137 state owned farms

August 20th, 2015 at 4:00 pm by David Farrar

Stuff reports:

Landcorp owns 137 farms totalling 158,394 hectares, and manages another 226,692 ha of farms. Its livestock holdings are made up of 77,500 dairy cattle, 580,000 sheep, 82,000 beef cattle and 105,000 deer.

It employs 692 staff.

They should all be sold to farmers, unless they are needed for specific purposes such as conservation or treaty claims.

We do not need the Government owning and running 137 farms.

The company had shareholders’ funds of about $1.5. billion against total liabilities of $360 million, according to its half year report to the end of December.

But it made a profit of just $1m in the last six months of 2014, down from $13.4m in the same period in 2013.

If you sold Landcorp for $1.5 billion, then the reduced interest on debt would be around $75 million a year.

English said other SOEs faced challenging issues.

“Post’s business is shrinking, TVNZ has to deal with competition from Netflix and everybody else, the Public Trust, Kordia has a set of broadcast-related assets when technology has moved on.”

Yep. Once TVNZ could have been sold for over a billion dollars. Today you would not get $100 million. The state is not a good owner of commercial companies. Let the state focus on its core responsibilities, and let the private sector own the farms and other businesses.

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What did the Labour/Greens power policy cost the taxpayer?

April 9th, 2015 at 12:00 pm by David Farrar

Mark Lister writes in the Herald:

Since listing at $1, Meridian shares have more than doubled, providing investors with a return of more than 100 per cent in less than 18 months. If dividends are included, this return jumps to 125 per cent over the period.

Utility companies such as Meridian are supposed to be predictable companies that offer steady (yet modest) returns. They aren’t supposed to double in price within barely a year the way a high-growth technology share might.

Part of this can be explained by a fall in interest rates over the period, which has made high-yielding shares more attractive and seen investor demand push up share prices.

But with the benefit of hindsight, another key reason for such a strong performance is that they were probably sold a little too cheaply in the first place.

In my opinion, the blame for that rests firmly with the Opposition political parties of the time, Labour and the Greens.

The “NZ Power” reform policy they championed through 2013 and early last year was heavy on emotive rhetoric, and short on detail. Whenever the proponents were quizzed about how it would work or be implemented, there didn’t appear to be many clear answers.

Labour and the Greens seemed to give up on this policy after the last electricity IPO was completed, and it didn’t get nearly as much airtime after that. That adds weight to the view that it was dreamed up only to derail the IPO process.

It was an act of commercial sabotage. They announced it just days before the first sale. It successfully reduced the price people were willing to pay for shares, which meant that the taxpayer lost perhaps a billion dollars due to this policy of sabotage from Labour and Greens.

In that respect, it failed. All it succeeded in doing was creating political and regulatory uncertainty among investors, and reducing the price the New Zealand taxpayer was paid for the 49 per cent of the assets now owned by private investors and managed funds.

The Crown received $1.8 billion (including the 50c a share due shortly) for the 49 per cent of Meridian sold, and that stake is today worth over $3.2 billion. The 49 per cent of Genesis sold down a few months later for $760 million is now worth almost $1.2 billion.

Had it not been for the uncertainty that was created at the time by the Opposition, the IPO sale prices could have been quite a bit higher.

In hindsight, it seems Labour and the Greens might have almost single-handedly contributed to a significant transfer of wealth from the average New Zealander (as the seller) to a much smaller group of people – those who could afford to buy shares in the IPOs.

As someone who invested in all three floats, their policy has made me a five figure capital gain. Thanks Labour and Greens.

While those who bought these shares will be celebrating some excellent returns from investments that should have been relatively boring, maybe the rest of the country is due a belated apology from Labour and the Greens for doing them this disservice.

If Labour and Greens can cost taxpayers one to two billion dollars in opposition, think what they might cost in Government!

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Why the state should not own commercial companies

March 11th, 2015 at 3:00 pm by David Farrar

Stuff reports:

Finance Minister Bill English says he still doesn’t know if Solid Energy is viable, raising the prospect of the company collapsing.

