SOEs report on financials

The very entity that was placed on the chopping block by the former Democratic Labour Party (DLP) administration, and its parent company, have together raked in majority of profits of the state-owned enterprises (SOEs) based on the financials for over 50 entities as at December 31, 2018.

In a Ministerial Statement by Minister in the Ministry of Finance Ryan Straughn yesterday, the Barbados National Oil Company Ltd (BNOCL) and the Barbados National Terminal Company Limited (BNTCL) brought in profits of $71.17 million for the period.

Rounding off the top five were the Caribbean Broadcasting Corporation ($44.12 million), the Barbados Agricultural Management Co. Ltd (BAMC) ($34.69 million); the National Petroleum Corporation ($19.18 million) and the Queen Elizabeth Hospital ($14.03 million).

However, without including government grants and write-offs, only two of those SOEs would have recorded a profit – the BNOCL ($2.14 million) and the BAMC ($1.33 million).

“The profits earned by the SOEs were largely as a result of the intergovernmental write-off exercise, which resulted in a number of the SOEs posting to other income, the payable balances that were written off,” said Straughn.

Excluding the write-off, the non-commercial SOEs would have reported a net profit of $1.86 million, while the commercial entities would have reported a net loss of $14.20 million.

A combined net loss of $169.01 million would have been recorded had the government subvention and the write-off of inter-agency balances been excluded.

Government subventions represented 22 per cent of the revenue for commercial entities and 65 per cent of the revenue of the non-commercial sector entities.

Straughn said there were some “significant loss makers”, namely the Barbados Tourism Marketing Inc., the Transport Board and Caribbean Aircraft Handling Co. Ltd., with reported net losses of $7.69 million, $7.12 million and $5.25 million respectively.

There are currently 58 SOEs in Barbados, 37 of which are classified as commercial and 21 as non-commercial entities, which have public service and regulatory objectives.

The quarterly report at December 31, 2018, reports on 51 of the state entities, representing a 90 per cent compliance rate. Six of them have therefore not compiled their reports.

“This is a clear contravention of the directives from the Director of Finance and Economic Affairs which stipulated that SOEs were to report their quarterly financial information by the 5th of the month following the end of the quarter as well as submit restated financials at December 31, 2018 in respect of the write-off of inter- governmental arrears,” said Straughn.

Straughn said on the surface, the third quarter showed an encouraging period for the SOEs with the entities reporting an aggregate profit of $186.82 million, of which the commercial entities were the major contributors, accounting for 92 per cent or $171.77 million of the total, and non-commercial SOEs accounting for the remaining eight per cent or $15.05 million.

However, closer analysis of the data suggested that the state enterprise portfolio had underperformed during the quarter to a large extent.

This was demonstrated in the ratios for profitability, liquidity and debt which were predominately below the acceptable benchmarks, said Straughn, adding that the trends were concerning especially since the group of commercial SOEs recorded a deficit of $65.08 million.

He said the commercial SOEs recorded a high debt to equity ratio of 2.10, while the non-commercial entities debt to equity ratio was favourable and stood at 0.65.

“Further, regarding entities identified for reform, the debt to equity ratio was also relatively high at 1.68. However, given that the debt restructuring exercise is still ongoing, this is expected to address this area. It is therefore important that SOEs continue to be closely monitored to ensure that these financial challenges when corrected do not recur,” he said.

Of note is that transfers from central Government to SOEs are extremely high and a major contributor to fiscal risk, Straughn pointed out, while reiterating that Government was in the process of reducing those transfers through a combination of measures including stronger oversight, improved reporting, cost reduction, revenue enhancement and mergers and divestments.

The SOEs are being reformed as part of the Barbados Economic Recovery and Transformation (BERT) programme.

The entities identified for reform reported a net profit of $117.42 million for the quarter with the results being largely influenced by government grants as well as the write-off.

Straughn said data suggested that there were still a few issues regarding the management of arrears, but gave the assurance that they were being addressed.

“Although a number of reasons have been cited for this, it is unacceptable as it can derail the programme if not stemmed,” he said.

Straughn said the data suggested that the SOEs had largely underperformed during the quarter under review and that the financial performance was weak at both the aggregate level and within the groupings.

“Additionally, although it is appreciated that a lot of work is being done on the financial analysis side, the risk management and non-financial areas will need to be strengthened. It is apparent therefore that despite the strides that we have made there is still a lot of work to be done,” he concluded.
marlonmadden@barbadostoday.bb