Colombo Telegraph

Privatisation & Renationalisation

By Kumar David

Prof. Kumar David

Critical infrastructure and ‘common-goods’ should be in public hands: Privatisation and renationalisation

The purpose of private enterprise is to make profits; shareholders and managers are not asses who invest time and money to waste the former and lose the latter. Capitalism is not charity; rich people who wish to do good find a cause, to donate to, and/or work voluntarily with. Businesses are happy to do “their bit” such as sponsor scholarships, donate to good causes and feel virtuous about contributing to national development, but this makes sense only if the company is doing well, that is it is profitable. I am not discrediting the private sector, just making obvious observations.

This comment is a lead into the government’s intention to “privatise loss-making institutions”. But why would anyone but a plain lunatic wish to be saddled with a loss-making venture? Only if the state writes off loses of prior profligacy, as with Sri Lankan Airlines, and prices are raised to make the enterprise commercially viable; that is profitable for the purchaser. Or privatisation may be a way out for a government which dares not raise prices ‘for fear of losing the next election’. If you privatise the CEB or the railways and the new owner doubles electricity tariffs or quadruples train fares, you will have profitable enterprises with plenty of funds to reinvest. A third case is where a buyer runs an enterprise to ground and dumps the wreckage back on the state.

UK experiences

Privatisation of the Central Electricity Generating Board (CEGB) in UK was an example of the first type. British Railways (BR) and construction giant Carillion are doleful examples of the third model under Thatcher-New Labour neoliberalism. The CEGB, epitome of professionalism, planning and research, was doomed by the “rush for gas” when oil was found in the North Sea. Neoliberalism (Thatcherism) saw a golden opportunity to make a killing and forced a breakup of generation first; transmission and distribution were spun off into separate companies later. Suffice it to say that this has led to no efficiency gains, no fall in prices apart from fluctuations attributable to gas prices, no research and nothing useful in dispatch management. The consumer pricing system is a nightmare. Jeremy Corbyn has vowed to renationalise electricity supply when the Theresa May government falls and Labour takes office. So, privatisation will be followed by renationalisation!

Privatisation of British Rail has turned into catastrophe. BR was formed in 1947, in the spring of Attlee-Labour, by nationalising four great railways (LNER of Flying Scotsman fame, LMS, GWR and SR). Privatisation (1994) can only be described as neoliberal madness. BR was split into twenty-five passenger train operating companies and six freight operating companies – but the insanity doesn’t end there.  A private company called Railtrack took ownership of railway lines, signalling and stations. Railtrack franchised-out 2500 railway stations and subcontracted track maintenance and signalling. Train companies paid for use of track and station. Quality of service plummeted, delays proliferated, accidents increased, all due to the mule headed system. In desperation the government created an organisation called Network Rail under court orders; in effect Railtrack was renationalised.

BR was good, though not in the same class as the Chinese railway system, France’s famed SNCF, Swiss Federal Railways – all state owned – or Germany’s public-private Deutsche Bahn. But dear god it ran a decent railway. There is public outrage now and Corbyn has vowed to renationalise the entire railway system as soon as Labour comes to power, which now seems a certainty.

Carrying neoliberalism to ridiculous lengths has backfired in another sector, outsourcing. This is a popular, and on the whole a useful practice, since small operators and individuals can do a one-of job efficiently and cheaply. When your wife hires a small contractor to tear down and redo the kitchen, you may cuss and swear, but it’s outsourcing. When governments and companies outsource to cut employment, it may lead to complications. US telecom operators are pulling back call-centre spinoff to Asia due to customer dissatisfaction. E-commerce outfits outsource distribution and delivery but often, as in the case of Alibaba, it leads to chaos.

A recent giant scale disaster is Carillion PLC, a huge construction and enterprise management outfit executing contracts in UK, Ireland, USA and Canada. The Financial Times,15 Jan 2018 says: “Papers seen by FT show the insolvent construction company owes more than £1.3bn to banks, including £790m revolving credit and £349m private placement notes. It also had £630m bonding facilities and £350m invoice finance, taking the total exposure to above £2bn”. The Conservative government, hostile to National Health, and besotted with private enterprises like Ranil and Mangala, outsourced hospital management to Carillion. Now all hell has broken loose. Carillion also manages courts, schools, government infrastructure and is the biggest manager of military bases for the MoD. The jobs of 43,000 employees are at risk; hundreds of subcontractors and small businesses, owed money, will go under as Carillon flops. (Mis)managed hospitals, courts of law, schools and defence bases will falter.