The Christchurch-based coalminer is negotiating with a group of banks in a bid to reduce its $320 million debt.

This has delayed the release of its financial results due in late February until it can be certain they “reflect a true and fair picture of the company’s position”.

It followed the Government’s extension of financial support to Solid Energy in 2012, and the company striking a deal with its lenders in late 2013 to effectively write off $75m in debt.

But on Tuesday, English warned that even after 18 months of being regularly briefed on the company’s finances, he was unclear if there was a core business that could be salvaged.

I don’t want my taxes wasted on bailing out state owned companies. I want to choose which companies I invest in, not have the Government do it for me.

We should not own Solid Energy, just like we shouldn’t partially own three power generating companies. They are all commercial enterprises that do not need to be owned by the Government, and present risks to taxpayers if they make bad investment decisions.

The role of Government should be to set the rules for the industry and promote competition – not to own the companies.

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Labour breaking their word on asset sales

December 8th, 2014 at 9:00 am by David Farrar

Asset sales are a controversial and often emotional issue. That is why National has been very careful to lay out its policy in advance, and keep to it.

In 2008 National said no SOEs would be sold in the first term, and none were.

In 2011 National said up to 49% of four power SOEs and Air NZ would be sold, and they were (except Solid Energy that collapsed).

In 2014 National said no further sales of SOEs and there are none planned.

Now contrast this to Labour in Christchurch. The Press reports:

It took months of briefings, quiet lobbying, and frank meetings to bring the Left-leaning People’s Choice councillors around to the inescapable truth that some asset sales would be needed to solve the city’s financial woes.

Those meetings happened  right up until late Thursday afternoon, which suggests some councillors were still wavering.

The reason the People’s Choice councillors – Andrew Turner, Jimmy Chen, Pauline Cotter, Yani Johanson, Phil Clearwater, and Glenn Livingstone– were  reluctant to go down the path of asset sales was because they had signed a pledge before last October’s elections to support keeping all significant public assets in public ownership and control.

They didn’t want to be seen to be going back on their word.

They were confident that if they pored over the council’s budgets, cutting expenditure and deferring capital projects, they could achieve the necessary savings without asset sales. 

Alas, it was not to be and on Thursday the People’s Choice councillors reluctantly threw in the towel and acknowledged the funding gap, which has jumped from $900 million to $1.2 billion, was too large to close through savings.

“Our preferred option is not to sell assets, however, the financial position in which the council has been placed requires us to sell assets as one of the number of things we need to do to fill the funding gap,” they conceded in a statement issued through Turner, their spokesman.

This is not true. There is a choice. They have chosen to break their word. I think their policy was stupid and wrong, but they made it.

The People’s Choice is the Labour Party in Christchurch local government politics. In fact most of the PC Councillors had their affiliation on their ballot as (The People’s Choice – Labour).

So the moral of the story is that National has kept its word on asset sales, and Labour once again has not.

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Will Christchurch sell assets?

December 1st, 2014 at 11:00 am by David Farrar

The Press reports:

The path to asset sales is likely to be cleared this week as the Christchurch City Council takes steps to raise money for the rebuild.

Councillors are expected to hold a special meeting on Friday to adopt a financial strategy that deals with the potential $900 million funding shortfall the council is facing over the next few years.

Details of the strategy have yet to be made public but Mayor Lianne Dalziel said it would include a range of options to release capital from city-owned assets.

That could sit uneasily with the seven People’s Choice councillors, who all signed a pre-election pledge that promised all significant public assets would be kept in public ownership and control.

Dalziel had studied the pledge and believed councillors would not be breaking their word if they went down the route proposed.

She reasoned that if the council was to sell some of its Orion shares to the neighbouring Selwyn District Council (SDC), which already had an 11 per cent stake in the company, that pledge would still have been honoured.

Likewise, she saw no problem with inviting a strategic partner to buy a stake in Christchurch Airport or Lyttelton Port (LPC), provided the council retained its control.

You mean a mixed ownership model? Have the Council keep say 51%? Use the proceeds to reduce the need to borrow for other assets?

