Essential services under review
With the news that the States are to reassess their relationship with the companies they own, we look at the utilities which will come under the spotlight
LAST month Treasury Minister Alan Maclean announced an 'unprecedented' review of the relationship between the States and companies in which it has shareholdings.
The first to be put under the microscope is telecoms firm JT, in which the States own 100% of the shares.
But Senator Maclean has also indicated that further reviews of other shareholdings could follow, particularly as the States looks to find ways to fund longer-term capital projects, such as a new hospital and a new liquid waste plant.
The 2015 States Budget also includes several proposals to call in some of the shares in Jersey Water, Jersey Post and Jersey Telecom.
So which of the Island's essential services companies are owned by the States of Jersey and what action might be taken in the light of the review?
Jersey Electricity plc
OF the companies in which the States has a stakehold, Jersey Electricity has consistently been held up as a model of good practice.
It is also the model that Treasury Minister Alan Maclean has indicated could be a prototype for the future of JT.
- History: First set up in 1924; States acquired a majority share in 1936.
- Dividend paid to the States in 2014: £2.2m
- Corporate tax: None was payable last year due to capital allowances following investment in the Normandie 3 pipeline to France
The States of Jersey owns 62% of the JE business – which is listed on the London Stock Exchange – and the remaining 38% of shareholders are made up of both private and institutional investors.
'The model is quite a good one for the States because they have ultimate control and over 50% of voting rights,' said JE's chief executive, Chris Ambler.
'What they are not allowed to do is meddle in business decisions, or disadvantage other minority shareholders.
'We have a duty to act in the interest of the Island as a whole, but we are not allowed to act in a way that advantages the States and disadvantages minority shareholders.
We have to be neutral and independent.
'If we were to deviate from what is in the best interests of the Island as a whole, the States would have the power to remove the board.
That forces us to be efficient, to provide a commercial return for all of the investors, but mindful overall of our obligations to the Island.
'It stops a lot of politicking in what is an essential service with a long-term view. The political cycle is four years, but our investment horizon is fifty to a hundred years. We can't put ourselves in a position where we have to dance to the tune of external authorities for short-term gain.'
One of the main differences between JE and other businesses is its listing on the main London Stock Exchange, which requires a number of obligations that are not imposed on non-listed companies.
'Being listed gives us a huge amount of transparency and requires massive disclosure – whether or not people read it,' said Mr Ambler. 'The community gets a lot of benefit from that.
'It does require us to go through a lot of governance hoops, but we think it is good value for money – we can't hide behind that, and of course it makes us a much more credible investment.'
Apart from the States, around ten per cent of investors are the larger institutional companies and the remainder are small shareholders and wealthy private clients. More recently a staff share scheme has been introduced. 'That is good for us and helps people to understand the shareholder aspect,' said Mr Ambler.
LIKE Jersey Electricity, Jersey Water started life as a non-States business.
It also has the distinction of being the oldest registered company in the Island, in existence now for over 130 years.
It was not until the 1980s that the States acquired a majority shareholding in the company.
- History: Jersey New Waterworks Company launched in 1881; the States gained a controlling shareholding in the 1980s.
- Dividend paid to the States in 2013: £1,760,000
- Corporate tax: (20%) £674,000
'There was a long-running debate, a lot of discussion,' said chief operating officer Helier Smith. 'The company owned a huge amount of land and one of the directors was keen to asset-strip.
'It was Jurat Peter Blampied, who was then the chairman, who persuaded the States to invest.'
Currently the States have a majority ownership of 76% invested in several classes of shares, including all the A Ordinary shares which give them two for one voting powers.
'Effectively they have full control over the organisation,' said Mr Smith. 'The remaining 24% of investors vary from institutional investors to individuals with personal links to the company or family shareholdings.
'Most are Jersey-based and our share trading desk is popular and over-subscribed.'
Mr Smith said that although the board had considered the possibility of listing the company on a stock exchange, so far they had not needed to do so.
'Generally, the reason for listing is to raise finance and it is quite an expensive process,' he said. 'That is not to say that we would not list the company if there was a reason to do so.'
IN contrast to Jersey Water and Jersey Electricity, JT is a relative newcomer to the corporate world.
Until 1972, the States owned the telephone exchanges, but not the connections between them or to the UK and France.
- History: First telephone exchange opened in 1895, on the corner of Minden Place and Bath Street; infrastructure acquired by the States in 1972 and company incorporated in 2003.
- Dividend paid to the States in 2013: (£3.2 million deferred as part of the Gigabit funding agreement)
- Corporate tax: (20%) £1.9 million
This changed after the Telecoms Law was introduced in 1972 when the States took over the ownership of the infrastructure from the British Post Office.
'There was then a huge change in the services we were providing – instead of the telephone being hard-wired behind the front door, customers had an increasing number of choices,' explained corporate affairs director Daragh McDermott.
In 2003, the telecoms market was opened to competition and Jersey Telecom relinquished its exclusive powers and became a private company, albeit 100% owned by the States.
At the same time, the Jersey Competition Regulatory Authority was set up to license and regulate.
'This meant that other telecoms firms could come in – they hadn't been able to do that before, because it was not permitted by law,' Mr McDermott said.
However, JT has continued to own the infrastructure, which has generated criticism from rival firms who say they have been overcharged to use it.
'We have an obligation to maintain the infrastructure and we need to make sure it is paid for, for the benefit of all and for many years to come. The new entrants to the market want everything now, and for free,' said Mr McDermott.
Under the JT structure, the board of directors is required to act in the interests of the company, rather than the shareholders.
'That is a huge difference in ownership,' Mr McDermott said.
'The advantage is that it has allowed us to get on and operate in the commercial environment and expand internationally, in theory without the stranglehold of political interference.
'Most of our capital investments are in the Island and these have to be paid for, but over half of our revenue (54%) comes from our outside investments, such as Worldstone.'
Another difference between JT and a listed company like Jersey Electricity is transparency.
JT do publish basic accounts (minus the back-end detail) and there is a press briefing, but no full company report.Instead, States Members are invited to a private presentation on company progress.
It is the States Treasury Minister (currently Senator Alan Maclean) who represents the shareholders (although any decision to sell shares has to be decided by the Assembly as a whole) and he is the one who is regularly briefed in advance of States sittings about any questions that may arise.
It has to be said that in recent months these have been plentiful, mostly focusing on JT's subsidiary Gigabit Field Force and fibre-optic contractors CH2M Hill.
Some have questioned the necessity of putting fibre broadband connections into every home in the Island – but in the future no one will be able to say that JT is to blame for holding back progress, contends Mr McDermott.
'We have been able to dictate the decision on Gigabit because of the close alignment between JT and the States, whereas competitors in other jurisdictions, including Guernsey (where Sure owns the infrastructure) would not be able to take these longer-term decisions.'
Jersey Post was incorporated as a limited liability company in 2006 and, like JT, is 100% States owned. In 2013 the States as shareholder received £390,000 in dividend.
Jersey Gas is a part of the International Energy Group, which also includes Guernsey Gas and Manx Gas. IEG is in turn part of Toronto-based Brookfield Infrastructure Partners, a global investment group focusing on transport, utilities and energy businesses.
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