Easton on partial sales
January 29th, 2011 at 8:58 am by David FarrarStuff reports:
Brian Easton, an economist known for left-of-centre views, is wary the scheme will block future policy options for the electricity sector but supports the benefits it can bring to the local investment scene.
“By increasing the opportunities for New Zealanders by offering shares in minority stakes in SOEs, you would partly moderate the stupidity that happened over the finance company sector,” he says. “That enrichment of the financial market, which incidentally, curiously, Rob Cameron and I agree on, is a very strong case.”
And Mark Weldon notes:
“What I really like about the policy is it’s not left wing, it’s not right wing … It’s based on the Air New Zealand model which has the great attribute of actually being shown to work.”
Air New Zealand, 75 per cent government-owned since its taxpayer rescue 10 years ago, has performed well and delivered better dividends than the power SOEs in recent years.
“If you talk to [CEO] Rob Fyfe or [chairman [John Palmer] they will tell you that the majority long-term ownership of the government has been a real positive,” says Mr Weldon, “because it means they can focus on long-term planning and not worry about being taken over, as they would if they were a fully free-float company.”
As I have pointed out on many occassions, allowing the private sector to invest or buy some shares in state owned companies is absolutely common practice aroundthe world amongst governments of the left and right.
Related posts:
- Govt wins partial asset sales court case
- Talking of lies, how about those on asset sales
- Will Easton be jailed
- Public ownership does not mean public accountability
January 29th, 2011 at 9:23 am
Dear god you asset stripping baby eater!
What next, partially floating the State Broadcasters?
Cue howls of outrage from the unionised media.
Vote:January 29th, 2011 at 9:25 am
I have no confidence the Government has a well thought out political strategy to sell this policy and I think it will go the same way as the cack-handed manner mining policy was handled. Having opinion leaders come forward is helpful, but it needs much more work. So far efforts to convince the public of the wisdom of partial sale of state assets look amateurish at best. The Labour Party have been drawn in and staked their position as “this is the asset sales election”. Now is the time to crush the Labour Party on this issue and consign them to the political wilderness for many many years. John Key has to win this one.
Vote:January 29th, 2011 at 9:31 am
The Labour party are being played for the edjits they are. Floating state companies has been signalled for years and has been placed on the table well in advance of the election to mitigate spin opportunity for Labour. I wouldn’t be surprised to see details of the public access to the share floats issued before the World Cup so people can see how they can benefit from float/s. Swiftly followed by the RWC.
Vote:January 29th, 2011 at 9:34 am
I would like the policy to include allowing people to use their kiwisaver money to invest in these companies. But they must hold these shares over the longer term. But I also think people should be able to invest directly as well. Perhaps a direct offer to the public on good terms – again providing they hold the shares. All this should be popular with the public. These companies are very good investment assets and people should be able to invest there instead of housing and finance companies – which happened under Labour.
Vote:January 29th, 2011 at 9:43 am
Sounds sensible tvb. Would make sense the majority shareholder holding company be the NZ super fund for all these state companies then you could float the entire value on the stock market.
Vote:January 29th, 2011 at 9:48 am
expat
This is the same super fund the government stopped funding? Yes?
Vote:January 29th, 2011 at 9:54 am
This is the same super fund the government stopped funding? Yes?
Would you rather they keep borrowing to fund it? The same activity that has caused millions around the western world to over extend themselves and lose their homes?
Now I get the lefties objective – they want to bankrupt the country faster!
Vote:January 29th, 2011 at 9:56 am
The one that has screeds of cash under management and has the ability to change its portfolio structure, yes.
That one.
Vote:January 29th, 2011 at 10:00 am
Do any of you contributors think that the likes of Genesis and Mighty River may benefit their clients when the share issue is made.
Vote:If that is likely then one would be wise to switch to them from Contact and Trustpower now. If that sort of thinking gained momentum Contact and Trustpower would be highly pissed off.
January 29th, 2011 at 10:09 am
The issue is not about peoples willingness to allow the sales of shares to the public but about the loss of control and more importantly about where the cash goes.
DPF blogged yesterday about Laos and as I posted, in their case the company kept the cash whereas here its proposed that the cash goes into the consolidated fund for politicians to spend on their next favourite bribe to be elected on.
Unless or until there is a clear pathway for those funds gained to be quarantined and spent on real productive assets the public will be just like many of us vary wary of the benefits.