It sounds a very sensible idea. Of course it is the same idea National had in 2011, which Lianne campaigned against. If the Christchurch Council does agree to this policy, I expect Labour to of course condemn them and campaign against their decision!

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Labour on assets buy back

August 27th, 2014 at 2:00 pm by David Farrar

Stuff reports:

Labour leader David Cunliffe has refused to confirm if his party is planning to buy back state-owned assets sold by National.

In a confusing exchange with reporters today, Cunliffe first said the party would “be saying more about that before the election.” 

Asked to clarify if voters could expect the party to set out a position before polling day next month, he replied:  “No, I haven’t said that.”

But he later appeared to back-track, saying: “They will certainly know before they cast their vote.”

God knows what that means.

Another story suggests that their bribe to get Winston on board will be $100 million a year to buy “assets”. Basically this means the politicians will be playing the stock market with our money. It won’t even be in a professional investment fund. If Labour win, then Cunliffe and Peters will decide on our behalf to buy shares in maybe Contact Energy, maybe Xero, maybe Kathmandu, maybe Woolworths. It will just be a giant slush fund, run by politicians.

If they think they are so good at playing the sharemarket, they should borrow against their homes, and invest with their own money.

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Funding for 14 local roads

June 30th, 2014 at 9:00 am by David Farrar

National announced at its conference, $212 million of funding for regional and local roads. This is additional funding on top of funding from petrol tax, and road user charges, and comes out of the partial sales of the SOEs. So it is swapping an investment in one type of asset (dams) for an investment in anothe rtype of asset – roading infrastructure.

The 14 roads are:

  1. Kawarau Falls Bridge, in Otago
  2. Mingha Bluff to Rough Creek realignment, in Canterbury
  3. Akerama Curves Realignment and Passing Lane, in Northland
  4. State Highway 35 Slow Vehicle Bays, in Gisborne
  5. Normanby Overbridge Realignment, in Taranaki.
  6. Whirokino Trestle Bridge replacement, in Manawatu/Wanganui
  7. Motu Bridge replacement, in Gisborne
  8. Opawa and Wairau Bridge replacements, in Marlborough
  9. Taramakau Road/Rail Bridge, on the West Coast
  10. Loop road north to Smeatons Hill safety improvements, in Northland
  11. Mt Messenger and Awakino Gorge Corridor, in Taranaki.
  12. Port of Napier access package, in Hawke’s Bay
  13. Nelson Southern Link, in Nelson
  14. Rotorua Eastern Arterial, in Bay of Plenty.

The first five are to begin construction this year and finish in 2016/17.

The next six to begin construction within three years.

The last three are to complete the design phase.

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The Genesis sale

March 31st, 2014 at 9:00 am by David Farrar

Stuff reports:

Analysts are picking demand will be high for shares in the country’s biggest electricity retailer, Genesis Energy, when its public offer opens today.

The price for shares in the state-owned energy company was announced at $1.55 last night after a bookbuild with institutional investors. The sale would raise up to $736 million for the Crown.

Finance Minister Bill English said already $620 million had been committed through the bookbuild, which was the first stage of the share offer.

At that price the shares will yield a gross dividend of 14.3 per cent, he said.

I wasn’t going to buy Genesis shares as I had purchased Meridian and Mighty River Power shares. But that yield was too attractive.

As the possibility of a clear Labour/Greens Government fades, the chance of their barmy competition destroying policy being implemented fades, and the share prices of the sector shares should all improve.

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A Labour MP supports asset sales

March 7th, 2014 at 10:00 am by David Farrar

Stuff reports:

The Government is scotching claims that it has struck a deal to sell parts of Solid Energy to Indian buyers, but says parts of the troubled mining company will be offloaded.

Meanwhile, Labour’s West Coast-Tasman MP Damien O’Connor said he would support foreign buyers investing in inactive West Coast mines, even though he likened it to asset sales.

It’s good to have a Labour Mp say he supports an asset sale, but here’s the problem. Labour have in the past also sold assets – but only failing ones. They support selling a company after it has gone bust or near bust and cost the taxpayers millions. But they don’t support selling a company when it is profitable and taxpayers will get a good price for it. Instead they come up with policies to sabotage the share prices.