CEB and SL railways

I am leading up to the possibility of this government privatising the CEB and the railways. The CEB can benefit from restructuring but privatisation will be an unmitigated disaster. The railways are a mess and need to be taken by the scruff of the neck and shaken. Capital from private or foreign-government (Chinese or Indian) sources needs to be injected, brain-dead old-timers should be shown the door. However, privatisation should not be considered in the light of experience elsewhere.

Chaos in electricity generation planning – potential power cuts stare us in the face – is the fault of government and the intellectually challenged, politically pressured, Public Utilities Commission. The mess is not a creation of the CEB which has kept its head above water and adapted/updated its plans as conditions evolve. I was impressed by a presentation “Present Status of the Power System” by Buddhika Samarasekera and Wijekoon Banda at the Institution of Engineers (SL) on 16 Jan. Three things are worthy of mention; the authors took a wholistic system-wide approach to power system expansion planning instead of banging on about irritants and controversies, second it was clear that the CEB is quick to update its plans in response to global price, technology and renewable trends (solar and wind advances, LNG-coal relative price swings). Thirdly, the presenters were sensitive to enhancing the role of renewables; 100 MW of wind power is in place or under construction and ambitious solar parks are on the drawing board.

This shows, that by and large, the CEB is a healthy and forward-looking organisation. Recall the old American adage: “If it ain’t broke, don’t fix it”, so it may be useful to consider restructuring, only in regional redistribution, for now. Instead of a monolithic (generation-transmission-distribution) corporate entity maybe it be better to loosen up and let regional distribution have autonomy; coupled at arms-length, or freely floated. What can we learn from the LECO experience?

The railways cannot be described as healthy or forward-looking. Management is as near death as the dilapidated trains. Here is what tourist says on a web-site “Sri Lankan trains are crap just like the rest of their country. Due to weight restriction per axle, bad state of tracks and speed restrictions there is very poor service. The tracks are unable to handle the tractive force of many locomotives. Due to the general low technology in Ceylon, the M2 and M4 locomotives of the 1950s and 60s have done well through maintenance. The high technology M9 locomotives on the other hand have not fared well at all”.

Dr. Prianka Seneviratne pointed out in a recent lecture that infrastructure resource utilisation in Sri Lanka railways is abysmal. He shows that it is a crappy waste of money and opportunity. A video put up on You Tube Barry Esteben comparing Sri Lankan and Indian railways is depressing.

Extracted from a table presented by Dr Priyanka Seneviratne

I add a personal note. On a recent visit to Jaffna I discovered that ONLY four passenger trains in each direction per day, and no goods trains at all, pass through the station. The entire Vavuniya to KKS sector carries only this amount of traffic. There are over a dozen stations staffed by maybe five hundred personnel (three shifts). If we including maintenance and engineering costs I reckon the public purse is burdened to the tune of Rs500 million a year on this bit of railroad junk. Ask staff at Jaffna station “why no better utilisation and more passenger and freight trains” (there is a big demand; trains are crowded, bookings are hard to make) and all you get is a shrug of the shoulders.

Is privatisation the answer? No, it is not; privatisation will achieve nothing because no private investor will buy and build a basic infrastructure enterprise for the sake of the public good. Yes, huge investment, probably syndicated with Indian Railways which is currently undergoing a massive ($6.6 billion) refurbishment, is essential. The simple lesson is that public goods and critical infrastructure should never be privatised. Huge investment in track, signalling, motive-power and rolling stock in the main system is essential and without a new suburban railway, gridlock in Colombo and its suburbs will reach standstill soon. All this envisages investment in the region of $1 billion. Well?

Bigotry sends wrong signals

Lanka is at the early-middle modernisation stage; energy and transport are critical. Cultural and intellectual obscurantism is an impediment to modernisation, but President Maithripala Sirisena is a bigot who revealed his mindset by banning liquor sales and jobs in service facilities to women. Backward, dishonest, hypocritical! Is it women who get stoned, perpetrate domestic violence and beat up husbands? Is it women in the President’s home town, Anuradhapura or wherever, who get pissed out of their minds and create a fracas on the streets? Let’s show this joker around Sri Lanka and welcome him to the real world. The Health Minister is an even shoddier fraud: “It’s against Buddhist ethics and our culture!” Those who bury their heads in counterfeit culture are humbugs, nor will the economies of such countries improve.

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