The Sale of Bahrain

In early 2006 an innocuous looking bunch of articles ran in our newspapers that were very similar to this one:

“The Minister of Finance, H.E. Shaikh Ahmed bin Mohammed Al Khalifa, said that the privatization of Al Hidd Power & Water Station came within the framework of the privatization strategy adopted by the Government of the Kingdom of Bahrain and its aim of enhancing the role of the private sector in the development process and of creating the appropriate environment for attracting more foreign and local investment.

….

The purchase price proposed by the winning bidder is US$ 738 million. The total project value amounts to US$ 1.25 billion. This includes the purchase price for the existing plant and the cost of establishing the third phase of the project. The winning bidder is a consortium comprising International Power / Suez Energy International / Sumitomo Corporation. The Minister said that the achievements witnessed in the financial, economic and investment sectors in Bahrain reflected the support extended to those sectors by His Majesty King Hamad bin Isa Al Khalifa, His Highness the Prime Minister, Shaikh Khalifa bin Salman Al Khalifa and His Highness the Crown Prince and Commander-in-Chief of the Bahrain Defence Force, Shaikh Salman bin Hamad Al Khalifa. He said that similar steps had been undertaken in key economic sectors like transport, telecommunications & ports.”

So, just like that, our water and electricity plants has been sold off to Belgian, Japanese, and British investors. As expected, there was no fuss about this in the local media. There was hardly even a mention or a comment on the sale. Everything went by smoothly and unnoticed.

Let me, for emphasis sake, repeat the essence of the above piece. We have sold off the plant that pretty much generates ALL of the water and electricity in Bahrain to far flung companies in Europe and Japan. We no longer own anything that is able to produce water and electricity for us. All of our water and electricity production is in the hands of management in Tokyo, London and Brussels.

Could someone tell me how is this a brilliant idea?

Now, in a way, this is all part and parcel of the so called “neo-liberal” craze that has been sweeping through the region, usually at the behest and encouragement of such great institutions like the World Bank, the IMF, and consultancy firms. So what is this “neoliberal” ideology i.e. what is neoliberalism? Now I’m not going to sit here and pontificate on neo-liberalism, but I’ll give a quick rough and ready overview that is suitable for my purposes. It is basically the belief that well defined markets and private property are best and should be left to their own devices in running the economy. If there are well defined private property laws and there is a suitable judicial and administrative body to support it, economic activity should be determined primarily and solely through markets. Government intervention, if at all, should only be limited to making sure that the markets are well defined, to dealing with market failures, and that there are proper rules and regulation to support these markets. The state sector should be in no business of getting involved in economic activity, whether buying, selling, or running anything. It should limit itself to issues of transparency, regulation, protection, and enforceability. Make laws protecting business; if they are broken punish those who do break them; etc….. If, to begin with, there is no proper structure for free markets to take hold and the private sector is in shambles, then the primary goal of the state is to make sure that whatever is needed is put into effect for such markets and private sectors to emerge.

In this piece I’m going to focus on this idea of selling off the state’s assets. Let’s get back to our example. JUST TO RE-EMPHASIZE, Bahrain no longer has national ownership, let alone control, of either Water or electricity in the country. Sure, it regulates the price and quality which it is sold at, but it does not own any of the plants!

Now why in god’s name would anyone decide to do this, to sell off assets in the two most vital sectors in the economy that are pretty much needed for LIFE itself? Well let’s dismiss one irrelevant argument out of hand. One popular reason people give for letting the private sector take over is that the private sector is more efficient in managing and running a place. It is driven by profit and cost issues, etc, while the government sector is not and has a whole host of other political, social etc issues to deal with. Furthermore, there is constant innovation and creative destruction, while the government inevitably falls into corruption and bureacratic drag. I’m not going to go into deeply into this argument, but even if it is correct, this is no justification whatsover for selling off your assets. This is a justification for the private sector MANAGING and RUNNING the establishements. It has nothing to do with selling the places off to them. Many countries, such as France, have these vital sectors owned by the state itself but they are run by the private sector. If there are gains to be had from the private sector taking over management (and even this is debatable in this case) then let them take over running it but you don’t need to sell it off to them!

