by Brad Bowyer
As I have been focusing on the Changi Airport, here are extracts from Changi Airport Group (CAG) 2009/10 annual report when Changi was corporatized, and CAG was created:
At the time, the Net Assets current was $4,507,997,000 + Non-Current $2,576,101,000 – Liabilities $3,559,967,000 = $3,515,014,000 so the amount paid was about $237 million less than Net book value but a few other considerations may have been involved when the MOF injected the capital (i.e the taxpayer)
This pattern of transferring state assets to privatised Government Linked Companies’ at or near Net Book Value has been a big focus of People’s Action Party policy for almost 2 decades now.
What happened to the profits is a little harder to uncover with the airport as the accounts are very convoluted as is the ownership of the many components to be very accurate but I will use another example, our rail system, to answer a reader’s question to show us who took profits at the public expense.
In 1998, all our Rail infrastructure was sold to SMRT at Net book value. We all know the saga of what happened next but after 18 years and a deteriorating service at a higher and higher cost to the consumer, all the assets were finally brought back under direct public control with the new rail financing framework in 2016. The cost to the taxpayer for the buyback was approximately $1B. How much it was bought for originally and if SMRT made a profit on this transaction is not, however, in the public eye.
Now the infrastructure is once again owned by the state we the taxpayer are paying for repairs, upgrading and new lines and rolling stock. Many of the things that should have been done while under SMRT’s private purview but were neglected while extracting more and more profits.
Temasek bought the 46% outstanding shares it did not own, delisted SMRT and now asset-light, SMRT is expected to post an average EBIT (earnings before interest and taxes) margin of 5% although before this it was in the mid 20% range. That 15 to 20% delta was pure profit at the public expense benefitting Temasek and the other 46% of shareholders.
During its 18 years of focusing on profits over service, many billions of dollars were extracted as dividends as well as to key appointees who were paid way above industry standards for their roles. Compare Desmond Quek’s $2.31 million at peak to Mike Brown head of Transport for London at £350,000 (approx. SGD $620,000). That’s almost 4 times his salary and other national rail infrastructure head comparisons are similar.
The world over, we have seen this privatisation driven based on the excuse of “competition drives better service” being fully repudiated and now, we also see it happening here in Singapore. In fact, you could say it’s even worse here because, at least, the companies overseas are fully private whereas here they are still government controlled and seemingly get access to taxpayers money as the capital when they need it anyway.
As Singaporeans, we pride ourselves on being prudent and good managers so why the drive to privatise everything?
We are an island city nation, not a vast country and we don’t really have competition anyway so that is a very poor excuse.
Essential services and national infrastructure, transport, power, water etc, should not be privatised so profits can be extracted but run by the government responsibly at cost.
This would lower the end user costs to the public, keep the operating costs and salaries more in check and provide a better service focused on results rather than a questionable profit-driven one.
It should also mean more prudence and only necessary and very well thought out spending if there was more national accountability (especially think T5 here).
I hope our government will take a long hard look at the drive to privatise and remember their role is not to be a mega-capitalist who exploits the people but the buffer between the people and the mega-capitalists to ensure a more balanced system and be a check when they go a little too far.
This was first published on Brad Bowyer’s Facebook page and reproduced with permission.