the Church were to enter the discussion, as the only European country without civil divorce, they would probably have to argue against membership knowing fully well that European integration will unavoidably lead to earlier installation of divorce then would be the case otherwise.`



The only sector I would exclude from the debate is the Church who should stay out of this civil matter and continue tending the religious aspects of society.` If the Church were to enter the discussion, as the only European country without civil divorce, they would probably have to argue against membership knowing fully well that European integration will unavoidably lead to earlier installation of divorce then would be the case otherwise.

Much as I feel that this country should join the rest of the civil world and include divorce in its civil legislation, I think that it is not a deciding factor in choosing our future relations with the EU.` So the Church should stay out.

I know as many nationalists who are dead set against EU membership as labourites who are quite sympathetic to it. If the EU choice is packaged in a general election decision these nationalists and labourites would find it hard to follow their own instincts and vote against the official line of their own party.

Through a referendum on the other hand they could follow their own thoughts about the EU issue without having to give up their political allegiance at a general election. And I agree that the EU issue is a decision which binds so deep into the future that it cannot be just another item in a normal electoral manifesto which is meant to chart a five year government programme. So it merits a specific ad hoc referendum decision, away from the political heat of a general election where we can decide about this important issue as a single nation and where hopefully the decision to go for membership or for partnership will be approved with a confident large majority.

But the Prime Minister is only 50% right! The other 50% is sleaze and deception.` Because by proposing to hold a referendum just before or perhaps concurrently with the next general election he is flaunting the national dimension which a referendum desperately needs,` and rendering it as a partisan tool in this bizarre political game.

`Using the referendum for perceived short term electoral gain to deviate the national agenda from discussion on the real issues which are making our life much less interesting and enjoyable than it ought to be, is condemnable.`



How can a referendum be considered national if by all counts it is being used by the government as a political tool to divert the political debate from the real issues which are causing so much stress to people`s everyday life, and instead use taxpayers money to put down the electorate`s throat a very unrealistic version of the EU`

What is the scope of holding a referendum when it is an undeniable fact that if the organising government would have its own way it cannot execute the referendum decision within the residual few months of its electoral mandate` Is it not clear that the referendum in these circumstances is just a tool trying to deform the following electoral decision out of its normal democratic cyclical shape`

How can we be forced to choose to go for EU membership, a practically irreversible decision, if the EU is still debating internally the shape of the organisation it wants to be when it expands to 27 countries`

For goodness sake let`s have a referendum about the EU.` But only after the next general election when the electoral heat is off and the issue could be debated serenely and when the political parties could allow a bit more diversity of opinion within their own ranks so that the decision is not entirely defined along party lines.

And let`s have the referendum only after the EU concludes its internal re-organisation to know exactly what our rights and obligations would be. For Malta and for the EU whether we join in 2004 or in 2007 does not make a difference. What makes a difference is that if we join we do so by a wide popular choice.

As I had argued in the book I published in 1999 I feel it is` most probable that a referendum could constrain the electorate to vote against membership for the wrong reasons.` This would provide a short term boost for the Labour Party practically guaranteeing a huge electoral success in the following elections but it will not make Labour Party`s job in government any easier. Labour could well do without having a referendum decision narrowing its choices as it negotiates the Partnership deal with the EU.

Our decision about the EU issue must not be 50% right.` It must be 100% right, taken as one nation, when the facts are known and when we have addressed our internal weaknesses to ensure that the decision is taken smartly and not just to protect us from ourselves.

Using the referendum for perceived short term electoral gain to deviate the national agenda from discussion on the real issues which are making our life much less interesting and enjoyable than it ought to be, is condemnable. As usual the Prime Minister is choosing to be the party man and not the statesman.

Relevant Neutrality

The Malta Independent 

It’s official!  For the PN and for the EU,  Malta’s neutrality is irrelevant.

 

I always suspected this though the  PN in government always paid lip service to neutrality.  That  is until last Sunday when Min. Dalli writing in the Sunday Times stated

“Not only the government wishes to do away with the neutrality provisions of the Constitution because of current realities, but it considers their 1987 inclusion as infamous and something accepted unwillingly.”

