Is the Ascendant sale in our best interests?
It’s no real surprise that Ascendant Group shareholders voted to sell their company to Canadian energy company Algonquin Power and Utilities Corporation despite cogent arguments being made against the sale of one of the island’s largest remaining Bermudian-owned businesses.
But in this case, the shareholders do not have the final say over the transfer of ownership of Bermuda’s major energy supplier and, to all intents and purposes, its sole distributor of electricity.
That decision lies with the Regulatory Authority, acting under ministerial direction from the Minister of Home Affairs.
In general, governments should shrink from dictating to private enterprise or overregulation. But there are occasions when governments should have some say over a business, and Ascendant, as a near 100 per cent monopoly and the producer of a commodity which is critical to Bermuda’s survival and success, is a prime example of this.
So, while shareholders of Ascendant can hardly be blamed for agreeing to double the recent value of their investment, the RA and the Minister have an obligation to consider the public interest, and to decide whether this sale is the best path for Bermuda’s energy future.
Sir John Swan, a former premier and leading businessman, and Michael Murphy, one of the most influential figures in Bermuda’s insurance industry for decades, recently made cogent arguments against the sale.
Hardly radicals, they deserve a hearing over the Ascendant sale. They argue that, before Bermuda sells its utility into foreign hands, it should consider whether or not Bermudians can, in fact, make a better fist of it, especially given that mid-takeover, the RA completely rejected Ascendant’s strategy — years in the making — of using liquefied national gas to generate electricity in favour of a strategy that would see Bermuda rely on alternative energy for three quarters of its power supply in less than 20 years’ time.
Sir John and Mr Murphy, almost alone, have made the technical arguments. These can be found quite easily on The Royal Gazette’s website, and there is no need to repeat them in detail here. But, there is a broader debate to be had, over whether the slow death of Bermuda’s 60:40 ownership rule and the consequential increased ownership of Bermuda by foreign corporations, has been in the island’s best interests.
It is true that Bermudian ownership of Bermuda businesses was never absolute. It was long ago recognised that there was insufficient capital to build and maintain large hotels, and that the marketing heft of large hotel chains could help Bermuda tourism. So, hotels were exempt from the 60:40 rule.
And, as was recognised by ET (Bob) Richards when he was Minister of Finance in the last government, that the 60:40 rule was also designed to protect the old white oligarchy’s businesses, not only from foreign competition, but from poor Bermudians, mainly black, who might otherwise have secured overseas investment to help them build their businesses, when credit and investment in Bermuda was often channelled on racial lines.
As the world has become more globalised, the arguments for allowing foreign investment in hotels spread to other industries. And it can also be argued that, after a decade of economic decline, Bermuda does not have the internal capital needed to invest in its infrastructure and to modernise its economy. Foreign direct investment is essential for Bermuda’s success.
Indeed, the argument for allowing the Bank of Bermuda first to list its shares in the US and then to allow its purchase by HSBC, was that it needed more capital in order to serve the insurance industry.
Allowing for that, more than a decade after the sale of the Bank of Bermuda, how much has Bermuda really benefited? Much of the investment windfall that came fuelled a local real estate bubble, which burst around 2010 and has never reinflated, or was invested in safer and higher return markets abroad.
Today, it is tempting to take the skeleton of the bank’s headquarters on Albouy’s Point as a metaphor for the hollowed-out remains of what was once Bermuda’s leading local business institution, one which now employs a fraction of its former workforce.
Certainly, all banks have had to relentlessly pursue efficiencies in order to survive, and it is by no means certain that had the Bank of Bermuda remained independent that it would be any better off.
Indeed, the near collapse of Bermuda’s other main bank, Butterfield, after the 2008 financial crisis, is an object lesson.
It became foreign-owned by a US investment company and a Canadian bank to save it from near collapse in what would have been a catastrophe for Bermuda. The experiences of both banks, though, show what can happen to local institutions once they attempt to compete in the free for all of global markets.
Bermuda’s other foreign takeovers have been less high profile. KeyTech, the owner of the Bermuda Telephone Company (BTC), was already floundering when its operating units were finally carved up by its rivals, but the public should remember that BTC was first sold to a mysterious group of foreign investors, whose main goal seemed to be to flip it to Digicel.
And while both Digicel and One Communications work hard at being good corporate citizens, both are essentially foreign owned, and will always be under pressure to put profits over people. At the same time, the consumer now lives with a duopoly.
It is curious that the Government, which was so vociferous in Opposition about the handing over of the airport to a Canadian corporation, has been so restrained over the Ascendant sale.
At least in the case of the airport, the property will eventually come back to Bermuda — that almost certainly will not happen in Ascendant’s case.
There are arguments in favour of foreign ownership, including lack of local capital. And there should be technological advantages and economies of scale from being part of a larger organisation. In theory, these should benefit the consumer as efficiencies lower the cost of production.
But, there are serious negatives as well. Although Algonquin has promised to keep Ascendant’s headquarters in Bermuda, that does not mean that many of its back-office functions need to be on the island.
It’s likely just a matter of time before its accounting, finance and bill collecting, are being carried out from somewhere else, that most of its computer operations will be managed from another country, and that any other jobs, that can be done more cheaply or efficiently somewhere else, will be. Algonquin has to recover its investment, after all.
It’s likely that Walter Roban, the Minister of Home Affairs, will approve of this sale, although, it will most likely be granted with conditions on job preservation and other provisions aimed at preventing Ascendant from being asset stripped. But, those conditions will certainly be diluted over time; they always are.
That’s too bad. Bermudians should have the opportunity to show they can carve out a successful energy future for their island. Indeed, there are successful disrupters already in the market.
They showed that alternative energy can work in Bermuda, while Belco continued to burn barrel after barrel of oil, and the small companies even convinced the RA of the viability of alternative energy, while Belco refused to deviate from its vision of a fossil-fuel dependent future.
Now facing a large and tough competitor in Algonquin, the question must be asked whether these small companies, who have a tiny fraction of the capital of their rival, will be crushed, forcing the island to continue to live with a monopoly, but one now owned by an absentee landlord.
Mr Roban has a lot to think about.
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