So what reasons do governments usually have for letting the private sector own assets in areas which are usually the terrain of the government, let alone in such vital sectors as these (please keep in mind throughout that we are talking about ELECTRICITY AND WATER here)? Well, the usual reasons are: 1. the government is broke and really needs money 2. It is a way of attracting investment in building new plants and establishments 3. to foster competition. I think it’s pretty obvious none of these work here in the case of Bahrain. Let’s go through them.

1. This is the reason why a lot of the countries, especially in the “third world”, do this. You’re broke, you don’t have money, and you need it fast….. or simply the rulers want to make a few extra bucks through a shady deal. Now I’ll assume the shady deal one doesn’t apply in our case. Either way, the being broke should definitely NOT apply in our case. We are an oil country in the middle of an unprecedented oil boom. We should have cash to burn, and we do, given that we have spent a billion dollars over the last five years on Weapons frmo the U.S. alone. We are not a cash strapped country looking for ways to close up our budget holes. Given our humungous oil windfall economic logic tells we should be exporting capital (just witness the mind-boggling sizes of sovereign wealth funds operated by the neighbouring gulf countries), not selling off our own assets. The above SHOULD NOT BE A REASON to sell off the Hidd plant.

2. The country needs investment in it, especially in such important areas like water and electricity. Privatizing them is a way to attract investment into such long term projects by creating incentives for investors to come in. They’ll have ownership, so they’ll be willing to put their money in. So the argument goes. Well, that’s all fine and dandy, but:

a. This should not be a reason to sell off ALREADY EXISTING ASSETS. At most this should be a reason to allow them to keep ownership of newly built assets that they build. Even on only that measure the government has failed miserably. First, it has utterly failed in attracting people to invest and put their own money in NEW projects in the water and electricity sector, although they have been trying really really hard. No one it seems is willing to put their money and risk here. And who can blame them? Given how little the government seems to care about these two crucial sectors when compared to how they’ve taken care of more frivolous projects like Amwaj, Riffa Views, and Durrat Al Bahrain.

This takes me to the second point. Given our oil boom the country SHOULD HAVE ENOUGH FUNDS ON ITS OWN to cater to such crucial sectors. They are a priority. We DO NOT NEED external investment, not in these sectors. Given how much we have poured down the Formula 1, etc, we should be able to stomp up an extra 1 billion somewhere to build a decent water and electricity plant which would keep us viable for the next 30 years or so. This should not be hard. Given our government’s obsession with fast bucks however, this money gets instead put on less crucial projects such as: (pick from the list, I’m sure you know it by heart now).

3. Government monopolies are no good. It’s better to let the private sector compete and you will reap the rewards. Just look at how the competition between Vodafone and Batelco has been so good to the country. Prices are down, products are better, everyone is happy (except Batelco).

This argument is so wrong on so many fronts. First, just like in the first point, you can have competition in terms of management and delivery of services, no need to sell of your assets. Second, in this case there is no competition to speak off! There is ONE company that the government has sold the whole bloody thing off to! That’s it. And finally, the mechanism at work here is completely different than in something like the telecommunication industry. The way things usually work here is that the government and the company agrees a price at which the government buys the output from the company for a certain period of time (usually several years), then the government sells the output to consumers at a subsidized price (way below costs). Market prices play no role here, although I’,m pretty certain the government’s ultimate goal is to pass on the full price to consumers. Watch out for that coming your way eventually, and by that point if the market functions as it’s supposed to you might be paying monopoly prices since there is only one supplier!

In short, there is no real justification for these shenanigans that the government has engaged in. I mean, at the end of the day, it’s pretty darn obvious why it’s better for a small vulnerable country of our size to own its own water and electricity supplies. It’s the same reason why you’d rather own your own house. It’s something that is absolutely vital to you, and you would rather not be dependant on someone else for such a massively important thing, especially when that someone is the only supplier selling such a crucial product which gives him a lot of power and bargaining chips over you!

