Kiwiblog

Danya Levy at Stuff reports:

The Government is being accused of selling Treaty rights to the highest bidder following suggestions Treaty protections will not be included in new legislation to enact the partial sale of state-owned assets.

Nationwide hui begin next week for the Government to consult Maori on its plans to sell up to 49 per cent of four state-owned energy companies and further reduce its shareholding of Air New Zealand.

The Government is required to pass legislation to remove the four energy companies from the State-Owned Enterprises Act to proceed with the sales.

If a company is no longer an SOE, then its obligations are the same as any other company, such as Air New Zealand.

But in all the fuss about asset sales and Maori, I like this investigation by Cactus Kate:

Ngai Tgahu know all about asset sales so should be supporting National’s privatisation programme. Here are just two recent examples of Maori more than happy to flog off their assets to foreigners who need OIO approvals.

In 2010 they sold 1348 hectares in Kaikoura to an American couple for 7.5 million dollars. They paid 8 million dollars so made a $500,000 loss.

In 2011 they sold 18,000 hectares of forest to a Swiss owned family company for 22.9 million dollars.

So Ngai Tahu sold twice as much land as the Crafar farms. Does Labour and the Maori Party think they should have not been allowed to do so?

UPDATE: The Maori Party are saying they may quit the Government if there is no treaty clause in the legislation removing the companies from the SOE schedule. This ratchets up the pressure on the Government considerably, but it is worth noting the Government can govern without Maori Party support.

If the Maori Party walk over this, they’ll presumably lose the constitutional review, their portfolios, and I imagine Whanua Ora. The second term was always going to be more challenging for National and the Maori Party – but I guess John Key was hoping flare ups would not occur quite so quickly.

The Maori Party do need to be careful about threatening to walk over an issue. That’s a card you can play only once or twice in a term. If you try to play it too often, then it loses its effectiveness and even backfires.

Andrea Vance and John Hartevelt debate whether or not National has a mandate for asset sales. This is a topic that some on the left has been pushing also – that 48% is not a mandate, in fact some say that even if National had got 51%, that is not a mandate as polls shows most voters against.

As a pollster I quite like the idea that polls are more powerful than elections, and polls determine a mandate. Presumably this goes both ways, and those on the left who claim polls determine a mandate would be happy for National to (for example) ban unions, so long as a poll showed it was popular.

I think this shows how flawed the idea is that polls give you a mandate, not elections.

The reality is that National announced its plans for selling minority stakes in five companies way back in January.  I doubt a single voter could have been unaware of the plans. Labour declared it the defining issue of the election campaign, and their entire campaign was based on opposition to the policy – ranging from their slogan to their leader declaring time after time that the election was New Zealander’s final chance to save their assets. People absolutely knew what they were getting if they voted for a National-led Government.

The National, ACT and United Future parties all had policies in favour of the mixed membership model and they got 62 or 61 seats out of 121. I have pointed put previously the irony that if Labour had not won Te Tai Tonga, then asset sales would probably have been blocked.

A mandate comes from seats, not votes or polls, in my opinion. But it is interesting to look at the votes for and against parties on this issue.

The combined vote for National, ACT and United Future is 991,374 votes (to date). The combined vote for Labour, Greens, NZ First, Maori, Mana and Conservative is 991,150. The difference of 224 is a mere 0.01%.

Labour’s position on Air New Zealand is that having the state own 76% of it is exactly the right number and how it will be a disaster to reduce the Government shareholding to 51%. They have never explained why, if the mixed ownership model is so bad, they are not buying up 100% of Air New Zealand.

But that is not the point of my post. It is to remind people of the hypocrisy of their stance on Air New Zealand. For Phil Goff was part of a Cabinet that voted to sell 20% of Air New Zealand.

No, not the Cabinet of the 1980s, but the Cabinet of 2002. In 2002 Labour voted to sell 22.5% of Air New Zealand to Qantas. Phil Goff was in that Cabinet that voted for that.

Thankfully competition authorities intervened and stopped the alliance, which would have destroyed competition and pushed up prices massively.

But here is the difference. Phil Goff and Labour in 2002 voted to sell 22.5% of Air NZ to its biggest competitor Qantas – into foreign hands.