 

 “we still sport, in our Constitution, an infamous 'neutrality' clause that was pushed through in 1987 as ransom for us to regain democratic government.…….It is high time that we realise that this constitutional provision is anachronistic in the present realities that are constantly changing. However, it would need the agreement of the Opposition to vote it out as this clause is entrenched in our constitution and requires a vote of two thirds of the House of Representatives. Would they have the sensibility to move this way? “

Can it be clearer?   Not only the government wishes to do away with the neutrality provisions of the Constitution because of current realities, but it considers their 1987 inclusion as infamous and something accepted unwillingly.

 

Even the President of the European Parliament on official visit to Malta this week no longer played the old hat that Malta would be able to retain its neutrality status as a member of the EU.  Instead he argued that the EU was a source of peace and stability and Malta should be proud to form part of such a source.

 

It is opportune to debate whether neutrality is still relevant.   In doing so we may well be obliging to the PN strategists whose aim is to ensure that while  the country is decay from its core, financially, morally, socially and environmentally, we keep such matters off the news headlines and instead we discuss relevance of intangibles which are distant from the sour reality of everyday life.   It helps to divert attention from the many unkept promises that helped the PN to cut short a Labour electoral mandate which had only unfolded just a third of its term;  the hardest and most critical term when hard decisions are made to make way for the harvest to be reaped towards the end of a normal legislature.

 

“If, to protect neutrality,  Labour  has to defend it from the opposition rather than compromise its position to gain government,  than this would be a price that has to be paid just as in the sixties”

The point is often made that if Labour were not to contest the PN on the EU issue and instead focus the debate on domestic issues  the fate of the next election would be a forgone conclusion. Many disgruntled PN voters are quite willing to vote in Labour next time round if Labour can make its EU policy more positive.

 

In many instances there is fault in Labour’s presentation rather than its substance.   Take the referendum issue.  The PN media portray Labour as unwilling to abide by people’s decision in a referendum.   This is not and cannot be the case.   How can Alfred Sant who sacrificed his 1996 brilliant electoral victory, prejudicing his whole political career, in order to remain faithful to the mandate voted by the people from rebellious single seat majority who wanted to impose his own version of the mandate on all the rest, be so arrogant in the face of a referendum decision?

 

Reality is that Labour will always honour the latest decision of the electorate so it will only disregard the referendum if it gains an electoral mandate which gives it the authority to do so.   It is the PN that in projecting a referendum just before the election is aiming to render partisan an issue which should be voted upon in a non-partisan manner following an intelligent debate which can only be conducted without the heat of an ensuing election.

 

As to neutrality this constitutionally enshrined right cannot be subject to a referendum decision.   If, to protect neutrality,  Labour  has to defend it from the opposition rather than compromise its position to gain government,  than this would be a price that has to be paid just as in the sixties Labour sacrificed two elections to bring the country out of the grip of an authoritarian Church.   Only neutrality can ensure that Malta’s is not forced to return to commercialise its defence values for economic survival.

 

Numbers

Maltastar   

   

 

Nobody has yet criticised Min Dalli for under – selling MIA the same way he under-sold Mid-Med Bank. This can hardly be otherwise as so far nobody knows ( except the inner few) what price has actually been negotiated for sale of 40% of MIA.

 

“Chewing his words to make them barely understandable during his soliloquies on Bondi+ last Tuesday Min Dalli admitted that the airport management will now be in the hands of the acquiring consortium”

The Minister quite often mentions Lm40 million for the 40% stake. Yet writing in the Sunday Times on 5th May he said the MIA has been capitalised at Lm70 million. 40% of this amounts to Lm28 million.

So we still do not know whether the sale price of 40% of MIA is in fact Lm40 million or Lm28 million. Unofficial sources indicate that Lm28 is much closer to the truth and the remaining Lm12 are a composite of distribution of accumulated profits, taxes on sale to government of immoveable property and advance payments of the leaseback for several years.

Even at Lm28 million the price is still quite respectable considering that I had valued the same 40% at Lm12 million when labour government was planning to privatise 40% and holding on to 60% as controlling shareholder of MIA.

