Development Bank of Jamaica

Background

The Jamaican privatisation programme began in the early 1980s with the divestment of public services and small entities which were a burden on fiscal resources, such as garbage collection services, parks and markets, and public cleansing (e.g. street cleaning, etc).

Since then, more than 100 enterprises in a variety of industries have been privatised by the National Investment Bank of Jamaica (NIBJ). In June 1991, the NIBJ became the central implementing agency for privatisation activities, charged with administrative and operational responsibility for effecting divestitures in accordance with the broad objectives and principles of the programme. The Development Bank of Jamaica Limited (DBJ) took over those responsibilities when the two Banks merged in 2006.

Past privatisations include shares and ownership in the Cement Company, Trans-Jamaican Airlines, Telecommunications of Jamaica (now Cable & Wireless JA), Sangster International Airport, Jamaica Public Service, Jamaica Broadcasting Corporation among others.

Through its privatisation policy, the Government aims to reduce its role in commercial activities while focusing on measures that bring greater efficiency to the economy. In this way, the Government encourages creative entrepreneurship, fosters economic growth and frees central government from burdensome commercial activities.

The privatisation policy is part of a wider strategy to liberalise the Jamaican economy, creating a more competitive and market-driven environment that will facilitate broadening the ownership base of local companies.

The DBJ, through its privatisation activities, aims to achieve the GOJ’s privatisation objectives to:

• Make the bureaucracy more responsive to developmental needs
• Secure greater efficiency in the operations of the enterprises
• Reduce the drain on Government's fiscal resources
• Optimise the use of Government's management resources
• Secure enhanced access to foreign markets, technologies and capital
• Widen the ownership base and direct equity participation in the economy

The Process

Typically, the DBJ, in consultation with the Ministry which owns the entity to be privatised, will initiate the privatisation process by appointing an Enterprise Team, which is a group of individuals drawn from various agencies to oversee the privatisation of the entity. In some cases, the Enterprise Team is selected without the involvement of the DBJ.

With the oversight of the Enterprise Team:

1. The DBJ Privatisation team collects data on the enterprise/asset and the Enterprise Team recommends a suitable divestment modality to the relevant Ministry.
2. The DBJ Privatisation team prepares a comprehensive information memorandum for issuance to prospective investors and invites bids for the asset via advertisements in the press (locally and/or internationally as determined).
3. The DBJ manages the procurement process for required professional services for example surveyors, valuators, financial consultants as required.
4. DBJ manages the bidding process and the proposals received are evaluated by the Enterprise Team. The evaluation process culminates with the selection of one (or more) preferred bidder(s) depending on the nature of the entity being privatised.

A Negotiating Team, which may be drawn from the Enterprise Team, or be independently appointed by the relevant Ministry, is then responsible for negotiating the final terms of the divestment with the preferred bidders. The final divestment terms must be approved by DBJ’s Board (where DBJ has direct responsibility for the divestment), the relevant Ministry and Cabinet.

Other requirements

• Market-based valuations are required
• Transactions must be arms-length & all bidders must be evaluated using a common set of criteria
• Where unsolicited offers or expressions of interest in an asset are received, the asset will then be advertised and the DBJ will advise the potential investor accordingly of the public offer.

Methods of privatisation

The Government utilises a number of methodologies for transferring ownership and risk to the private sector. No single methodology is predetermined.

1. Sale of enterprise
2. Lease of enterprise or entity
3. Joint ventures
4. Public share offers
5. Management contracts and buyouts
6. Sale to employees – Employee Stock Ownership Programme (ESOP)
7. Private tenders
8. Public auctions
9. Concession - Build, Own, Transfer (BOT); Build, Own, Operate (BOO).

Prospective bidders are required to submit a proposal which should include:

• A brief profile of the proposed business
• Background of principals
• Business plan
• Sketch plan of the area identified, where applicable
• Proposed terms of divestment

Offers received from prospective investors are usually evaluated on the basis of the following criteria:

1. The price the investor is prepared to pay (which must be stated)
2. The comprehensiveness of the Business Plan that is submitted with the proposal and which should include:
   1. Development plan for the entity. How the facilities will be operated e.g.
      1. Details of technology to be used
      2. Number of persons to be employed
      3. Management personnel and previous experience
   2. The marketing arrangements.
   3. Projections (with explicit foreign exchange inflow).
   4. Financing arrangements in respect of acquisition price and project implementation (conclusive evidence of financial capability is to be provided).
   5. An indication of intention to ensure that the protection of the environment is observed, in accordance with acceptable environmental standards and practices.

Entities to be privatised

The following is a sample of the entities available for privatisation.

1. ARIGUANABO HILLSIDE LANDS

   Ariguanabo’s textile factory and two large buildings have already been divested and adjoining lands were recently sold for housing development.

2. BLACK RIVER UPPER MORASS DEVELOPMENT COMPANY (BRUMDEC)

   Situated at Elim, St. Elizabeth, consists of approximately 2 024.3 hectares (5 000 acres) of land suitable for agricultural production. In the 1980s BRUMDEC produced rice; however, some sections of the property currently have sugar cane and cash crops.

3. COTTON POLYESTER TEXTILE COMPANY (JAMAICA) LIMITED

   Situated at Rhoden Pen, Old Harbour, St. Catherine, this company was established in 1989 to manufacture cotton yarns, cotton grey goods and other textile products primarily for the export market. The factory complex is situated on approximately 9.72 hectares (24 acres) of land on an industrial estate developed in 1975. Cotton Polyester Limited is the registered proprietor of the land in fee simple. The factory complex comprises buildings totalling 211 590 sq. ft. including office space, warehouses and the textile plant with its supporting facilities. Approximately 10 acres of the land is also available for divestment.

4. SPRING PLAIN PLAIN/ST. JAGO PROPERTY

   The Property, which is situated at Toll Gate, Clarendon, on the main road leading from Toll Gate to Milk River, is approximately 2.4 km (1.5 miles) away from the Mandeville – May Pen – Kingston highway. The property comprises a packaging house with office (70 000 sq. ft. on 4.3 acres), mango orchards 77.73 hectares (192 acres), and farm lands 151.42 hectares (374 acres). The Spring Plain property (the acreage now reduced) was developed in the 1980s to carry out large scale production involving a wide variety of short and medium term crops.

5. TARENTUM INDUSTRIAL ESTATE

   Tarentum is situated adjacent to the main road between Free Town and Lionel Town, Clarendon, and rises to the Brazilleto Mountain. The land comprises 253.85 hectares (627 acres). The Barge Dock and Welcome Beach at Salt River are 300 metres from this industrial estate.