Riding a runaway NEL?

In a March 2000 letter to the IMF, the Government of Trinidad and Tobago (GOTT)  stated its intention for the National Enterprises Limited (NEL).

“Regarding other structural policies, the government attaches great importance to reducing the role of the public sector in commercial activities and streamlining the civil service to enhance efficiency. Accordingly, in 1999/2000 the government intends to divest 30 percent of its shareholding in the National Enterprise Limited (NEL) — a government holding company with shares in the National Flour Mills Ltd.(NFM), Trinidad Nitrogen Co. Ltd.(TRINGEN), and Telecommunications Services of Trinidad and Tobago Ltd (TSTT).  In addition, selected public enterprises will be prepared for privatisation while the monopoly of others will be removed by allowing private sector participation in the industry.” By March 2001, GOTT transferred its investments in NFM, Tringen and TSTT in exchange for 500M ordinary shares of no par value in NEL.  At the March 2002 year end NEL added to this portfolio 20% of NGCNGL, — whose principal action is the holding of an investment representing 51% of the issued share capital of Phoenix Park Gas Processors Limited. The purchase consideration was the issue of 50.5M NEL shares at a price of TT$4 each.  There was no cash outflow on acquisition. Expect to see 37.84% of NGC Trinidad and Tobago LNG Limited (NGCLNG) form part of NEL’s shareholding at the March 2004, as the sale agreement was signed, but approval incomplete, at the March 2003 year end. The company is in its embryonic stages and the balance  sheet reads accordingly.  As a start up holding company, fixed assets have not been acquired and no major investments other than the core business are on the books.  Thus there is no need for loans. Over the period 2002 to 2003 NEL decreased after tax profit by 3% from TT$311M to TT$3011M.
 
NEL is now running with its full contingent of Board members.  As stated in the IPO the Board must consist of three (3)  members nominated by the financial institutions which were the largest investors in the Initial Public Offering (IPO) one member nominated by National Trade Union Congress (NATUC) and six members nominated by the Ministry of Finance (Corporation Sole). During the year three directors resigned and subsequent to the 2003 year-end one other tendered his resignation. This movement of directors suggests that there may be dissension among the Board, but we should not speculate without facts. We were warned in 2001 that the company’s expenses will increase as the Chairman then stated “management and administration services are at present provided to NEL by the Divestment Secretariat. However, NEL is in the process of acquiring the appropriate personnel to provide effective management and offices facilities as befit a public company with a current market capitalisation of 2620M.”  This hardly provides justification for a 400% increase from TT$402, 000  in March 2001 to TT$1.6M in March 2002 for a company whose “principal business activity is that of an Investment Holding Company and has no business operations of its own. “ The Chairman reiterated in 2002,   “The Divestment Secretariat continues to provide NEL with management and administration services.

 In seeking to obtain office facilities, NEL is in the process of finalising a lease arrangement for office space at the UTC Financial Centre. NEL is also expected to acquire appropriate personnel to fulfill the company’s management and administration requirements.” Our expectations of further increases were not met in 2002/2003; in fact the administrative expenses decreased by 34% from TT$1.5M to TT$1.0 in 2003. Only a breakdown of the administrative cost will allow an appreciation of the areas of the decrease. In the published reports no further statements have been made.  Organisational charts should be reviewed to ensure that only the functions necessary to manage the portfolios and present monthly reports are included. An audit  function for independent verification of decisions and the cost of these at portfolio companies and a Treasury/ Investment  function (inherent in the Finance areas) would be important components of the Chart. Part of the NEL’s remit is “to hold its shareholding in selected state enterprises and facilitate a public offering on the Trinidad and Tobago Stock Exchange.”  Shareholders must question the necessity of building and supporting an expensive structure to achieve this objective. NEL can take a page out of the books of the Head office operations of  any local conglomerate. The operation should be lean in staffing, looking at issues as commonality within operations (operational and financial policies and procedures, HR,  IT Platforms) and sharing or trading services within the framework of a Group of companies. Thus far no statements have been forthcoming from the Chair on these critical issues.