 

So it’s quite useless for John Dalli to defend himself from criticism that was never made. I have criticised the MIA deal on the way it was structured permitting the 40% acquirer to eventually acquire 50% plus of the company and meantime being given the facility to take full control of MIA.

Chewing his words to make them barely understandable during his soliloquies on Bondi+ last Tuesday Min Dalli admitted that the airport management will now be in the hands of the acquiring consortium. You can rest assured that the consortium will charge MIA handsome management and technical fees. With 40% equity the consortium has been put in a position to cream off the bulk of the operational profit of MIA. So if Min Dalli got much more than I had opined in 1998 it is only because he as the vendor in representation of the Malta Government has conceded much much more than Labour ever contemplated to concede.

Some other interesting numbers were published this week relating to government’s financial performance during the first 4 months Jan – April 2002. These numbers, whichever way you look at them, are very disquieting. I have reproduced them in table form and compared them to the same period of 1998 under a Labour government so that one can reach conclusions on the sharp and grave deterioration in national finances.

 

 

Just consider the following:

· Deficit for the 4 months is up from Lm22,099,000 in 1998 to Lm53,294,000. This is a like for like comparison with grant revenue taken as ordinary revenue.

· Revenue from taxation increased by Lm51 million in these 4 months but expenditure increased Lm78 million and hence why the fiscal deficit widened. Our taxes, heavy and unsocial as they are, are not keeping up with government’s expenditure especially now that government has been forced to pass through the Consolidated Fund expenditure formerly hidden in the Treasury Clearance Fund.

· Public Debt increased by Lm366,785,000 million up 54% from Lm682,350,000 in April 1998 to Lm1,049,135,000 currently. If one adds to this debt increase the one off privatisation revenues of Maltacom (Lm35 million) and Mid-Med Bank ( Lm82 million) this means that in 4 years the finance gap was Lm483,838,000 just Lm16 million short of half a billion. Half a billion increased debt/privatisation revenues in 4 years is nothing short of economic vertigo.

Thankfully the savings habits of the population and their deep trust in the financial system has facilitated financing of this borrowing requirement internally. Indeed foreign debt has reduced.

This is good as long as it lasts. But can it be expected to last if government keeps amassing debt at this horrendous rate and simultaneously disposing of the family silver diluting the backing for the increasing burden of the debt? If the government keeps abusing the trust of the people in the financial system it is risking a sudden strap bringing on to us an economic avalanche.

   

The 6 Percent Dilemma

The Malta Independent on Sunday

Minister Dalli is free to  go  solo on TV debates to argue what a fantastic deal he made in privatising 40% of MIA and explain how much cleverer he is than I when I had indicated a much lower figure in the embryonic process of such privatisation under Labour in the summer of 1998.   A process which never went beyond the registration of interest without formal bids and without direct negotiations as it was cut short by the early elections.

“Labour meant to retain strategic control through retaining 60% equity control over MIA, our one and only airport so essential for tourism development”

 

I explained in earlier submissions to the media that the two privatisation processes are incomparable as the acquirer has been offered far more rights under Dalli’s privatisation than what was being offered under Labour’s version.

 

Labour meant to retain strategic control through retaining 60% equity control over MIA, our one and only airport so essential for tourism development.    Min.  Dalli contrastingly gave the acquiring consortium effective control over MIA with the very real possibility for the consortium to award itself lucrative management and technical service contract which would cream away for the benefit of the consortium far more than the 40% share of profits they would be entitled to through the equity position.

 

The consortium has also been given the possibility to work itself gradually into a majority shareholding position. This was strictly prohibited under Labour’s version for privatising  MIA which included 20% IPO to the Maltese public and only 20% holding to the strategic partner with the government holding on to 60% of the equity.

 

Min Dalli disregards all this argumentation and prefers TV soliloquies in programmes officially boycotted by Labour.    Anytime Min Dalli wishes to discuss any or all privatisations since 1998 with me in programmes or media not boycotted by Labour I am more than available.   This obviously includes NET TV and Radio 101.

 

“Anytime Min Dalli wishes to discuss any or all privatisations since 1998 with me in programmes or media not boycotted by Labour I am more than available.   This obviously includes NET TV and Radio 101”

The difference between Min Dalli and myself is that while I reply point for point to all his criticisms he escape my criticisms with evasiveness and generic platitudes, often preferring to reply to criticism not made rather that the sharp points of criticism actually made.

