Commentary

With $24.7B Deficit, Ontario Considers Privatizing Liquor Stores, Lottery, Electricity Assets

To help close a $24.7 billion budget deficit, the Canadian province of Ontario has hired financial advisors to evaluate opportunities to privatize major provincial assets, including their their network of liquor stores, the provincial lottery and casinos, and their electricity generation and distribution enterprises. According to The Globe and Mail:

The cash-strapped Ontario government is looking into the sale of all or part of its collection of Crown corporations, including the provincial lottery company and the retail monopoly on liquor sales, to raise cash to close a $24.7-billion deficit this year.

The Liberal government of Premier Dalton McGuinty recently hired two banks with experience in privatizations, CIBC World Markets Inc. and Goldman Sachs Group Inc., and charged them with writing a blueprint for possible privatization of agencies, investment banking sources said. The sale candidates include icons such as Hydro One Inc., the Ontario Lottery and Gaming Corp., the Liquor Control Board of Ontario and Ontario Power Generation, said the bankers, who asked to remain anonymous because the talks with the government are private.

The planned time frame for the initial study is short, just a couple of months, and then the government can decide whether to go ahead with any sales.

“The politicians have said they are willing to look at anything, that they don’t want to prejudge the outcome,” said one banker with knowledge of the government’s plans. He said one concept being discussed is creating a “super-corporation” that would hold a number of provincially controlled companies, then selling a stake in that to public investors.

Ontario, like provinces across the country, is coping with a huge drop in government revenue because of the recession that has left it with the prospect of yawning deficits for years to come. Without a dramatic and unexpected pickup in economic growth, there are few palatable options for closing the budget gaps, leaving governments weighing a combination of service cuts, tax increases and asset sales. […]

The Ontario government is three months into a review of how to best deliver services and since the last budget update, Finance Minister Dwight Duncan has said the government is looking at how to best manage the assets it owns.

“These assets are worth billions and billions of dollars, and I think it’s incumbent upon us to look at all of them and to make sure that we’re maximizing them,” Mr. Duncan said in October after tabling the government’s fall economic statement. “Don’t draw conclusions at this point about that sort of undertaking.”