Auckland Airport Roundup

March 5th, 2008 at 9:10 am by David Farrar

Lots written on today. I’ll divide it up into the legal, political, and economic. First of all look at this story by Audrey Young:

On Monday night, after the Australian sharemarket closed, the Government changed overseas investment rules ensuring that if even the Overseas Investment Commission approved the sale, the two ministers with the final say, Clayton Cosgrove and David Parker, would be able to say “no” and withstand judicial review.

I would not be so confident about it withstanding judicial review. Despite attempts to isolate the two decision making Ministers, it is obvious that the issue has been pre-determined for them. And as Chris Carter found out with the Whangamata marina, the Courts do not like Ministers pre-determining issues.

On the political side, Vernon Small blogs:

Labour is cock-a-hoop today over the Auckland Airport (we-won’t-let-it-be-bought-by-a-Canadian-pension-fund-but-don’t-want-to-say-it-that-blatantly) regulation change.

Just a day after Prime Minister Helen Clark predicted the ‘fun would begin’ once National started debating policy John Key has looked surprisingly leaden-footed in response to the change – a popular move with the electorate, I would imagine, but one which National would instinctively reject.

National’s response hasn’t been particularly well-targeted it seems to me. The issues I would focus on are:

  • One shouldn’t change the rules at the last second – moves like that destroy investment and jobs and push up interest rates
  • The rules should be clear as to what is and is not allowed, and this change means no one will be sure now what the ground rules are

Tracy Watkins has an article in the Dom Post, with the headline being “Nats will not ban airport sale”. Now please bear in mind Tracy does not write the headline even though it is her story. The headline though is a misleading one as it suggests Labour is banning the sale, and they are not. They are changing the rules, but they are not banning it.

On the economic front economic editor Brian Fallow looks at the dangers:

The Government is running risks with New Zealand’s reputation as an investment destination by suddenly turning Overseas Investment Office approval, long a rubber stamp, into a serious hurdle for the Canadian bid for Auckland Airport.

It has changed the rules in the closing minutes of the game.

And it does this reckless thing at the worst possible time.

The country has for 20 years enthusiastically taken advantage of the opportunities globalisation provides to access foreign capital.

Had we not, had we relied on what we ourselves are prepared to save and invest, the economy would be a lot smaller than it is.

Indeed.

Fran O’Sullivan counts the cost:

Helen Clark’s Government has wiped hundreds of millions of dollars off Auckland Airport’s value in a vainglorious move to exert “local control” over an asset that passed into majority private ownership more than a decade ago. …

The upshot is that New Zealand’s hard-won reputation as a “fair dealer” that welcomes has now been carelessly hammered by a Government which is bent on milking the Auckland International Airport takeover for political advantage.

What Helen Clark and Finance Minister Michael Cullen forget as they blatantly ramp up the foreign investment bogey during election year is that the 50,000 retail shareholders in Auckland Airport also have votes.

The NZ Herald Editorial labels the move xenophobia:

This is populist politicking, pure and simple. An administration reeling in the polls has stooped to courting xenophobia. Only that explains the timing of the intervention. If the Government genuinely viewed this as the right policy, it could have acted when the airport first attracted overseas interest.

Andrew James in the Dom Post reports:

More than $300 million was wiped off Auckland International Airport’s market value after the Government introduced a late rule change …

$300 million wiped out.

And The Press editorial weighs things up:

… But it is doubtful if it is much more amenable to the national interest — whatever that is — under its present ownership than under Canadian ownership. Both owners would be subject to the same laws and regulations, and liable to the same pressures from governments local and national. Both owners would seek to maximise their profits and returns to shareholders. Materially, the only difference to occur under Canadian ownership would be a larger flow of profits offshore.

New Zealand does not have the capital or human resources to fuel its development, but it does not like the large foreign inflow of people and finance that development needs. The way to solve the conundrum is not to pass regulations but to upskill New Zealanders and make them more wealthy. Then they could own and manage their assets.

gets it somewhat wrong with saying more profits would flow overseas. Because the domestic money freed up from any sale could well result in more money flowing to NZ from overseas.

The Visible Hand  in Economics deals with this and other economic issues. Gives a nice list of benefits and costs of foreign investment.

