OSU energy privatization – a billion dollar blunder?
The Ohio State University Board of Trustees are set to vote Friday on a billion dollar energy privatization bid – the largest deal of its kind in university history. For the deal to work in Ohio State’s favor, it will rely on investment returns from a 1.015 billion dollar up-front payment made as part of the deal. The proposed partnership is with ENGIE-Axiom Infrastructure – a French global energy operator and producer and French investment management firm respectively.
In what amounts to a $1B loan, OSU will repay it with annual payments is $45 million, then increasing 1.5 percent per year for 50 years. The total of these payments is expected to exceed $3.3 Billion on the original $1.015 Billion. The repayment does not include other financial commitments contained in the agreement.
The deal has been characterized as a way to meet sustainability goals, but some feel this investment deal is filled with unnecessary risk. Bruce Weide, professor emeritus of the Department of Computer and Science Engineering, has filed a lawsuit against the university seeking previously private details on the agreement.
Dr. Neil Tennant, Arts and Humanities Distinguished Professor in Philosophy at Ohio State, expressed concern during a recent University Senate hearing about a lack of proper discussion on deal of this magnitude.
“Many of faculty at the university feel very under consulted on all the major decisions that are being made by the administration,” Tennant said during an interview with 614Now.com. “There’s also huge inertia among people when it comes to something being this close to going to the board of trustees. They feel as though they’ll be looked at as terrible rebels if they stood in the way of what the administration wanted.”
“I did my due diligence as a member of senate,” he continued, “and I investigated, with a sense of anxiety what would happen to this institution where I’ve served for 25 years if they had gotten the math wrong… and I’m very pessimistic at what I’ve discovered.”
According to Dr. Tennant, under the current plan of investment a few early bad years of returns could lead the University into hundreds of millions of dollars of debt – if not more. He also characterized the investment as a “mega loan” and stated that given the current affairs of the world, such a loan seems fraught with risk.
“The geopolitical situation worldwide and the situation in higher education within the USA, its enough to make you feel very uncertain about investment returns for endowments. It is a loan because there is a schedule of repayments, which because of their annual 1.5% increase, makes it a mega loan,” he said. “I beg you to look at the rate of return for 2016 on our endowment fund. Negative 1.5 percent. When you spreadsheet this thing out, and put in any early so-called black swans, namely very disappointing returns, negative returns, early on, then you can zoom into the red towards the end of the lifetime of this 50 year arrangement.”
According to Dr. Tennant’s calculations, that red could be as much as 400 million to a billion dollars – depending on investment returns.
614Now attempted to contact the university and Dr. Weide, but our calls and emails were not immediately returned.
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