National in 2011 is seeking public support (unlike Labour) to sell 25% of Air New Zealand to (mainly) New Zealand investors – something which Labour is now saying they are totally against.

Phil Goff is going to spend most of his last week saying that voting Labour is the only way to stop “your assets” being sold for-ever, and that once gone you can never get them back. Media have not caught on to the contradiction that he then talks of how Labour, umm brought back two previously state owned companies. How is that gone for ever?

But even that misses the main point. The Government is not selling any assets. They are selling a minority stake of shares in companies that own assets, and there is the world of difference. The Government maintains at least 51% ownership and majority control. On Twitter last night there was a debate about what is the difference between the Government owning 51% of Air NZ and 76% (the status quo) or even 100%?

The Labour flunkies could come up with pretty much one thing only – the Government could no longer approve major transactions by itself. However when asked if any Government had ever had to approve a major transaction in the last 15 years, they could not provide an example. The reason for this is the threshold is huge – over 50% of the asset base of a company.

One flunkie then got all excited and started implying that secret instructions were given to SOEs via CCMAU. Now personally I regard such paranoia as akin to the being a birther or truther, but let’s say for a second he is correct. That Governments have been giving SOEs secret instructions on what to do.

Well by listing on the NZX, this would no longer be possible. Directors would face criminal sanctions if they took heed of such secret instructions. Anyone who believes in transparency would welcome this. And by chance, there is a good article by Hamish Rutherford at Stuff:

PROPONENTS of mixed ownership argue that having three large state-owned players in the electricity market leads to decisions being made that would not stack up in the private sector, because processes are less robust and more political.  …

One said that the complexity of investment decisions for power stations meant that a range of assumptions had to be made about factors such as future electricity prices, and the boards of directors and Treasury officials were not as well equipped as the market to question the thinking behind them.

“In a listed environment you’ve really got to explain yourself to shareholders and analysts, whereas in an SOE environment you don’t. There’s not anybody putting real pressure on you to justify and explain your actions and you’re not getting assessed day to day by your share price.

“It’s difficult to replicate those pressures when you’re state-owned.”

While the “discipline” would be at odds with political pressure not to raise electricity prices for customers, bad investment decisions meant higher prices than good ones.

“There’s no free lunch here. Either we’re benefiting through inefficient capital allocation into the SOEs, or we’re paying higher electricity prices, but either way, the populace pays.”

Being listed on the NZX significantly increases transparency and accountability.

Mighty River Power chairwoman Joan Withers said while the sharemarket could bring “positive discipline”, the company was not lacking in any of the skills needed to cope with life on the market.

The current structure had not been unduly restrictive, Withers said, with the Government allowing it to embark on a large geothermal project in Chile.

NZX chief executive Mark Weldon said while the energy companies should be looking for overseas opportunities, they faced the restriction of an indebted government in the current structure.

And this is another reason for the mixed ownership model. Being in business involves risk. Several of the SOEs think they can be more profitable (and earn money for NZ) by expanding overseas. But this may require increased capital or decreased dividends. Now I’m not wild about the idea of the Government deciding whether or not to invest $1b in say a Chile geothermal project rather than schools and hospitals. Now sure, the Chile project may actually turn out to be profitable, but it may not. These ventures involve risks. So sharing that risk with private sector investors is a good thing, and should lead to better decisions as when it is people’s own money at risk, they are more critical analysts.

Rod Oram in the SST weighs against the mixed ownership model. This is no surprise, but it is worth considering the points he raises:

National says it will spend much of the $5 billion to $7b of sale proceeds on the likes of schools and hospitals. But it’s bad financial management to sell productive assets to fund projects that could be financed more cheaply by debt.

This is a line Labour uses a lot also, that no one sells profitable or productive assets due to their dividend stream.

This is simply not the case. The best example I can use is Fairfax selling a minority stake in Trade Me. Trade Me is by far the most profitable aspect of the local Fairfax assets. Yet they are selling a minority stake, in order to reduce debt. And you know, when you have just had a credit downgrade is a good time to reduce debt.

Another line Labour uses is that when the dividends are gone, they are gone for ever. Well yes, but when the debt is reduced, the interest on that debt is also gone forever.