This is such a clear concept, and I suspect the government knows this. The best example to illustrate this is the fact that the only industry who has gone against this privatization trend is the oil industry. The government has bought a 100% of Bapco over the last decade, even though they have pretty much sold everything else. Why? Well they probably know that oil is black gold, and it brings in huge wads of cash, and it is absolutely vital to the state of the country. Electricity and water should be just as vital to a country, except the difference here is that running water and electricity brings nothing but hassle, trouble, and extra expenditure to the government. There is no money to be made here, unlike in the oil sector. In fact there is money to be lost in subsidizing m people. Then you have to deal with the hassle of running and managing the thing and of dealing with public outcries whenever something happens. I suspect this is the real reason, along with the crazy fever of neoliberalism sweeping the region, which has driven such government sales.

This is of course not to mention any of the “non-economic arguments”. So far we haven’t mentioned any other relevant important factors, paramount of them is national security. Somehow it didn’t cross any people’s mind that it is not the best idea to sell of the country’s most vital assets which life itself depends on to companies that have nothing to do or have no interest in the region except to make money. All of this in a region which is not exactly known for its stability and its lack of surprises. What happens if we go into a war? How will these vital resources be secured? etc.. etc…

The most ironic thing about these sales is that they are promoted as evidence of a move towards development and modernity, towards copying more “civilized” countries, while really they are the absolute opposite of this. The only countries that engage in such sale of their most vital assets to completely foreign owned companies are developing “third world countries”. Countries like Jordan, which has sold off its plants to French companies, or countries like those in South America which were forced to sell pretty much anything of value in the countries to Western companies. You’d have to search very hard to find western countries that sell of their electricity and water resources wholesale to some company from a far flung place. Can you imagine the headlines if Saudi Arabia acquired all of the UK’s power and water generating companies? How about if the United States supplies became dependant on Kuwaiti companies? Remember the outcry when a Dubai company dared to buy something as innocuous as the management of a port in the U.S.?

And of course water and electricity is nothing but the most extreme, most obvious examples of how horribly wrong this policy has gone. As the respected minister boasts in the article quoted in the beginning, this sale of assets has encompassed many many sectors, and expect more to come if it’s possible to sell them. For I suspect that “Bahrain holdings” company is possibly in many ways a display shop for a garage sale of what’s left in the government’s hands in Bahrain. Want an airline? No problem we have Gulf Air, how much you’re offering? Sold!! How about Aluminum? Who knows until what point this will reach.

I doubt this will stop until we will shake off this neo-liberal delirium, and that does not look like it will happen until the oil runs out. Then we will wake up, rub our eyes, and realize that we are in a massive hangover. Just like other third world countries, we will find that all of our important assets and resources are owned by some foreign companies that mean nothing to us (including massive chunks of the sea if this report is to be believed), and just like third world countries, we will find ourselves too oil-poor, too dependant and too vulnerable to do much about it. We will face classic dillemmas faced by developing countries which we shouldn’t because of the oil we have. And the problem is this hangover won’t last for a day but for a really long long time.

Enjoy the water you’re drinking and the laptop you’re powering using that electricity folks, just remember that you’re buying it from the Belgians, the British and the Japanese.

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12 Responses to “The Sale of Bahrain”

  1. ammaro Says:

    its a good idea because privatisation allows the whole program to run in a MUCH MORE EFFICIENT way… however, it can also mean that we could get screwed at any time through a wise-crack decision by these investors. sigh… lets see how it goes

  2. nido Says:

    Hi Ammaro,

    I have to disagree with you on this one. As I said in the beginning of the article, effiiciency is not an argument for selling the plants. It’s an argument for having them run and managed by the private sector, but you don’t have to sell it to them. If you really think the private sector will run things more efficiently then fine, let them run it, just keep ownership of the things. e.g. like the system they have adopted in France.

  3. ButterflyBahrain Says:

    This is one of your greatest post Nido, very intelligent analysis!

    Imagine the consequences of privatization of education for example or the Health sector. It is all a short term profit generation but what is next?

    As you said nobody is questioning the privatization and neo-liberalism consequences. I was not that much aware of this subject until one of my foreigner friends addressed them to me. There are many countries who witnessed the negative effects of neo-liberalism but did we learned from their experiences?

