MOM vs SOE model

October 29th, 2013 at 4:00 pm by David Farrar

Stacey Kirk at Stuff reports:

If Solid Energy was partly privatised, it probably would not be in the mess it is in now, Prime Minister says.

Continuing to defend the Government’s sell-down of state assets, Key said today a deal to bailout Solid Energy might not have been necessary had the company been partially floated.

“My own personal view is if we’d had the mixed ownership model applied to Solid Energy, it may well not have gotten itself in the mess it did,” he told Firstline.

“That’s because the external analysis would have rung a lot of bells and demanded a lot more accountability,” he said.

This is absolutely right.  Companies listed on the NZX have continuous disclosure obligations. They have a share price which indicates what the investment experts and shareholders think the company is worth. You get far far more accountability with an NZX listing than you do with an SOE.

He also said other state-owned assets such as TVNZ and NZ Post, had proven not to be good long-term investments to hold on to.

TVNZ and NZ Post will probably both be worth next to nothing in 10 years times. We should be selling them while we can get a cent for them.

“People look at it through rose-tinted glasses, but the reality is the SOE [State-Owned Enterprise] model is not actually a brilliant model,” he said.

“The mixed-ownership model is probably a better model,” he said.

I prefer a full private ownership model if the company is a commercial trading company, but MOM is certainly superior to SOE.

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29 Responses to “MOM vs SOE model”

  1. Redbaiter (7,632 comments) says:

    “I prefer a full private ownership model”

    So do I and I think if National had a leader with conviction we would have it.

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  2. queenstfarmer (747 comments) says:

    I was at a talk by Maurice Williamson in the late 1990′s about the internet, where he said that we should sell NZ Post while we still could. (Not a fan of Maurice’s, but he was on the money there)

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  3. vibenna (305 comments) says:

    Oh c’mon. Air New Zealand, NZ Rail. BNZ and Forest Corp all destroyed most of their shareholder value after their initial privatisation. They were run worse, not better.

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  4. gazzmaniac (2,317 comments) says:

    Telecom created shareholder wealth though.
    It depends on how well the company is run. At least as private entities they weren’t costing the taxpayer money. Until Cullen came along, but that’s a different story.

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  5. Morgy (169 comments) says:

    “So do I and I think if National had a leader with conviction we would have it”

    Red, the electorate doesn’t have a palate for full privatization, mores the pity, however in JK we thankfully have a PM who understands this and focusses on the war and not the battle. Nothing to do with conviction. Pragmatism is a necessary skill to lead our country.

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  6. Fentex (867 comments) says:

    Companies listed on the NZX have continuous disclosure obligations.

    That is an argument to include SOE’s in disclosure regimes more than it’s an argument for privatisation.

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  7. Fentex (867 comments) says:

    TVNZ and NZ Post will probably both be worth next to nothing in 10 years times. We should be selling them while we can get a cent for them.

    That is an argument for privatisation. While I personally agree it seems Telecom shouldn’t be worth as much in the future as it is now if applied when Telecom was first sold it would have been wrong though. We missed out big time then.

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  8. PaulL (5,873 comments) says:

    @Fentex: Telecom wasn’t worth much when it was first sold because it was badly run. If it were still govt owned it would still be worth not much.

    @vibenna: immaterial whether companies destroy shareholder wealth. The shareholders chose to invest in them, their options were to:
    – not invest if they didn’t like the risk
    – take more care about who they appointed as managers
    – pick their investments better.

    That’s not the case with taxpayers. In short, people take more care with their own money, and if they don’t, that’s their problem. Government employees (and political parties) are given to coming up with boondoggles that they’d never invest their own money in. Witness Winston Peters as exhibit A.

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  9. The Scorned (719 comments) says:

    Air NZ should have been allowed to be helped out by the private sector….but no….Government stuffed that with its national-socialist BS …NZ Rails a loss making dog that was bailed out 3 times BEFORE it was first sold…and then the Labour retards bought it BACK and lumbered us with it again!!…Should have been left to rust and we would all have been a lot better off. BNZ…nuff said. Forestry corp….ugghh

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  10. Redbaiter (7,632 comments) says:

    “Pragmatism is a necessary skill to lead our country.”

    Pragmatism and lead are mutually exclusive.

    You lot keep making excuses for Key when if he had a real idea, and he believed in that idea, and he could articulate that idea, and advocate for it with conviction and honesty and strength, he would drag the electorate to his point of view.

    Key lacks all of those qualities. Maggie Thatcher had them. So did Ronald Reagan

    Its not as if there are no good arguments for total privatisation. However the left win the argument all the fucking time because NZ’s so called right is so inarticulate and timid.

    Key’s focus is on being popular.

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  11. Simon (685 comments) says:

    “TVNZ and NZ Post will probably both be worth next to nothing in 10 years times”

    Yep asset now & a liability in 10 yrs time.

    Kiwi rail is the very definition of a liability ie something that losses money each year. Kiwi rail is going to be a liability for NZ forever. Add up the next 10yrs of losses. Kiwi Rail doesn’t need to be sold off but closed down now for scrap.

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  12. Yoza (1,545 comments) says:

    PaulL (5,482) Says:
    October 29th, 2013 at 4:43 pm

    @Fentex: Telecom wasn’t worth much when it was first sold because it was badly run. If it were still govt owned it would still be worth not much.

    Utter bollocks. Telecom had a monopoly on anything involved with the telecommunications network. It was also well into the process of modernising by replacing the older mechanical exchanges with newer digital/electronic models.

    The foreign private owners of Telecom got to milk billions without having to worry about spending too much on maintenance and upgrading the network.

    The likes of Richwhite and Fay should hang for the crimes they have committed against this country.

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  13. Morgy (169 comments) says:

    “Key’s focus is on being popular”

    I think that is the last thing on his mind but that’s just me.

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  14. Pete George (22,851 comments) says:

    It’s not just you Morgy, I think Key’s main focus is doing what is achievable and what he thinks is best for the country. Like most people he’d like to be popular as a by-product but I don’t thinks that’s his focus, he has stuck to doing things he knows won’t be widely popular.

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  15. Reid (15,954 comments) says:

    in JK we thankfully have a PM who understands this and focusses on the war and not the battle

    The PM is there to lead, not to follow, public opinion. Given most people don’t even understand basic political things like say, how MMP works since it took about four elections before the morons started understanding there were two votes and not one, what chance do you think the same people have of arriving at the correct answer to a complex technical question like whether or not the state should own assets in general and specifically particular assets?

    Zero to none, right. And lo, the only “debate” on this consists of hysterical lefties and the media raising emotive point after emotive point using words like “family silver” etc.

    All of which was predictable way before the first lefty even started saying that. Key had a perfect chance to use the GFC which still isn’t over from day one of his first term to begin educating the morons on just precisely why we needed the cash and not the bag. Instead, like an A-grade idiot, he allowed the debate to run away from him and the lefties made heaps of emotive ground before English in his own very dry way started voicing the business case.

    So the idiots, apparently concerned at the public resistance, had to come up with a new propaganda term that sounds all cuddly, simply to recover SOME of the ground they didn’t need to lose in the first place had they played the cards right from the beginning.

    It’s very very very easy to go along with public opinion. It doesn’t take any effort at all. Why some people hallucinate therefore Key deserves accolades for his assiduous slavish following of such, has always been beyond me.

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  16. Alan (1,064 comments) says:

    ” NZ Post will probably both be worth next to nothing in 10 years times”

    NZ Post owns Kiwibank so it’s quite valuable; Aside from that the crazy demand for shares in the Royal Mail in the UK at the start of this month indicates that markets there think the business has a good future.

    Even in the internet age, things need to be moved from one place to another, although it’s highly debatable that it’s the job of the state to do so.

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  17. berend (1,634 comments) says:

    DPF: but MOM is certainly superior to SOE.

    Famous last words. It’s privatise the profits, socialise the losses. The government will be forced to bail them out at some point in their history, and then they’re back in the fold.

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  18. Nigel (511 comments) says:

    AirNZ is an outlier to me, nz post, bnz, tvnz, nz rail, telecom, solid energy, electrical companies. They will all be provided by private interest or have alternatives, but airNZ can make or break nz tourism and the nz economy in a way none of the others can.
    MoM for nz post and tvnz I hope are part of next years election, though I suspect if it’s close they will not change which is a pity, but if it was a choice of MoM for them or labour getting in I would prefer national every day ending in y.

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  19. burt (7,820 comments) says:

    Vibenna

    Oh c’mon. Air New Zealand, NZ Rail. BNZ and Forest Corp all destroyed most of their shareholder value after their initial privatisation. They were run worse, not better.

    Are you just repeating the lines of the Labour Party or were you around and aware of how these organisations were run prior to privatisation ?

    Air NZ – protected monopoly charging horrendous prices for travel…. Old planes, poor service.
    NZ Rail – protected monopoly employing 22,000 employees. High prices, poor service. After privatisation prices plummeted, freight costs plummeted, service improved and there was 5,000 employees. The cost of sending a wrecked car from Wellington to Auckland on the train ( scrap metal recovery ) was for the first time cheaper than sending it to Taiwan on a ship for the same.

