Vector not strategic?
April 17th, 2008 at 3:59 pm by David FarrarThe Dom Post reports that the Government is not likely to block the sale of Wellington’s electricity network to a foreign party.
So the Government hysterically whips up opposition to a Canadian pension fund having a 25% voting stake in Auckland Airport, but has no problems with a Chinese, Hong Kong or Australian company buying 100% of Wellington’s power network.
Confused? Surely this is a Government of principle, and having proclaimed strategic asset sales to foreigners is bad, will not allow an asset as strategic as a power network to be sold?
I mean an airport is surely less strategic. Not all Aucklanders use Auckland Airport, there are substitutes to air travel, and competing airports can be built – as Waitakere Council wish to do.
But the power network in Wellington is used by 100% of Wellingtonians. No one goes without electricity. There is no way that someone could come along and put in a whole new set of power lines to every home. And there is no real alternative to electricity, as there is to air travel.
So why is the Government so inconsistent? I thought asset sales were the defining issue for this year? Why is the Government allowing this strategic asset to be flogged off?
Personally I would not be stopping private owners of either asset from selling them to other private owners. But as the Government has made asset sales a defining issue, their response is awaited.
Related posts:
- NZ Herald on Vector sale
- Hypocrisy vs Stupidity
- Wellington Power lines sold to Chinese
- More on Auckland Airport
April 17th, 2008 at 5:22 pm
Surely not even Madame Mao-Clark would risk selling Vector network to the Chinese Government’s State Grid Corporation after turning down a Canadian pension fund from taking what finally amounted to a sleeping-partner stake in Auckland International Airport???
Add that to Fisher & Paykel closing down its Mosgiel plant and moving it to Asia and ANZ Bank pushing 500 jobs to India and you can see why Labour has suddenly shut up about the Free Trade Agreement that was going to shoot us back up the OECD tables.
Vote:April 17th, 2008 at 5:25 pm
Probably wont get a reply if you wait till next year.
Vote:April 17th, 2008 at 5:25 pm
I am very interested to hear why too. Well put DPF, it is as simple as you say.
Unless I am missing something, but that is very rare.
Vote:April 17th, 2008 at 5:29 pm
H1 is a “principle free zone”. Lie, confuse, deflect and see what one can get away with. When pinned just deny or attack the messenger. It’s hard to believe so many Kiwi’s still rate her. That they do is more telling of our future than any oil price rise, any FTA or any job losses.
Vote:April 17th, 2008 at 5:35 pm
Does anyone else get the feeling our country/politics is becoming a global laughing stock?
Vote:April 17th, 2008 at 5:47 pm
Hello…hello….Nats…are you out there ? Another opportunity to put a stake in the ground..helloooooo
Vote:April 17th, 2008 at 6:00 pm
Of COURSE this government is a government of principles. It’s just a question of what they are, and the moral compass involved…….
Vote:April 17th, 2008 at 6:13 pm
Why be surprised?
Vote:In 2004 Transpower sold (and leased back) 100% of the south island transmission grid to an American Bank in a ‘tax-driven’ deal presumably with ‘approval’ from its shareholding ministers, including Dr Cullen.
Here is the analysis http://www.converge.org.nz/watchdog/11/06.htm.
Note the irreconcileable arguments
But Dr Cullen’s sophistry can undoubtedly reconcile why that transaction in 2004 for sale of those strategic assets was acceptable then & is equally acceptable for the potential asset sale of 100% of Wellington’s ‘strategic’ electricity (and gas?) lines….as opposed to transfer of ownership of 40% of shares in a public-listed company, Auckland Airport.
Who will explain & reconcile the different principles involved? Dr Cullen? Any of your correspondents?
April 17th, 2008 at 6:22 pm
Why does it matter Key et al will sell the lot.
So colour you guys surprised if come next year there is a blue govt and all the assets are on the auction block – where will the cries of derision be then?
[DPF: And Paul decides to give up pretending he is a rational debater, and instead just lies. So sad - for a while there I thought he was worth engaging with]
Vote:April 17th, 2008 at 6:34 pm
Does John Key consider Vector strategic ?
After he has the same policy as Labour, just a 49% foreign holding limit( up from Labour’s 25%) on strategic land holdings.
And your nonsense about 25% “board control” is absurd. They would have controlled 40% of the asset full stop.