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24 Responses to “Auckland Airport Roundup”

  1. Captain Crab (351 comments) says:

    Key missed an opportunity to say that National would not sell strategic assets which are important to the country and to define what those assets are but that they also endorsed overseas investment and that the present rules work well.And stated those rules. He should also have pointed out that the change puts too much power into a Ministers hands, particulary a Minister of a government which are a bunch of fuckwits and this is a bad thing because of the Chris Carter debacle over Whangmata.
    He has to do better.Missed opportunity here but perhaps if he was on Close Up or Campbell tonight……

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  2. Craig Ranapia (1,915 comments) says:

    Here’s something else to think about —

    1) I wonder if Helen Clark would be having the same amount of “fun” if the Cullen Fund was being buggered around in this manner. In the spirit of fair play, will the Cullen Fund be ordered to cease and desist ‘alienating’ profits from other countries? Yeah right…

    2) If Auckland Airport is such a ‘strategic asset’, does Labour have a secret agenda (ha ha) to nationalise airports, ports and buy back the rail network; and what social services will be cut to pay for it? :)

    3) I’d also note the irony that the New Zealand Government is notably unsympathetic to ‘national interest’ justifications for tariffs and other trade barriers being raised against our goods and citizens.

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  3. Mark (497 comments) says:

    If I was a shareholder I would be extremely pissed off with the Labour government.

    I see the share price continuing to slide.

    If Labour didn’t want Auckland Airport to go over seas they should of brought shares from people willing to sell with taxpayers money.

    But being the Labour party they couldn’t even do that.

    Bloody incomptent retards.

    If I was the University that gave Dr Sullen his degree I would of asked for it back.

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  4. dc (174 comments) says:

    I love the quote from Cullen in the Brian Fallow article that we are not going out on “some kind of Hugo Chavez limb”. As if the comparison was in any way legitimate. Oh wait, it is! And for some reason Cullen feels the need to draw it.

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  5. gd (2,286 comments) says:

    I am an beneficial shareholder in AIA and I can tell I and my fellow shareholders are not only very pissed off we are alerting contacts offshore about the dimbulb governments moves .Surprisingly NZ doesnt come up on the radar of most oversewas investors until thyey look at an opportunity so we are making sure a smany as possible know about the Banana Republics governance policy as regards overseas investment Sullen is bleating on about how it is but investors are only interested in now And now dont look a good time to invest

    Result Dried up funds Higher interest rates Lower NZX good time to be cashed up Expect 90 day rates to go to 10% in 09.

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  6. roger nome (4,067 comments) says:

    From Brian Fallow..

    “Had we not, had we relied on what we ourselves are prepared to save and invest, the economy would be a lot smaller than it is.”

    This suggests that there’s no sensible middle ground which, at the same time protects our National interest while taking advantage of the opportunities that globalisation offers. But of course it isn’t an absolute/all or nothing issue – surely there have been/potentially may be, some sales of important/very profitable/strategic assets to overseas interests that haven’t been/wouldn’t be in the interest of New Zealand (i.e. Tranzrail, Telecom etc….).

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  7. roger nome (4,067 comments) says:

    “3) I’d also note the irony that the New Zealand Government is notably unsympathetic to ‘national interest’ justifications for tariffs and other trade barriers being raised against our goods and citizens.”

    Craig R. Of course it isn’t that simple. There are general principals in economic theory, but very few absolutes. i.e. Most governments strategically protect the economy in certain areas for security purposes i.e. The US and Europe still protect their agricultural industries for the purposes of food security, while the NZ government has maintained control over our coal deposits for the purposes of energy security etc….

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  8. PhilBest (5,120 comments) says:

    Archetypical Liarbour voter: “wot’s foreign investment?”

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  9. baxter (893 comments) says:

    It is ironic that at a time when the Minister of Police and Justice is embroiled in what appears to be a corrupt deal over a fifty million dollar health tender at a time when she was Health Minister. When a former Deputy Minister of Immigration is facing Court Charges over his dealings, that this enormous veto power should be handed to two Ministers one of whom was deemed unfit to be Attorney General due to suspect deals in his former private life. The other conumdrum is what is a strategic Company. ROGERNOME a Liabor Insider says Coal Deposits. Does that mean Pike River Coal and NZ Oil and Gas are to be restricted in their share dealings. Is Sky City a strategic Asset, or Pine Gould Wrightson. Are prospective overseas Investors to expect to spend months and millions doing due diligence prior to making an offer only to have it ruled void at point of takeover.Not only will overseas investors not have confidence in our system local mum and dad shareholders won’t either.

