September 18, 2020

The EY Project Future: Creating a sustainable future for the Cayman Islands Review made public

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Screen Shot 2014-09-13 at 11.05.52 AMCayman Islands Premier, Hon. Alden McLaughlin has released the report by Ernst and Young (EY)into the rationalization of government and the potential sale of public services.

The report, 263 pages long, makes recommendations for a sell off of government assets that, if implemented, would place many of the most significant public services into the hands of the private sector.

The Premier, speaking to the press on Tuesday (9) took great pains to point out that his government has made no decisions on the recommendations contained in the Report. He said the Report had been made public in the interests of transparency.

Many of the proposals are radical and many persons will find them unpalatable. Moving and selling off the airport is one and privatising CINICO is another as is the introduction of charter schools with private sector entities running them and selling off some of the government land.

The report calls for the selling off the Turtle Farm (who on earth would want to buy that?), Radio Cayman, the Stock Exchange, Water Authority, and merging CIMA’s services with general Registry, plus merging the National Gallery, the Museum and the CNCF, and support staff for the Auditor General, the Information and Complaints Commissioners and the primary schools on Cayman Brac. It considers merging and cutting security jobs including clarifying employee jobs at the District Administration in Cayman Brac.

The Report also recommends abolishing altogether the Development Bank, Government Information Services, the Housing Development Trust and the National Drug Council.

Increasing fares on Cayman Airways to reflect the true costs (no one would travel on Cayman Airways then) and increasing the fees the insured pay on CINICO. If that happens there would be no actual persons to be insured – EY seem to have missed the point why CINICO provides coverage to the private sector – the lowly paid, the elderly and persons the private insurance companies won’t cover. Note: At present no government employee pays a single cent piece to CINICO and is 100% covered.

To be fair, the Report also along with its suggested “key benefits” also states “potential risks” and does mention the civil servants free CINICO insurance.

McLaughlin said he would not sell off government assets to get cold hard cash in the short term if his government felt it was not in the long-term interests of the country.

Deputy Governor. Franz Manderson said no civil servant would be dismissed immediately. Everyone in the civil service would be treated fairly during the transition, he said.

The following is an extract from the Report’s Mapping of options: Priority 1 and 2 including graphics and page copies:

Screen Shot 2014-09-13 at 11.09.54 AMSale of Excess Land & Real Estate Investment Trust ()

Overview of recommendations

Sale of surplus lands and properties.

Establishment of a REIT to acquire Government properties from investment capital raised from Caymanians, Cayman Pension Funds and external capital.

Key benefits

According to analysis undertaken by the Department of Lands & Surveys the sale of surplus lands could raise $65 million in freed up capital for the retirement of debt and other essential infrastructure.

The establishment of a REIT could raise substantial capital from both external and Caymanian sources. The extent being driven by the number of properties being sold into the REIT. By way of example the Government building is a prime property for consideration and it is currently valued at $90 million.

These measures provide significant opportunity to quickly release capital for immediate debt retirement and public works which will provide economic stimulus and community utility.

Potential risks

There are public perception concerns around the sale of land by Government.

Land sales would need to be managed and conducted over a period of time.

The concept of the sale of Government buildings into a REIT may also carry negative concerns around the potential for foreign investment or ongoing lease payments which present a material ongoing cost to Government.

Screen Shot 2014-09-13 at 11.12.33 AMHealth Services Authority

Overview of recommendations

Outsourcing of medical operations, potentially all facilities including: George Town, District Clinics, Faith Hospital. and Dental Clinic.

Improvements to processes to reduce bad debts.

Passing old debts to a debt collection agency for recovery.

Key benefits

The engagement of a large brand name third party operator should result in a reduction in the cost of the provision through economies of scale and operational efficiencies.

Improved quality of patient care, standards, services and public perception.

High quality employees, specialist knowledge, technology, advancements, cutting edge training and equipment.

Improved debt recovery procedure, better recoveries and associated cost reductions for service.

Potential risks

Difficulty in attracting an operator due to the relatively small scale of the George Town hospital operation.

Contract agreement and management.

Potential for service failure and need for Government to step in and take the service over.