And they would have ripped off the taxpayers to boot
[DPF: Ghost is lucky there are no demerits for being factually incorrect. They would have had only 24.9% of the votes in the company]
Vote:April 17th, 2008 at 6:44 pm
Auckland Airport won’t be a strategic asset either if it’s Owen Glenn wanting a 40% shareholding…. Move on nothing to see here, it’s valid to sell our failing infrastructure to foreigners so that we can blame them for the hideous state of it in a few years time.
Vote:April 17th, 2008 at 7:05 pm
Jocko, that link doesn’t work.
Or. . . . we could define everything as being strategic and kick everyone out of the country.
Cullen is happy to part with $600M + for the loss making part of Toll for reasons that haven’t really been explained but one can only assume that it’s a “strategic asset”. Helen said recently that after they (oops I mean we) buy it rail will be opened to competition. So why can’t this be done now?
Vote:April 17th, 2008 at 8:28 pm
Fred
That’s far too simple, no political capital available from using the existing structure to achieve a better outcome for the consumers. The structure needs to be changed and branded and most importantly seen to be controlled by the govt not just allowed to operate in it’s thoughtfully composed framework. Labour good – National bad… yada yada public ownership – free trains for beneficiaries and the racing industry.
Vote:April 17th, 2008 at 8:40 pm
Re Fred @ 7.05pm
Vote:Google: ‘transpower transmission grid sale’.
The link is the first item. The second is relevant too – but couldnt link to 1t.
If you read both articles you’ll see that the shareholding ministers were approving a ‘deal’ they might reckon John Key would do – only better? Thus deafening silence on the transaction & its strategic illogicality?
April 17th, 2008 at 8:46 pm
The negotiations are close in terms of the $’s but involve other factors. Toll keep trucking . . . let’s see now, more taxes and regulations on goods by road, and preferential access by toll to rail?
Vote:April 17th, 2008 at 9:02 pm
Anyone notice how Paul & Ghostie hang out together?. Must be of some comfort to know you are not the only retard on the forum. Give it up guys, you have fought the good fight, the end is close.
Vote:April 17th, 2008 at 9:03 pm
Jocko, it’s OK, that sort of deal is fine, because the lease on assets is 50 years and land is 99 years is as good as ownership, nothing strategic foregone here (and it can be purchased back after 25 years). Not only that it’s a deal that adversely affects the US IRS (ie it’s good for a US taxpayer) and a NZ SOE gets the “kickback”. Great to see an SOE dealing to the US government. This is wrong on so many counts. I think that John Key would understand the deal here, and would do the right thing, I have no idea how such a deal would have got through the current crop of shareholding ministers (bet they didn’t run it past the US authorities).
Vote:April 17th, 2008 at 9:08 pm
The Auckland Airport was another of the endless exercises arising from Liarbore poll-driven fruit-nut-cackery.
The Liarbore fools OBVIOUSLY didn’t realise at the time that the next OBVIOUS move on the chessboard from ANYONE who thinks was: give us a list of strategic assets. What, you can’t????
Their polling companies over the years have been very very bordering on extremely good. Shame they haven’t learned anything over the last nine years apart from how to pick those polling companies.
Now, when the going gets tough and their (poison) seeds start to fruit, let’s see how well they can lie, spin, obfuscate and use their extremely good political polling companies, to sow deception amongst the rapidly diminishing number of reef fish that haven’t already woken up.
Vote:April 17th, 2008 at 9:11 pm
please resign Helen (harry). You valueless beast of a monster. Please resign. Save us all this time in socialising the fact that we’ve grown to despise your evil ways. Please resign.
Vote:April 17th, 2008 at 9:17 pm
Hypocritical.
This would be a perfect question to ask the Labour front bench. National needs to grow some balls and take. them. to. task.
When is a strategic asset, not a strategic asset?
If the short/medium term pain of job losses means Labour gets the arse, so be it.
They will blame it all on the global economy, rising gas prices etc, etc.
Well what about:
¤ over-cooking the public spending?
¤ the wasted opportunities with health/education/R&D?
¤ the thousands of skilled NZers leaving home?
¤ the rumoured inclusion of Helen Clark being at the RWC quarter-final, as a reason we lost?
¤ the (relatively large) increase in inflation?
¤ the loss of local jobs because of the high dollar and loss of protection to the manufacturing sector?