The key (excuse the Pun), to selling this is to set out what is happening to the funds and to ensure that they are not spent to balance the socialist budget.
Perhaps a suggestion is that the Govt. invest these funds in the NZ super Fund with the fund being required to invest back into the govt assets. The fund managers can do this and its is a way of ensuring that when that maney is invested the fund managers can require the Govt. to provide and adequate return on those funds.
Vote:Return not sufficient then assets are not purchased.
Good Discipline economically.
January 29th, 2011 at 10:15 am
Doesn’t make it a good idea. If they want to boost the sharemarket and investment opportunities, then divest the power SOEs by issuing 100% of the shares to bill/taxpayers.
Who would go into business with the NZ government, with them having a controlling share? Look at the quality of our politicians. You’d probably end up with Pita Sharples on the board. And the Free-Power-For-The-Poor clause.
Just more uselessness by John-I-always-wanted-to-be-a-PM-Key. Rather than fixing the root problem (spending), they’re flogging assets to keep the unsustainable Socialism Express rolling for a few more years. And they trying to polish the turd with talk of boosting the investment opportunities.
Any money that NZers ‘invest’ in buying shares in SOEs which they already own, will be ‘invested’ by this government or the next, down the very same blackhole that has seen NZ slide to the bottom of the OECD.
What does it take to get a decent government with some vision?
Vote:January 29th, 2011 at 10:24 am
Repeated from Labour telling Lies.
A state-owned power company plans to mobilise as much as 930.5 billion kip (US$115.4 million) to build more power plants after putting 25 percent of its shares on sale this week.
Truth it seems is in the eye of the beholder.
In a later post DPF is crying down Labour over their objection to selling off SOE’s. In that post DPF points out that even in Laos they have got the idea. What he failed miserably to say was that the process and result would seem to be quite different. In the model proposed by Key it was self off 49% and the Govt. will pocket the cash to spend on new assets.
Assets that remain unnamed and the money just goes into the bank account which like the extra mortgage will just make the Govt. thinks its rich again so it will waste it.
In the case of Laos, the article posted, (copy below), clearly states that the cash raised will be retained by the company which is selling the shares to be reinvested in that company.
The EDL Electricity Generation Company is allowing local and foreign investors to subscribe for shares until December 24, after obtaining permission from the Lao Securities Exchange Commission.
The company will sell about 217 million shares, with about 86.9 million allocated to foreign investors and 119.4 million to local investors, at an initial price of 4,300 kip per share. Some 10.9 million shares will be available for purchase by company employees at 4,000 kip per share. …
The company will use the money it raises from the sale of shares to finance new power projects and maintain existing plants. …
The EDL Electricity Generation Company is the second state-owned enterprise to offer shares for public sale.
Now there is a world of difference between the two.
Far from me to infer that DPF is doing a Labour but the truth is distorted by the spin.
Vote:As in any WAR, the truth becomes the first casualty and in politics its the same. Dpf has been blogging long enough now that he should know to be accurate.
January 29th, 2011 at 10:26 am
Can anyone tell us why if the shares are sold, shares that belong to all of us currently, why the returns should not be placed either in a Sovereign Fund or the NZ Super Fund? (which is essentially the same thing.
Norway and Singapore are the two examples that I am aware of that operate this.
Vote:January 29th, 2011 at 10:43 am
Because that would be the actions of a government with vision.
Vote:January 29th, 2011 at 10:48 am
If you made a list of all the good things that the Government coyuld do with $10 billion to make New Zealand a better place, how high on that list would be owning most of the elecricity sector?
Even the socialists would find it hard to argue that if the Crown did not own those companies, the best thing to do with $10 billion would be to buy them.
Vote:January 29th, 2011 at 10:50 am
Who cares what Mark Weldon thinks on the value of privatisation. He’s totally conflicted on the subject. He has a very good reason to think its a good idea regardless of its own merits.
Vote:January 29th, 2011 at 10:53 am
How is Air NZ a model? Air NZ has added no value to shareholders in the ten years since taxpayers took it over. Perhaps if senior management did have to look over their shoulders at takeover risk they might start making some money for the company. If Air NZ is the model then I’ll not be investing in these floats.
