Addressing Macro-Fiscal Risks from State-Owned Enterprises in Seychelles

Ashwin MOHEEPUT

Seychelles Conference 2013:From Stabilization to Sustained Growth: Five Years

of Successful Reforms and the Challenges AheadVictoria, October 31, 2013

Roadmap and Introduction

2

PART 1 – Financial Performance Analysis of State-

Owned Enterprises (SOEs)

Profitability

Cash-Flow

PART 2 – SOEs and the Government

Dividends, Subsidies and Transfers

Development Grants

Debt of SOEs

PART 3 – Broad Assessment of SOEs

Good practices for benchmarking performance of SOEs

Risk Assessment of SOEs in Seychelles (benchmarked

against scorecard)

Going Forward - Policy Implications

FINANCIAL PERFORMANCE

ANALYSIS OF STATE-OWNED

ENTERPRISES

PART 1

3

Profitability indicators show an improvement in performance since 2010,

although the situation for some SOEs (e.g., SEYPEC and SPTC) continues to

warrant attention.

4

-100

-80

-60

-40

-20

0

20

40

60SEYPEC

No

uvo

banq

Air

Seyc

helle

s

PU

C

STC

DBS

SPTC

SC

AA

Oth

er

To

tal

Pe

rce

nt

Figure 1. Seychelles. Returns on Assets and Turnover Growth, 2010-12

2010 2012 Turnover growth

Many SOEs were making operating losses in 2010 and have represented a

net drain on resources of the government through their Quasi-Fiscal

Activities (QFA)…..

5

-600

-500

-400

-300

-200

-100

0

100

200

300

400

All

DBS

PU

C

No

uvo

banq

SEYPEC

Air

Seyc

helle

s

Oth

er

SO

Es

SR M

illio

ns

Figure 2(a). Seychelles. Cash Flow Activities of SOEs, 2010

Operating Activities Investment Activities Financing Activities

Note:

1. Investment activities include asset acquisition, disposal as well as

development grants from the government

2. Financing activities include borrowings and debt repayments

…but in 2012, the overall cash flow situation improved with most SOEs

posting positive operating activities.

6

-600

-400

-200

0

200

400

600

800

1000

1200

All

DBS

PU

C

No

uvo

banq

SEYPEC

Air

Seychelles

Oth

er

SO

Es

SR M

illio

ns

Figure 2(b).Seychelles. Cash Flow Activities of SOEs, 2012

Operating Activities Investing Activities Financing Activities

Note:

1. Investment activities include asset acquisition, disposal and development grants

2. Financing activities include borrowings and debt repayments.

STATE-OWNED ENTERPRISES

AND THE GOVERNMENT

PART 2

7

Dividends paid to the government averaged less than 2 percent of GDP in

the 2008-13 period whereas subsidies and transfers received from the

government have averaged over 4 percent of GDP annually over the same

period.

8

0

1

2

3

4

5

6

2008 2009 2010 2011 2012 2013

Pe

rce

nta

ge o

f GD

P

Figure 3. Seychelles - Dividends & Total Transfers, 2008-2013

Transfers Air Seychelles Dividends

Government support also takes the form of development grants designed

to cover investment needs (e.g., PUC) and various loans and

restructurings.

9

0

5

10

15

20

25

30

35

40

45

0

50

100

150

200

250

300

350

400

450

2007 2008 2009 2010 2011 2012

Pe

rce

nta

ge

SR, M

illio

ns

Figure 4: Seychelles - Development Grants, 2007-2012

PUC Budget dependent bodies Proportion of Cap. Exp. (in percent) (RHS)

As of June 2013, total debt of SOEs accounted for over 10 percent of GDP

(excluding debt of PUC).

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Government loan guarantees (explicit and implicit guarantees) pose contingent liabilities.Past loans taken by government: Air Seychelles (1.5 percent) and DBS (0.6 percent)

SOE CurrencyAmount in

SR millions

As percent

of GDP

SEYPEC EUR, USD, SR 1125.8 7.4

PUC1 115.7 0.8

STC SR 61.0 0.4

IDC SR 7.5 0.0

HFC SR 129.6 0.8

DBS SR 260.8 1.7Source: PEMC1 Loan disbursed in third quarter of 2013

Table 1. Seychelles. Debt as of Quarter 3 of 2013

BROADER ASSESSMENT OF

STATE-OWNED ENTERPRISES

PART 3

11

Risk Assessment of SOEs in Seychelles

(benchmarked against Good Practices scorecard):

Appropriate tariffs – Tariffs on medium-term path to full economic cost recovery, but not there now.

Regulation – Electricity (SEC) largely independent (room for improvement). No independent regulation for water.

Governance and Monitoring – Two bodies SSI and PEMC but roles and capacity still under development, including for enforcement. Governance audits to be developed.

Performance contracts and incentives – Air Seychelles through partial privatization and management contract. Incentives and contracts not fully established for other SOEs.

Sector strategy and legislation - Water master plan established. For electricity not clear if a master plan has been discussed and approved nationally.

Targeted assistance - Cross-subsidies in tariffs currently commonplace. Activities in which some SOEs have monopolies cross-subsidize contestable activities.

Corporatization with safeguards - Some commercial SOEs are planning on expanding activities in competitive markets.

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Going Forward - Policy Implications :

Fully implement recommendations of consultants on tariff adjustments

according to best-practice.

Enhance monitoring by giving it the authority to identify and monitor

contingent liabilities of SOEs on an ex-ante basis and to enforce any policy

recommendations that are appropriate to tackle these risks.

Enhance transparency in information dissemination about the financial

state of public enterprises to third parties through publication of the

financial results of SOEs in a website.

Consider risks of model currently adopted by some commercial public

enterprises seeking to expand activities.

Strengthen governance - more separation of management and Boards?

Governance audits.

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Thank you.(end of presentation)