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Genesis details

February 26th, 2014 at 1:05 pm by David Farrar

Bill English has announced key details:

  • The shares will be priced at the start of the offer period, rather than at the end as occurred with the previous share offers.
  • The Government expects to sell between 30 per cent and 49 per cent of the shares in Genesis.
  • The Government will offer a loyalty bonus scheme to eligible New Zealand retail investors

Also no shares will be offered to US institutions as it creates too much paperwork and hassles under US law.

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Genesis float in March

February 25th, 2014 at 7:00 am by David Farrar

The Herald reports:

Prime Minister John Key has confirmed the Government will go ahead with the partial privatisation of Genesis Energy over the next month or so but has underlined the sale will be the last one under a National Government.

Finance Minister Bill English would give further detail about the Genesis sale including a broad timetable in a speech on Wednesday.

Mr Key said Genesis would be the last state owned enterprise (SOE) floated by his Government under its Mixed Ownership Model either before or after this year’s election.

It is good to see Genesis go ahead.

It is also no surprise that no further sales are planned. The five companies selected in 2011 were the obvious ones. They were all commercial trading enterprises, with competition. Other SOEs would be more problematic to sell.

My hope is that the partial asset sales have broken through the obsession that the Crown can never ever sell an asset, and can only acquire assets. Decisions should be made on a case by case basis. One can have a view that the Government should own Transpower, but now own Orcon – one of around 50 ISPs.

Mr Key again underlined the Genesis float would be the last asset sale under his Government.

“The truth is there aren’t a lot of other assets that would fit in the category where they would be either appealing to take to the market or of a size that would warrant a further program or they sit in the category that they are very large like Transpower but are monopoly assets so aren’t suited.”

I agree Transpower is not a great candidate for sale. However I would make the point that what matters more is that it is price regulated by the Commerce Commission, than it is owned by the Government.

Here’s the SOEs and Crown entities we do have left, and my thoughts on their potential for sale:

  • Airways – no, monopoly
  • AsureQuality – could be sold, but has some strategic importance to Govt
  • Landcorp – keep company, but farms should be sold to private sector where possible
  • MetService – too small to bother selling
  • NZ Post – I’d sell it on the basis its core business is disappearing and it may become unprofitable in a decade or so
  • KiwiRail – stuck with it – no one would pay a cent for it
  • Solid Energy – sell when market recovers, if it does
  • Transpower – no, monopoly
  • Kordia – some strategic importance for communications
  • Animal Control Products – never even knew this was an SOE! Sell before someone notices it
  • Quotable Value – sell, no need to own a valuation business
  • Public Trust – sell, almost all their functions have many competitors
  • TVNZ – sell while we can get money for it. Future business model looks shaky

What do others think? Which, if any, would they sell?

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Final CIR results

December 19th, 2013 at 2:00 pm by David Farrar

The final results are here.

  • Not Vote 54.93%
  • Vote No 30.30%
  • Vote Yes 14.59%
  • Informal Votes 0.14%
  • Invalid Votes 0.05%
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Sell, sell, sell

December 19th, 2013 at 12:00 pm by David Farrar

Stuff reports:

State-owned enterprises’ performance has been “mediocre” in the last year, the Treasury says.

The Crown Ownership Monitoring Unit (Comu) today released the annual report of its portfolio, which reviews the performance of 49 government-owned enterprises that have full or partial commercial objectives.

All up, the enterprises employ more than 40,000 people, holding $125 billion in assets and $52b in investment funds at the end of June.

While the performance of the investment funds, mainly ACC and NZ Superannuation was strong, returning over 25 per cent in the year to June 30, the report was less kind about the other companies.

“While some State-owned enterprises have performed well, overall performance of the Crown’s commercial portfolio has been mediocre, with poor performance by Solid Energy, KiwiRail and Learning Media,” the Treasury said in a statement.

“Total shareholder return across the wholly owned commercial priority companies was 3 per cent,” the Treasury said, adding that this did not include KiwiRail because of the change in its structure at the start of 2013.