Vote:January 29th, 2011 at 11:09 am
Easton, the writer who penned the lines below less than two years ago, is not a credible commentator:
That is what made MP Sue Bradford so special. The anti-smacking legislation was one of her many achievements, although by no means her most important. She had outstanding political skills that enabled her to locate consensus for progressing her aims. For instance, she had an important role in the select committee on the consumer-credit legislation – such a lot of Parliament’s best work is hidden in such places.
Most of all, she had a commitment to that which is left behind by the market: children, other marginalised groups such as those with or recovering from mental illness, and areas of the environment. However, even she did not extend to the problem of the incompleteness of the financial sector, and we have yet to recover from the free-for-all of the 1990s.
There is no obvious replacement among the Greens now that Bradford has left Parliament. She was such a force for social justice that the rest of the caucus could turn their attention to other matters. I hope they fill the vacuum she has left in Parliament, while she continues to advocate for the marginalised in her next career.
http://www.eastonbh.ac.nz/?p=1067
Vote:January 29th, 2011 at 11:24 am
“if the Crown did not own those companies, the best thing to do with $10 billion would be to buy them.”
Exactly, so what is the point of these asset sales? The government is insisting on retaining control, so it’s not like they are going to be out competing in the market. At present the government gets a nice little income from owning these companies, which helps keep our debt levels down. If they are selling to invest in other assets, why are these other assets, whatever they are, more important or lucrative than the electricity companies?
Support for this move seems to be based on blind suppport for the future government – let’s turn a known asset into cash so the politicians have another $10 billion to spend on an unknown – I’m sure they’ll do a good job with it. Yeah, right.
Vote:January 29th, 2011 at 11:51 am
True but hypothetical. We own these businesses and they generate income for NZ. So what to do:
1] Keep them and keep the long-term steady income.
2] Divest them 100% to the true owners and see boost to investment environment and let NZer’s decide what they do with their shares.
3] Sell 49% of shares, the proceeds of which get poured down a blackhole at $300m per week*.
4] Sell 100% of shares, the proceeds of …………………………………………………$300m per week*.
*The $300m per week is not a given. A decent government could solve that problem. But they won’t. And that is our problem.
Vote:January 29th, 2011 at 11:57 am
Sam Buchanan – you forgot the first half of your quote, which just happens to change the context a tiny bit.
There are several reasons behind the asset sales
1. They will free up government capital so they can spend it on other infrastructure or pay off debt. $10 Billion will buy a lot of roads, and road building has the potential to grow the economy a lot more than retaining the ownership of some power stations
2. They will allow the public to invest in some of the most profitable companies in the country. Those companies have had steady returns for the last few years, much higher than the rate of return in the bank and certainly less risky than dodgy finance companies
3. The government retaining control will put the lefty minds at ease – for example if power prices start to rise substantially the government will be able to put its foot down. That said, the companies will be answerable to all their shareholders and also to the NZX rules, which is a big improvement on transparency to the status quo
4. It partially addresses the unusual and potentially unfair situation where the regulator is also the major player in the electricity market. It will hopefully start to remove barriers to entry for new players, meaning more competition and therefore lower prices
I really don’t see the problem here.
Vote:January 29th, 2011 at 12:08 pm
Each of the Energy companies appear to me to have boards that are construed to comply with Political Correctness rather than to make money. In each case there is an admirable mix of very worthy people an almost equal ratio of men to woman with a history of doing good and service on community and service boards or other state entities.each also has a Maori representative with a history in treaty of Waitangi involvement. TrustPower on the other hand has a board of hardnosed pakeha men with impressive commercial credits and a keystone shareholder Infratil a proven infrastructure company….We all make judgements on how we invest our money. I know where I would put mine.
I still support the Key initiative at least its a small step away from state control.
Vote:January 29th, 2011 at 12:15 pm
backster – shareholders other than the government will be appointing 49% of those boards once they are floated. And hopefully the government is a bit more hard nosed with those appointments after that time.
The great thing about listed companies is that if you don’t like the management you don’t have to buy shares. With a government ownership model, you are effectively forced to own those shares.
Vote:January 29th, 2011 at 12:19 pm
As I have pointed out on many occassions, allowing the private sector to invest or buy some shares in state owned companies is absolutely common practice aroundthe world amongst governments of the left and right.
And how are many of these countries are like NZ? We are the most geographically isolated, we have a large landmass to population, and we are thousands of miles away form our closest neighbours.
All these things make state ownership of certain key assets entirely rational and in some cases essential.
