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Govt asks Treasury to give advice on SOE mixed-ownership model for power companies; Not interested in anything else

Govt asks Treasury to give advice on SOE mixed-ownership model for power companies; Not interested in anything else

Treasury has been formally asked to give advice on applying a mixed-ownership model to the four government-owned power and coal-mining companies National would look to sell up to 49% of ownership in if it wins the next election.

Finance Minister Bill English and State Owned Enterprises Minister Simon Power last week sent a letter to Treasury Secretary John Whitehead for advice on the "merits and viability" of extending the model, exemplified by government's partial ownership of Air New Zealand, to Mighty River Power, Meridian, Genesis and Solid Energy.

English and Power said advice was only sought for the four SOEs identified, and government was not interested in pursuing other options for SOE sales contained in previous advice from Treasury.

This followed the announcement from Prime Minister John Key in his 'state of the nation' address last week that National would sell partial stakes in the four companies, but keep majority ownership if the party were to win the next election, largely tipped to be in November.

“The Government will carefully consider Treasury’s advice on the issues we have requested and make its position clear to New Zealanders well before the election later this year,” English and Power said.

They also released previous advice on the mixed-ownership model from Treasury's Crown Ownership Monitoring Unit. See the advice here.

Here is the release from English and Power:

Finance Minister Bill English and State Owned Enterprises Minister Simon Power have formally asked Treasury for advice on the merits and viability of extending the mixed-ownership model to four more state-owned enterprises.

As Prime Minister John Key outlined this week, the ministers have asked for advice on the merits and viability of:

Extending the mixed-ownership model to Mighty River Power, Meridian, Genesis and Solid Energy, with the Government retaining a majority stake in these companies.

Reducing the Government’s shareholding in Air New Zealand, again while maintaining a majority stake.

In making public their letter to Treasury Secretary John Whitehead, Mr English and Mr Power today made it clear that the Government would restrict consideration of the mixed-ownership model to the four SOEs identified.

The ministers have also today released Treasury’s much broader previous advice on the topic, but made it clear that the Government is not interested in pursuing other options set out in that advice.

Mr English said the Government owed it to all New Zealanders to manage its finances efficiently and to look at areas where it could reduce borrowing by prioritising and reallocating its capital.

“Our biggest economic challenge is lifting our national savings and reducing our vulnerability to foreign lenders,” he said. “The Government needs to play its part by reducing borrowing and getting back to surplus.

“As the Prime Minister said this week, running a budget deficit was the right thing to do during the depths of the recession. Now, as the economy recovers, the Government borrowing $300 million a week is unaffordable and is holding back the economy.”

As well as reducing planned growth in operating spending in Budget 2011 – which would deliver a meaningful budget surplus in 2014/15, a year ahead of previous forecasts – the Government is considering options for reducing its borrowing for capital investment.

Mr Power said the Government would remain a strong net buyer of assets in the next few years, but that investment needed to be directed to high priority areas and it could not continue to borrow at current levels.

“As outlined in the first Investment Statement last month, the Government will invest a net $33 billion in new assets over the next five years,” he said. “In doing that, we clearly can’t continue building up debt indefinitely, so we want to look at where we might change the mix of the assets we already own.”

Mr English and Mr Power reiterated that the Government would proceed with extending the mixed-ownership model only if it met the following tests:

The Government would have to maintain a majority controlling stake by owning more than 50 per cent of the company.

New Zealand investors would have to be at the front of the queue for shareholdings, and we would have to be confident of widespread and substantial New Zealand share ownership.

The companies involved would have to present good opportunities for investors.

The capital freed up would have to be used on behalf of taxpayers to fund new public assets and thereby reduce the pressure on the Government to borrow.

The Government would have to be satisfied that industry-specific regulations adequately protected New Zealand consumers.

“The Government will carefully consider Treasury’s advice on the issues we have requested and make its position clear to New Zealanders well before the election later this year,” Mr English and Mr Power said.

