Get a move on JPS share divestment

NOT FOR the first time, Prime Minister Andrew Holness has promised to divest the Government’s 19 per cent stake in the Jamaica Public Service Company Ltd (JPS), the light and power provider, via a listing on the Jamaica Stock Exchange (JSE).

“Ordinary Jamaicans will be able to participate and buy those shares, and I am certain it is going to increase the value of the company,” Mr Holness recently told Jamaican residents of South Korea at a function in Seoul, that country’s capital. He urged them to acquire the stocks when they become available.

This newspaper, as we have made clear in the past, would welcome the sale of the shares through a public offering primarily for three reasons.

One is that there is no great strategic justification for the Government to continue to hold the stocks. They are not required as a policy lever. Indeed, the Government has, in recent times, used the Office of Utilities Regulation (OUR) to establish a broad national energy policy, including the determination of least-cost options for new investment in power generation and the price at which renewables are to be delivered.

Moreover, notwithstanding JPS’s monopoly in the transmission and distribution end of the business, the OUR, in its regulatory role, has the authority to protect consumers and safeguard them against the company’s abuse of its position. In other words, part of the OUR’s job, so long as JPS enjoys a monopoly, is to ensure that the price and quality of its product reasonably equate to what would be available in a competitive environment.

Second, while there is work to be done to determine on what multiples the stock would be brought to the market – the company last year had net profit of US$30.6 million, on sales of US$908.3 million; and assets of US$1.151 billion – the divestment would mean additional non-tax revenue in the national coffers, which could be invested in growth-inducing activities, including hard and soft infrastructure.

Further, it would remove the possibility of any future capital call on the Government, or dilution of its stake, in the event of future investments by the major partners, Japan’s Marubeni Corporation and Korea’s East-West Power.

Critically, too, the divestment would be an opportunity, as happened with Wigton Windfarm, to expand the shareholding class, thereby opening new venues to wealth creation to persons who, in the past, may have felt excluded from such ventures. The question, though, is when this IPO will take place. Prime Minister Holness first spoke of his intention three years ago.

We appreciate, of course, that there may be technical issues to be sorted out for this offer to be done, including navigating around the JSE’s rule that at least 20 per cent of a company’s stock be on offer in a listing. That, however, is not an insurmountable undertaking.

TICKLISH ISSUE

The more likely ticklish, longer-term issue is delivering a stock in whose future an increasingly sophisticated investing public will have confidence. Investment in more efficient generating plants that use cheaper LNG, as opposed to petroleum, helped to increase the company’s profit by 26 per cent in 2018. Indeed, over the past five years, JPS’s cost to produce a kilowatt of power has fallen by around 16 per cent, which ought to be a facilitator of economic growth. Yet, its sale of power has remained relatively flat. At the same time, JPS reckons that it loses around 18 per cent of the electricity it generates to theft, which represents a cost to the company and its consumers, which few businesses could be asked to bear, much more survive.

JPS is obligated to run its business in a fashion that is efficient, which may include employing new technologies and policing its infrastructure. But that model should not include enforced social welfare beyond what is reasonable corporate social responsibility.