 

For example nothing has been said that price of Lm40 million reportedly obtained for 40% plus control over MIA ( though this Lm40 million does not seem quite correct as Min. Dalli himself in his writings gave MIA full capitalisation value of Lm70 million so that 40% equity is valued at Lm28 million – the balance of Lm12 million probably being payments unrelated to the value of the share deal) exposes how incomptent he was  in executing the Mid-Med deal on a direct basis without bidding to HSBC.

 

Because in the sale of Mid-Med to HSBC the whole Bank was capitalised at Lm105 million.   Even taking MIA capitalisation at Lm70 million rather than the more oft mentioned Lm100 million,  begs the question of how a bank which generates five times the profit level of MIA gets sold with full control and all for just 50% mark up over the valuation of MIA.

 

The sale of MIA provides the nation with Min.  Dalli’s emphatic self-signed certificate of incompetence related to the sale of Mid-Med to HSBC.  And this is corroborated by documents which Min Dalli himself laid before the Public Accounts Committee.

 

In the calculation of the share transfer price of Lm2.90 the future estimated earnings of the Bank were discounted to present day values at a discount factor of 12 ¼%.   In layman’s language this takes into account the time value of money. Meaning that one lira today is worth more than one lira next year and much more than one lira in ten years’ time.   So estimated  future earnings are brought down to today’s value by discount them.   The higher the discount factor (percentage) the lower the present day value.

 

The discount factor of 12 ¼% was explained as 6 ¼% being the risk free rate at the time, and 6% as the risk premium.   6% risk premium is a very high risk associated with projects whose future income streams are highly uncertain.   For a bank like Mid-Med with a consistent trading record and with a firm command over 50% of the local banking market 6% risk premium is atrocious.   Its inclusion has practically halved the real value at which the bank should have been sold with a controlling interest to a strategic buyer.

“…And Min Dalli will have every opportunity to give the explanations he has so far denied us.”

 

When I argued that the Minister had pathetically and incompetently swallowed the valuation prepared by HSBC, who as buyers had every reason to inflate the risk premium, the Minister strongly denied and argued that the valuation was prepared by himself.

 

And here is the 6% dilemma.   Why on earth should the Minister of Finance charged with obtaining best value for assets being privatised include a 6% risk premium in the discount factor establishing the share transfer price of the Bank?

 

I have been making this criticism and demanding straight and simple answers for almost 3 years.   The Minister’s reply is often a total escape related to Maltacom shares being sold to bearer that is as untrue as it is irrelevant.

 

Perhaps unknowingly the Min in his self-flattery over the MIA deal is exposing his guilt for the way Mid-Med Bank was sold so haphazardly, unprofessionally and in a way which a Labour government would have to address as a priority upon taking office.   And Min Dalli will have every opportunity to give the explanations he has so far denied us.

 

Is-6 Percent ta' Dalli

Il-Kullhadd



Il-Ministru John Dalli jista jmur kemm irid fuq dibattiti wahdu fi programmi bbojkotjati mil-Partit Laburista, jargumenta u jippontifika kemm hu bravu aktar minni u kemm gab prezz ahjar milli kien ippjana li jgib gvern laburista mil-bejgh ta` 40% ta` l-MIA fis-sajf ta` l-1998. Il-process taht gvern laburista kien ghadu fil-bidu tieghu u ma kienu bdew ebda negozjati ghax ir-rizultat ta` l-elezzjoni ta` Settembru 1998 waqqaf kollox.

`Gvern Laburista kien ghamilha cara li kien se jzomm kontroll tal-MIA permezz ta` 60% ta` l-ishma u kien se jbiegh 20% lil pubbliku Malti u 20% li xi sieheb startegiku li kien jinghazel wara ezami ta` l-offert`



Spjegajt f`artikli ohra li ktibt li ma hemmx paragun bejn dak li ried ibiegh gvern laburista u dak li effettivament biegh il-Ministru Dalli u li l-prezz mistenni minn gvern laburista u dak li gab John Dalli ma jistghux jitqabblu.