    I read many interesting articles about neo-liberalism and this is one of the articles for those who are interested in learning more about Neo-liberalism.

    http://mondediplo.com/1998/12/08bourdieu

  4. BB Says:

    “He said that similar steps had been undertaken in key economic sectors like transport, telecommunications & ports.”

    This whole mass privatisation strategy seems to have been carried out in a hasty cut-throat manner under our unsuspecting noses. What else other than Alhidd power and electricity station has been privatised? Can we make a list here to assess the scope of the issue and who owns what.

    Privatisation over the last 20 years has spread everywhere across the world, but in the West it comes under heavy scrutiny by national regulatory authorities who set standards and targets. I think you’d need to look at the mandate and power of regulatory authorities in Bahrain for the whole picture. The one hopeful thought is that that privatisation is reversable and has been done before with the nationalisation of the main oil production company in the 70s and aluminium I guess.

    Take for example these internet connection leads that have ‘mysteriously’ been cut in the sea and has lead to major communication disruptions across the whole region (except Israel and Iraq surprise surprise ! ). It really makes you realise the importance of ownership in a situation where interest may conflict which is not an infrequent occurance in our part of the world. Not to mention the prospect of a looming water crisis in the region over the next few decades. Scary.

    The only reason that explains this privatisation of important public utilities is not the strategic interest of the nation but of the ruling elite whose patronate is further asserted by such sell-offs. That is to be expective given the incentives to gain such windfalls from multinational corporations in an unchecked environment. But where are the NGOs, economic committees in parliament, opposition in all of this? Not a whisper?

    The issue just highlights the need for people to pursue their economic as well as their political rights. The crux of the issue is for the people to reclaim sovereignty and distribution of national wealth and resources. Definitely an issue that needs to be studied and explored further.

  5. bikeshed Says:

    I guess neoliberalism your big thing right now, huh? Been reading a little too much Chomsky again? Perhaps you would prefer a return to mercantilism? Or are you planning to take matters into your own hands with AK47 cutouts?

    Ammaro is right…it is more efficient to take the money have someone more professional run it rather than hire more people at our cost to keep the thing running, a cost that would undoubtedly be passed on to the consumers…anyway, the turnkey contract is coming to an end as i understand it and there is a distinct lack of capable local technicians to run the facility so we could be facing a situation where we have all that investment and no one who knows how to run it…furthermore, there are a series of protection provisions in the contracts that ensure supply just in case those crazy belg/brit/japs decide to turn off the taps…

    Thankfully, the Texans were a little more open minded when they sold their power plant to Arcapita last month…

  6. nido Says:

    Thanks Butterfly for the link. This guy is great. One thing that I’m not entirely convinced off is this idea that somehow this system is all the work/conspiracy of the World Bank/ IMF/ financiers/ capitalist class etc. I think in many ways lots of neoliberalism’s ideas are part and parcel of the current process and stage of capitalism, and its not simply because of certain policymakers. There is enough of a mass and dynamic to make us move towards this neoliberalism ideal.

    To take an extreme example, it would be crazy for any country nowadays to shut itself off from trade. It is simply just impossible and will bring untold harm to the country.

    The point is not that Bahrain should somehow decide to go communist overnight or something. That’s just crazy talk. The point is that Bahrain should have enough resources to be able to handle the worst parts of neoliberalism, to be able to shield itself from a lot of the harm that could come from it, and from which other countries might not be able to shield themselves. To take a very country-centric and extreme view, Bahrain should if anything should be one of the capital exporting countries. It should not be selling its own assets off. We, if anything, should be the capitalists!

    Anyhow, for a different perspective than Bourdieu’s on this Chris Harman is worthwhile:

    http://www.isj.org.uk/index.php4?id=399&issue=117

    Bahrania:

    One important reason for selling off these utilities is I think that the government really does not want to be bothered by running such things. They require a lot of effort, investment, specialities, etc, etc, PR management, etc. and they are under the perception that this sell off somehow will relieve them from a lot of this. Of course I think there is also that a lot of people have genuinely gulped down this neoliberalism stuff and taken it to heart.

  7. Global Voices Online » Bahrain: For sale? Says:

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  9. theobserver2 Says:

    Will it be OK to you if they were sold to local companies?
    Are you against the concept of privatization or the buyers?

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