Sale of Excess Land & Real Estate Investment Trust (REIT)

Overview of recommendations

Sale of surplus lands and properties.

Establishment of a REIT to acquire Government properties from investment capital raised from Caymanians, Cayman Pension Funds and external capital.

Key benefit

According to analysis undertaken by the Department of Lands & Surveys the sale of surplus lands could raise $65 million in freed up capital for the retirement of debt and other essential infrastructure.

The establishment of a REIT could raise substantial capital from both external and Caymanian sources. The extent being driven by the number of properties being sold into the REIT. By way of example the Government building is a prime property for consideration and it is currently valued at $90 million.

These measures provide significant opportunity to quickly release capital for immediate debt retirement and public works which will provide economic stimulus and community utility.

Potential risks

There are public perception concerns around the sale of land by Government. Land sales would need to be managed and conducted over a period of time. The concept of the sale of Government buildings into a REIT may also carry

negative concerns around the potential for foreign investment or ongoing lease payments which present a material ongoing cost to Government.

Health Services Authority

Overview of recommendations

Outsourcing of medical operations, potentially all facilities including: George

Town, District Clinics, Faith Hospital, and Dental Clinic. Improvements to processes to reduce bad debts.

Passing old debts to a debt collection agency for recovery.

Key benefits

The engagement of a large brand name third party operator should result in a reduction in the cost of the provision through economies of scale and operational efficiencies.

Improved quality of patient care, standards, services and public perception.

High quality employees, specialist knowledge, technology ,advancements, cutting edge training and equipment.

Improved debt recovery procedure, better recoveries and associated cost reductions for service.

Potential risks

Difficulty in attracting an operator due to the relatively small scale of the George Town hospital operation.

Contract agreement and management.

Potential for service failure and need for Government to step in and take the service over.

Sale of Excess Land & Real Estate Investment Trust (REIT)

Overview of recommendations

Sale of surplus lands and properties.

Establishment of a REIT to acquire Government properties from investment capital raised from Caymanians, Cayman Pension Funds and external capital.

Key benefits

According to analysis undertaken by the Department of Lands & Surveys the sale of surplus lands could raise $65 million in freed up capital for the retirement of debt and other essential infrastructure.

The establishment of a REIT could raise substantial capital from both external and Caymanian sources. The extent being driven by the number of properties being sold into the REIT. By way of example the Government building is a prime property for consideration and it is currently valued at $90 million.

These measures provide significant opportunity to quickly release capital for immediate debt retirement and public works which will provide economic stimulus and community utility.

Potential risks

There are public perception concerns around the sale of land by Government. Land sales would need to be managed and conducted over a period of time. The concept of the sale of Government buildings into a REIT may also carry

negative concerns around the potential for foreign investment or ongoing lease payments which present a material ongoing cost to Government

Health Services Authority

Overview of recommendations

Outsourcing of medical operations, potentially all facilities including:

George Town, District Clinics, Faith Hospital, and Dental Clinic.

Improvements to processes to reduce bad debts.

Passing old debts to a debt collection agency for recovery.

Key benefits

The engagement of a large brand name third party operator should result in a reduction in the cost of the provision through economies of scale and operational efficiencies.

Improved quality of patient care, standards, services and public perception.

High quality employees, specialist knowledge, technology, advancements, cutting edge training and equipment.

Improved debt recovery procedure, better recoveries and associated cost reductions for service.

Potential risks

Difficulty in attracting an operator due to the relatively small scale of the George

Town hospital operation.

Contract agreement and management.

Potential for service failure and need for Government to step in and take the service over.

CINICO

Overview of recommendations

Entering into a joint venture with the private sector, which could assist with commerciality and a move into the private sector.

The pooling of risks across the health insurance.

Introduction of a concept of co-pay and deductibles for CINICO customers.

Key benefits

Enables CINICO to compete on a more equal footing with some of the private medical insurers allowing diversification and dilution of the costs associated with managing a high risk portfolio of clients who require more frequent and costly medical care.

Reduction in the overall health costs for Government. Reduction in Government involvement and headcount.

Potential risks

Potential for push back from the private sector companies regarding competition and in relation to risk premium increases.

