Thursday, March 26, 2015

Jordan’s daily print newspapers: Under pressure

Jordan’s print newspapers are in a tough spot, with little hope for a turnaround for their classical business model.

The print newspaper industry in Jordan is under stress. Al Rai –Jordan’s largest daily newspaper- and ADDustour – one of Jordan’s oldest newspapers- both reported continued losses in 2014. Al Rai’s net loss widened by 153% in 2014, and reached 2.63 million JDs, up from 1 million JDs in 2013. For its part, ADDustour managed to reduce its loss in 2014 92% to stand at 322,000 JDs, down from 3.8 million in 2013. Cumulative losses have shattered Shareholders’ equity in Addustour which was a mere 49% of paid up capital by end of 2014. Addustour newspaper is currently facing a severe cash flow problem. 

The two newspapers suffer from declining revenues and pressured margins. The combined advertising revenues of the two newspapers steadily declined between 2010 and 2014. Total advertising revenues of the two newspapers reached 25.4 million JDs in 2010 and collapsed by 30% to 17.8 million JDs in 2013. 

Circulation revenues (from newspaper sales and subscriptions) are also in a steady decline. Total circulation revenues of the two newspapers were 2.48 million JDs in 2013 compared to 3.65 million JDs in 2010. A drop of 32%. Al Rai reported further drops in the first three quarters of 2014 while ADDustour detailed revenues for 2014 are not yet available.

The cases of Al Rai and ADDustour are indicative of the massive challenges facing traditional print media in Jordan at large. The drop in advertizing and circulation revenues is most probably caused by a combination of slower economic growth in the country as well as the increasing adoption of broadband Internet and smart phones in the country. Jordan’s fixed and mobile Internet account penetration (total subscriptions divided by total population) reached 25% in 2014. This suggests that some 40 to 50% of Jordanians are Internet users. These increasingly rely on the Internet for their news consumption. Online classified ads, social media and ecommerce also chip away at the utility of print advertising.

The two newspapers should devise clear strategies for a turnaround that sheds the old business model. Both must have clear online and mobile strategies that leverage their journalistic core to offer compelling online content on all platforms away from their currently quite traditional web pages. Print editions should be streamlined for maximum cost efficiency with an editorial focus on analyzing the news rather than breaking them (generally readers now see breaking news on TV or online not through print newspapers). Both would be best advised to develop compelling HR policies and bonus structures that encourage their journalists to exert all their efforts for the organization rather than run their own privately owned online news sites on the side. And both should realize, sooner rather than later, that print journalism will never return to its past glory days. The focus is about managing the decline in print while establishing a sustainable new business model online.

Tuesday, March 17, 2015

Government hospitals: Overpaid ?

Public hospitals “charge” tax payers as much as top private hospitals. Due to lack of competition, they are far less accountable.
I am an eye witness to this real story. A terminally ill cancer patient was admitted to a top rated private hospital in Amman. The room was sparkling clean, the furniture top notch and the nursing staff fully attentive, with round the clock attendance to the patient. The panel of specialist doctors decided that the patient cannot be treated and was in her final days, so they advised that she better be transferred to the top rated government hospital in Amman –where she was insured. 

At the government hospital, the family faced the massive contrast in nursing care between the private and government hospitals. Nurses at the government hospital never visited the room for regular checks, they came only when urged to come. They never administered the medicine: They insisted that each patient’s family companion should administer the medicine to their patient by themselves! Same applied to nasal feeding, and helping in personal hygiene of the patient. The family eventually had to hire a professional nurse, at their own expense, to help them since the nursing staff at the government hospital were quite useless.

Yet government hospitals are indeed very well funded. The Ministry of Health public hospitals across Jordan had 4468 beds in 2013. Their operational budget amounted to 283 million JDs and the budget for capital expenditure totaled 111 million JDs in 2013 resulting in the total budget for government hospitals reaching 394 million JDs.

In 2013, government hospitals admitted 347,929 patients who spent 1.1 million nights at the hospitals. The average stay per patient was 3.2 days and the utilization rate of hospital beds was 68%. The average operational cost of treating each patient at a government hospital thus amounted to 256 JDs per day (356 JDs per day when CAPEX budget is taken into account).

How does this compare to private hospital costs? Two private hospitals – publicly traded at the ASE – offer insights. One has 200 beds and the second has 220 beds. Both generated combined revenues of 32.2 million JDs in 2013, of which around 5 million JDs was operational profit. Conservatively, assuming a bed utilization rate 10% lower than average government hospitals (i.e. 61%), the two private hospitals charged 336 JDs per patient per night. Their costs stood at 284 JDs per patient per night. If we assume a similar bed utilization rate as that in Government hospitals, the revenues per patient per night drop to 303 JDs. And costs drop to 255 JDs per patient per night.

In summary, government hospitals across Jordan collected 356 JDs per patient per day in 2013. In the same year, profit seeking private hospitals in Amman charged 303 JDs per patient per night, 15% lower than government hospitals. Granted, specialist doctors in the private sector bill separately so the total in private hospitals would be the same or a bit higher than government hospitals.
The conclusions readily lend themselves:

-      Government health care is far from “free”. It is as expensive as care in state-of-the-art private hospitals in Amman.

-      If a private hospital’s nursing staff acted like the nursing staff in a government hospital, and had the same hygiene standards, a private hospital will go out of business. Because choice and competition exist for consumers of private health care services.

-      The main difference is not public sector management vs. private sector management. Rather the difference is lack of competition for government hospitals which makes them far less accountable than private ones. Patients in government hospitals do not have a choice, and the government hospital is guaranteed its operating budget every year regardless of its level of service. There is no risk of losing paying customers or going out of business. If private sector hospitals were monopolies, one can expect the same dismal result.

-      So long as the care providers think they are offering a free service to the patients, and so long as patients in government hospitals believe they are getting free health care, government hospitals will remain unaccountable and will not offer cost effective nor excellent care.

Health Policies in Jordan should change. They should aim at maintaining free health coverage to large swathes of the population, while holding the care providers accountable through some level of competition that makes their funding contingent on the level of service provided. Offering patients covered by public health coverage much needed choice – by offering them the option of choosing the hospital with a cap on expenses- would help massively as well.  

Monday, February 23, 2015

Electricity rates in 2015: Rebalance>> do not hike.

The government’s plan to increase electricity rates across the board in 2015 does not help its credibility and damages the economy.

Oil prices rapid drop _by over 45% in the past two months_ is a game changer for Jordan’s electricity sector. In mid 2013, Jordan’s supplies of natural gas from Egypt stopped completely. This forced the kingdom to rely on diesel and fuel oil for generating the bulk of its electricity. When oil prices ranged from 100 to 110 $ throughout 2014, the cost of generating and delivering electricity to end users across Jordan ranged from 180 to 190 fils per KWH.

The drop in fuel costs of 45% reduces Jordan’s electricity cost by around 30%. Currently, the cost of generating and delivering electricity to end users across Jordan stands at around 130 fils per KWH. This is due to the fact the cost of transmission to end users remains fairly constant regardless of generating costs.

Reducing electricity cost is not just tied to the price of oil. Jordan can further reduce its electricity costs by tackling the expanding problem of grid losses and electricity theft. Whereas global standards suggest grid losses should not exceed 5% of total power, in Jordan the losses are 14% in the center governorates and 11% in the northern governorates and have been increasing annually. Grid losses total cost exceeded 300 million US$ in 2014. Enhancing grid efficiency and cracking down on grid theft would substantially reduce the cost of electricity in the country.

The drop in the cost of energy saves Jordan’s economy close to two billion US$ a year. The government should not distort the savings by setting electricity rates at a much higher price than actual cost or by having rates that increase costs on some sectors by wide margins while offering other sectors a subsidy. At a cost of 130 fils per KWH, the electricity rates in 2015, as well as the rates in 2014, reveal massive distortions and market distorting cross subsidies between sectors. For example, hospitals, schools, mosques and churches (which are billed on the residential rate) pay electricity charges far higher than hotels, malls and other commercial entities. This is an absurd situation by all counts. The two graphs give further details.

2015 and its low oil prices should be the year in which the Government finally restructures the energy sector in Jordan. Start with pricing electricity in a fair and cost-based manner. Selling electricity at cost to all sectors (except low consumption households) with a reasonable surcharge on high users in residential and commercial sectors is the better approach. With the clear understanding that any future increase or decrease in electricity generating costs will be also passed through to the end user rates (rising or falling).

To sum up, the government ought to rebalance the electricity tariff in 2015 not raise it across the board. Some sectors will have good reductions and others will have moderate rises counter balanced by a lower total fuel bill given the reduced gasoline and diesel rates in 2015. The rebalancing and the ability to raise or reduce rates based on actual costs will _for good_ end the problem of losses in the electricity sector funded by public debt as well as start paying down the electrical sector past debts. The lower energy bill in 2015 would also spur economic growth and increase government collections of sales taxes and income taxes. This would also enhance the ability to pay down past electrical sector debts.

نفقات سفر مجالس الادارة في بعض الشركات المساهمة العامة: تعدي على حقوق المساهمين وخزينة الدولة