National says it is wiser to use cash from selling shares in SOEs rather than increasing debt. But in May’s Budget, Treasury said such a tactic would be close to cash neutral: it would avoid $400 million a year in interest but the government would forgo $300m a year in dividends and retained earnings.

In addition, National has conceded it might have to delay the sales if global market turmoil persists. Treasury said foreign investors are important to the sales to help maximise the return to the government. But the dividend outflow overseas will increase our growing current account deficit and very high net international liabilities, the two chronic NZ weaknesses which worry credit rating agencies the most.

I don’t regard $100m a year as nothing incidentially but even putting that aside, yes a portion of the shares and hence dividend may be overseas based (but I suspect not much as local demand will be very high I am sure), but 100% of the debt is overseas based, and reducing debt will reduce interest payments overseas.

“Mixed ownership” will improve the SOEs performance:

This one can be debated for ever. My view is simple. If you look globally, on average private sector companies significantly out-perform state owned companies. Now let’s us be very clear about this. This does not mean every single private sector company does better than every single state owned company. Of course not. It doesn’t mean that no private sector company never fails and it doesn’t mean that all state owned companies fail. It also doesn’t mean that private sector companies out-perform public sector companies every minute of every day.

But overall companies in private ownership, do better than companies in state ownership. The reason is simple, the directors are appointed by those whose actual money it at risk. Ministers do not lose money if an SOE does badly. Share-holders in private companies do.

Boost the stockmarket: If the NZX attracted more companies and investors, the greater depth and liquidity of the market might slightly lower the cost of capital in New Zealand. But liquidity is concentrated in a small group of big stocks. Thus, adding a handful of partial floats of large SOEs won’t help smaller stock much.

“We think the gains would be modest,” Treasury said.

Worse, the SOE floats would do little to improve investor choices.

The market is already over-represented in electricity stocks thanks to Contact, Transpower, Infratil and Vector. Even the simplest, most prudent portfolio strategy would argue against increasing exposure to the sector.

Umm, Transpower isn’t on the NZX.  Infratil is not just an owner of energy companies but also airports, public transport and property. Likewise Vector has businesses outside the energy sector.

Vector though is a good example of a mixed ownership model. 75.1% owned by AECT and 24.9% private shareholders.

Anyway in summary, here is a rebuttal to Labour’s lies:

1. National is selling our assets – No they’re not, they are proposing to sell minority share-holdings in SOEs while retaining Government control
2. Once an asset is sold it is gone for ever – Nonsense, the shares are openly traded on the NZX – one can buy whatever stake back you may want in future
3. When the assets are gone, the dividends are gone for ever – Dividends will be reduced yes, but the interest on repaid debt will also be gone for ever, and it is likely the interest reduction will be greater than the reduced dividends
4. Electricity prices will go up – This is not the view of the Consumers Institute who has said that NZX listing will not increase prices, and that mixed ownership model will make the SOEs more transparent as they will have to explain their actions to the public
5. Electricity costs $500/year more from the privatised Contact than the SOEs – this is false. Consumer data shows that in most major centres Contact is cheaper than some or all of the SOEs.
6. Power prices will be cheaper under Labour than National – Under Labour the state raked in $3b in dividends and power prices went up 64% or over 20% a term, compared with only 11% in National’s 1st term. Also Labour’s ETS policy will push power prices up quicker.
7. The assets will end up foreign owned – no the Government keeps at least 51%, and no company will be able to own more than 10%. Also New Zealanders will have priority in the initial public offering.
8. National’s policy is extreme – Actually NZ has been the only country in the OECD which has a ban on asset sales or part-sales. They are entirely conventional, and left-wing Governments the world over have done them, as well as right-wing Governments, National’s policy is minor and timid compared to most countries.

Labour would have the public believe that what National is proposing is what Goff and colleagues did in the 1980s. It is not. In the 1980s they sold entire companies to sole often foreign buyers. National’s policy is to sell a minority stake on the NZX.  One can have a truthful debate on the pros and cons of that policy, as Rod Oram has done. But Labour’s advertising is designed to con people into thinking that National is proposing to do what Phil Goff once did, and they are not.

I honestly don’t know what to say.

I just hope the poor bastards are being paid at least the minimum wage for that.

Perhaps Labour could use this as their televised opening address? Hell, I think National should use it as their televised opening address!