The number of companies the Crown should own is very few – there is a case for the odd utility monopoly like Transpower, but the rest should be owned by he private sector who are better suited to balance the risks and rewards.

Solid Energy almost went bust, as it is highly vulnerable to the global coal price. Kiwirail is a dog. NZ Post is profitable but in a dying industry. TVNZ has a business model that will also disappear in the not too distant future. We should sell them all while we can get some money for them.

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Labour is yeah, nah on SOE buy back

December 16th, 2013 at 3:00 pm by David Farrar

Stuff reports:

Labour leader David Cunliffe has given his strongest indication yet that his party would buy back state-owned assets if it became the Government.

He told Morning Report he “probably will” buy back the assets if Labour wins next year’s election, although stopped short of saying where the money to do so would come from.

Probably is the latest version of “Yeah, Nah”.  Doesn’t Labour has the courage of their convictions to just come out and say “We will borrow five billion dollars from overseas banks so we can forcibly purchase shares in some power companies and an airline”.

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The Press on referendum

December 16th, 2013 at 7:35 am by David Farrar

The Press editorial:

There was never any chance the present Government was going to take any notice of the latest one.

In any case a botch-up by the organisers meant it was delayed so that by the time it was held, the programme it was meant to influence was almost over.

Incredible they had such a high proportion of duplicate signatures.

The latest referendum was not strictly a citizens’ initiated one.

Unlike earlier referendums – on the number of MPs there should be in Parliament, on the proper punishment for violent offending, and on smacking of children – it was not led by any great popular groundswell.

Instead, it was largely promoted by the Green Party.

It spent a significant sum organising the petition for it.

Not sure the Greens spent any of their own money on it. They used their taxpayer funded parliamentary budget. The main purpose of doing so was to collect e-mail addresses from the petition.

To the loaded, if muddled question, a clear majority of voters signalled their opposition to asset sales, although not in such large numbers as some had expected.

In all the previous referendums, the vote for the position supported by those promoting the issue has been won by majorities of at least four to one, and in one case (in the poll on violent offending) by nine to one.

In the latest poll the margin was two to one.

Considering the concerted campaign run by those supporting the no-vote, who would have been expecting better, it was not a striking result.

It was a confusing question. Some of those who voted no might want more than 49% of assets sold. Some might want four of the five companies sold, but not all five. And yes the margin was way less than most expected.

Referendums are a crude instrument for influencing public policy. They require simple yes-no answers.

Most political questions are more complex than that and involve trade-offs.

It is for that reason that few countries bother with them. The latest one was a prime example.

The issue it dealt with was decided with the result of the last general election. Whether voters are still happy about that will be properly judged at the next one.

Labour declared the last election was a referendum on asset sales. They were right.

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Referendum stats

December 14th, 2013 at 2:00 pm by David Farrar

The breakdown by the 70 electorates is interesting. The turnout by group was:

  • Below 30% – five electorates
  • 30% to 35% – five electorates
  • 35% to 40% – seven electorates
  • 40% to 45% – 14 electorates
  • 45% to 50% – 30 electorates
  • Over 50% – nine electorates

In terms of the no vote, the breakdown was:

  • Below 50% – two electorates
  • 50% to 60% – 11 electorates
  • 60% to 70% – 29 electorates
  • 70% to 80% – 19 electorates
  • 80% to 90% – 3 electorates
  • Over 90% – 7 electorates (Maori seats)

In terms of overall stats:

  • Not Vote 56.10%
  • Vote No 29.48%
  • Vote Yes 14.25%
  • Informal Vote 0.13%
  • Invalid Vote 0.03%

And comparing the results (the desired percentage voting with them) the petitioners got with previous CIRS:

  1. Reform of justice system 91.8%
  2. Firefighters 87.8%
  3. Anti-smacking law 87.4%
  4. Size of Parliament 81.5%
  5.  Asset Sales 67.2%

So it is the closest result of any CIR. No other CIR was below 80% and this was below 70%.