Identification, agreement and management of joint venture partner and ensuring service levels are maintained.

Potential for discontent amongst civil service for the introduction of deductibles and co- pay charges.

Education

Overview of recommendations

That the charter schools type of approach be pursued in a phased manner. The merger of primary schools in Cayman Brae.

Key benefits

Increases in educational performance.

Reduction in the size of the Government civil service and associated costs savings.

Allows for private sector participation in Government service delivery, focusing

Government on educational policy, regulation and evaluation of outcomes.

Potential risks

Need to ensure the private sector brings sufficient educational capabilities to the running of schools.

Need to ensure sufficient inspections and monitoring regimes are negotiated with the private sector and undertaken effectively by DES.

Turtle arm

Overview of recommendations

Exploration of a sale/joint venture of the tourist element (likely to a cruise ship operator) whilst continuing to subsidise the meat production-facility.

Key benefits

Potential for a significant reduction on the ongoing cost to Government via private sector equity injection.

This joint venture would eliminate any closure and therefore ensure services and amenities as well as safeguarding of jobs.

Any new owner or partner in a joint venture should be selected on the basis of access to capital that could enable improvements to the site, amenities and overall offering to tourists.

Potential risks

Identifying a potential private sector partner willing to participate and engage. Due to history of losses Government would be likely to need to sweeten the deal with the inclusion of development land and or concessions on work permit fees/duties for a period.

Structuring a deal that would be attractive to both parties.

Water Authority

Overview of recommendations

Running a dual track process (trade sale and IPO) to identify the divestment process that provides maximum value to the Government.

Implementation of a user pays initiative to achieve a cost reflective charge.

Key benefits

Allows the Government to focus on core services and water regulation. Enables capital to be raised for the benefit of the Government. Reduces the headcount and operating expenditure of the Government.

Provides access to private sector technology and processes as well as the transfer of market demand risk to the private sector.

Potential risks

Asset condition could impact value of the transaction.

The water and waste water treatment assets form a natural monopoly on the Islands, which would need careful consideration and the establishment of an effective regulator.

It is a small system serving a small market. which presents risk to the operator/owner.

Pricing and service standards would need to be regulated.

Port Authority

Overview of recommendations

Clarity from Government is required over specific capital objectives and the interplay with existing processes for the cruise terminal.

Should capital injection be a priority, then consider trade sale or IPO, subject to thorough market testing and consideration of transaction perimeter & structure.

Thorough market testing prior to a formal transaction option being selected particularly with regard to addressing the benefits and long term needs and whether a separate facility provides the optimal solution.

Key benefits

PPP contract enables capital investment without the need to transfer long term ownership of the asset.

Potential for improvements to port efficiency and volumes from private sector performance.

The establishment of a modern facility that will separate cruise and cargo handling to avoid the conflicts which now result from the dual function of the existing port.

PotentiaI risks

Due to restrictions under the Public Management and Finance law (PMFL).the Government is unable to finance the construction of port facilities through conventional borrowing methods.

Determining whether a stand-alone cruise terminal is financially viable. Impact on the natural environment as project requires dredging.

Private investors exposed to demand risk and growth in trade revenues as well as land rents may need to consider Government subsidy, particularly in relation to Little Cayman and Cayman Brae terminals.

Airport Authority

Overview of recommendations

Pursue improvement plan to existing facility in the short term, however, further clarity from Government is required over specific objectives. Should a sale be desired, then consider trade sale or IPO.

Should a PPP be desired, we recommend thorough market testing of appetite for economic PPP and market/demand risk transfer.

Option of development at a new site should be considered vis a vis with current site expansion.

Key benefits

Transfer of future capital funding obligations, enabling investment in airport capacity.

PPP contract enables capital investment without the need to transfer long term ownership of the asset.

Facilitates growth and increased revenues from improved/new facilities, including growth in aeronautical and non-aeronautical revenues.

Transfer of operational risk.

Improvements to airport efficiency and volumes from private sector performance.

Potential risks

Pool of buyers will need to be further tested, likely to be a small pool of local investors or trade buyers including local pension funds.

Sale/lease of airport operations on all 3 islands potentially creates the need for regulations to govern pricing.

Current site is constrained and deal may need to include development of a new site in the mid to long term.

Waste Disposal& Collection

Overview of recommendation

Continue with their existing directive to develop a Comprehensive Solid Waste Disposal Management System and engage a in PPP process to facilitate and provide the capital funding to complete the project.

Commence a process to identify and examine the most effective and cost effective method of introducing waste collection fees.

Outsource waste collection to the private sector.

Key benefits

PPP could provide a solution to the numerous and many existing problems and provide capital investment to support the initiatives.

Reduce and ultimately eradicate the ’s current subsidy for waste collection fees and landfill services. By imposing a financial cost to the users of waste collection this should lead to better behaviours and incentives to reduce waste.

CIG can reduce headcount and focus on core Governmental roles of monitoring and regulating rather than operation of facilities.

Potential risks

CIG is unable to finance an expensive waste management solution (e.g.a waste to energy solution) through conventional borrowing methods.

Identifying a suitable PPP partner and operator and structuring a suitable agreement to protect and ensure CIG’s needs and requirements are met.

CIG will need to augment their skills to enable them better monitor and regulate waste disposal as opposed to operating facilities.

Public reception to waste collection fees and difficulties agreeing a new landfill location and approach to processing waste.

Cayman Airways

Overview of recommendation

Pro-active improvement in the transparency of operations, strategic functions and benefits.

Key benefits

Cayman Airways provides a range of crucial services to CIG that provide a number of financial, social and strategic benefits to CIG and other stakeholders.

Allow the general public to better appreciate the costs and commercial considerations that drive the financial performance of Cayman Airways.

Potential risks

Correctly and accurately price the outputs. This activity may require some significant upfront analysis and review.

There is a potential for some negative public sentiment towards certain outputs and their cost.

Postal Service

Overview of recommendations

Implementation of a range of initiatives to reduce and contain the costs. Development and exploration of the available revenue generating activities that the Cayman Islands Postal Service (CIPS) can engage in, similar to those pursed by other Government owned postal services across the world through a joint venture with a private sector operator.

Key benefits

Reduction in the existing Government subsidy.

By partnering via a joint venture, CIPS will be able to benefit from the skills and experience of an established commercial operator in developing a broader range of services and retail lines which can be sold through post offices.

Potential risks

Culture change and up skill of operations and employees.

The Government may need to provide capital improvements to commercialize the organization and attract operators.

Identifying a suitable and willing joint venture partner.

Likely that the existing network of post offices will have to reduce in number and

/or not all outlets will be suitable for an increase in scope of services or retail opportunities.

Radio Cayman

Overview of recommendations

Immediate sale with the benefit of a two to three year Government contract for the provision of defined community, cultural and emergency services at a fixed price.

Key benefits

Government is able to cap the cost of the provision of community and cultural programming and would have certainty over these costs for the life of a services contract.

CIG can reduce headcount and focus on core Governmental roles.

Potential risk(s) of recommendations

Government would have to monitor the performance of an outsourced contract for community services.

Service Outsourcing

Overview of recommendations

A range of outsourcing opportunities across a number of departments and statutory authorities.

Key benefits

Financial cost savings.

Improvement in delivery efficiency and quality.

Reduces the size of the Government civilservice and related health and pension

liabilities.

Allows for private sector participation in Government service delivery, focusing

Government on policy, regulation and evaluation.

Potential risks

Lack of capability to manage the outsourced contracts- not a core Government capability at this point in time.

Potential lack of sufficient volume of current providers in Cayman Islands. Potential for service failure.

CIMA

Overview of recommendations

An operational review of CIMA and the General Registry to improve its efficiency and financial performance.

Explore the merits combining elements of CIMA and the General Registry.

Key benefits

Creates a one-stop online shop for businesses when either dealing with

Government registers or the financial services regulator. Improvement in regulatory processes, practices and systems.

Reduced duplication in systems, resources and effort between the General

Registry and CIMA.

Potential for financial savings through increased process efficiency.

Potential risks

Integration and alignment of systems, processes and people will take careful planning.

Legislation changes may be required.

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