My NZ Herald column is on the politics of asset sales. I look at the risks to the Government, and ask and answer the question about why they are doing it , despite the political risk.

Fran O’Sullivan writes in the NZ Herald:

In his bones, Key will know that in the longer term the partial privatisation policy will prove very popular indeed, particularly if the sales are sweetened with a sprinkling of “popular capitalism”.

Australia’s Queensland Government – run by Labor’s Anna Bligh – did just this by offering incentives to mum and dad investors in a highly successful string of assets sales.

There were no brokers’ fees, a specified maximum price per share and a loyalty bonus to incentivise small shareholders to hold on to their shares, as well as a free parcel of shares for relevant workers; particularly with the float of Queensland Rail (now QR National) – the second largest IPO in Australia’s history.

 People did not like Telecom and NZ Rail being sold off entirely to large foreign corporates. But the floats of Auckland Airport and Contact Energy to local investors were actually relatively uncontroversial at the time.

But on this side of the Tasman, Labour leader Phil Goff – who was an integral member of the David Lange Cabinet that privatised many state assets – is hell bent on re-erecting Fortress NZ.

What I dislike about Goff is that he reneges on policies he previously promoted when he believes he can score a naked political advantage.

Hence at the 2005 election he blithely stood by while a fellow Cabinet minister made untrue allegations that the United States was writing New Zealand’s policy even though he knew full well that an American slagged off as a National “bagman” had partially under-written a New Zealand lobbying programme in the US capital.

The same bagman who has been our most generous donor to the arts. What shameful treatment.

So when Goff gets all pumped up and red-faced and hyperbolic, Key only has to dip into the recent history books to underscore the Labour leader’s hypocrisy.

In fact, the partial asset sales will provide an investment home for KiwiSaver providers, the NZ Superannuation Fund, iwi and retail investors. They will also release capital for the Government to reinvest in much needed new infrastructure and to help get the budget back into the black.

Labour is going into an election campaign which they say they want to fight on asset sales, yet their leader was once the most enthusiastic advocate for. Do they really think they will get much resonance?

Labour have done an online game, to try and push their message against asset sales. Not sure how effective it will be, but I did find it amusing.

The TV polls have shown around 60% are against National’s plans to sell part-stakes in some SOEs.

Frankly I thought that was a pretty giood result for a policy which for the last 12 years has been ruled off limits as it is meant to be lethal political poison. The more important indicator was that National’s vote remained high.

Yesterday the polls also showed 60% against Labour’s policy of a tax cut for every NZer by making the 1st $5,000 tax free. Now tax cuts are normally very popular, so it says something about how badly you stuffed up (no way to pay for it) by getting 60% of NZers against having a tax cut.

And Goff’s response to the 60% opposition? He said that those 60% were not knowledgeable about their plan. This 24 hours after he yelled:

Labour says it’s not surprised by the result.

“It shows Kiwis are two-to-one against John Key’s programme,” says party leader Phil Goff.

“Kiwis know that this is bad for them as taxpayers and it’s good for foreign investors. They don’t want it.”

So 60% against a National policy is because Kiwis know it is bad for them, but 60% against a Labour policy is because they are not “knowledgeable”.

Labour’s tax cut for everyone policy was meant to be their big circuit breaker. Instead it has fizzled.

The Herald supports a float of Kiwibank:

The Prime Minister has indicated that any part-sale of the bank would be a public float aimed chiefly at mum-and-dad investors, not a trade sale, and that the Government would want to retain a majority shareholding.

As such, he is extolling the idea of a shareholding democracy, a concept that has flourished in Britain and Australia but which enjoyed a regrettably brief currency here.

Floats of the likes of Vector, Contact Energy and Auckland International Airport proved, however, to be hugely popular with Mr Key’s target shareholders, who recognised the opportunity for steady incomes and long-term returns from such utilities. …

The bank’s success means it needs substantial amounts of capital to grow further.

A cash-strapped Government would be an unwilling source. Nor would it be likely to be able to orchestrate a trade sale because potential buyers have their eyes fixed on the burgeoning Asian market.

Indeed, the Government might even see a rationale for keeping Kiwibank in New Zealand hands, if only to provide consumers with choice in a market dominated by Australian-owned competitors.

