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EDITORIAL - Lessons from the Mirant deal
published: Friday | April 20, 2007
It is perhaps instructive that Jamaica Public Service (JPS) represents over 70 per cent of the nearly US$1.1 billion that the Japanese firm, Marubeni, intends to pay Mirant Corporation for its Caribbean electricity businesses once the deal is finalised.
The lesson is there to be grasped by the Jamaican Government, which holds 20 per cent of JPS, and must determine whether Marubeni is the partner with which it wants to go forward. What that lesson is not (unless Clive Mullings' declaration is something more compelling than knee-jerk arbitrariness) is that a transfer of JPS to Marubeni ought not "to stand".
Indeed, what we hear Mr. Mullings to say is that even if the deal is done and a Jamaica Labour Party administration is in office, in which we suppose he will be energy minister, the sale would be rescinded.
That is a potentially dangerous statement, as Mr. Mullings on reflection should realise, as would his party, even as the statement was being trotted out. It is tantamount to declaring to international firms that Jamaica is not open for business.
As we understand it, Mr. Mullings' objection to the sale is that Mirant is making too big a profit on the sale of JPS. When it bought the then near-bankrupt state-owned light and power company six years ago, Mirant paid US$201 million, in addition to acquisition of JPS's debt. Mirant is now selling at four times its purchase price. In the intervening years, JPS returned profit to its owners.
In the absence of all the information that was used to determine the value of JPS, it is not easy to determine just how well Mirant did on this deal. For instance, the cost of new plant and the general expansion of assets would have impacted pricing.
Mr. Mullings and others have, however, been critical of Mirant for what they see as its failure, during its tenure, to sufficiently invest,or invest appropriately, in JPS, in plant expansion and modernisation. Implicit in their case is that these failures have kept the cost of electricity high and weakened economic growth.
That may be true, but the ultimate failing is not that Mirant got a good deal for itself and is now being able to sell at a decent profit. The wrath of Mr. Mullings and other such critics ought to be aimed at the Government for having negotiated poorly, if that is indeed the case.
To insist that the deal should not stand is a clear anti-capitalist sentiment, unless there are things to be revealed about Marubeni that should make the firm odious to Jamaica. We know of no such things.
In fact, Marubeni is one of Jamaica's biggest trading houses, with a global reputation. It partnered with Tokyo's power company to purchase Mirant's electricity operation in the Philippines, and has in the past shown interest in acquiring Jamaican sugar factories. It has also, over many years, sourced plant and equipment for Jamaica.
On that basis, Marubeni seems to us a potentially good partner. What Mr. Mullings and the JLP need to ensure is that the regulatory arrangement agreed for the transfer commits Marubeni to the plant expansion and modernisation with an appropriate time frame that suits Jamaica's interest.
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The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.
published: Friday | April 20, 2007
It is perhaps instructive that Jamaica Public Service (JPS) represents over 70 per cent of the nearly US$1.1 billion that the Japanese firm, Marubeni, intends to pay Mirant Corporation for its Caribbean electricity businesses once the deal is finalised.
The lesson is there to be grasped by the Jamaican Government, which holds 20 per cent of JPS, and must determine whether Marubeni is the partner with which it wants to go forward. What that lesson is not (unless Clive Mullings' declaration is something more compelling than knee-jerk arbitrariness) is that a transfer of JPS to Marubeni ought not "to stand".
Indeed, what we hear Mr. Mullings to say is that even if the deal is done and a Jamaica Labour Party administration is in office, in which we suppose he will be energy minister, the sale would be rescinded.
That is a potentially dangerous statement, as Mr. Mullings on reflection should realise, as would his party, even as the statement was being trotted out. It is tantamount to declaring to international firms that Jamaica is not open for business.
As we understand it, Mr. Mullings' objection to the sale is that Mirant is making too big a profit on the sale of JPS. When it bought the then near-bankrupt state-owned light and power company six years ago, Mirant paid US$201 million, in addition to acquisition of JPS's debt. Mirant is now selling at four times its purchase price. In the intervening years, JPS returned profit to its owners.
In the absence of all the information that was used to determine the value of JPS, it is not easy to determine just how well Mirant did on this deal. For instance, the cost of new plant and the general expansion of assets would have impacted pricing.
Mr. Mullings and others have, however, been critical of Mirant for what they see as its failure, during its tenure, to sufficiently invest,or invest appropriately, in JPS, in plant expansion and modernisation. Implicit in their case is that these failures have kept the cost of electricity high and weakened economic growth.
That may be true, but the ultimate failing is not that Mirant got a good deal for itself and is now being able to sell at a decent profit. The wrath of Mr. Mullings and other such critics ought to be aimed at the Government for having negotiated poorly, if that is indeed the case.
To insist that the deal should not stand is a clear anti-capitalist sentiment, unless there are things to be revealed about Marubeni that should make the firm odious to Jamaica. We know of no such things.
In fact, Marubeni is one of Jamaica's biggest trading houses, with a global reputation. It partnered with Tokyo's power company to purchase Mirant's electricity operation in the Philippines, and has in the past shown interest in acquiring Jamaican sugar factories. It has also, over many years, sourced plant and equipment for Jamaica.
On that basis, Marubeni seems to us a potentially good partner. What Mr. Mullings and the JLP need to ensure is that the regulatory arrangement agreed for the transfer commits Marubeni to the plant expansion and modernisation with an appropriate time frame that suits Jamaica's interest.
--------------------------------------------------------------------------------
The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.
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