Gvern Laburista kien ghamilha cara li kien se jzomm kontroll tal-MIA permezz ta` 60% ta` l-ishma u kien se jbiegh 20% lil pubbliku Malti u 20% li xi sieheb startegiku li kien jinghazel wara ezami ta` l-offerti.` Kien car li dan is-sieheb strategiku ma kienx se jkun jista` jikkontrolla l-uniku ajruport taghna u li dan il-kontroll kien se jibqa` f`idejn il-gvern Malti permezz tas-60% ta` l-ishma. John Dalli minn naha `l ohra ma l-40% ta` l-ishma ghadda kontroll shih tal-MIA u qed jippermetti lil min xtara l-40% biex imexxi l-ajruport u jiccargja kemm irid,` tant li jista mhux biss eventwalment jixtri aktar minn 50% ta` l-ishma izda jiehu sehem mil-profitti hafna akbar mill-ishma li effetivament ghandu u eventwalment ikollu.

Ghal dawn l-argumenti il-Ministru Dalli ma jirrispondi xejn u minflok jinfexx f`dibattiti fuq media fejn jaf li tal-labour mhux se jmorru.` Jien lest li niddibatti kull privatizzazzjoni li saret mil-1998 mal-Ministru Dalli fuq kull stazzjon li jrid li ma jiksirx direttiva tal-Partit Laburista. Jekk irid anke fuq NET TV jew Radju 101.

Id-differenza bejni u l-Ministru Dalli hija li filwaqt li jien nirrispondi punt fuq punt ghal kritika tieghu, hu dejjem jahrab milli jirrispondi hlief b`generalizzazzjonijiet infondati jew idawwar ir-risposta tieghu biex jirrispondi kritika li qatt ma saret bla ma jirrispondi l-kritika li effettivament tkun saret.

`Jien lest li niddibatti kull privatizzazzjoni li saret mil-1998 mal-Ministru Dalli fuq kull stazzjon li jrid li ma jiksirx direttiva tal-Partit Laburista. Jekk irid anke fuq NET TV jew Radju 101`



Hekk per ezempju ma jghid xejn li jekk tassew gab Lm40 miljun ghal 40% tal-MIA bil-kontroll b`kollox dan fih innifsu certifkat iffirmat minn Dalli stess ta` kemm biegh bir-ribass il-Mid-Med Bank. Ghax jekk 40% tal-MIA jiswew Lm40 miljun allura 70% jiswew Lm70 miljun ezatt daqs kemm swew 70% tal-Mid-Med Bank.` Mela kif Bank li jaghmel profit hames darbiet daqs l-MIA inbiegh bl-istess prezz`

U din l-inkompetenza tal-Ministru Dalli hija ppruvata mid-dokomenti li kien pogga quddiem il-Public Accounts Committee tal-parlament.` Ghax skond dawn id-dokumenti kien irrizulta li l-prezz ta` Lm2.90 ghal kull sehem li l-Gvern gab mil-bejgh tal-Mid-Med lil HSBC kien iffissat billi skonta il-qliegh tas-snin futuri mistennija mil-bank b`rata ta` 12 `% .

Fi kliem li jifhmu kulhadd dan l-iskont isir biex jigi rifless il-fatt li lira tal-lum tiswa aktar minn lira sena ohra u hafna aktar minn lira ghaxar snin ohra. Ghalhekk il-qliegh tas-snin futuri jigu skontati ghal valur kurrenti permezz ta` rata ta` skont.

Fil-kaz tal-Mid-Med ir-rata li ntghazlet kienet ta` 12 `% li kien komposta minn 6 `% li kient ir-rata normali fl-1999 u 6% ohra bhala risk premium. Ghal bank bhal Mid-Med li jaghmel profit qawwi u jizdied kull sena b`mod konsistenti dan il-livell ta` risk premium kien wiehed ezagerat u l-inkluzjoni tieghu effettivament naqqset bin-nofs il-prezz li l-gvern gab mil-bejgh tal-Bank meta biegh il-Mid-Med lil bank barrani bil-kontroll b`kollox.

`Ir-risposti li Dalli dejjem s`issa harab minnhom ikollu kull cans jaghtihom meta gvern laburista gdid jghamel il-kontijiet ma min qarraq bil-poplu.`



Meta kont esprimejt li l-Ministru kien naqas bl-ikrah li accetta somom bhal dawn mahduma mill-HSBC li kellhom kull interess li jghollu ir-risk premium ha jixtru b`irhis, il-ministru kien cahad li dawk il-kalkoli kienu ghamluhom l-HSBC u qal li dawk il-kalkoli ghamilhom hu personalment` ghax ma kien talab lil hadd biex jaghtih parir.

U hawn tqum il-bicca tas-6% ta` Dalli.` B`liema mod il--Ministru tal-Finanzi inkarigat mil-poplu biex igib l-ahjar prezz ghal assi tal-poplu, minn jeddu jbaxxi bin-nofs il-valur ta` l-aqwa bank tal-poplu billi jargumenti li qliegh future tal-Mid-Med tant hu incert li kien jehtieg jigi skuntat b`risk premium addizzjonali ta` 6% Din tinten pesti.

Ili tlett snin nistaqsi din il-mistoqsija. Ghadni bla risposta. Meta jigu dahru mal-hajt generalment il-Ministru Dalli jirrispondi billi jghid li l-ishma tal-Maltacom beghnihom lil fantazmi li hija gidba daqs kemm hi irrlevanti ghall-argument dwar l-inkluzjoni ta` 6% risk premium fil-valutazzjoni tieghu tal-Mid-Med Bank.

Bla ma jaf bil-ftahir tieghu dwar il-prezz ta` l-MIA John Dalli qed jammetti hu stess x`qassata ghamel fil-bejgh tal-Mid-Med.` Ir-risposti li Dalli dejjem s`issa harab minnhom ikollu kull cans jaghtihom meta gvern laburista gdid jghamel il-kontijiet ma min qarraq bil-poplu.

Alfred Mifsud

Solutions from within

The Malta Independent



It is a cruel reality that faced by over forty fives who are declared redundant.` Whether this happens because the economy is slowing down or whether it happens because with the re-structuring process which supposedly is going on, certain economic units cannot survive in the new rules of the game, reality for those effected remains grim.

`Especially for those who spent a working life-time, sometimes twenty years or more, with a single employer and thus in command of very narrow and often useless skills, the chances of finding new employment are dismally low`



Especially for those who spent a working life-time, sometimes twenty years or more, with a single employer and thus in command of very narrow and often useless skills, the chances of finding new employment are dismally low. The same reality often applies to construction workers who at the age of fifty and over do not remain fit for the hard exigencies demanded by the nature of their work.

A public sector that is already burdened by a large unproductive sector can offer no solution to this problem. In fact it is scandalous that the public sector, is still inventing jobs for the boys and such companies as Freeport, Air Malta, MIA, ETC and central government itself are still taking on new employees.

This can only be dangerous short-termism to saves blushes for the incumbent government but complicates the real problem to the whole nation making a real lasting solution that much more difficult and distant.

This is typical of why the government can think only of the EU solution to solve our problems. The EU is considered as the external agent necessary to protect us from ourselves; to discipline us where we do not have the courage to do what`s good for the country and not just what is politically expedient for the party in office.

There would be a high price to pay for our faults. If we admit that we cannot manage ourselves then we are admitting that we do not deserve to be a sovereign state and that we need to form part of a much larger organism to save us from self-destruction.

`If we admit that we cannot manage ourselves then we are admitting that we do not deserve to be a sovereign state and that we need to form part of a much larger organism to save us from self-destruction`



It ought to be otherwise. We have what it takes to survive and prosper as an independent entity with an open and vibrant economy. Even tourism on its own, if properly designed and managed, could give us what it takes to earn a decent living in a competitive world. If we re-position our tourism on the marketing message that `what you see in Malta in three days cannot be seen anywhere else` we can tap that tourism sector more suitable to our realities bringing so much more value added. Related to tourism will be educational services, health services and film facility servicing industry.` Together with financial services and light manufacturing we can create job opportunities where even 50 years olds and over, would have more than a fair chance of finding a productive remunerative employment.