Everything, therefore, points to a float. The Government should not hesitate to confirm as much in the most unambiguous of terms. And to state that, finally, the country will have the chance to fully embrace the benefits of a shareholding democracy.

Hear hear.

The Press tuts tuts Fergie:

A British tabloid newspaper reporter, Mazher Mahmood, had revealed a sting operation against the duchess, in which she was filmed demanding, anything but selflessly, NZ$1.074 million from an undercover reporter in return for access to the Duke of York, Prince Andrew, who is her former husband.

The cash-strapped but big-spending duchess has subsequently apologised for what she called her serious lapse in judgment. But no apology can undo the damage this affair has done to her own reputation and possibly to that of the prince.

The duchess has long been renowned for her gaffes but this scandal is far more serious. She was trying to exploit her position as the prince’s former wife and use him to gain financially.

Very tacky.

The Dom Post talks Auckland super city:

The Government’s efforts to assuage concerns about the Auckland super-city by strengthening the transparency and accountability of the organisations that will run much of the city deserve support.

Change was needed in Auckland. Local government there was a fractured mess. Planning on Auckland-wide matters such as transport continually foundered on the egos of local body politicians.

One council, and the move to council-controlled organisations, should help break the jam and start solving Auckland’s massive infrastructure problems. …

Allowing Auckland Council to require them to hold meetings in public will go some way towards that, though those who follow local body politics know that it is all too easy for even elected councils to dodge transparency by going into committee and shutting the doors on the public.

Making the CCOs subject to strategic plans set by the council means setting overall goals is the job of those who must answer directly to voters. That is what is needed in a democracy.

In a few years Aucklanders will wonder what all the fuss was about, and why id they wait so long to rationalise their local government structure.

The ODT looks at the oil spill:

The news from the Gulf of Mexico is not good, and there are lessons to be learnt in New Zealand – and, more specifically, Otago – from the oil disaster and its subsequent handling.

Foremost among these are the very real economic and environmental dangers associated with deep-sea drilling such as that which has been mooted for the Carrack/Caravel site off the coast of Dunedin. …

You have to feel sorry for Louisiana especially.

The Herald reports:

Mr Goff continued the theme in question time in Parliament yesterday asking Prime Minister John Key if he had considered the result of past privatisations.

Mr Key said Mr Goff had a fair point.

“Maybe the Minister of Finance and I should have a chat with the Leader of the Opposition, because that is the man who sold Telecom, the State Insurance Office, the Post Office Bank, Air New Zealand, the Tourist Hotel Corporation, New Zealand Steel, Petrocorp, the Government Printing Office, the DFC, the National Film Unit, the Rural Banking and Finance Corporation, the Shipping Corporation, New Zealand Liquid Fuel Investment, Maui Gas, SynFuels, forest cutting rights, Health Computing Services and Communicate New Zealand.

“If there is ever a man who knows … about privatisation, it is that one.”

Clark could get away from the legacy of the 4th Labour Government because she was fighting the reforms from within. People accepted this.

Goff’s problem is he was a known vocal supporter of the reforms – one of the very loyal lieutenants. So when he tries to decry the exact same policies he enthused about, well it just doesn’t work.

New Zealand is the only country in the OECD that has a ban on asset sales. Even socialist governments throughout Europe have sold assets where there is no need for the state to own them, or at least own 100% of them.

A welcome sign that National may go into the 2011 election with a more flexible policy is reported by the NZ Herald:

The National Government has given its strongest indication yet that it will sell state-owned assets should it get a second term.

Finance Minister Bill English yesterday singled out Kiwibank as a particularly attractive asset for buyers.

But he said the Government would not sell assets without a mandate from the public.

The public will get to decide.

Mr English, fresh from delivering the 2010 Budget, told a gathering of South Island business people yesterday that the Government might consider a change of policy “to free up capital and put product on the market for Kiwi mums and dads”.

Kiwibank was a good example of an asset that needed to be dealt with. It had reached the size where it needed either a Government guarantee or an “awful lot of capital”.

“If there’s any asset that’s regarded as risky by credit rating agencies, it’s a small, fast-growing bank,” he said.

“So one option would be to go to the market and raise capital. Keep majority Crown ownership, but raise the rest of the capital from the market.

Makes sense to me.

