ยป What is BC Ferries?
BC Ferries is one of the key pieces of infrastructure in BC. It used to be a Crown corporation. Now it’s…something else. “Independently-operated public corporation”, let’s say.
I think very few people know how BC Ferries is structured despite the importance of the service. I had the opportunity to do an assignment on BC Ferries so now I can explain it to you:
BC Ferry Services Inc (BCFS) owns the ferries, leases the terminals (from the province) and employs the unionized workers that run them. BCFS has a contract with the Ministry of Transportation that includes subsidies for some of the routes. BCFS has issued some bonds that are mostly held by national banks – as far as I can tell, there are no covenants on those bonds that give the holders control of BCFS.
Ferry ticket prices are set by the BC Ferry Commission, which is an independent statutory office appointed by the Legislative Assembly. (So if you think prices are too high, write your MLA.)
The board of BCFS is mostly members of the BC Ferry Authority (BCFA), which is a public partnership. The BCFA is appointed as follows:
- 4 by coastal regional districts
- 2 by Cabinet
- 1 by the BC Ferry & Marine Workers’ Union
- 2 by the previous directors of the BCFA
I think the point of having the two-layer BCFA-BCFS board is to prevent political meddling and accountability but mostly to make BCFS independent enough to secure its own bonds. The other value of independence is that the only constraints on BC Ferries is the contract. (If you don’t like the terms of the contract, write the Minister of Transportation.)
The two big questions I have are:
- What principles is the BCFS board operating under? Maximizing shareholder value doesn’t make sense.
- How do the banks and the markets see the reality of this whole thing? How would you create a model for the value of the bonds?
Who owns the stock of BCFS?
If I was BCFS I’d use the ferries themselves to back the bonds — they seem like a good, hard asset that wouldn’t need extra protection, like the airline companies used to do back when they owned their own planes.
You’d value BCFS like a public utility. Ticket prices are set, probably, according to “need” — to allow a reasonable profit, just like they are for utilities in the ‘States. One of the economic effects of this is to make BCFS cut corners in every possible way in order to grow.
Another trick is to start subsidiaries to provide supplies at inflated prices. Telephone companies in the ‘States used to buy cable at market rates through a subsidiary and then sell it back to themselves at 10x market. They’d complain to the regulator that costs had gone up and get a rate increase to cover them. This is a problem called “transfer pricing” and it’s a relatively new area of accounting
So: Does BCFS have any supplier/subsidiaries? Who owns them? How much are the directors and officers paid? Etc. That structure you’ve posted is so complicated that I guarantee it’s being abused (the fact that directors can appoint themselves seems designed for patronage).
I’d also like the operating contract and the legislative appointments to rest with the oversight board, not the MoT and cabinet — it seems that one of the powers of oversight should be to govern and revoke. I love the workers having a seat on the board — that should be a statutory requirement for all limited liability companies with more than $X in sales, and the general public should have seats too.
Jack
5 Nov 09 at 4:34 pm
BCFA owns the single voting share. The province owns a bunch of non-voting shares.
The bonds are backed by the ferries and the leases on the terminals. My question is whether the banks are betting on a government bailout in the event of insolvency? There’s also a theory that the bonds will be tradable for stock if BCFS is ever privatized.
The theory behind regulating the ticket prices is that it forces BCFS to increase productivity, which is one of the stated advantages of independence.
I’m not aware of any subsidiaries.
The board of the BCFA is mostly the same people as the board of BCFS. This supports my theory that the two layers are necessary for some financial reason.
Jared
5 Nov 09 at 5:01 pm
I wonder who owns all the other non-voting shares? Hopefully the province? If there’s a private minority owner (or if the banks can convert to stock) that’d be sketchy. There’s nothing like privatizing infrastructure.
The banks can probably rely on a bailout — more likely they’re relying on ticket prices always being set to maintain profitability.
“Increasing productivity” is anti-human, pro-corporate talk for making fewer people do more work. This is why all the ticket windows except one are closed these days — BCFS has figured out that it’s more “efficient” to free-ride on making us wait in line for service.
Complexity and obfuscation are good for fraud and bad for democracy.
Jack
5 Nov 09 at 5:42 pm
I’m quite sure the Province owns all non-voting shares.
Alison
5 Nov 09 at 9:30 pm
I think transportation offers some real opportunities for increasing productivity. For example, the SkyTrain doesn’t have drivers: technology eliminated what has got to be one of the most boring jobs on the planet.
I don’t know that much about how to operate a ferry, but I can think of two ways to increase productivity from my consumer experience of BC Ferries:
Jared
6 Nov 09 at 9:56 am
Eat it, Jared.
Ryley
11 Nov 09 at 12:03 am
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