Summary
On Tuesday December 14, the Government of Ontario announced a plan to privatize, in whole or in part, some of its Crown corporations (i.e. state owned enterprises). The prime candidates for privatization include HydroOne (owns and operates the electricity transmission infrastructure), the Liquor Control Board of Ontario (licenses liquor retail outlets and operates its own retail chain) the Ontario Lottery and Gaming Corporation (regulates and partners with licensed gaming facilities in Ontario).
Analysis
The stated purpose of the privatizations is to address the $25.7 billion budgetary deficit projected for fiscal year 2009-2010 and budgetary deficits projected to continue for several years thereafter.
The Province of Ontario (population 12+ million) has historically been Canada's most prosperous province. It has, however, been particularly hard hit by the global economic downturn. This is because of Ontario's reliance on the manufacturing sector and its reliance on US markets (percent of total provincial trade). As a consequence, Ontario's Minister of Finance announced a budgetary deficit for the current fiscal year that is more than twice that run by the socialist New Democratic Party government in the early 1990s. The government's announcement came as a surprise, because Liberal governments in Canada tend to support government ownership and are more likely to create Crown corporations rather than selling or winding them down.
Ontario has a total of 630 "provincial agencies". These are separately-incorporated entities operating with varying degrees of independence from government Ministers and Ministries. They have been delegated authorities and responsibilities through legislation to perform myriad public functions or services. About 10% of these agencies are Crown corporations. No more than a dozen of those sell goods or services in the marketplace (usually on a monopoly basis), generate a profit and, therefore, are realistic candidates for privatization.
Canada at both the federal and provincial levels has substantial experience with privatization and the Ontario government can be expected to draw on that experience. It is anticipated that the Ontario government will announce its privatization candidates (probably in the Budget Statement for fiscal year 2010-11 expected in late February or early March), plus a privatization plan and process, applicable rules including criteria for eligible purchasers. One can expect an open competitive bidding process for each corporation. The federal government's Investment Canada and Competition Bureau review processes will also apply to each sale. As New Brunswick Power's recent sale to Hydro Québec demonstrates, the process can be expected to be politically contentious.
Don Gracey was directly involved in developing the privatization strategies for the Trudeau and Mulroney governments and for the Province of Saskatchewan. He also led a review of Ontario's "agencies, boards and commissions" in the late 1980s that identified candidates for privatization. He has also advised foreign governments on privatization through the World Bank and has written extensively on the subject.
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