Labour leader Phil Goff said state-owned asset sales were “absolutely all on” if National won a second term, “and they might not even wait until then”.

Mr Goff should know all about selling assets without a mandate. However National has made it very clear they will only sell or part sell significant assets with a specific mandate.

Reuters reports:

UK Prime Minister Gordon Brown plans to sell off 3 billion pounds (NZ$6.47bn) worth of government assets.

The asset sales will be carried out over the next two years, and include betting company the Tote, the cross-channel rail link between Britain and France, a portfolio of student loans and the government’s stake in uranium-processing firm Urenco.

The bridge and tunnel crossing over the River Thames at Dartford is also up for sale, and local authorities are expected to raise a further 13 billion pounds (NZ$28bn) through asset sales on top of 30 billion pounds (NZ$65bn) already identified in a 2007 report …

What a shame that the British Labour Party will sensibly sell some assets that are better in private hands, and the NZ National Party will not do the same.

The Labour and National consensus to rule out all assets sales, no matter how logical, is the most extreme in the western world.

I do not advocate National breaking its promise not to have asset sales during this term, but they’d better have a more rational policy going into the 2011 election. If Gordon Brown can do it, so can we.

Leftie Brian Rudman does not seem too happy with Labour on the Auckland Council:

Every time I hear someone advocating a referendum I cringe. Surely the $9 million anti-smacking charade is evidence enough that asking the great unwashed to say yes or no to a complex, many-faceted conundrum is a dumb way to go.

In recent weeks we’ve had Labour leader Phil Goff demanding a referendum on the Auckland Super City, and now Labour’s Auckland issues spokesman, Phil Twyford, is introducing legislation requiring a referendum before any publicly owned community assets are sold. But, oddly, only when Auckland assets are at risk.

Yes Labour should have the courage of their convictions and try and implement that policy for all of New Zealand. They would have an uprising from local bodies telling them to naff off.

“Aucklanders are worried,” explains Mr Twyford, “that assets such as water, transport and many others, which ratepayers have built up over generations, are now under threat from the Government’s changes to Auckland governance.”

Perhaps I’ve been snoozing of late, but the only Aucklanders I’m aware of who worry themselves to sleep about such things are professionals hand-wringers like intrepid water rights campaigner Penny Bright and a few old-style lefties who keep Roger Douglas voodoo dolls on their mantelpieces to remind them of the bad old days.

Indeed. But let us follow Labour’s logic here. They say a decision to sell an asset is so monumental there must be a public referendum on that. Well if we accept that logic, then you should also demand that the purchase of any major asset be illegal unless the public get to vote on it through a referendum. It is illogical to require public consent only for sales, and not for purchases.

I’d almost be tempted to vote for a bill that required consent both ways. The public I am sure would shoot down some of the more daft spending proposals by Council. I suspect Mr Twyford is less keen though on letting the public have a say in purchase or construction of assets.

Referendums are expensive, and easily manipulated. In his Super City poll, what question is Mr Goff proposing? How do you decide such crucial details as the powers of the local boards by referendum? The issue of asset sales is slightly more complicated than a simple yes or no.

Back in 2007, I saw nothing wrong with selling Auckland City’s 12.75 per cent of airport shares, as long as the cash was spent on new infrastructure, something like the restoration of the St James Theatre, or repairs to the Aotea underground carpark. But I backed full public ownership of the port because I saw that as a way of ensuring future waterfront developments would be done for the good of all Aucklanders.

It’s impossible to reflect these kinds of nuances in a referendum. What we need to concentrate on is creating a truly democratic, ward-based model of governance, in which every Aucklander feels represented. That way the perception that referendums were a good thing would fade away.

The referendum bill is basically scare mongering. Labour are deeply disappointed that the Government isn’t selling lots of assets (as am I but for different reasons), so they are trying to make people think it is just around the corner.

Gordon Copeland is in the Dom Post saying the Kiwi Party advocates floating 20% of SOEs’ shares to release about $5 billion for infrastructure.

As reported yesterday, the public are getting sub-standard information on SOEs, because they are 100% Government owned.

Secret recordings seem to be the in thing at conferences this year. We had Mike Williams at Labour’s conference, and now Bill English at National’s. English was asked (not during a session, but over coffee it seems) about whether National would sell Kiwibank and he replied “Well eventually, not now”.