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Much higher yes vote than I expected

December 14th, 2013 at 9:07 am by David Farrar

I was expecting the yes vote in the referendum to be around 15% to 20%. I’m amazed it was 32.1% and the no vote won by 2:1 rather than 4:1.

There wasn’t a single party or organisation campaigning for a yes vote. On the other side Labour, Greens and the unions spent hundreds of thousands first promoting the petition and collecting the signatures and then campaigning for no votes.

There was little reason for yes voters to vote. I actually never got around to it. You knew what the result would be, and more to the point you knew that the referendum was pointless as three of the five companies have already been sold down to 51%.

On the other side there was a lot of reason for a no voter to vote no – it was a way to punish the Government, and try and stop any further sales.

I honestly thought they’s get over 80%, maybe as high as the anti-smacking vote at 85%. Instead they got 67.2% and turnout was well under 50% at 43.9%.

Sure it is still an official victory for the no vote, but far from the crushing blow they wanted – especially considering that they spent hundreds of thousands of dollars on getting this referendum. How can Labour and Greens demand National implement the result of a 67% referendum result when they remain 1000% opposed to implementing the results of the 85% referendum result on smacking law.

But hey, if Labour thinks the referendum result trumps the last election result, I look forward to their clear policy pledge they will buy back every share sold.

Yeah, Nah.

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Why NZ Post is struggling – Kiwibank!

December 7th, 2013 at 7:39 am by David Farrar

Brian Gaynor writes at NZ Herald:

Why does New Zealand Post continue to flounder while Deutsche Post, the German postal provider, has significantly outperformed the Frankfurt sharemarket in recent years and Royal Mail, the UK mail operator, has just had an extremely successful IPO?

A brief assessment of the three post providers shows that the two European companies have clear e-commerce driven parcel and logistics growth strategies whereas New Zealand Post has been adversely affected by the requirement to contribute substantial capital to Kiwibank, its 100 per cent owned subsidiary.

Kiwibank has never paid a dividend, off memory.

Royal Mail’s core operation is the collection, sorting, transportation and delivery of parcels and letters in the United Kingdom. This service operates under a “one price goes anywhere” principle on letters and parcels within the domestic market.

It also owns GLS (General Logistics Systems) which operates a substantial parcel business in 22 European countries.

Royal Mail, like Deutsche Post, has taken advantage of the huge increase in online purchases by individuals and businesses.

That is the future. Not letters.

Royal Mail’s share price closed at 5.96 on Thursday giving IPO participants a capital gain of over 80 per cent and resulting in a sharemarket value of 5.9 billion.

Austrian Post, PostNL in The Netherlands, bpost in Belgium and SingPost in Singapore are also listed on stock exchanges.

Unfortunately the story in New Zealand is far less optimistic even though New Zealand Post reported net earnings, before one-off gains from the sale of assets, of $45.4 million for the June 2013 year. The problem is that the group’s core postal services reported a net loss of $51.5 million for the latest twelve month period (see table).

The focus is on Kiwibank:

No one would argue against the importance of parcels but what investments has NZ Post made in this area? What has it done to capture the e-commerce trade?

For example, parcels were mentioned only thirteen times in the group’s 2011 annual report whereas Kiwibank was referred to 197 times.

One of the problems with NZ Post is that Kiwibank is soaking up most of the group’s surplus cash and seems to be squeezing out the traditional postal services.

A possible solution:

The reality is NZ Post is asset rich but cash poor because Kiwibank, the group’s best performing operation, doesn’t pay a dividend and will require $100 million of additional capital. As a consequence NZ Post does not appear to have invested heavily in its parcel business, which has the best long-term postal growth prospects.

Thus the company has two choices. It can either focus on Kiwibank and let its postal operations decline with more and more branch closures and staff layoffs.

The other alternative is to partially monetise its Kiwibank shareholding by selling a minority stake to the Crown, a trade buyer or through an IPO. This would give NZ Post cash to invest in its parcel business, fund its ongoing commitment to Kiwibank and pay a higher dividend to the Crown.

Sadly, will never happen.

