The
Micro economies like ours cannot escape monopolies, duopolies,
oligopolies or whatever name is given to having the commercial ability to corner
the market in the absence of true competition.When such monopolies are unavoidable due to the absence of economies of scale for promotion of a competitive environment, public ownership of such natural monopolies becomes a necessary evil.
Privatising such monopolies does not remove the disadvantages of lack of competition both for the consumer as well as for the economy at large.
It only transfers the monopoly powers from public ownership, subject to democratic checks and balances, to private ownership where the only checks and balances depend on a vigilant and effective regulator.
Take for example what happened through the privatisation of Mid-Med Bank. A bank with public ownership control that had a 45 per cent share of the total banking market had as its main competitor Bank of Valletta with an equivalent market share.
Although not publicly controlled through majority shareholding, the state had substantial influence over BOV through its 25 per cent holding, given the fractionalised spread of the private ownership and the right to appoint the BOV’s chairman.
Two banks with nearly 90 per cent share of the market is not an ideal situation for competition purposes, but given the micro-size of our economy such market shares are as natural as windy days in spring. Public ownership and/or influence over the two banks were a necessary evil.
However with the arrival of a third large player in 1995 through the full licensing of the then
The takeover of Mid-Med Bank by Midland Bank, then renamed HSBC, effectively reduced competition in the market. The two large banks consolidated their market share and are practically operating in a duopoly situation, outside public ownership control and with limited public sector influence over Bank of Valletta till it gets fully privatised.
The result is evident through several letters to the editor in the print media complaining about excessive bank charges and lowering or removal of bank services that do not generate commercial return. Banks no longer seem to acknowledge their moral obligation to offer non-commercial services to give something back to society for the near monopoly status it has bestowed upon them.
We are experiencing something similar with
The commercial sense of transferring such monopoly operation under concentrated private sector control is currently being silently questioned by tourism operators as they watch with dismay the grave consequences of government’s loss of control over the airport operation which cannot accommodate the demands of low cost airlines, without which our tourist industry is finding it hard to grow.
Something similar could be in the making with Maltacom. Whatever happens Maltacom will maintain a commanding position on the Maltese telecom market. It dominates the fixed line and data transmission business and is one of the two strong players in the mobile telephony market.
Its results show that although it is hampered by the bureaucracy of public ownership and has been distracted by the privatisation process that has diluted its resolve to offer competition in the cable TV market, it is still performing admirably with ample space for more efficiency gains through judicious investments and human resources policies to slim down and /or retrain its personnel complement to its current realities.
Efficient telecom services are crucial for the country’s development. Does it make sense to lose public sector control over Maltacom by awarding it to a partner whose competence seem to be financial resources and is not particular known for technological inputs? Thank goodness our private investors have shown that they have enough money to be willing to buy whatever part of Maltacom is placed on the market. Why should we be so rush to sell it, with effective control and all, to foreign financial partners at 25 per cent discount to what the Maltese are willing to pay for it? International financial ratios to justify the lower privatisation price ignore local realities that cannot and should not be ignored.
If it were the case that Tecom of Dubai is making its investment in Smartcity conditional on success for its Maltacom bid, then I can start to understand, though not necessarily justify, the case firstly for privatising Maltacom and secondly for doing so at a substantial discount to market price. But we have been assured that the two issues are not connected and consequently the questions and doubts loom larger.
Even with the liberalisation of fuel imports we could be ignoring local realities. Enemalta has consistently used its profits from fuel imports and distribution to subsidise its electricity generation and distribution which given our size and lack of economies of scale cost much more than in competitor countries. What is the sense of transferring the profits of fuel importation to the private sector and allowing Enemalta to carry the losses on the electricity sector which then will show up in exorbitant surcharges in our utility bills?
First hand experience shows that while in case of natural monopolies privatisation, it is necessary to protect us from political abuse of public ownership, the best way to do it is to spread private ownership to avoid concentration of monopoly power in private hands, with government retaining a sizeable minority control to ensure that the macro-economic view in the operation of such monopolies is never completely lost.
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