Now in one sense, his response is quite unremarkable and consistent with National policy which is not to sell any state asset in their first term of office. And it can be no surprise that as Bill voted against the establishment of Kiwibank, that he doesn’t see any long term reason for keeping Kiwibank – why should the state own a competitive trading enterprise? Why not own New World also?

Now the reality is that if National does get elected, it won’t sell Kiwibank in its first term, and if it wants to sell it in its second term it will have to get re-elected on a policy allowing it to do so. National is not going to break its policy on asset sales, if elected later this year, as they have no desire to be a one term Government.

But the politics are of course a different issue. Bill will be kicking himself for his response, as it means the focus shifts from the infrastructure announcements to Kiwibank. And there will no doubt be many patsy questions to Dr Cullen in the House tomorrow on the issue.

Agenda was a good watch today. Jim Bolger was in great form as he told off the interview for trying to trick him, and proclaiming he is far too experience to fall into those traps. It brought back fond memories.

But the main guest was Trevor Mallard, and Trevor said some interesting things:

TREVOR Well I’m happy to have floats as long as it’s non core assets.  I mean we’re not gonna float for example the wind farms of Meridian.

My God, imagine if a National MP was saying this. It would be “Privatisation Alert, Privatisation Alert”.

I am glad to see Trevor say it is okay to float non core assets. Could someone ask him for a list.

GUYON What you’re telling me is that you want to sell the subsidiaries but you haven’t been able to.

TREVOR I’m happy for things which are not part of the core to be partially floated, at the moment there’s none of those that are big enough to be interesting, but what I’m not prepared to do is to have the state owned assets either sold and leased back the way John Key has been looking at or prepared for sale the way he indicated that he would use first three  years in government.

Trevor gets marks for always trying to score a point, and invent a policy for National. The important thing to note again is he says it is fine to sell non core assets.

GUYON Okay, can I look at the appointments to SOE boards.  You’ve recently, well not you personally, but Diane Yates has recently been appointed, the former Labour MP to the board of the SOE Learning Media, I mean isn’t this just another example of political cronyism and you’re not getting the best people on these boards you’re getting your old mates appointed to the boards of SOEs.

TREVOR Well I think if you have a really good look and analyse who I have appointed to SOE boards you’ve got one of the classic ones coming on your programme soon, we’ve gone for the talented people, the people who can do the jobs, and if you look very carefully at the chairs of the SOE boards…

This is very interesting. Trevor is ignoring the fact four of his colleagues have gives Yates a Board job, and is just stressing that he personally has not, and he appoints talent only.

This is a very clever way to get across the point he had nothing to do with her appointments and that he does not think she is talented. Otherwise he would have defended her appointments on the basis of the skills she would bring to those boards.

It gets scary when you start to add up the total cost of Dr Cullen’s buying spree.

Now one can always argue about what an asset is worth, but we actually know that Toll purchased it for $394 million in 2003. And the book value is $430 million.

Now Toll convinced the Government to pay $665 million for it. But on top of that you have the foregone revenue from Toll for track use, which has been $48 million a year, but is meant to be $58 million a year. If you capitalise that at 7% that is another $830 million equivalent capital. So the Government has effectively tied up capital of around $1.5 billion. In theory there will be income to offset that, but time will tell as to how much that will be.

But it gets even better for Toll. They also get a six month rent free period on existing premises – must be worth a few million also.

The Fairfax story quotes Toll managing director Paull Little as saying:

“I think we’ve got mixed emotions. We would have preferred not to have sold.

“Today is a day we feel pretty flat,” he said.

I’ll bet you they have no mixed emotions at all. The sale agreement probably included a no gloating clause. Toll have made a massive profit from Dr Cullen. I doubt they can beleive their luck.

I know something about dealing with an Australian company when selling or buying a business. Let me tell you they are the most ruthless bastards around. No matter how friendly and nice it all is, they will aim to screw you for every extra dollar. It is nothing personal – just how they do business. So even if it is a multi-million dollar sale, they’ll take you for an extra $20,000 if they can – just because they can.

And Dr Cullen had shown how keen he was to buy. This was a fatal mistake which strengthened Toll’s negotiating position massively. You have to have the other side thinking you are prepared to walk away if they don’t budge.