The ministers’ letter to Treasury and Treasury’s previous advice is available at: http://www.comu.govt.nz/publications/information-releases/mixed-ownership-model/

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4 Comments

The list of things wrong with this idea is a very long one. Why the National Government is pushing so hard for it is however fairly straight forward and quite dull. It is all about the fees it will generate. There is no philosophical argument that stands up and longer, there never was any economic argument . so all we are left with is the fees it will generate.
 

".....the Government borrowing $300 million a week is unaffordable and is holding back the economy.”
You will get no arguement from me about that statement. But what does it have to do with selling off the power companies? Say they get $5,000,000,000 for the 49% All that would mean is that New Zealand do not have to borrow any money for 16 weeks! That does not sound like much of an idea does it.

'The capital freed up would have to be used on behalf of taxpayers to fund new public assets and thereby reduce the pressure on the Government to borrow.'
But the investment in these power companies is one of the best there is,The money is safe. The return is pretty much guaranteed. Why sell?

'...reduce borrowing by prioritising and reallocating its capital.'

Why? What could possibly be wrong with owning these assets. Power in New Zealand is a political decision, that is a fact. Owning the power companies is an acknowledgement of that fact. Power in most places is a political decision also.Please do not suggest the the private sector could actually run the power companies any better. That idea is a politically appealing but does not stand up against the appalling record of the private sector running monoply assets.

In the end all we are left with is the fees. With fees of 5% we are looking at a windfall of 250 million to the sales people/advisors who get to flog off the power companies , but for   the money/investment industry as a whole it will probably be more like 400 million in the first year. Now that is a real incentive to say almost anything to get the stuff sold. 

So I suggest we say no very loudly and very quickly. Selling our stuff will not make us richand  it couldl make us a whole lot poorer. This is not a strategy, it is a sideshow. If John Key does not have a real strategy for how New Zealand can pay its way in the world then he should go back to Hawai and work on the tan.

 

Agree PlanB, there is no logical reason to proceed with these asset sales .And  why seek advise on the viability of the whole thing after it's announced? The whole thing's a zero sum game at best.

Let's look at some of the woolly thinking:

Reduce our reliance on overseas funds: if Kiwi Mums&Dads spend their bank deposit nest egg on SOE shares these funds will have to be replaced with money from where?

Give Kiwis a stake in their country's infrastructure: sorry but we already have that through our collective entity - government.

Reduce Government debt: these are income producing assets and would need to be sold at a price to investors that allows a return considerably in excess of the Governments existing borrowing costs. Say an 8%total return versus a 5% cost of Government borrowing.

This is looking like it's driven by IMF neo feudal thinking - it is the Goverments responsability to get it's spending under control, flogging off good assets to pay the housekeeping is about as dumb as you can get.

 

 

Are National willing to do this at their peril? I believe they are. This is stealing. Time and time again we see National thieving the ALREADY owned and tax paid for SOE's without even a glimpse of actual public mandate and then selling to the highest bidder. 80% of the country's families out there are on some kind of benefit (no thanks to Labour and their costly bribes). so how will any of those "kiwi mum & dad investors" as JK puts it  have ANY spare cash to buy investments they already have an invested interest in over decades of Taxpayer funds? Not many!. So the shares will go straight into the hands of the rich prick elite who will again take possession of stolen goods. Then shortly afterwards (within 5 years) you will see these strategic assets slip into foreign hands never to be had again, along with any profit they make. Make no mistake this is treason of the highest order. Maybe something similar to Egypt is needed here

'up the ante'? The ante is the enforced bet that poker players must put into the pot before they can play

I think the idea is that those of us that can afford to pay- ie buy the shares in the power companies can continue to play but those of us that can't are out of the game and loose their existing stake.

The UK has gone further than anyone with PPPs and asset sales and you would have to say that it has been a mess. The FT runs story after story and major coment from the likes of John Kay that non of them have delivered except to senior management and advisors (bankers, acountants, lawyers).