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Herald on Air NZ sale

November 19th, 2013 at 2:00 pm by David Farrar

The NZ Herald editorial:

According to the Labour Party leader, David Cunliffe, the timing of the Government’s selldown of shares in Air New Zealand is arrogant. Describing it as astute would have been far closer to the mark. Shares in the airline have been trading at a five-year high and investment advisers have voiced their enthusiasm for them. What better time could there be for the Government to reduce its holding in the national carrier from 73 per cent to 53 per cent?

That is a good question. Unless you believe that 73% is the exact right amount of shares for the Government to hold. Which is like believing in astrology.

One can make a principled case for 100% or for 51% (or for 0%) but to insist it must be 73% is daft.

The selldown has been criticised because it is being done just before a referendum on the part-sale of state assets. That complaint is misplaced. The focus of the Government’s mixed-ownership model strategy and, therefore, the referendum has always been the part-sale of the state’s three power companies, not an airline that the government acquired essentially by accident. Air New Zealand is very much an ancillary part of that strategy.

The referendum question also includes Solid Energy. It is a very badly worded question. Because if you think the Government should sell off the power companies and Air NZ, but should not sell off Solid Energy (because we won’t get 10 cents for it) then you should vote no I guess. Likewise if you think the Govt should sell more than 49% of any of the five companies, then again you arguably should vote no.

Green co-leader Russel Norman has gone so far as to suggest the selldown could lead to reduced regional services or higher fares.

I wish there was a competition for the most financially illiterate comment of the year, so I could nominate it.

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An advantage of NZX listing

November 19th, 2013 at 12:00 pm by David Farrar

The Herald reports:

Newly-listed Meridian Energy said the average price it received for its power generation in the September quarter was 22 per cent lower than the same quarter last year, mostly reflecting higher-than-average lake levels, while demand was flat.

Catchment inflows were 139 per cent of the historical average in the quarter and 21 per cent higher than the same quarter last year, Meridian said in a statement to the NZX.

The quarter’s inflows were dominated by very high inflows in early July and mid-September, which resulted in comparatively high storage levels by the end of the quarter.

By the end of September, Meridian’s Waitaki catchment storage was at 1,465 gigawatt hours – 155 per cent of the historical average and 27 per cent higher than the same quarter last year.

With above average inflows and strong wind conditions, Meridian’s New Zealand generation was 143 per cent higher than the same period last year. Meridian’s weekly market share was well above 30 per cent.

This sort of regular transparent data is one of the significant advantages of having former SOEs listed on the NZX.

Most people probably think that an SOE is more transparent than a company with private shareholders because if you are 100% Government owned you must be transparent.

The opposite is true.

NZX requirements require a company to disclose pretty much immediately any important information around how the company is doing and its value.

Solid Energy would never have had its problems come as such a surprise, if it had private shareholders.

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Stupid claims

November 18th, 2013 at 9:00 am by David Farrar

The Herald reports:

Opposition parties are warning of damage to the national interest, higher fares and even a second taxpayer bailout after the Government put another slice of Air New Zealand on the block.

Higher fares because the Government will own 53% instead of 73%? No one with a shred of financial knowledge could make such a claim. It’s financial illiteracy at its worse.

Green co-leader Russel Norman said it could lead to reduced regional services or higher fares.

Won’t he be a great Minister of Finance!

Air New Zealand already is a mixed ownership model. Labour and Greens are the worst sort of conservative – they claim the status quo is preferable despite any rational basis for it.

According to Labour and the Greens 73% is the exact right proportion of Air New Zealand to own. Not 82% (or they would have policies to increase it) or 64% or 51%. It must be 73%.

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Labour/Green nationalisation policy may destroy 50% of Meridian’s value

October 31st, 2013 at 1:00 pm by David Farrar

Stuff reports:

Meridian Energy’s partial float on the New Zealand stock exchange was given an initial thumbs up by analysts but they warn the share price is likely to be volatile heading into next year’s general election.

One fund manager said the difference in share price between Labour and National could be as much as 90 cents.

The Government has sold 49 per cent of the country’s largest energy company for $1.50 a share. Investors paid an initial instalment of $1, with a further payment of 50 cents due in 18 months.