Why are we so collectively insecure? Do we want to repeat the problems the rest of the world is having too, just to fit in?
Vote:January 29th, 2011 at 12:46 pm
I agree with Easton – except, how can we be sure that this isn’t the first step to full corporatisation and monopoly capitalism. Forgive me for not trusting the National Party – but you guys don’t particularly have a good credit-rating in the economy of trust. No Sale!
Vote:January 29th, 2011 at 12:57 pm
You can’t be sure mb, but you can’t be sure of many things, you have to look at likelihoods.
Not doing something in case it continues on to an extreme will mean you can’t do anything.
Labour introduce WFF could have meant it would end up that many people don’t pay any income tax at all.
Labour adjust interest on student loans could have meant it would end up they pay no interest at all.
Key has a record of stating no asset sales this term, and he looks like sticking to that. Why shouldn’t we believe him when he introduces a limited asset sale policy for the next election?
Vote:January 29th, 2011 at 1:02 pm
backster @ 12.08pm
Whether we go for boards of “hardnosed pakeha men” or “wimps of undisclosed gender” if history has any thing to teach us than prepared to be reamed for your electricity reply.
Even under state control over the last eight years Meridian have ratcheted up the cost of my “anytime” power from 16.63c/Kwh to 23.73c/Kwh. That is a 55% increase. Five & half of these years, control of Meridian was in the hands of Dear Leader & her benevolent metrosexuals. Extend these figures to 2019 & we’re looking at 40cKwh.
Your preference of complete private as opposed to state control would see increases far beyond these. I would like to hear your arguments for normal household consumers paying 60c/unit & perhaps suggest how many shares we would have to purchase to receive sufficient dividends to pay for the increased cost of power. Your thoughts re the flow on effect to dairy farmers, manufacturers & local authorities could prove enlightening.
As I’ve stated before I’m not ideologically driven one way or the other but as a pragmatist I have trouble getting my head around your proposals.
Vote:January 29th, 2011 at 1:11 pm
Re my post of 1.02pm
Second paragraph , second line should read 25.73c Kwh (not 23.73).
Vote:January 29th, 2011 at 1:39 pm
nasska – Meridian is operating in the context of a market model – which is why it’s gouging us like that.
Indeed – look at the effect the profit motive can have on an essential market:
http://en.wikipedia.org/wiki/California_electricity_crisis
Vote:January 29th, 2011 at 1:52 pm
magic bullet @ 1.39pm
I remember following the Californian electricity debacle as it happened. At the time I considered it was the big business equivalent of the Cooks & Stewards ferry stopworks & strikes of the 70′s & nothing since has changed my opinion.
I’m challenged to see how NZ would be protected from similar actions if we go down the road of total privatisation.
Vote:January 29th, 2011 at 2:19 pm
Determining Government or private ownership is not an issue. Both have been rapacious.
Vote:We can protect NZ individuals and businesses from the monopolies, that these infrastructure companies are, by not allowing the fiction that the generating facilities are an asset that deserve a big return on big capital. They require in fact only the cost of prefunding the depreciation and their operating costs, which are often minimal.
Using this system the electricity costs to individuals and businesses would fairly be only a fraction of what they are now. With huge benefit to our economy. Much more than the funds received from selling them.
Setting the true capital value as low, and only allowing a return on that low value, would reduce the sale price by about 90%. Upsetting to the government and to speedo Weldon true. But whats the problem with that ?
January 29th, 2011 at 2:38 pm
kh – i think that one of the main issues affecting price at the moment is supply scarcity – though it is clear the companies have been gouging as well.
What we really need is to institute standards of efficiency across all sectors, and look to incentivise power saving through various rewards systems.
But no – that all makes too much sense for the National Party.
Vote:January 29th, 2011 at 2:40 pm
NASKA:……….I am looking at the situation as an investment prospect. I may well invest in these companies witha view to divesting (stagging) at a profit. It is possible that with the interest in the flotations the price of Trustpower shares might drop allowing an opportunity to make a long term value investment in it.. I don’t share your gloom that the consumer will be ripped off ,there will still be competition for market share indeed it may be strengthened.At the moment it is the State Owned Companies that are the price setters not Trustpower and Contact. It won’t be in the interests of any company to price the consumer especially the business consumers into bankruptcy. Benign and hopefully lighthanded government oversight will also act as a brake.
