Optimally the utilities’ long-term views should result from their local connections.

Sir, Jonathan Ford describes in very clear terms why “private equity firms shouldn’t own regulated utilities, full stop. In very long-term businesses providing essential services, investors should have time horizons to match.” “Why private equity investors and utilities should not mix” June 17.

But there is more to this issue. In 2000, Electricidad de Caracas, EdC, the electrical utility of Caracas, Venezuela, that had been founded and managed by a local family for 105 years, was sold off to a big time international player, AES. I was in shock, and so I wrote in several Op-Eds. 

Not only would we lose the natural accountability of the management that exists when these are your neighbors and suffer the same service failings that you do; but it would also take that company out of the hands of electrical engineers and place it into the hands of financial engineers. 

Yes, the new owners proceeded to sell assets, repurchase shares, take up new loans and pay out dividends, leveraging the company up to the tilt… and many needed investments were delayed.

While EdC was being negotiated I wrote: "From my local electrical distributor, what I'm interested in seeing are good engineers with colorful helmets, accompanied by competent accountants with simple calculators, which only serve to add and subtract. I do not like to observe the presence of lawyers, financiers, brokers, publicists and other professionals little or nothing related to bring me the light home…. I get very scared when I hear terms like ‘unfriendly takeovers’ ‘poison pills’ and ‘golden parachutes’.”

To that I should have added “And I absolutely want my neighbors to hold management control and a clear majority of shares in that company.”

PS. The EdC story had an even sadder ending. In 2007, after trying to negotiate tariffs with a loony government, AES withdrew. Unfortunately, the Local that stood up to forcibly repurchase it, was Pdvsa… and you probably know what happens to anything that is in the hands of the current Pdvsa.

@PerKurowski

To get our banks back to where we need them to be, we need a complete brand new set of regulators

Sir, since Patrick Jenkins misses out on the very important question of how our banks got here, it is hard for him to understand where they should go. “FT Big Read: Banking: Too dull to fail?” September 9.

We got here because regulators, without doing any type of research, concocted the loony theorem that bank crises were the result of excessive exposures to what was perceived as risky; and therefore imposed risk weighted capital requirements for banks; more perceived risk, more capital – less risk, less capital.

That immediately resulted in that banks, instead of maximizing their returns on equity by means of banking with reasoned audacity, or as Deirdre N. McCloskey would probably phrase it, by banking with courage and prudence, maximized their ROEs by minimizing equity.

And so the real problem is that banks can’t find the way out of their predicaments, unless we get ourselves a brand new set of regulators. Some who know about Voltaire’s “May God defend me from my friends [the AAA rated], I can defend myself from my enemies [the below BB- rated]”; and who know about John A Shedd’s “A ship in harbor is safe, but that is not what ships are for.”

And we need that to happen fast! If we want our kids and grandchildren to have jobs in the future; and if we want to have a real economy sufficiently healthy to help pay for our retirements, dumb regulatory risk aversion imposed on banks is about what we least can afford

Would the UK, and the Western World have become what it is with utilities like banks? Of course not!

PS. Jamie Dimon has still not yet convinced me he is a real banker and not just one of those bank equity minimizing bankers.

@PerKurowski ©

We share John Kay´s miseries

Sir what John Kay describes in “Public projects obscured by private finances” February 16, is very much what happened in many developing countries when we were subjected to the privatization crusade of our utilities and infrastructure.

Instead of the good project engineers, we were told we would get to run the operations efficiently, we were assaulted by financial engineers searching for how to squeeze out the most of what de-facto were most often safe monopolies, and that should ordinary have been financed at very low rates by orphans and widows. And, the cleverer these wizards structured the projects, the more they could pay upfront for the rights of executing them, and so the happier were our authorities too.

And now we are stuck with it, having to find consolation reading John Kay and seeing that at least our miseries are shared. The saddest part though is that it has so unnecessarily given the private sector a bad name. Looking at how doomed-to-fail these projects often were structured makes one suspect that it could almost have been done so on purpose.