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  10. SPC (5,531 comments) says:

    Our foreign investment laws are still some of the most liberal in the OECD, more liberal than those in Australia. And does anyone remember the USA preventing a Gulf company buying a seaport?

    As for those rating the airport values. They seem to have been rating the value based on a buy out. The Canadians say their plans are not affected because they were not seeking a majority ownership anyhow. They do not feel they have been wasting their time, because what they say they wanted to do has not been blocked.

    As to the politics, the law change makes it easier for people to accept the Canadian buy in, while the government has appeared to be defending the bottom line and our national interest.

    It is much ado about nothing.

    PS Though the language of loyalty to the primacy of global capital being offered by some – how dare a nation offer a self defence of national interest or assert democratic sovereignty (labour laws, human rights, environment protection) to get in the way of the will of those men and their big capital. I wonder, if National MP’s will vote their “conscience” when they seek to revisit prostitution legislation (and that still involves women consenting and negotiating terms on a case by case basis).

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  11. Craig Ranapia (1,915 comments) says:

    As to the politics, the law change makes it easier for people to accept the Canadian buy in, while the government has appeared to be defending the bottom line and our national interest.

    So, how exactly was our ‘national interest’ at threat? Or is the only interest at threat there Labour’s poll numbers? I’m not really interested in politically opportunistic xenophobia wrapped up in junk economics either, so only serious answers please.

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  12. Kimble (4,443 comments) says:

    “It is much ado about nothing.”

    Why the urgency then? What was Labour so scared of?

    “(labour laws, human rights, environment protection)”

    I am sorry, are you saying that foreign ownership of AIA would lead to these things being lost? Because that seems a little silly. Am I misreading you?

    “I’m not really interested in politically opportunistic xenophobia wrapped up in junk economics either, so only serious answers please.”

    That is one hell of a sentence, CR, well done.

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  13. Southern Raider (1,773 comments) says:

    Where’s AIA going to get the funding now for the World Cup make over? Weren’t they wanting to spend something like $300million?

    And how does a $50million contract scandal not make the news. They only reported on Key not having a date to end treaty claims. Where the hell is the priorities for the media? Is this go soft on Labour week?

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  14. Kimble (4,443 comments) says:

    “Where’s AIA going to get the funding now for the World Cup make over? Weren’t they wanting to spend something like $300million?”

    Two options; share issue or debt issue. It will probably be a share issue as debt will be very expensive.

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  15. SPC (5,531 comments) says:

    Craig

    “How exactly was our ‘national interest’ at threat?”

    In this case, that is a good question – but it is a fact that many people wanted their local council shareholders not to sell to foreigners. In making the law change, the government has offered increased “protection/reassurance” to those concerned about a buy in.

    “Or is the only interest at threat there Labour’s poll numbers? I’m not really interested in politically opportunistic xenophobia”

    But in asserting your aspercion as to Labour’s motive, that is what you were doing.

    ‘wrapped up in junk economics either, so only serious answers please.”

    I presume that is some insinuation that junk economics is the preserve of those who support Labour. More political cronyism from yourself.

    Kimble

    “Why the urgency then? What was Labour so scared of?”

    It was merely to placate local concern about the buy in. In apparently limiting what might later result – strengthening existing limits – if anything enabling local owners to sell to the buyers and helping to minimise local opposition. All while appearing to be firmer on national self interest than National. Business as usual, with a bit of politics.

    “I am sorry, are you saying that foreign ownership of AIA would lead to these things being lost?”

    I am just raising some of the areas where national self interest – democratic sovereignty has priority over an unregulated free market.

    Cullen’s point was about owners whose interest was extracting profit not the wider economy. Tranzrail owners extraced profit without reinvesting and in neglecting local maitenance, Telecom was charging very high prices without reinvesting as much as companies overseas. Thus presumably he was worried that “foreign buyers” may advocate for decison making based on tax avoidance and high dividend payouts, rather than reinvestment to fully service our needs (remember the Emirates bid was designed to reduce the governments tax take). How the legislative change actually addresses this is another issue. Perhaps it’s only the pose of a government concerned about this, because it is not something they can easily legislate for (barring government investment into rail and regulating Telcom or … in the case of the airport, should this be required based on their decision making choice).

    CR“I’m not really interested in politically opportunistic xenophobia wrapped up in junk economics either, so only serious answers please.”

    “That is one hell of a sentence, CR, well done”

    Yeah sure, dismissing the nationalism of the left as xenophobia, dismissing the language of collective well being as junk economics, is the sort of cheap rhetoric designed to get applause from those partisan folk on talk back radio.

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  16. NeilM (370 comments) says:

    “dismissing the nationalism of the left as xenophobia”

    whipping up dislike of foreigners is wrong however it’s done and whoever it’s done by. There is a genuine issue here about strategic assets but Labour is clearly timing this to appeal to left wing xenophobes who like to think they aren’t as bad as right wing xenohophobes because they dress their prejudice up in fancy laguage.

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  17. side show bob (3,660 comments) says:

    I wonder how much of Sullens super fund has investments in Canada . Has this two bob not seen the hyprocrisy of what he is doing. The Liarbore suckholes are quick to invest overseas, looking for a better return on the billions taken from Kiwis. What if every country told Sullen to take his money and stick it up his poxy arsehole because they feared a take over from NZ. For fucks sake these people are bent.

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  18. SPC (5,531 comments) says:

    NeilM

    Except for one thing, the concept of peoples ownership of strategic assets, is not premised on xenophobia.

    And I have seen no whipping up of dislike of foreigners, what has happened is that there has been local opposition to councils selling their shares. Local collective ownership of such stakes is popular with some – because they are good long term assets. This opposition also applied to sale to local private owners.

    Then come the issue of the way the Emirates bid was structured to reduce tax paid to the government. This raised concerns about all large share buyers whose ownership would change policy decisions – possibly in some adverse way. This led to a conservatism that maybe until it was clear that the deal was good for New Zealand it should be blocked.

    Yet all the government has done is reinforce some existing legislation, which the bidders suggest does not really affect their bid. So in the end, it’s all about reassurance to the public, the appearance of empathising with concerns, while it’s business as usual.

    ssb

    Canada has more protectionist regulation of foreign investment of us than we have of them. We have one of the most liberal regimes in the OECD.

    As to the blocking of a Gulf company from buying a US seaport, the Gulf has followed this up by offering capital to many US banks short of credit of late. Business is business.

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  19. Anthony (789 comments) says:

    SPC, what is the sudden problem with the sale AIA? Why is it so different to other sales of assets to foreigners? What terrible things is a Canadian pension fund likely to do with a 40% shareholding???

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  20. Frank. (607 comments) says:

    Just another red herring like the Exclusive Brethern in the Labour Election Overspend.

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  21. Southern Raider (1,773 comments) says:

    So they screwed Telecom, Fletcher Building is going to get hammered with the down turn in construction and now AIA.

    Any ideas on who’s next from the NZSX50 that Labour is going to take out?

    May be its part of a left wing plot to reduce NZ to an economic wasteland and then rebuild a utopian paradise for the workers

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  22. SPC (5,531 comments) says:

    Anthony

    Why are you asking me?

    All I wrote was that, people in Auckland liked having council shareholdings in the company and that the governments move to increase regulation of foreign buy out of strategic asset companies/assets acted as a reassurance (that they emphasised with concerns about loss of ownership of strategic assets). That the Canadians can respond that this does not affect them is not news to the government. If anything, the government’s move is to placate locals should the buy in take place, otherwise it is to raise the wider issue of collectively owned (public, central or local/regional) assets and whether they should be sold.

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  23. NeilM (370 comments) says:

    “Except for one thing, the concept of peoples ownership of strategic assets, is not premised on xenophobia.”

    So why has Cullen acted now and not earlier? Come on, Labour have seen this as a way of getting at Key – they are trying to get him to come out in favour of foreign ownership as opposed to NZ ownership. Yeah, politics as usual but this is “You are either Pro-NZ or Pro-Foreign”. I expect that from Winston not from Labour.

    It’s wedge poltics. All Cullen had to do was have a Kiwishare arrangement to protect NZ interests. Instead they’ve gone for the rascist vote.

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  24. SPC (5,531 comments) says:

    There is nothing racist about the politics of continued support for local public ownership of assets (whehter by the state or local councils)

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