قانون الشركات رقم 22 للعام 1997 واضح. يقول في المادة 162:
أ . تحدد مكافاة رئيس واعضاء مجلس الادارة في الشركة المساهمة العامة بنسبة (10%) من الربح الصافي القابل للتوزيع على المساهمين بعد تنزيل جميع الضرائب والاحتياطات وبحد اقصى (5000) خمسة آلاف دينار لكل منهم في السنة، وتوزع المكافاة عليهم بنسبة عدد الجلسات التي حضرها كل منهم، وتعتبر الجلسات التي لم يحضرها العضو لسبب مشروع يوافق عليه المجلس من الجلسات التي حضرها العضو.
د. تحدد بدلات الانتقال والسفر لرئيس واعضاء مجلس الادارة بموجب نظام خاص تصدره الشركة لهذه الغاية.
يستنتج القارىء لنص القانون _ ومن يفهم روح النص_ ان الشركات ستحدد لكل عضو مجلس ادارة "بدل انتقال وسفر"  بعوضه عن الكلفة الحقيقية لحضور جلسات مجلس الادارة ومتابعه مهامه فيه. ذلك ان عدم وضع حد اعلى لبدل السفر في القانون مفهوم بسبب ان بعض اعضاء مجلس الادارة قد يكونون من خارج الاردن ويحتاجون تذاكر طيران وغرف فنادق لحضور الجلسات.
لكن هذا الاستنتاج _المنطقي جدا_ خاطئ في سياق العديد من الشركات المساهمة العامة في الاردن. والتي باتت فيها "بدلات السفر والانتقال" طريقا التفافية على نص وروح قانون الشركات باسلوب ينسف غايات المادتين اعلاه من اساسهما ويجعل بدل السفر طريقا للتنفيع. وهو ما يخالف الواجب القانوني والاخلاقي على ادارات الشركات في الحفاظ على حقوق المساهمين.
ميزانيات وافصاحات خمس شركات مساهمة عامة مدرجة في سوف عمان المالي (على سبيل المثال لا الحصر) بينت الاتي:
-        في الشركة الاولى اخذ كل عضو مجلس ادارة 6 الاف دينار نفقات تنقل لحضور سبعة اجتماعات لمجلس الادارة. بكلفة اجمالية 42 الف دينار وبنسبة 10% من ربح الشركة الصافي.
-        في الشركة الثانية بلغ معدل نفقات تنقل عضو مجلس الادارة 15 الف دينار نفقات تنقل لحضور سبعة اجتماعات لمجلس الادارة. بكلفة اجمالية 165 الف دينار وبنسبة 5% من ربح الشركة الصافي.
-        في الشركة الثالثة اخذ كل عضو مجلس ادارة 9400 دينار نفقات تنقل لحضور سبعة اجتماعات لمجلس الادارة. بكلفة اجمالية 85 الف دينار وبنسبة 1% من ربح الشركة الصافي.
-        في الشركة الرابعة اخذ كل عضو مجلس ادارة 3600 دينار نفقات تنقل لحضور سبعة اجتماعات لمجلس الادارة. بكلفة اجمالية 25 الف دينار وبنسبة 3% من ربح الشركة الصافي.
-        في الشركة الخامسة اخذ كل عضو مجلس ادارة 23 الف دينار نفقات تنقل لحضور سبعة اجتماعات لمجلس الادارة. بكلفة اجمالية 256 الف دينار وبنسبة 10% من ربح الشركة الصافي.
في كل الشركات اعلاه اخذ اعضاء مجلس الادارة ايضا الحد الاقصى من المكافاءات بحسب القانون _بالاضافة الى بدلات التنقل اعلاه. فصار مجموع المكافآت وبدلات التنقل 17% من صافي الارباح للشركة الاولى 6.5% للثانية 1.35% للثالثة و8% للرابعة و 12% للخامسة. وتراوح معدل ما استلمه كل عضو من 8600 دينار لكل عضو بالحد الادنى الى 28 الف دينار بالحد الاقصى.
من غير المنطقي ان يخسر المساهمون في بعض الحالات ما يقارب من خمس ربح الشركة الصافي لدفع مكافأت مجلس الادارة وبدلات التنقل. خصوصا وان بدلات التنقل في الغالب هي بدل تنقل مسافة لا تزيد عن عدة كيلومترات بين مكاتبهم في عمان ومقر الشركات في عمان ايضا. وهذا ايضا مخالف لروح القانون الذي يحدد المكافات ويطلب نظام واضح لبدلات التنقل.
الخسارة كذلك لخزينة الدولة. فما يأخذه اعضاء مجلس الادارة يخضع في الغالب لنسب اقتطاع ضريبي اقل من النسبة الضريبية التي تدفعها الشركات على ارباحها. فنصير في حالة يقل فيها ربح المساهمين وبنفس الوقت التحصيل الضريبي لخزينة الدولة.
في موسم توزيعات الارباح في سوق عمان المالي القادم نأمل ان تقوم دائرة مراقبة الشركات بدور اكبر في مراقبة هذه الامور حفاظا على حقوق المساهمين و حفاظا على نص وروح القانون.  ولربما يجدر بالسادة النواب ان يعدلوا هذا القانون ليكون اكثر منطقية: فحد 10% من الارباح كمكافات لاعضاء مجلس الادارة كثير جدا فيما الحد الاقصى ب 5000 دينار قليل جدا ايضا خصوصا في شركات كبيرة ذات ارباح عاليه وتحتاج الى اعضاء مجلس ادارة ذوي خبرة. لربما الافضل ان يكون الحد الاقصى لمكافاءات وتنقلات اعضاء مجلس الادارة 1% او 2% من الارباح الصافية بالغا ما بلفت. فتكون مثلا مليون دينار للشركة الضخمة التى تربح 100 مليون و الف دينار للشركة الصغيرة التي تربح 100 الف. اما الوضع الحالي الذي يسمح لمجلس الادارة باخذ خمس الارباح من المساهمين مقابل سبعة اجتماعات سنويا فليس منطقيا ولا عادلا.