    You didn’t mention The Post Office… Do you recall that national toll calls almost halved after privatisation when competition was allowed. Getting a phone connected was achievable in days rather than months….

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  20. mikemikemikemike (312 comments) says:

    wait…so the taxpayers should pay to sell assets (Meridian,MRP) and if they turn to shit pay to buy them back (Air NZ) or if the weather goes bad we should bail them out with taxpayer funds (Americas Cup, Dairy Farmers/droughts etc.) and even when things are peachy we should be patriotic and support them while paying through the nose for these subsidised services because in this global error we have to pay ‘market prices’.

    I’m no expert – but this capitilism lark sounds like a fucked idea.

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  21. Matthew Hooton (124 comments) says:

    DPF says: “Companies listed on the NZX have continuous disclosure obligations.”
    True, unless you are Chorus. In which case you get to tell the Prime Minister you might go broke but don’t have to tell the NZX the same.

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  22. Scott1 (448 comments) says:

    Telecom was probably in the opposite situation to something like NZ post because it was in an industry about to take off in terms of value (regardless of privatization even if privatization probably helped). Rail seems closer to the NZ Post situation. there is also a danger that once sold just like with the rail we would end up buying it back – which is something that needs to be considered because we need to design policy for reality and if reality is the state will buy it back and bail it out if it fails that “guarantee” should be priced into the sale price.

    As to solid energy – what happened to Solid energy seems a bit like what the private sector might do with it. It took some risks in an attempt to diversify away from coal, and to meet higher return requirements, and a mine blew up because it had some safety standards issues. There are actually the opposite of the issues state enterprises usually have which would be bureaucratic regulations and inability to change.

    But in the end mixed ownership is good in some situations – but surely the ownership should be 49% the government and 51% the private party, because if the state really is bad at running things why leave it in control?

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  23. burt (7,820 comments) says:

    Scott1

    You make a fair point about the state having control. To be honest it’s that which stops me considering investing in recent asset sales. Who in their right mind would see it as a level playing field for investment when one party also holds control of the entity for political purposes. The state can easily afford to forego decades of fair return on its capital on one front to buy it popularity.

    I guess some people see that state as a safe pair of hands… But the real world reality is that you might as well have cash in the bank when high returns on shares is politically popular/unpopular and manipulated accordingly using the money we pay in taxes to convince us our capital is in good hands… Madness !

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  24. V (668 comments) says:

    TVNZ is already worthless, whatcha going to pay for 7Sharp? I have 5c down the back of the sofa.

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  25. Martin Gibson (227 comments) says:

    On a whim during David Cunliffe’s biting and scratching his way to the top of the Labour Party I re-read Richard Prebble’s 2006 book “Out of the Red”, and recommend it.
    It gives a good reminder of what a mess businesses run by Muldoon’s government and the unions were. It was also interesting to contrast that set of talented and visionary people with the current Labour Party and their navel-gazing preoccupation with climbing the greasy pole that is the Labour list.
    It was interesting to ponder on how NZ would have gone if Lange had not unilaterally halted the reforms with his “cup of tea” just as they were about to impliment a 20% flat tax.
    No doubt though the rapidness of the reforms created a windfall for the banksters who were using torture in south america to get the same privatization through. Rampant leftie or not, Naomi Klein’s book “The Shock Doctrine” gives a horrifying perspective on the Chicago School of Economics theory into practice.

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  26. Dirty Rat (383 comments) says:

    Incorrect. SOE’s are Tier One Reporting Entities, they have the same disclosure requirements as NZX or Issuing entities….this post is misleading.

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  27. Paulus (2,502 comments) says:

    The devolution of Air NZ to 51% ownership will happen before Christmas.

    I “expect” that currently a consortium of Fund Managers are looking to make a crash overnight bid.

    Remember there is no need for legislation as it is already partially privatised.

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  28. ross69 (3,652 comments) says:

    Dirty Rat is quite correct. The post is very misleading.

    SOEs have numerous disclosure requirements. John Key is a complete fucktard if he thinks that Solid Energy wouldn’t have got into the mess it’s in if it had been privatised. What’s he really saying is: “Don’t blame us for not doing due diligence and for not doing any oversight, blame someone else”. So typical of the Right.

    http://www.comu.govt.nz/resources/pdfs/disclosures/soe-disc-rules-12.pdf

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  29. ross69 (3,652 comments) says:

    Meanwhile, the sale of State assets has cost taxpayers a small fortune and has been a huge failure.

    By its own measures of success, the Government’s Mom programme was an epic fail.

    It blew away $2.4 billion of shareholder value to save $30 million of interest costs and failed to democratise or strengthen the sharemarket.

    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11146918

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