The first instalment price at the close of the NZX last evening saw the shares leap 8 per cent to $1.08 on turnover of just over $246 million.

Analysts agreed that day one of the float was successful and the closing share price was in line with expectations.

Devon Funds Management equity analyst Phillip Anderson said new investors would be pleased. “It’s enough for the new investors to be happy – they are feeling good about it – but not so much that it looks like the seller left a lot on the table.”

The general feeling among analysts was that institutions which had their share quotas scaled back had created strong demand for Meridian shares.

But the analysts warned that the general election could affect the share prices of both Meridian and Mighty River Power, which was partly privatised this year.

“My valuation for . . . [Meridian] as a whole is . . . around $1.10 if the Labour Party wins, but business as usual under National at around two bucks,” Anderson said.

That’s a huge amount of destruction of value if there is a change of Government. And consumesr won’t see any of it as Labour/Green changes to the Emissions Trading Scheme will see power prices increase.

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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 John Key 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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The pitfalls of public ownership

October 4th, 2013 at 12:00 pm by David Farrar

The Herald editorial:

The Green Party has called the Government’s bail-out of Solid Energy “privatisation by stealth”. Would that it were so. The state coal company will cost the taxpayer $155 million under the terms of the bail-out. It would have been more if the banks holding most of the company’s $380 million debt had not agreed to exchange just $75 million of it for shares in the company.

The banks could have insisted on repayment of all the debt, liquidating Solid Energy and costing 1,000 jobs.

But State-owned Enterprise Minister Tony Ryall is saying little to suggest there is any prospect of Solid Energy going back on to the partial privatisation programme with the power generators and Air New Zealand. More is the pity. The rise and fall of Solid Energy is a textbook example of the pitfalls of public ownership.

There is a case for the Government to own some monopolies like Transpower. There is no case (in my mind) for the Government to own a coal company.

Labour’s state-owned enterprise spokesman, Clayton Cosgrove, never tires of the phrase “asleep at the wheel” when blaming ministers for the company’s ambitious investments. But Treasury records show that in 2010, when coal was still booming on China’s continuing steel production and the board of Solid Energy was making big plans to diversify, the Government was cautious.

Indeed. The Government turned down the funding for the big plans. I suspect Labour would have handed over a billion dollars and renamed Solid Energy KiwiCoal.

If world prices pick up and the company can entertain wider ambitions again, it should be sold to the biggest bid. There is no reason for coal to be a state concern and every good reason to relieve the taxpayer of further risk.

Absolutely.

We should sell TVNZ also, while someone will still pay money for it.

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The Solid Energy package

October 2nd, 2013 at 10:00 am by David Farrar

Adam Bennett at NZ Herald reports:

The Government has loaned stricken state owned coal miner Solid Energy $100 million and extended a further $30 million standby facility as part of a restructuring package announced this morning.

Finance Minister Bill English and Minister for State Owned Enterprises Tony Ryall said the package had been agreed between the company, the Government and key lenders.

“As we have said previously, ministers were not prepared to expose taxpayers to on-going losses if Solid Energy’s core business was not considered viable,” English said.

“However, we also said that we were prepared to provide support for the company if there was a reasonable chance it could be made viable, and we expected the lenders to also contribute to that recovery,” he says.

This is a good outcome for the 1,000 or so staff of Solid Energy. However it is risking a further $100 million of taxpayer money. Hopefully the loan will be repaid in time, as Solid Energy adjusts to the new environment.

This for me reinforces why absolutely the Government should not own competitive commercial companies like Solid Energy. Taxpayers should not have to be exposed to the risks involved with such investments.

Chairman Mark Ford said the proposal “would allow the refocused coal mining business to trade its way back to profitability over the next few years, but that this would have to be supported by ongoing efficiencies and cash generation and improvements in the international coal market”.

“We believe that the company has a good operating future and we hope that with the continued support of our shareholder and our funders, we can re-establish the company as a major employer and economic contributor in our key coal mining regions.

The moment it is stable again, we should sell it – and not just 49% of it. If we had sold it three years ago, the taxpayer would be hundreds of millions of dollars better off.

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