The case for privatizing Canada Post

Proceeds from the sale of Canada Post can be used to offset projected federal budget deficits

By Ian Madsen
and Anderson Agbugba
Frontier Centre for Public Policy

The digital revolution has altered Canada Post Corp.’s bottom line. The shift toward e-mail has resulted in a decline in mail volumes. Parcel volumes, however, are increasing owing to fast growing e-commerce.

Canada Post is struggling to keep up with these changes and this failure will cost Canada Post more than $1 billion by 2020.

Pension challenges, high cost of production labour and the shrinking business value of Canada Post are a few other problems bedevilling the federal Crown corporation.

What’s the way forward?

The Frontier Centre for Public Policy recently released a paper in its public choice alternatives series on the valuation of Canada Post. According to the valuation, Canada Post could be worth as much as $30 billion if divested; or it could be worthless if unable to fully realize its illiquid assets into cash.

Its value may be worth as much as $24 billion to $27 billion if Canada Post could optimize its organization and be reoriented to generating income.

Canada Post has had quite an impressive turnaround and is now ripe for divestiture. It no longer serves an essential service role as virtually all important communications are now conducted electronically.

A major problem in selling off the company via an initial public offering on a stock exchange is the significant unfunded pension and other benefit liability. While a huge chunk of debt must be swallowed, the federal government should consider taking it on to ensure that it can fully maximize the proceeds of divestiture of the company.

As with any other enterprise, there’s always the risk of serious operating and financial losses. These risks are best taken by private investors who are more motivated to minimize or eliminate them than Canadian taxpayers are.

Proceeds from the sale of Canada Post can be used against any liability associated with the company that remains with Ottawa.

Whatever is left can be used to offset the federal budget deficits that are forecasted to last several more years.

The decision to keep or sell off all, most or part of Canada Post lies with Canadian citizens via their elected representatives in the House of Commons.

Ian Madsen is a senior policy analyst and Anderson Agbugba is an intern with the Frontier Centre for Public Policy.


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