“A Review of 11 Public Enterprises and Options for Reform” was funded by an Asian Development Bank technical assistance project to respond to this western Pacific nation’s economic crisis. Only one of the 11 has consistently turned a profit, and as a group they lost an average of more than $6.4 million annually from 1999 to 2008. The report urges the cabinet to establish a task force to do a “comprehensive, sector-wide reform effort” for public enterprises in the country.
“It is a good idea to review all state owned enterprises,” Finance Minister Jack Ading Wednesday in commenting on the report to government. The problem of “pouring money into failed state owned enterprises” is an important issue for the government to address, he added. “When will it stop?” he asked.
The report looked at 11 public enterprises: Air Marshall Islands, Kwajalein Atoll Joint Utilities Resources, Majuro Atoll Waste Company, Marshalls Energy Company, Marshall Islands Development Bank, Marshall Islands Ports Authority, Marshall Islands Shipping Corporation, Majuro Resort Inc., Majuro Water and Sewer Company, National Telecommunications Authority and Tobolar Copra Processing Plant.
Because of the cost to government of subsidizing many of these public enterprises, reforming them must be a priority for government, the report said.
It noted that reforms are underway at the main utility company, the copra processing plant and the airline — “three enterprises that have encountered serious challenges in recent years and that have required subsidies and/or cash advances from the national government.”
Cash advances needed by the Marshalls Energy Company to survive the past several years has placed severe pressure on government cash flow, the report said.
“The vast majority of public enterprises have run significant financial losses in the vast majority of years (from) fiscal year 1999 to FY 2008,” the report said. “Collectively, public enterprises have run annual average losses of around $6.4 million and in FY 2008, over $9 million was lost.”
Only the telecommunications agency “generated consistent operational profits” over this period, the report said. In FY2008, only the national telecom agency and the development bank showed significant profits, while the Shipping Corporation and Tobolar had small profits. The rest lost amounts ranging from $300,000 to over $3 million in FY 2008.
In addition to losing money, “several public enterprises have become delinquent on retirement and health fund taxes and have run up significant liabilities to the Marshall Islands Social Security Administration.
In these cases, public enterprises have withheld taxes from employee compensation, but have failed to match and remit these withholdings to MISSA.”
This has hurt the financial security of many workers whose retirement accounts do not have money in them, “negatively impacted the national health fund, and has gotten public enterprises into serious legal complications.”
Government subsidies to many of these public enterprises more than doubled from FY 2005 to FY 2008, indicating problems with the enterprises are getting worse.
“There is wide recognition that current subsidy levels are unsustainable, given the fiscal outlook and the challenges that lie ahead,” the report said.
A consultation on these issues with members of the public produced the recommendations including that government should phase out subsidies to the worst performing public enterprises and the cabinet should adopt a get-tough approach in demanding performance and accountability and if public enterprises managers are failing they should be replaced.
