Anguilla's Slow Recovery

The US swiftly recovered from the 2008 financial crisis mainly due to quantitative easing, when the US Treasury printed hundreds of billions of dollars to pump into the stock market. In Britain the Bank of England printed money for government to buy up the failing UK banks. By contrast, in Anguilla the Eastern Caribbean Central Bank and the local government stood by as the two domestic banks continued to lend hundreds of millions of dollars to borrowers who would never be able to repay their loans  The shareholders had no idea what was going on.

The National Bank of Anguilla (NBA) was held by 4,000 shareholders in an island with a population of 14,000. In 2008 its assets stood at over EC$1 billion. That was the last year the bank held an Annual General Meeting of its shareholders.

In 2008 Flag Luxury Resorts, the major real estate development company on the island, collapsed. When its 400 workers were sent home, approximately 25% of the private sector became unemployed overnight. Loans that had previously been faithfully serviced immediately became bad loans.

2008 was the last year that NBA published its accounts. No annual general meeting was held after that date. It was rumoured the Central Bank had rejected the company’s accounts. No explanation was forthcoming.

In 2013 the Central Bank moved in on NBA and another private bank putting them into conservatorship. The uncomprehending islanders were told it was to save the banks. Local deposits were safe. By contrast, the international depositors in the seized banks were not so lucky. They had no access to their funds amounting to many tens of millions of US dollars. The result is expensive litigation in the courts of Anguilla and New York.

In 2016, government announced its banking solution. The good assets of the two banks were transferred to a new bank with government as its sole shareholder. The bad assets were transferred to an asset management company which would try to collect.

Prudential guidelines mandate that no more than 5% of bank loans are permitted to be in default. By the time the Central Bank moved in 2013, some 50% of NBA’s $1 billion in loans were non-performing. At all times, the board of directors were well aware of this. Only one of them resigned.

When asked why they had taken no steps to collect on the bad loans before the Central Bank moved in, the directors privately explained they were between a rock and a hard place. If they wrote off the bad loans and placed the debts in the hands of the lawyers, half the capital of the banks would be written off. The sale of the loan securities would ruin the defaulting borrowers. The borrowers were their ex-schoolmates, if not their brothers and sisters  With the collapse of Flag, the market for real estate was depressed. Nothing could sell. Further, the law protecting borrowers was so restrictive that the banks had no chance of selling the securities to repay the bad debts. That was the rock. The alternative was to continue as before, hope the economy would turn around, and all the bad debts would become good once again. This was the hard place. The banks might be lost, but there was no downside for the directors personally. They chose this option.

Up to today, not even the names of the major defaulters are published so fingers can be pointed. They continue to sit in the front pew in church, and to take the head of the table at social events.

It gradually dawned that there was no question of punishing any of the management or the directors of the two closed down banks. Whatever investigations took place, government kept the results secret. We were told that people’s banking business was confidential. The result was that no one went to gaol. No one got sued. After all, any negligent bank officers and directors are close family and associates of legislators, ministers, Permanent Secretaries, and senior police officers. There will never be any report on who was to blame for Anguilla’s fall from financial grace. No one will ever be punished for the loss of the banks.

Gradually a palpable sullenness has come to dominate the mood of most Anguillians. The lack of confidence of Anguillian society in its leadership is as thick as cold porridge.

We hear on the radio complaints that the EC$800 million public debt will burden generations-to-come. We hear from lawyers that the confiscation of the international depositors’ funds will kill confidence in Anguilla’s banks. Anguillians’ eyes glaze over as we listen even without taking it in.

We hear the loudest voices on radio talk-shows warning of coming Armageddon. Loudmouths spout obviously made-up conspiracy theories. Some of the worst of the defaulting borrowers have led what little protest there has been against the way government took over the banks. Their brazenness contrasts with the humility of the average Anguillian left to contemplate the unexplained loss of their nest eggs of investment.

Meanwhile, Anguillians who previously held EC$1 billion in bank capital now hold worthless shares in the old banks that have been stripped of their assets. Only the receivers benefit from the continuing liquidation of the two banks at the rate of hundreds of US dollars an hour. Soon there will be nothing left. The 5,000 Anguillians who held some EC$30 million in an earlier failed investment company promoted by NBA can only shake their heads in pain as the directors continue to pretend to be directing.

In September 2017 Hurricane Irma wiped out our private and public infrastructure. The total damage suffered is estimated to be close to EC$900 million dollars. Anguillians got up and dusted ourselves off  Mainly using our private resources, we rebuilt our private properties. We were called resilient. Perhaps we were just numb from the earlier financial beating we suffered. We shareholders lost a billion dollars with the 2013 collapse of NBA alone.

Local hardware stores and supermarkets become more and more run-down, as Chinese financed replacements flourish. Since 2008 several hundred Chinese migrants appear to have benefited from our liberal work permit policy. On every street corner, new Sports Bars bearing bright signs illustrated with paintings of scantily dressed ladies on them flourish. They employ large numbers of desperate Venezuelan and Santo Domingo girls imported with the permission of an acquiescent government. Disillusioned Anguillians walk past these new business opportunities every day on our way to church or work.

The one bright star was the Social Security Fund. The Board holds the monies in the Fund in trust for the workers of Anguilla to whom the benefit of the monies belong. The monies are to be invested so the fund grows and produces profits for future generations to benefit. The most sacred duty of a Social Security Board is to protect the Fund against attempts by desperate governments to dig their shovel into it  Government has an unlimited number of worthwhile projects for the public good that need funding.

So, it was as if an anaesthetising hypodermic needle had been inserted into our collective spines when earlier this week we heard a government minister claiming proudly on radio that he had convinced the Anguilla Social Security Board to let him have $5 million (US or EC was not revealed) of the Fund to invest in purchasing private land to enlarge his favourite public project in his constituency. The Board has not confirmed this is true. The Board has not said it is not true. Clearly such a use of Social Security funds will produce no income and is not a real investment for the benefit of the workers. Even though the payment was legal, it is a shocking betrayal of the workers. It is a dangerous precedent. This is how the run on Social Security starts. It starts with $5 million. Then, $10 million is needed for something else. The law is changed to make it possible. Anguillians are paralysed by fear at the prospect. If the Fund can be so easily dipped into by one smooth-talking minister, then nothing in Anguilla is sacred any longer. All is lost.

Now government has announced that it has committed to selling the major part of its shares in the national electricity company, the water company, and the new bank. These are all exciting new opportunities we are told. We shake our heads in disbelief on hearing this. The blows we have received over the last decade have drained us of resources. We have no money left over to invest in these projects. We are not just dispirited, we are gutted.

It is incredible that anyone would believe that Anguillians would take another chance of investing our remaining savings in any local public company ever again. The Chinese will have to be invited in if government is to have any chance of unloading its shares.

 

Privatising Anguilla's Electricity

Anglec is the familiar name of the Anguilla electricity company.  Structurally, it is a statutory corporation whose shares are owned mainly by the government of Anguilla and its agencies.  In 1991, when Anglec was formed, government gave it the assets of its Electricity Department.  In exchange, government got most of its shares. The Commonwealth Development Corporation (CDC) which had earlier invested in the electricity service also became a shareholder.  Government purchased CDC’s shares in 1998, becoming the sole shareholder in Anglec.  Dividends were paid to shareholders for the first time in 2002.  That dividend yield was 2.8 %.  It was paid to the sole shareholder, government.

In 2003, in the face of public protests, government offered 6 million shares to the public.  A total of 17 million of Anglec’s authorised 30 million shares have now been issued.  Government holds 40%.  The local banks and the Social Security Board purchased 40%.  A number of individuals purchased 20%.  Either directly or through its subsidiaries government now owns 80% of the shares.  In 2010 the dividend was a high of about 6%.  In 2015, the last year of its published accounts, the dividend was about 2.5%.

In the 2003 Prospectus, the stated objectives of the share issue were to improve the quality and reliability of the electricity supply, develop the professional and technical skills of employees, maintain stable and affordable prices, and achieve financial viability.  It was hoped that the Public Utilities Commission would begin to regulate tariffs by the year 2004.  (This never occurred.  To this day Anglec’s rate-setting continues to be supervised by the government’s Ministry of Infrastructure.)  Electricity rates are said to be among the highest in the region.

There are several valid arguments against privatisation of electricity.  One is that maintenance teams that were once fully staffed will be dramatically cut to reduce costs.  The effect of such cuts will be an increase in equipment failure, leading to a rise in outages.  Consequently, a privately owned electricity company may be able to blackmail government into a bailout or allowing an increase in the rates with a threat of blackouts.

The privatisation of electricity is not something that citizens normally demand or want.  Once shares are offered to the public, there is typically little interest in public participation.  On the contrary, privatisation frequently gives rise to bitter protests.

At the time in 2003, many persons objected to this transfer of the Electricity Department to a private company.  It was said that electricity was a basic human right and should not be run like a commercial enterprise.  Ownership by a government department meant that social welfare concerns could be brought to bear.  However, the majority of us knew that the Government’s Electricity Department was running the service very inefficiently and that there was a lot of waste.  We hoped that putting management under a Board of Directors would ensure the service was better managed than by the government bureaucracy.  So, the privatisation proceeded.

We were soon to be disappointed in the management of Anglec.  As each administration took power after a general election, they appointed political hacks to the Board of Anglec.  These political Boards have made a mess of management.  Such political boards are now recognised to be generally unprofessional and unsophisticated.  They wrongfully dismiss employees, resulting in litigation that causes the corporation millions in damages.  Some high-ups engage in serial sexual harassment of junior female employees.  Management seems ineffective in halting this abuse.  Staff say that repeated complaints are ignored by the Board.  Morale has been falling and dissatisfaction is rising.  It is time for this to change.

The government of Anguilla now proposes to sell all of its shares in Anglec in order to raise money to meet its expenses.  This proposal has caused a renewed controversy among the talk-shows in Anguilla.  The radio waves are filled with words of condemnation against this supposed “giving away” of a national treasure.  We hear warnings that this planned privatisation will bring doom to Anguilla.  It is said to be a betrayal of the people by its own government.  That is the controversy that I want to look at today.

Normally, in the West Indies, electricity rates are controlled by an independent statutory Public Utility Commission (PUC).  Normally, no public utility can increase the rates without securing the consent of the PUC.  An electricity company should not be allowed to exploit the consumer by unreasonably increasing rates.  On the other hand, the electricity company should not be driven into bankruptcy by not being able to increase its rates to make a reasonable profit.  Such a system (of putting a PUC in the middle between the consumer and the utility company) is designed to install an independent and transparent institution to ensure fairness to both the consumer and the utility company.

In Antigua, for example, the Antigua and Barbuda Public Utilities Authority (APUA) controls the increase of rates for electricity, telephone, internet, and water.  In Anguilla this is not so.  In Anguilla there is a Public Utility Company.  But, its mandate is limited to the telephone companies.  If Cable and Wireless or Digicell want to increase their rates, they have to get the permission of the PUC.  But, in Anguilla that process does not apply to electricity or water.  There is no independent body to control the rates charged by the Water Corporation of Anguilla or Anglec.  These two utilities are under the control of the government’s department of Infrastructure.  This department is headed by a Minister of government, a politician.  In other words, electricity and water prices to the consumer are controlled by the political directorate.  There is no independent body to supervise increases rates in Anguilla.  Just as Anglec cannot increase rates without the permission of government, so any purchaser of government’s shares in Anglec will not be able to increase the rates without political permission.  I ask the question, which politician will permit electricity or water rates to be increased if there is likely to be a public outcry?

Anglec holds a Public Supplier’s Licence.  This provides for Anglec to submit a claim to government to increase rates.  The rules are that if the requested increase is refused, Anglec can submit its claim to an independent arbitrator.  That arbitrator is the High Court judge assigned to Anguilla.  You may well consider that a lawyer or judge is not the best qualified person for determining the justification for an increase in rates.  This is a technical area that requires to be dealt with by suitably qualified experts in the field.

When the Anglec shares were originally issued to the public there was a conditional promise that dividends would be in the range of 6%, or EC$0.15 per share.  This promise was subject to a number of conditions.  I am told by private investors that level of dividend is seldom met.  Over the past twenty years the average return per annum has been more like 4%.  In other words, this investment has not lived up to the promises (conditional as they were) that were originally made.

There is an overriding reason why government should be encouraged to divest itself of the remainder of its shares in Anglec if it can do so.  Given the culture in Anguilla of Ministers appointing unqualified cronies to the Boards of statutory corporations, any effort to take the appointment of such a Board out of the hands of a politician and put it in the hands of the shareholders is to be encouraged.  The present and continuing appalling lack of morale among the staff of Angec because of the unprofessional and oppressive conduct of some in high office requires that they be all swept out of office and replaced by persons chosen on the basis of merit.

The sooner that Anglec is fully privatised the better for all of us.  Any objection to such a long needed and overdue reform is nothing but the most blatant political posturing.

But, tell me again, based on the history above, without fundamental restructuring, which honest and well-advised foreigner is going to invest tens of millions of dollars in purchasing government’s shares in Anglec?