MIA Privatisation - Comparing Incomparables

The Times of Malta – 

Talking Point

The decision of the Minister of Finance to favour the Vienna consortium for the bid of 40% equity of MIA brought the immediate recriminations by the losing party.

This is not unusual as nobody likes losing.   However the government has some explaining to do at least about the transparency with which the negotiations were concluded.    How a declared preferred bidder chosen by Cabinet gets pipped out without first being exonerated from his preferred bidder status needs some explanations.   The government also needs to explain whether the final choice which has upset a Cabinet decision was taken, as should be, by the cabinet or whether the Minister is presenting the Cabinet with anotherfait accomplit following the untypical midnight signing of the agreement.

“How a declared preferred bidder chosen by Cabinet getspipped out without first being exonerated from his preferred bidder status needs some explanations.”

 But as this looks like a feud between internal factions of the PN, I would let them stew in their own internal struggles and await the explanations to ensure that irrespective of whether the winner is this or that faction, the Maltese state, as the vendor of the equity, has indeed got a fair deal in this process.

And to prove the point,  before anyone has had even the chance to suggest or argue that the price is unfair, the Minister pointed out that Labour had planned to get Lm12 million from sale of 40% of MIA whereas he is so clever that he got Lm40 million.  He also had the audacity to remind that I had suggested sale of Mid-Med share for Lm2 whether he is so clever that he got Lm3.40.

 The Mid-Med saga has been debated and the facts are known.  I had wanted to buy not to sell at this price and only because market value of the shares quoted on the MSE was unjustifiably lower.

But let’s focus on MIA now.   As I was advising the government on this privatisation in my capacity as Chairman of Mid-Med Bank, I can categorically state that no negotiations with any party had been held.   The process had only arrived at registration of interest by foreign parties following extensive publicity through foreign banks.   A few days before the 1998 election interested parties were supplied with relevant information and deal structure to enable them to substantiate their interest with formal bids.   The Lm12 million mentioned by the Minister was purely indicative, subject to a bidding process and subject to overall government approval.

However the question remains whether there is any comparison between the indicative Lm12 million and the Lm40 million which the Minister proclaims as having obtained for the same equity package.

“What has been acquired by theVienna consortium and what was being offered by the Labour government are as different as day and night”

Firstly one still has to see whether Lm40 million is in fact Lm40 million as it is a composite figure of many things apparently including distribution of accumulated profits and  capital profits and taxes due on the sale and lease back of the immoveable property.

But even if the Lm40 million is accepted with all the necessary reservations it is fair to ask why such a wide margin from the Lm12 million, indicative as much as it had been.    The reason is simple.   The two figures are incomparable.

 Under Labour 40% of MIA was being privatised by offering  20% to the general Maltese public and 20% to a foreign party who could be selected on the basis of value added it would bring to the operations by way of expertise and procurement of international business.     It was clear that the Malta Government was to remain the majority shareholder of the company and that the company had to be managed in the national interest in a way complimentary to the national tourism objectives.

The deal announced by the Minister is very different.   Through 40% sale to a foreign consortium and government declaration of intent to sell its remaining holding in a spread manner the foreign party will get total control of the company.   So much so that the foreign parties have been given the facility to help themselves to management agreements and technical services agreements which permits them to cream away the profits of MIA through management and technical service charges, leaving little profits to fall to the bottom line to the benefit of all shareholders.

What has been acquired by the Vienna consortium and what was being offered by the Labour government are as different as day and night.   Clearly the Vienna consortium had to pay more because they got more, much more.    They got the right to manage the company with a minority shareholding and the right to potentially get back their investment through charging management and technical fees to the detriment of other shareholders, including the government itself.

MIA is different from any other privatisation.   MIA will always be a natural monopoly and it is strategically dangerous to allow a foreign minority partner to take control of such an essential monopoly.   The Minister, by inflating the sale figure up-front is prejudicing our national interest down the line.   Comparing incomparableswill not make it any better.