Can the Government tell an asset from an elbow?
Had it thought through the fatal flaws in its partial privatization drive, or has it been taken by surprise? Hat tip to Clayton Cosgrove for bringing SOE sale issues to the fore. Here’s a potted summary of some emerging commercial and economic development implications:
- When the SOE’s are partially privatised they become companies with a partial public shareholding, regulated by commercial law and not the SOE Act. They are no longer SOEs. They no longer have the Crown’s good corporate citizen obigations. Elbow #1.
- That is why the s9 Treaty Clause debate is so fundamental. Iwi are 100% right to be outraged that the Crown’s obligations under the Treaty of Waitangi could be sold down the river (literally). If the Crown’s response is to indemnify the private investor and bear 100% of the ongoing Treaty obligation, then the taxpayer is effectively subsidising the private investor. Clayton nailed this last week. Elbow #2.
- Minority shareholders rights include the ability to invest in future profitable expansion plans. Dilemma for Crown: pony up its 51% of those future capital requirements or face equity dilution below 51% and loss of residual control. The Govt’s response has been to hedge how much it wil initially sell. Does 45% leave it enough of a buffer? For how long? How long is a piece of string? How does this affect its sale proceeds? In a rare moment of frankness Bill English fessed up that those proceeds are only a “guess”. You bet they are. Elbow #3.
- Magically the Government’s new-found forecasts of SOE dividend loss are not, apparenty. These were shamefully omitted from the Pre-Election Economic and Fiscal Update (PREFU) because they were apparently too hard to calculate. They have since been found in a bottom drawer and Lo! they show there will be precious few future divvies, so little loss. Ooops Why would a private investor buy them then? Elbow #4.
- Except Air NZ of course, which will be as cheap as chips after its sad losses last year. Crazy, stupid fire sale. Elbow #5.
- Speaking of which, future takeover threats must now be managed. Minority shareholders have rights. If a future merger or takeover provides them a windfall, they have the right to sell, most likely to foreign corporates or hedge funds (subject to the 10% individual cap, if any). What would the Crown do in the face of such temptation? Could it face legal action from minorities if it blocked such a future sale? How is the public protected from future leveraged asset stripping? Elbow #6.
- Potential cross-shareholding complications arise, as confirmed by the Chair of the Commerce Commission at the Commerce Committee hearing this morning. (I can’t comment on the Committee’s views but can on the issues diiscussed in public hearing). Lets say a foreign energy company bought the maximum allowable shareholding in each of the 3 SOE generators – risks of information pooling, coordination and anti-competitive behaviour would need to be policed by the Commission. At best there would be a lag while consumers suffered and prices rose. The Crown itself would have to be subject to Commission oversight in this regard. Sound complicated? Elbow #7.
Back to the original dilemma: did John Key know about all these issues when he started this privatisation crusade? If so, why was the Government not more transparent about them all before the election – with the public and even with its potential coalition partner?
Oh yeah, I momentarily forgot. It’s politics.
That being the case, lets fight this crazy plan to the last comma.
I notice Mercury, the retail arm of MR Power has started its “hearts and minds” advertising, and they have been door knocking offering special deals to win back old customers who walked for cheaper power. I being one.
Usual tactics to pump up a company before the float. Cost ? Maybe $20 mill plus
There is no transparency in most(?) policies or decisions John Key’s Administration makes. Unfortunately NZ has been saddled with The Hollow Men and their Hollow Words and Promises and their Shonkey activities. They need to be stopped before NZ suffers any more Loss.
it was interesting to hear that old reptile Stephen Franks on Radio NZ this morning trying to explain all this away – it showed how supporters of asset sales will try to muddy the waters.
“Oh yeah, I momentarily forgot. It’s politics.”
Seeing you spent the previous few paragraphs oversimplifying the issues to appeal to the broader base of idiots I would say your forgetfulness was incredibly brief.
@ Andrew. I am more often criticized for being too detailed and policy focussed than too succinct and political. Refreshing change. Thanks
It appealed to me, but I am not an idiot
Quite so CV.
The weather bureau are predicting a colder than normal winter, worst luck for some and an omen to others. This cold snap currently hitting us will be sending a chill to the bones of the asset sales maniac!
What a quaint turn of phrase. I haven’t heard it called that in ages
A colder winter?
Man that sucks! 
!!!!!
Sadly they have the numbers to put this through.
Unbeleivably to me alot of those who i know who voted for the right dont support asset sales and still dont think nice Mr Key will go ahead with asset sales.
If National go ahead with all there other plans and did not sell the 49% would that put NZ in the Crapper even further?
David, what sort of mess do you think you will have to sort out come 2014, i hope you are all working on some plans now.
Surely Asset Sales are not a good idea based on what the results were of previous Asset Sales. BNZ went tits up, AIRNZ had to be bailed out by the Government, NZRAIL got run into the ground, TELECOM has been a basket case for investors.
However figures have been quoted that $14.0 billion is being remitted overseas in earnings from companies which were previously State Owned.
If we have good well run State Assets should we not be holding onto these and the dividend streams to help cashflow the running of the country.
NZ needs to take a long term strategic view of this county’s assets, like the Asian countries do, you will not find the Chinese and Japanese Governments selling strategic assets.