I could go on…
Vote:April 17th, 2008 at 9:19 pm
Labour – if you’re listening – call an election, end this despair the country is falling into. Let a more proactive govt take the reigns and accept that socialism (without a massive pool of money to suckle on) was going to fail in NZ as it has failed before and also everywhere else it’s ever been tried with or without massive tradeable commodity based incomes.
Vote:April 17th, 2008 at 9:29 pm
Good one Fred
Vote:Let’s go through Prof Sue Newberry’s list on potential ‘strategic assets’ which might tax efficiently be ‘sold & leased back’ & that you would regard ‘that sort of deal is fine’…
She asked “Is it really acceptable to ignore the nature of the assets disposed of in this way? And if it is acceptable to effectively sell the electricity grid, where should we draw the line? Hospitals? Schools? Roads? Hydro dams? Water supply facilities? ”
Oh….and add Wellington’s electricity (and gas?) lines too. Plus Auckland’s? And, what about the Auckland airport’s runways + terminals etc.
Are you saying it’s ok to sell and leaseback any or all of the country’s infrastructure as has already been approved by Dr Cullen if it rorts the US IRS (and possibly NZ’s IRD too)
April 17th, 2008 at 10:36 pm
E de F (a French SOE) owns the power networks of London, East Anglia and South Eastern England. However I hardly imagine the French allowing any foreigners to own the Paris electrical network.
Vote:April 18th, 2008 at 6:10 am
Paul: So colour you guys surprised if come next year there is a blue govt and all the assets are on the auction block – where will the cries of derision be then?
National has publically said there will be no asset sales, either wholly or in part, in their first term in government. You can call them liars if you want, but that was John Keys commitment to New Zealand on national television – a clear and unequivocial statement of fact.
But I am curious at your position. Were you opposed to the sale of a 40% of Auckland Airport in return for a 24.9% voting block? Are you opposed to the sale of Wellington’s Electricity Network?
Why are you attempting to deflect attention away from the hypocricy that is our Labour government and their utter inconsistency on asset sales?
Vote:April 18th, 2008 at 8:20 am
Saw this coming a mile away, this damned government needs to go. I wonder how much coverage this will get vs the AIA fiasco?
Vote:April 18th, 2008 at 8:45 am
It all makes sense when it is realised the only thing which counts is Helen getting elected this year.
Vote:April 18th, 2008 at 9:00 am
OK, so I am a bit slow. I admit this.
In many areas, I suppose I could call myself ‘right wing’, but on the asset sales (and also the exporting of jobs) question I have to admit to being somewhat more ‘protectionist’ than ‘right’.
New Zealanders have built up this asset with their own investment over, I dunno, 75 years. It provides the city with electricity which is vital to the running of a modern society and it does so excellently (in that in this area we are definitely ‘first world’ standard rather than ‘third world’). The profits made in the process stay here and are partly used to pay some kind of dividend to shareholders, presumably, and partly used to invest in further improvements. So Vector can be said to be both a money generator and a vital asset to out country.
How can it benefit the country to sell this asset overseas, so that another country’s organisation owns and controls our supply of vital electricty and at the same time gets to benefit from the profits generated by its operation? it simply doesn’t make sense to me.
When New Zealand has sold all its assets in this way, what will be left? OK, I know the pro-sales argument is “nobody is going to take away your electricity/airport/hospital etc”, but that answer does not hold water for me because we are actually selling out country. We are selling our country and we don’t seem to be building or creating anything much to replace it with. What does a country (or a family or a business) do when there’s nothing left to sell? Isn’t this like somebody auctioning off all their belongings one by one on Trade Me to pay for the groceries, when what they should actually do is go out and get a job?
What is New Zealand actually doing to earn income now? F&P are closing their manufacturing here and the ANZ/National Bank are going to export around 500 jobs to India – and that’s just the news from one day’s reading of the business pages! How are we going to continue survive as an economy – let alone thrive and grow – if we don’t actually produce anything and don’t own anything either. Its all very well for ANZ/National to say that their displaced staff will be ‘re-deployed’, but there comes a stage when shuffling the pieces endlessly around the draughts board becomes pointless, because the country is no longer producing anything. Surely a country should be able to base its economy on something more productive and real than the price of houses in Timaru or Taradale.
