Privatization perks

The Ontario government is helping Hydro One’s unions who want a piece of the upcoming privatization.

This article originally appeared in the Financial Post.

The Ontario government is offering a helping hand to Hydro One union members who want a no-risk piece of the upcoming partial privatization.

The Ontario government is offering a helping hand to Hydro One union members who want a no-risk piece of the upcoming partial privatization.

In the preliminary prospectus, the province detailed its decision to offer the company’s two unions a cheap loan to purchase shares in the company. In total, the loan is worth $87 million – a $75-million loan for the Power Workers Union (PWU) and a $12-million loan for the Society of Energy Professionals (Society) union, who have about 3,400 and 1,300 employees, respectively, at Hydro One.

The union members will benefit from the province’s strong credit rating, as the loan will carry the province’s interest rate plus a minor fee of 0.15 per cent. Interest on the loan will be paid off through dividends generated by the shares, to be held in a trust for union members. If the dividends fail to cover interest payments, the unions are entitled to defer that amount and add it to the principal balance of the loan.

Offering the loan to the unions allowed the government to deliver on its promise to achieve what it’s been calling “net zero” labour contracts. While a recent labour deal with the two unions will see its members receive an annual wage increase, a one-time lump sum payment and an annual allocation of shares in the privatized company, those costs will be offset through a partial contracting out of services and greater pension contributions.

In theory, the cheap loan – and the share purchase it’s financing – makes it easier for the province to continue to push for an efficient Hydro One through more stringent labour deals, as the employees now have a vested interest in a profitable, well-run company. Employees will directly benefit from any improvements of the company’s finances.

Union members will receive shares equivalent to 2.70 per cent of their annual salary over the next 11 years. For example, a union employee earning $100,000 per year will receive $2,700 worth of shares annually (the number of shares will depend on their price). In total, members can receive up to 12 payments of shares – one to begin with and 11 subsequent payments for each year afterwards.

Ontario is not the first government to offer union members a deal on shares when a company is privatized in order to get them on board. In the U.K., when the government privatized the 500-year-old Royal Mail in 2013, it announced that employees would receive 10 per cent of the shares for free, worth $4,500 initially and soon $6,000 once trading began on the stock exchange.

Recently, when the government announced it was selling more of its stake, it announced employees would get an additional one per cent stake, equal to about $700.

Other U.K. privatizations offered union employees similar perks. The 90,000 workers at British Gas received an initial allotment of shares plus additional amounts for each year of service. British Telecom workers received the opportunity to purchase shares before they were sold to the public – with as many as 96 per cent of employees taking the opportunity to do so.

Brady Yauch is executive director of Consumer Policy Institute. bradyyauch@consumerpolicyinstitute.org

 

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