The Ontario Legislature is back in session and Premier Kathleen Wynne seems to be having little trouble with the whiny little boy from Barrie now heading the provincial Conservatives or his provincial NDP counterpart Andrea Horwath. Where Wynne is getting the hard shots is from Liberals across Ontario who cannot understand her determination to sell off the bulk of Ontario’s power distribution system Hydro One. This was something that the discredited former Conservative Premier Mike Harris wanted to do, not the Liberals.
Maybe it was Mike Harris who gave the idea to Wynne’s banker, expert in everything, Ed Clark. In setting Clark up as the expert in divesting the province of its golden egg layers, Wynne pretty well told him “hands off the Liquor Control Board (LCBO) stores but anything else can go.” And what she was told by him was that she had to do something about beer and that there was money to be had from Hydro One.
With total equity of about $7 billion, sales of $6 billion and profits on operations of $800 million, Hydro One would supposedly bring a better price than the LCBO. The business of the LCBO has assets of just $120 million, sales of almost $5 billion and profits of $1.66 billion. You hardly need to know much about balance sheets to realize that the LCBO is one of the most profitable businesses in the province.
But the difference between selling each of these assets is the difference in the revenue stream after selling. If you sell 60 per cent of Hydro One, you lose 60 per cent of the revenues. If you sell 100 per cent of the LCBO, you get to continue to collect the provincial booze taxes and related revenues. And if you sell off the LCBO in its individual parts and locations, you will get a heck of a lot more money than the books indicate. This is the only golden goose that can keep on laying golden eggs after a very sumptuous goose dinner.
And what the public gets is more convenient sales locations, better prices and better service when buying booze. It is a win-win situation for everybody concerned. The province could even let grocery stores bid for the right to sell beer, wine and other alcohol products. That way the market can determine what is convenient.
But all you get from the sale of part of Hydro One is constant pressure on the newly privatized company to get approval for rate increases to increase shareholder return. And all the public will get is less transparency from a private company and rising hydro rates.
Copyright 2015 © Peter Lowry
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