Can anybody answer this question please? I am not trying to score points here and I am not being rhetorical. I genuinely want to hear from somebody who can explain what the future is and why selling everything and losing skilled jobs is of benefit to us as a society.
Vote:April 18th, 2008 at 9:46 am
Dave Mann, it relies on economics, a subject that too many NZers don’t understand.
When you sell something, you get something in return. If the sale is at “fair value” then the amount you get in return for selling it is equivalent in value to the thing you sold. Usually the value is measured based on the expected rate of return into the future. Assume no discount rates (makes the finance easier) and a planning horizon of 20 years (also atypical, but makes the finance easier). I have a power company that returns $10 million a year of profit, I should be able to sell it for around $200 million dollars (actually less due to time value of money, but more due to value of assets etc etc).
The real question is what I do with that $200 million. If I turn around and do something with it that also returns $10 million per annum, then it is silly to argue that I am out of pocket, I have switched one investment that returns $10 million per annum for another one that returns $10 million per annum. And maybe I have 5 investments already in NZ, and I have decided that I’d like to diversify, so I get rid of my NZ investment that returns $10 million per annum, and replace it with one in Australia that returns $10 million per annum. So now I own something strategic in Australia, and the Australians own something strategic over here. And even though both investments had the same return, we are both better off because we have both diversified. This is how the market works – we do a trade at fair value, yet we both walk away better off. Otherwise, why would we have sold it, or why would they have bought it.
The big question is of course what you do instead – and in the NZ govts case at present I would argue that the answer is often to waste it. Clearly it is foolish to sell your house and then spend the money down the pub, and that is quite different than selling your house to buy another one in a different location. Some of the expenditure of the current NZ govt to me is akin to spending our money down the pub. And that is a reason why I want a new government.
I note that this power company is already privately owned. Not sure why we care whether some filthy Aucklander or some filthy Australian or some filthy Chinese owns it. Either way, I’m pretty sure my neighbour doesn’t own it, and anybody who lives more than 1 street away from me is clearly “foreign”. To me all definitions of “foreign” assume some sort of xenophobia, and I don’t know why we find it so bad for people from another country to own NZ assets, but OK for Aucklanders, Cantabrians and other assorted weirdos. You get my point I presume.
The consideration of public v’s private is a bit more complex. The argument here is that governments have a natural advantage in some areas – there are some services they can deliver more efficiently than the private sector – usually associated with natural monopolies. Conversely, there are some services that the private sector can deliver more efficiently – usually associated with the benefits of competition and the innovation that drives. So it could be entirely rational for the government to sell an asset – say, a bank – and instead invest that money in something that we are underserved in – say fibre optic networks. And it is entirely possible (even likely) that the total public good would be improved – sure, we lost a bank, but we had lots of banks, and a fibre optic network could deliver some long-term sustainable competitive advantage to NZ that we wouldn’t get if we left it to the market.
Note that, whilst I reckon the NZ govt owning a bank is simply ridiculous, I also don’t particularly support a nationwide fibre optic network – I reckon that is just the government subsidising faster porn for farmers, but I realise I am not in a majority on this site when I suggest it.
Vote:April 18th, 2008 at 9:51 am
PaulL – good post. Thank you.
Vote:April 18th, 2008 at 10:05 am
To deal with the second part of your question, relating to what will be left, and what we live off of.
If we take the money we get from selling our asset and buy a different asset, then we have the same amount of investments that we had before. If your argument is that many NZers are fools, and that the asset we end up with is probably of less value than we started with and we end up having been taken advantage of by foreigners, then I would probably agree with you. But I would lay the blame on our education system and our inability to teach basic economics and finance to our population – and I can’t see any way it would be a good political strategy to campaign on “we believe all youse jokers are too stupid to manage your own money, so we’re going to pass a law stopping you selling the things you own.”
On what we live on, this comes down to what we produce that the world want to buy. All the controls on our assets won’t do anything other than lower the price (if your only market to sell your house to is people who already live on your street, you’re not going to sell for as much as if you let Aucklanders bid too), if you want to be wealthy you have to be creating something that others want to buy.