Vote:January 29th, 2011 at 3:48 pm
backster @ 2.40pm
You are looking at the subject from the point of view of an investor & that’s fair enough. Problem is that you are also a consumer along with 4.5 million others & steep power price increases could tank the economy faster than having Matt McCarten for Finance Minister. I admire your faith in benign government & market forces……. I must be getting cynical.
Vote:January 29th, 2011 at 4:04 pm
It won’t be in the interests of any company to price the consumer especially the business consumers into bankruptcy.
You have got to be kidding, this happens all the time in the modern ethic-less world of business. If our future relies on the ‘good nature’ of these companies then we are all screwed.
Vote:January 29th, 2011 at 4:28 pm
To Magic Bullet.
Vote:If one sold off say just one lineal meter of the central span of the Auckland Harbour bridge. It would get quite a good price. Several hundred million at least. Because it would give someone the power to charge what ever toll that could be borne. Minimal costs. Just collecting and applying a tin of paint now and then.
A great scheme really. The government would get some serious debt reduction and speedo Weldon would get some more shareholders to churn. Magic. Just like the power company deal.
Now let me think about benefits to the citizens of the north shore and the rest of nz. Mmmmmmh. Doh.
January 29th, 2011 at 4:35 pm
Pete George, I believe John Key said that National wouldn’t be doing its job right if it raised GST. They are in government to lower taxes not raise taxes. I don’t think I need to tell you, he did just that not to mention the ETS, ACC, Savings, did I miss anything? He has lied about quite a lot and you say trust him? He really doesn’t have to sell off the assets, just bring down the size of the government to where it was in 2005 or 1999. That takes courage and conviction which Key lied about when campaigning in 2008. He just wanted to tick the “Prime Minister” off his goal list. Why doesn’t he sell off the liabilities.
Vote:January 29th, 2011 at 5:25 pm
John Key projects himself as honest & to be fair, in this respect, he is head, shoulders & torso above his slimy predecessor. By far, however, his best quality is that of being a pragmatist for at least we know he is unlikely to lead NZ down the shitter while chasing some waffly ideological dream. Therefore I hold some hope that when he says a 49% sell down that is what he means.
Jackp does nail it when mentions bringing down the size of the government to save money instead of selling assets. Reducing the civil service by about 50% wouldn’t be too hard & I remain relaxed at the prospect of thousands of nonentities not writing needless reports & sticking their noses in our private business. We probably pay most of them $70K+ & even if as I suspect their talents are worthless on the labour market we should look at their dole payout of $10 to $15K as a bargain.
We could start with 10,000 of the useless creatures & save $600,000,000 a year just in salaries before we got rid of their office space, desks, meeting rooms, training seminars etc. That’s 10,000 less parasites to think of new ways to hold back the self employed & the productive. Similar cuts in local body staff could halve rates.
It’s election year…….. when an MP starts looking at the Situations Vacant anything can happen.
Vote:January 29th, 2011 at 6:47 pm
Backster_ re: board makeup, that’s one of the benefits of floating, you’d get rid of the parasites.
Vote:January 29th, 2011 at 7:17 pm
“1. They will free up government capital so they can spend it on other infrastructure or pay off debt…
2. …Those companies have had steady returns for the last few years, much higher than the rate of return in the bank…”
So why would anyone sell off an asset that’s earning more than the bank rate, in order to pay debt (or not obtain more) that’s presumably costing us the bank rate. If we want to be able to invest in more infrastructure, isn’t a steady income a good start? I’m no capitalist, but this just seems like a government with no business sense.
“John Key… is unlikely to lead NZ down the shitter while chasing some waffly ideological dream.”
Qute true – this seems even wafflier than ideology, more like ‘what can I get away with’. If he was going for 100% privatisation, on the ideoological basis that the private sector does a better job than the state sector, I’d understand. Selling off part of a lucrative asset while retaining government control just sounds like a vague “I sort of like privatisation, but not too much of it, and it might be unpopular, oh well, I’ll try a weak compromise, even if ithe outcome is a bit silly.”
Vote:January 29th, 2011 at 11:06 pm
this idea is fucked.
national will be lucky to get back in with honi-less maori party.
why would you sell assets before reducing spending….
thats right, because you are just like labour
and you want to continue spending and bribing.
national have a clear opportunity to abolish racial policy and reduce government.
oh thats right, guttless appeasers.
Vote: