By FAY SIMMONS

TRIBNE BUSINESS REPORTER

jsimmons@tribunemedia.net

A BAHAMIAN banker has warned that the Government cannot borrow money from the public, pass it on to loss-making state-owned enterprises and then treat the resulting loans as recoverable assets when there is little realistic prospect of repayment.

Gowon Bowe, Clearing Banks Association chairman, said the Government needed to acknowledge the economic reality of its financial support for public utilities rather than relying on the label attached to the transactions.

The latest public debt bulletin shows agencies and government business enterprises owed $2.23bn at end-June, up $579.1m, or 35.1 percent, over the previous year.

But Mr Bowe said the more important issue was what that funding actually represents, rather than simply the size of the debt.

“When we see what is called loans to state-owned enterprises from a Governmental perspective, that is nonsensical because ultimately these enterprises we know have been historically loss-making, and the government has been required to provide subvention,” he said.

He said a genuine receivable required a reasonable expectation that the money would be collected.

“And the question is: loans to state-owned enterprises. Is there any plausible, reasonable possibility of these being repaid?” said Mr Bowe.

“And the answer, in general terms, is no.”

He said public utilities such as Bahamas Power and Light (BPL) were already carrying hundreds of millions of dollars in debt, while political resistance to higher rates meant there was limited scope for them to generate enough cash to repay Government funding.

“That is one that we are simply going to have to pay taxes to settle,” he said of the accumulated obligations.

Mr Bowe's argument is that Government should not confuse the accounting label attached to an injection of funds with its underlying economic value.

“The reality is, if you look at the last 10 bulletins and your first question, you say, look at the loans to these state-owned enterprises,” he said.

“We've borrowed money from the public to lend to a loss-making entity, and we've recorded the loan to the loss-making entity as if it is recoverable, when we should have recorded it as an expense.”

“If we'd recorded it as an expense, we have a deficit.”

He added: “Let us not kid ourselves by believing that simply because we call it a loan, even though we'll never get it back, that we have an asset.”

“And the truth of the matter is, we have the liability, but we certainly don't have the asset.”

He said the Government should instead recognise the funding as a sunk cost and focus on ensuring that the utilities do not continue generating losses that require repeated injections of public money.

“The truth of the matter is, we borrowed money for an expenditure purpose that will not be recoverable, and we just need to accept that, move on, and hope that the sunk cost helps us to defray future costs by ultimately getting this utilities to a state of sustainability and, if you will, autonomous management, where they are not relying on the government,” said Mr Bowe.

“We don't need these enterprises to be massive profit generators. We just need them to stand on their own two feet.”

Mr Bowe said BPL should be viewed as a “tale of two cities” — the reformed utility that emerges from the current generation and transmission investments, and the legacy debt accumulated by the existing entity.

“I think the BPL will be a tale of two cities,” he said.

“If we can get the reforms in place with the new T and D and the new generation, let us look at that company, if you will, from that point going forward as being standalone and the legacy debt, let's figure out how we're going to extinguish that.”

“Because ultimately combining the two will have that noose around our neck forever.”

Mr Bowe said the accumulated debt could not realistically be recovered through BPL's normal business operations and would ultimately have to be dealt with through Government finances.

“The debt that has already been incurred by that entity is not one that is recoverable through the normal costs of business,” he said.

“That is one that we are simply going to have to pay taxes to settle.”

He said the priority should therefore be ensuring that the reformed utility does not continue accumulating losses and debt.

“And we just need to focus on ensuring that there are no future losses and future debts being accumulated by this entity, and then we can deal with the history in a separate way,” said Mr Bowe.