This all comes down to productivity, innovation, ingenuity. When I was growing up (not that long ago) NZers had a reputation of number 8 wire, good old kiwi ingenuity. NZers have come up with some great inventions. We used to be very good at innovation and ingenuity. I think we have lost some of that, and I think it is cultural (and a cultural change from where we used to be), but that culture is being fostered by the government. And this government has done absolutely nothing to help productivity growth. NZ companies need to be involved in that – they need to invest to increase productivity, but so does the government. And that doesn’t mean by picking winners or offering subsidies, it means by creating an environment in which there are rewards for productivity improving actions:
– certainty of ownership of assets – why invest in something if you might lose it
– returns to investment. Why invest money in your business if you just spend all day and night doing paperwork instead of running your company – particularly if you are a small businessperson good with their hands, not so good with sitting at a desk
– returns for hard work. Why get a better education or learn a new skill if you can get just as much money by having a couple of kids and getting WFF. Pretty much everyone in NZ can work out how to have kids, and practicing that is a hell of a lot more fun than learning economics
The government has a strong hand in the society we are creating, and the incentives are all wrong. We need a new government that is interested in different incentives.
Vote:April 18th, 2008 at 10:48 am
Let’s face it, the Wellington Elictricity market isn’t going to grow at more than the rate of natural growth for the region – i.e. based on population, number of businesses etc. But it is a nice monopoly and will get top dollar for that.
As PaulL says we can invest that money into areas that will grow at huge rates (I don’t think PaulL mentioned huge rates but certainly at many times the return from usual investments). One area is high technology exporting companies. Areas where NZ based IP is sent out to the world so that NZ based jobs are created, and overseas income is gained.
So by using the money we get from the sale of a static investment, we can get many multiples of that money back, create many more NZ based jobs, and get continuing overseas funds – all things that Vector can not do….
Vote:April 18th, 2008 at 11:47 am
Now most people will know that I’m pretty right-wing in my politics but on the issue of selling key infrastructure components I have to side with Labour (gasp! did I just say that?)
What did NZ have to gain by selling a fairly large chunk of a monopoly enterprise like Auckland Airport to an overseas investor? A quick buck for lots of shareholders perhaps but what about the longer-term? We’d be effectively sending even more of NZ’s earnings offshore and reducing our own economic prosperity as a result.
I think most of those who have harshly criticised the Labour government’s actions in this matter were probably acting out of self-interest rather than with a view of the big picture.
On the issue of Vector, I’m pretty sure that Labour will find some way to explain their duplicity. Maybe it’s that vector isn’t really a monopoly because (as I’m sure we’ll be told) anyone can, with the right resource consent, run their own power lines around the city to compete.
Yeah, that worked *really* well with Telecom didn’t it?
Of course I don’t accept hypocrisy but this is neither the first example of it from our politicians, nor will it be the last.
Vote:April 18th, 2008 at 12:08 pm
aardvark, sorry but I believe you are being economically illiterate. The airport is in private ownership, whether NZers or foreigners own it makes no difference to how that airport is run, unless you think that NZers have a better long-term view than, say, a Canadian pension fund. I would very much disagree with that as an assertion.
As to earnings being sent offshore, you are completely missing the point. There are only a handful of options:
1. I sell my Airport shares to foreigners, I buy shares offshore. So long as I make a reasonable investment (see my previous comment for thoughts on NZers ability to do this), then the money coming into NZ from my overseas shares will balance out the money flowing out of NZ from the Airport.
2. I sell my Airport shares to foreigners, I buy other NZ shares. Everything else being equal, those other shares would have been sold to foreigners – our current account deficit means that something in NZ has to be sold to foreigners. If you are worried about that then the point of access is to deal with the current account deficit, not pissing around with who can buy shares
3. I sell my Airport shares to foreigners, and buy some other NZ or foreign asset. Pretty much the same as shares
4. I sell my Airport shares to foreigners, and piss the money up against the wall. This is the real problem – the inability of many NZers to invest. See my comments on lack of a decent education system.
My main point here is that people are railing against the symptom, not the cause. The cause is our low productivity, our poor education, our lack of national savings, and our current account deficit. The result is that NZ imports more capital than it exports, and that we cannot make capital investment in improving our productivity. Putting regulations around symptoms is simply legislating our way to poverty. We need a government that will address the causes.
Vote:April 18th, 2008 at 1:22 pm
For goodness sake get over it just like I was told to do as a benefical owner of AIA shares.
Helen Michael and their fellow Ministers will decide what is a strategic asset and what is not a strategic asset.
And NO You wont be told the criteria for their decision because you arent skilled enough to be able to understand.
Vote: