Does the spectre of the MEA debt pose a threat to our future economic stability?
Financial information in the public domain is limited but from what is available, some quick maths reveals that interest alone amounts to approximately £43,000 per day. This equates to over a quarter of our electricity bill going to the banks, and even then, the debt is steadily increasing. This is despite the doubling of electricity prices since 2004. Additional quick maths reveals that even if the MEA doubled prices again and immediately, it would take nearly 10 years to repay the debt. But would electricity consumers take that lying down?
I could raise questions about the lending criterion used by the banks and whether it is consistent with their responsibilities to depositors and shareholders if a borrower is unable to even cover interest? I could also ask if they observed due diligence as they would normally do with an ordinary limited company (ensuring that the company was legally allowed to borrow and the directors signing for and on behalf of the company had the appropriate authority and capacity). However, I will leave those questions to others.
I have a great deal of sympathy for MEA employees who do a good job of ensuring that we receive electricity on demand. They have clearly been betrayed by the actions of one or more senior managers. I also have sympathy for the people who have been trying since 2005 to get the MEA back onto an even keel. However, business recovery is a specialist and difficult task and from the limited information available, the MEA cannot possible trade its way out of debt. It does not take a financial genius to realise that sooner or later the government must provide a bailout.
The problem is that we are already seven years later, and an estimated £100m worse off because of the interest that has been charged since 2005. Finally, I have sympathy for the government.
The MEA is a poisoned chalice and a political ‘hot potato’.
There is no doubt that a bail out would be unpopular (to say the least). After all, we are being asked to pay for the management and financial ineptitude of one or more executives. The least we should get in return is cast iron assurances that safeguards are now in place to ensure that nothing like this can ever happen again and full disclosure to prove that there are no other “skeletons in the cupboard”.
Whilst the inquest continues into what caused the situation in the first place, history may also enquire why the debt has been allowed to increase since 2005. If heads presently “buried in the sand”, then I hope it is in the expectation of striking oil, because nothing else will get the MEA out of its mess.
IBA Start-up Business Adviser of the year 2005