14 - 20 March 2002
Issue No.577
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Al-Ahram Weekly Online 14 - 20 March 2002 Issue No.577 |
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Cutting their losses
The 20 February train fire in Upper Egypt has exposed the appalling financial state of government-owned economic authorities writes Gamal Essam El-Din
When Prime Minister Atef Ebeid delivered his government's first policy statement to parliament in December 1999, he surprised economists by announcing that the government would separate the "economic and service authorities'" budgets from the state budget. He promised that the plan would "ease financial burdens and bring domestic debts under control."
But the 20 February train fire in Upper Egypt has shown how far Ebeid's plan is from being realised.
That tragic accident, which left 373 dead, has exposed the parlous financial and operating conditions in many of what in Egypt are called the "economic authorities." And topping that list is the Egyptian National Railway Authority (ENRA).
In January, 1999, two months after his appointment as prime minister, Ebeid said that "over the last 11 years the state has given ENRA a staggering LE11 billion in direct subsidies, not to mention costs of debt servicing estimated at a staggering LE1.6 billion." He continued, "In spite of this economically distressing fact, the ENRA has neither improved its financial revenues nor halted the deterioration in its second and third class services. Its cargo transport operations even fell in 1998 by 15 per cent."
Last week, Ebeid, presenting to parliament a statement on the worst rail disaster in Egypt's history, said that ENRA was saddled with LE17 billion in debts and 30 consecutive years of accumulated losses. "This authority, which employs 79.600 people, spends LE550 million a year on wages. This accounts for almost 70 per cent of its annual revenue," he said. Ebeid also pointed out that ENRA's losses in 2001 were estimated at almost LE1.3 billion. "This means that ENRA, which is Egypt's largest economic authority, will remain bogged down by huge debts for years to come and continue to lack the financial resources required to service these debts." Worse, Ebeid added, ENRA's streamlining and refurbishment plans require a further $200 million every year.
ENRA's deteriorating technical and economic condition is just one example of what as many as 62 economic authorities in Egypt suffer. A report the Central Auditing Agency (CAA) submitted to the Peoples' Assembly last year indicated that unlike service authorities, (of which there are 87), economic authorities were originally designed to be profitable. "They are supposed to generate financial surpluses and profits in the same way joint-stock companies do," CAA's report said. But the reality, alas, is far from the ideal.
According to CAA's report, the financial results of economic authorities in the fiscal year 1998/ 1999 show that out of a total 62, only 32 authorities generated surpluses. Combined, they produced LE11.8 billion, LE2.4 billion down from the year before and well shy of the government's anticipated figure of LE20 billion. The decline was largely the result of the reduced surplus of the Egyptian General Petroleum Corporation, which shrank from LE7 billion in 1997/1998 to LE5 billion in 1998/1999. But the remaining authorities failed to generate a surplus at all. "As many as 19 economic authorities incurred losses totalling LE5 billion, while the financial results of the remaining 11 were almost balanced," CAA's report said. The profitable economic authorities include the Suez Canal Authority, the Egyptian General Petroleum Corporation, EgyptAir, Cairo Airport Authority, the General Organisation for Industrialisation and the General Authority For Investment and Free Zones (GAFI). The biggest villains among the loss-makers were ENRA (LE1.2 billion) and the Egyptian National Radio and Television Union Authority (LE700 million).
The CAA report attributes these calamitous figures to several causes. The first, the report says, is that some authorities were established during the socialist years of the 1960s. "This means that they were prevented from working on a profit basis and instead were mandated to provide subsidised services to social brackets," the CAA report said. Falling into this category are authorities such as the General Authority for Consumer Goods and Cairo's Public Transport Authority.
Another cited cause of poor performance was the way some authorities have been designed. The laws establishing around 21 authorities, such as the Cairo Airport Authority, forbid them from keeping their financial surpluses to themselves. "This is illogical because some authorities must then resort to borrowing at high interest rates from the National Investment Bank to finance their operations," the CAA report said. A third reason is that some economic authorities were forced to buy shares in joint-stock companies. "The authorities must dispose of these shares because of their low or even zero returns," the CAA report said.
To snatch them out of their financial troubles, the CAA report recommended that most economic authorities be restructured as holding companies. "Other authorities, especially those which are far from offering strategic services, should be totally privatised," the CAA report added.
In his policy statement to parliament in 1999, Ebeid revealed that studies were being conducted to examine ways of transforming economic authorities into holding companies. "This is an initial form of privatisation, aimed at improving the performance of the authorities and rectifying their financial and economic structures," Ebeid said. But so far, nothing has been done.
In the current budget (2001/2002), the state is saddled with a LE2.7 billion bill for servicing the debts of the 12 worst-performing economic authorities: ENRA (LE1.5 billion), Cairo and Alexandria's Public Transport Authority (LE225.7 million) and nine water and sanitary drainage authorities in nine governorates (LE349.6 million). The state budget is also burdened with LE545.4 million in debt-service for the other economic authorities.
This year's budget is also pockmarked with subsidies totalling LE3.3 billion, which go to bolster the social services provided by economic authorities such as the General Authority for Consumer Goods, Cairo and Alexandria's Public Transport Authorities, and the General Health Insurance Authority.
A glance at the politics reveals how difficult it will be for reform to make headway. Finance Minister Medhat Hassanein, speaking before parliament last year on the 2001/2002 state budget, emphasised that several work groups had already been formed to scrutinise each of the 62 economic authorities with the aim of making them more efficient and economically rational.
But the decision to separate the budgets of economic authorities from the state budget met fierce opposition from leftist deputies, who argued that separation is a first step towards privatisation and fare-liberalisation which could put rail travel out of reach of the poor. In March last year, leftist MPs harried then Transport Minister Ibrahim El-Dumeiri for his surprise decision to double fares. El-Dumeiri was also slammed for cutting the number of third-class coaches.
As a result, the government retreated from its decision to raise ticket prices.
The Upper-Egypt disaster has prompted the government to look at the authorities afresh. But instead of reforming ENRA's financial structure, for example, the government is simply allocating emergency funds to upgrade third-class coaches. Ebeid, attempting to counter criticism in parliament, announced on Friday the allocation of LE251 million for this task. The money will go to upgrade 300 third-class train coaches and other refurbishment works, such as the purchase of new locomotives.
Market-friendly economists have attacked Ebeid's priorities. Ahmed Abu Ismail, a former finance minister, told Al-Ahram Weekly that the money was primarily aimed at cushioning Ebeid from criticism and cleaning up the government's image in the eyes of the people. "Ebeid is a public administration professor and he should surely know that, in a liberal economy, the government should no longer be involved in running economic authorities," Abu Ismail said. In the short run, Abu Ismail argued, economically liberalising services provided by authorities could hit the poor, but in the long-term, the nation's economy would benefit from a reduced budget deficit. "The state budget will be relieved of the huge subsidies provided to economic authorities every year. The saved money could instead be directed at improving public services provided to poor citizens, notably in strategic sectors such as education and health," he said.
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