However, Dennis Chung, the chief executive officer of the Private Sector Organisation of Jamaica (PSOJ), says if Government wants to divest its shares in JPS it might make sense, noting the valuation of the shares would be based on future prospects of the business.
Governor General Sir Patrick Allen, delivering the Throne Speech in Parliament on February 9, said the Government will this year begin the process of privatising its minority shareholding in JPS.
“The Government will take steps to ensure that there is broad retail and institutional participation and Jamaican owners in the divestment process,” he said, adding that an enterprise team will be appointed to lead it.
JPS is primarily owned by Marubeni of Japan and Korea East West Power Company, each of which holds 40 per cent interest.
Paulwell said the Government’s expressed plan to offload its shares in the power utility “doesn’t mean it’s going to happen as we have seen from last year’s Throne Speech”.
Notwithstanding that, “I am opposed to the divestment of the shares at this time because we would get the least possible value on those assets in JPS, largely because everybody is aware that 290 megawatt of JPSCo capacity will become scrap metal in a matter of time when the new 190MW plant is established.”
The 190MW plant to which he referred is the proposed gas-fired power station at Old Harbour Bay, St Catherine, on which construction is slated to start in early March.
“For me, the Government should participate in the new 190 (megawatt) plant which will preserve and enhance its value, and after that plant has been established, that’s the time you can think about selling the shares,” Paulwell told the Financial Gleaner.
$2-billion debt
“If you were to sell the shares now, we would end up not getting much because we owe JPSCo so much money now; so nothing will go to the government’s coffers, because any money we make from the sale will have to go and clear our debt with JPS,” he said.
He noted that the Government currently owes the JPS more than $2 billion in bills, including for street lighting.
“So if it were to sell the shares now it will be at a depressed value. The net effect would not mean anything coming into Government’s coffers,” said the energy spokesman.
What the Government needs to do is to participate fully in construction of the 190-megawatt plant, Paulwell said. “It will cost them about US$20 million in equity,” he said, noting that for that plant, the JPS has a 20-year power purchase agreement which guarantees that project a significant rate of return on the investment for 20 years.
“That is one of the safest investments you could make. Why would the Government not be a part of that? And at that time it could contemplate on how to dispose of its shares,” said Paulwell.
“And, in any event, if it’s going to do that, the Jamaican people must be the people to whom those shares are sold,” he said.
Chung indicated that in making the decision to divest its shares in JPS, the Government must know what is happening.
He said he did not see it as a big deal to divest the shares and make Jamaicans a part of the ownership.
Referring to Paulwell’s opposition to the sale at this time, Chung noted that valuation of the shares would be done based on what is expected in terms of business.
“If you know, for example, that you have a contract to sell twice what you sold this year, then you can build that knowledge into the valuation,” he said, adding that the valuation would also be based on future prospects.
He noted that shares are traded at a price-earnings ratio and sometimes can be valued at many times more than the book value of an entity.
“So it’s based on information that people have,” he said, adding that if investors believe they are going to make a killing “out of this thing, going forward, then you value the shares accordingly”.