If we focus our energies on developing these internal strategies we could start offering opportunities for employees in the public sector to look for more lucrative opportunities in the private sector relieving pressure on recurrent costs of the public sector without lowering its standard of service (which at times could hardly be lower).

Clearly this can only be realised with strong leadership, clear objectives, determined action plans and a massive investment in the continuous re-training of employees both in public and private sector.

The problem is that we continue to waste our limited resources in seeking ready-made off the shelf solution from without when a perfect one is ready from within. Our priorities should focus on solving our own internal problems.` EU membership can wait till we are strong enough to take a smart national decision about it.

Alfred Mifsud

Simple Matters

Maltastar 
   

Successful leaders excel in communicating complicated things in a simple manner so that the masses can understand them and accept them as objectives worth striving for.

“But there is an increasing conviction that the prime minister has lost all control over the minister of finance who seems to have his own government within the government.”

In Malta, unfortunately, we have developed a knack for just the opposite – to complicate unnecessarily matters which are basically quite simple.

Take the latest privatisation of MIA. Following the Mid-Med Bank sale saga the government had published a privatisation policy document that outlined the methodology to be used for future privatisations. The document was put together with technical assistance from the World Bank. The keyword in this document is transparency. The process of privatisation had to be fair and be seen as fair in order to gain broad-based support and not be subject to controversy.

So what on earth is the government waiting for to publish the agreement reached and signed for the privatisation of MIA and to accept the challenge put to it by the losing consortium to go public with the whole process to remove all doubts that something as bad as they claim actually took place? Or is transparency a notion valid for white papers, to be shunned when the real thing comes along?

Normally such controversy would be enough for a minister to take the self-respecting decision to resign, especially after losing for the country so many millions in the sale of Mid-Med Bank. And if the minister happens to have lost all self-respect than it would be up to the prime minister to sanction his failing minister by transferring privatisation out of his portfolio of responsibilities.

But there is an increasing conviction that the prime minister has lost all control over the minister of finance who seems to have his own government within the government.

The privatisation of MIA gives rise for concern for two distinct reasons. Firstly it is the way the deal was structured which allows the winning consortium to take full control of such a strategic asset with a minority stake, with a clear right to cream away the profits through management and technical services agreement. The responsibility for this rests squarely and solely with the government, as the structure of the deal is a political decision.

“A referendum should only be held if the electorate’s decision can be expected to be the last word on the matter.“

The second problem is the accusation of lack of transparency. And this accusation is shouldered also by the privatisation unit which primarily handled the negotiations except apparently that in the final stages that has caused so much angst, where the Minister again dealt the negotiations on a first hand basis. So to us taxpayers it is not clear who decided what, when and why. It is imperative for the sake of transparency that the privatisation unit publishes its final analysis and recommendations for the award of this bid and for the government to publish the cabinet papers which confirms, alters or upsets the recommendations of the privatisation unit.

Transparency please, so simple and yet, it seems, so complicated. But then we may be expecting too much. In no serious country on the face of the earth would a minister in charge of privatisation cause so much controversy in all three privatisations handled and yet he is not disciplined.

Another unnecessary complication is the referendum over the EU issue. A referendum should only be held if the electorate’s decision can be expected to be the last word on the matter. It is normal for referenda to be held only where two basic conditions prevail:

1. It has to be about something which is of such importance and which is so irreversible that it binds and conditions not only the government that organises it but also future governments. Clearly the EU issue fits this condition. Labour Partnership proposals does not as the decision could be eventually up-graded and is not irreversible.

2. The government that organises the referendum has to have sufficient time in office to execute the referendum decision.

On the second point the referendum being proposed for early next year fails to pass the test unless it is preceded by a general election giving the winning government good time to execute the electorate's decision.

To my simple mind if the PN goes for the referendum on this side of the election it would be a pure measure of convenience to enhance their chances of winning the subsequent electoral contest. This deprives the referendum from the national approach ingredient which is so essential.

So simple and, yet, so complicated.

Dalli admits his own fiasco

The Sunday Times of Malta

What Minister John Dalli wrote in the Sunday Times of 5^th May 2002 about the MIA privatisation needs to be reread.

“It is a quite a common tactic that when politicians are criticised and they have no decent answer, they switch to address a different type of criticism, that which was never made in the first place.  JohnDalli excels at it.”

“The value obtained for the privatisation of MIA puts the value of the company at around Lm70 million, and this after we had been "advised" by the Labour press and spokesmen to abort the process after September 11 as we would never get a decent price for the company

But we did get a decent price, by any standard, especially by Labour standards. When Labour was privatising MIA just before their disintegration in 1998, they were valuing the company at Lm30 million.

It is pathetic to read the main player in the then privatisation argue this away. Lo and behold, 30 to the power of Alfred Mifsud is greater than 70.”

It is a quite a common tactic that when politicians are criticised and they have no decent answer, they switch to address a different type of criticism, that which was never made in the first place.  John Dalli excels at it.

Firstly he says that I and others in the Labour rank were wrong in advising that it would be prudent to delay privatisation of MIA from the last quarter of last year, as originally intended, in order not to depress the value in the light of the sombre outlook for air travel cast by the 11 September events.   Yet somehow we were proved right by the Minister himself who in spite of projecting this revenue to come in by the end of last year, and this as late as the November Budget debate, it so happens that this revenue will at best flow in this second quarter of 2002 when the air travel situation is thankfully returning to normality.

Then he rebuts my non-existent criticism that the price which values the whole company at Lm70 million is indecent when I had valued the company at Lm30 million for the privatisation which Labour intended.

“Does the acquiring consortium have the right to take full control of the operations of the airport …. ?”

It is not my style to criticise before knowing the facts.  And the facts are not yet known.  So I do not know if it is correct that the privatisation value of 40% of MIA equity will in fact be Lm40 million or whether this is a composite figure which on top of the Lm20 million being paid for the shares adds other income by way of distribution of past profits and advance payments of future leases of theimmoveables.  When the facts are known and if it results that the price is not right the Minister can rest assured that he will not be spared criticism.  

As to the difference of the figures between the valuation under Labour and valuation of the company under the current privatisation I already wrote in The Times on 2^nd May 2002 explaining in detail why the two figures are incomparable.

“After the initial three years does the acquiring consortium have the right to acquire majority control of MIA?”

In brief this privatisation offers full and total control of MIA to the acquirer whereas the 20% intended to be offered by the last Labour government kept control of this strategic asset and natural monopoly firmly in the hands of the government.   If the acquirer paid more to Min. Dalli than Labour expected to net under its privatisation plans it is only because Min Dalli gave them more, much more, including total control over our one and only airport, prejudicing in the process our national interest.

But why answer to criticism not made and totally disregard criticism made, pointedly and sharply?   I expect the Minister to illuminate us on the following:

Does the acquiring consortium have the right to take full control of the operations of the airport and help themselves to technical and management contracts which will absorb the profits of the company leaving little profits to fall to the bottom line for the benefit of other shareholders?

After the initial three years does the acquiring consortium have the right to acquire majority control of MIA?

The Minister’s silence to these questions ominously indicates that my suspicion that the higher price reflects the award of much more rights than Labour ever intended to give to acquirers under its privatisation programme is not unfounded.   The price cannot be seen in isolation but only in the context of the rights actually being conferred.   Min Dalli seems to have conferred rights which pass total control of Malta’s only airport to foreign interests.   This represents a strategic risk on a national level.

But there is another viewpoint to this.   Let’s take the Minister’s word that he got Lm40 million for 40% equity sale.   This values the whole MIA at Lm100 million not Lm70 million.    Now give and take a bit this is as much as Mid-Med Bank was valued when John Dalli sold 67% for Lm71million.

Now considering that Mid-Med makes Lm15 million p.a. and commands half the banking market, considering that HSBC were giving full and absolute control over the Bank, and considering that MIA makes ‘only’ some Lm5 million profits and that the acquirer has been given the possibility of majority control and not outright majority control, is this not a self-signed certificate of the incompetence with which the Mid-Med Bank privatisation was handled by Minister Dalli.   On this one there is very broad agreement which is now rendered even broader by the endorsement of the author of the fiasco himself.