I could just have imagined the talk around Toll after each negotiating session. “Oh my God, we have them up to $600 million – who would have believed. Hey let’s go for $650 million just to see how desperate they are. Nah, don’t be a soft cock – I reckon we should ask for $700 million and see if we can get them over $650 million”.

We’re back to the future with the Government giving Toll a huge wallop of cash for their trains and ferries. Toll will be laughing all the way to the bank with their $665 million.

There is a case for the Government to own core infrastructure assets, but I am far from convinced it needs to own the companes that operate on them.

$665 million would do far more for NZ investing in future infrastructure such as fibre-optic cables, than some second hand ferries and trains.

John Key has already said that they won’t be selling any assets in their first term, so I guess we are stuck with them for the foreseeable future. I just hope someone keeps track of how much money we throw into keeping them viable, and what the opportunity cost of investing that money elsewhere is.

The 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.

National’s policy on state owned assets for the 2005 election was very mild.  It was for no full sales, and maybe one or two minor part-sales. Something that even Labour has done in Government – sell some minor state assets.

Labour of course would have you believe National plans to sell the roads, the seas, the air and the water, rather than have a rational debate over whether or not the NZ Government needs to own a chain of garages (Vehicle Testing NZ).

And having semi-sucessfully managed a fear campaign in 2005, they were all poised to do so again. For months on end they tried to talk up Auckland Airport as some sort of state asset sale they were stopping when the reality was it has been a privately owned company since Winston sold it in 1998.

So at the Labour Party Congress this weekend, they were all set to start their campaign of fear and loathing on asset sales. Yet quietly on Sunday morning on Agenda, John Key took their toys away:

GUYON Alright you rightly point out it was sold by the National government in 1998 now that brings us to this position.  What is your position now as a National Party on state asset sales?

JOHN Well National’s had some time to reflect on that and the position that we’ve decided to have is the following one.  That in the first term of the National government there will be no state assets that will be sold either partially or fully.

GUYON So no state assets, you’re completely firm on that?

JOHN That’s right.

Colin Espiner caught on to the wonderful timing:

COLIN ESPINER – Christchurch Press
Mr Key the Prime Minister addressed the Labour Party’s annual congress, the election congress yesterday and one of the things she said was that asset sales were a defining issue for Labour, and a defining issue for the election, you’ve just essentially inoculated that, was that your intention?

and again:

COLIN  Sure, but you’re also avoiding skirting around the issue of asset sales where you’re gonna get clobbered by Labour, and they were warming up, they’ve been warming up on this one for weeks and you’ve essentially ripped the rug from under them haven’t you?

Yes he has.

John Armstrong I think is 100% wrong on this being a fumble, because Key only ruled them out for the first term of office. Far from being a fumble, it was a move of brilliant timing and within a few weeks, the issue will have little resonance with anyone but those who are in no way swinging voters. No party ever gives a guarantee beyond one election, and no-one outside Helen Clark and a few commentators really get excited about what may or many not happen in two elections time.

Now my personal view on asset sales I blogged back in July 2005, and listed 13 SOEs I would happily sell.  But even National under Don Brash was talking at most a partial float of Solid Energy and maybe a few farms.

If you are not going to have a bold asset sale programme (such as I would do), then it is politically stupid to have a 5% programme where you attract all the scaremongering over asset sales, just to allow say a 20% share holding in some coal mines.

So despite personally favouring a bold programme of asset sales, I am delighted that National has shut down Labour’s ability to effectively scare-monger on this issue, because frankly you should either do a bold programme, or do no programme at all. The 2005 Brash policy was so modest, it wasn’t worth the hassle and distraction it would be.

So overall I thought Key did very well on Agenda – a very in depth and extended interview. And I say that having been pretty critical of how Key handled the Peters issue the week before.

While I am very relaxed about going from a 5% asset sale policy to a 0% asset sale policy, I am somewhat concerned over the dropping of bulk funding. Sure, I understand the politics around not provoking the PPTA and NZEI into a full-scale jihad, but if we are serious about lifting our economic game, we need to lift our educational game, and the current way we fund and staff our schools will not achieve that.  Having said no to bulk funding, the onus is on National to come up with some other ways to improve management and funding of our schools.