Kiwiblog

The Herald reports:

Auckland City and Manukau ratepayers will foot a $28 million bill as their councils move to secure their stakes in Auckland Airport.

The cities’ cash injection is the result of the airport company’s announcement yesterday of its plans to issue new shares worth $126 million to help pay for its purchase of a 24.55 per cent stake in Cairns and Mackay airports in Queensland.

Auckland City Council has a 12.71 per cent holding in the airport at Mangere. Manukau’s is 10.01 per cent.

To maintain those stakes, Auckland City needs to spend $16 million and Manukau $12.66 million buying extra shares.

So Auckland ratepayers have just been forced to invest in a speculative purchase of airports in Queensland.

People emotionally like the idea of their Council owing their local airport, but really there is no reason ratepayers should be in these investments.

In the case of AIAL, the Councils own under 25%, so are far off a controlling interest. If the stake is over 50% one can claim there is some value in being able to veto major decisions and appoint directors, but the Auckland Councils don’t have this ability.

But the bigger issues is that in a globalised world, these companies do not just own local assets. AIAL now owns two Australian airports. Now that may be a fine investment for those who have made a choice to invest in AIAL, and back their investment strategy. But it is not appropriate Auckland Councils are risking ratepayer money in these investments.

Even worse they have to borrow money or levy ratepayers to fund the expansion plans. They do not have to take up the rights offer, and should not.

NZPA has reported:

New Zealand’s overseas investment watchdog has approved a Chinese conglomerate’s bid to buy Vector’s Wellington power lines network.

Vector sought approval earlier this year for the $785 million deal to sell 100 percent of the shares of Vector Wellington Electricity Network Limited to Hong Kong-based Cheung Kong Infrastructure Holdings (CKI) and Hongkong Electric Holdings Limited (HKE).

Now I don’t care at all who owns my power lines, but isn’t it ironic that the Government moved heaven and earth to stop a Canadian pension fund having a minority voting stake in Auckland Airport, yet has absolutely no problems with a Chinese business owning 100% of Wellington’s power lines?

Didn’t Helen Clark say ownership of such assets would be a defining issue for the election?

It is good to see the media focusing on the hypocrisy in the Government over Auckland Airport and Wellington’s electricity network. In the former example they moved heaven and earth to stop the private owners selling a minority stake to a Canadian pension fund. And for the latter they say there is no issue at all, despite it being 100% sale of a crucial monopoly.

So the NZ Herald editorial is welcome.

It is hard to find in these decisions any consistent policy that might guide foreign investors. The sensitivity of Auckland Airport had nothing do with its land, abutting Manukau Harbour, and it is hard to believe the Government’s comfort with the Vector sale has anything whatsoever to do with the land under the power lines.

It’s ridicolous. Is Dr Cullen really saying that all the hysteria he whipped up about asset sales (overlooking Winston sold it in 1998) was about the land under the airport, and not the airport itself? Yeah, right.

But for reasons that remain unexplained, Labour does not regard an urban electricity network as “strategic infrastructure”.

If that phrase has any meaning it must apply to power lines. A line network cannot be practically duplicated for the sake of competition. It is the classic natural monopoly. If line networks are not kept in public ownership they require careful regulation, as Telecom has shown, to prevent them gouging consumers or denying access to competing traffic.

Now again, so there is no confusion, I have no problem with the sale of the power lines. They will be subject to price regulation as most monopoly assets are. My problem is the hypocrisy.

Vector, as it happens, is a quasi-public entity, owned by a trust elected by Auckland consumers, whom it rewards at the expense of its consumers elsewhere. Wellington’s network has not been sold from this form of ownership wholly into the hands of a private company. It is a privatisation in anyone’s language. Yet the Government was more concerned about the partial sale of an airport in which two Auckland councils would have retained significant stakes. It will defy investors’ understanding.

This is a good point. This sale is far more of a privatisation than Auckland Airport was which was private fund managers selling to other fund managers. Vector is a public trust selling to a private entity.

The Government has steadfastly declined to publish a list of assets it regards as “strategic” because it has no consistent definition in mind. The public and potential investors are left to conclude that a property becomes “strategic” simply when it suits politicians to regard it so. At least that means that assets as vital as power lines can attract foreign investment when their luck is in. But this country’s process of approval should be better than a lottery.

Even Labour Party President Mike WIlliams has agreed that here should be a list of these so called strategic assets.

What this means is that each time Labour in the campaign tries to whip up populist sentiment on the basis of its actions in “protecting” Auckland Airport, their bubble will get pricked by reminders of the Wellington power lines, and Helen Clark’s lofty pronouncement that “asset sales will be a defining issue” looks as hollow as “carbon neutrality”, “closing the gaps” and “top half of the OECD”.

Bernard Hickey reacts to news that a Hong Kong company is buying the Wellington electricity network by blogging that the Government has a choice between hypocrisy or stupidity.

The government now has to choose between blocking the deal, which would be stupid and dangerous, or approving the deal, which would expose the government’s recent comments on foreign ownership of strategic assets as politically motivated and opportunistic hypocrisy. I suspect it will choose hypocrisy and hope no one notices.

Indeed, they appear to be doing so. They have this magical invisible list of strategic assets which they won’t let anyone else see. And whether or not an asset is strategic or not seems to be pure political whim.

But let us look at the difference between Auckland Airport and the Wellington power lines:

1. Electricity is arguably the most vital utility
2. Every Wellingtonians uses electricity everyday, while relatively few Aucklanders use the airport every day
3. While inconvenient there are other airports Aucklanders could use, while Wellingtonians have no other option for getting electricity to their homes.
4. There are alternatives to air travel such as car, bus, train and boat. There is no real alternative to electricity

So how on Earth you must wonder does a Government deem a Canadian pension fund buying a 24.9% voting stake in Auckland Airport an evil evil takeover which must be stopped at all cost, yet having the richest man in Hong Kong buy 100% of Wellington’s electricity network not even worth a pause for consideration?

Is this the same Prime Minister who declared at her Congress that asset sales were a defining issue? WHat has happened to the lofty rhetoric in just two weeks?

Now please don’t think I against the sale. I think foreign investment is good and necessary in New Zealand. Without it we would be a lot poorer than we are. I would not stop either deal. But the Government’s hypocrisy is massive.

Bernard looks at the issue further:

Just a few weeks ago two junior ministers in the government decided to block a deal to sell a significant stake in Auckland Airport to a Canadian pension fund. They did so after Finance Minister Michael Cullen shifted the goalposts near the end of the bidding process by saying the Overseas Investment Office should consider blocking foreign acquisitions of strategic assets on sensitive land. This cost Auckland Airport shareholders dearly and damaged New Zealand’s reputation as a reliable place for foreign fund managers to invest. It was a blatantly opportunistic, political decision with little rhyme or reason apart from it helped Labour in the polls, marginally.

So the question now is: Do Michael Cullen and Helen Clark believe that Wellington’s power network is a strategic asset on sensitive land?

The availability of power to the nation’s capital sounds strategic. Would the Beehive work without power? What about the Ministries of Defence, Foreign Affairs, Agriculture (Biosecurity), Education and Health? Sounds important and strategic to me. What about the Reserve Bank of New Zealand and Treasury? Don’t they manage our financial system and wouldn’t they be our crisis managers in a financial crisis? Then there’s a mere trifle of around a tenth of the population needing that network to keep working and living.

Bernard also points out the proposed buyer has connections to the Chinese military, and there have been official warnings in the US about him. So the question again is:

But will our government judge a man who was considered by the US government to be a security threat as safer than bunch of Canadian pension fund managers to run a network supplying power to the heart of the nation? Looks like they will. …

This just shows the naked hypocrisy of the Auckland Airport decision. If Auckland Airport is a strategic asset on sensitive land then surely Vector’s Wellington power network is too. If so, the government should reject this latest deal.

Having said that, I think the government should choose hypocrisy over stupidity. We need the money and we can’t afford to damage our reputation as a safe place for international investment any more than it already has been.

I agree hypocrisy is preferable over stupidity in this case, but people should be in doubt the total lack of consistency in the two cases, and that Auckland Airport was merely about polls, not what is good for New Zealand or even a honest belief for or against foreign investment. I can respect people who honestly believe foreign investment is bad. The trouble with Helen and Michael is they know it is good (otherwise would block this deal), but when down in the polls revert to xenophobia to ramp up hysteria against foreigners investing in NZ.

NZPA reports on advice from Treasury released under the OIA, which confirm the decision to sabotage the Canadian bid by way of retrospective regulation was economic sabotage, and worse of all breached our legal obligations under international agreements.

The Government’s moves to block Auckland International Airport (AIA) were strongly opposed by Treasury who said it would breach international agreements, scare foreign investors and damage the economy.

Treasury wrote a scathing paper on the suggestions, saying the benefits of the Government’s proposed policy were “likely to be small relative to the detriments”.

It advised against any intervention in the share bid on three main grounds:

* Legal — “It is almost certainly a breach of our international obligations under various multilateral agreements”.

* Commercial — “Such an intervention would create considerable disruption and uncertainty. By affecting investors’ property rights and reducing value it may cause investors to be sceptical … and more wary of investing”.

* Economic — “It is likely negatively impact on international investors perceptions … increase the risk premium for investment in New Zealand with potential to raise the cost of funds for all New Zealand companies”.

It is a pity the Canadian pension fund is not going to court over this. I think they would have a field day. This now puts on the record that he Government ignored the advice of both the Overseas Investment Office and Treasury on this retrospective intervention. Funny how Helen says we couldn’t have tax cuts earlier because of Treasury advice – they do pick and choose.

Some will argue decisions on investment should be at political whim, and not have any consistent rules or laws around them. You can do that, but we will find there is a lot less investment if people can’t trust the law to be applied fairly.

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.

I’m delighted to see such a strong response from National to the poll driven economic vandalism over Auckland Airport.

Labour are spinning to the media how popular this decision will be, which confirms it was not a decision based on the law. One journalist joked on ZB that he would be surprised if the two Ministers even read the application!

Dr Cullen is quoted as saying:

“We’ve not had a good experience of selling strategic assets overseas,” Dr Cullen said.

Firstly Dr Cullen it isn’t your asset. It belongs to the tens of thousands of share holders, whose net worth you have lowered. Secondly you can’t actually take an airport overseas. Thirdly how do we know what is strategic when you won’t say so in advance. And fourtly it was for a puny 25% voting stake.

The Dom Post reports that business leaders want clearer rules about foreign investment. And this is really the big issue (not just one decision). The rules were changed retrospectively and have been changed in such a way few people can make investment decisions with a high degree of confidence about what the rules are.

At a minimum the Government should list what the so called strategic assets are. No one wins when it is a guessing game.

As predicted here for weeks, the “independent” Ministers has by pure coincidence turned down approval for the Canadian bid to buy a partial stake in Auckland International Airport.

The Canadians only wanted 40% of the shares, with a reduced 25% voting strength. Ironically many of the current shareholders who wanted to sell are foreign.

It is sad to see a Government so willing to do the right thing with the China FTA and ignore NZ First type xenophobia, yet succumb to it on this issue.

The Canadians have a pretty good chance of getting the Ministers’ decision over-turned in Court as it was obvious they pre-determined the matter before they even considered it. From what I can tell, reading the decision, the neutral officials in the OIO concluded allowing the investment would be beneficial to NZ, but the Ministers substituted their own political judgement.

Ben Thomas in the NBR takes a look at the double standards when you look at the China FTA (which I support and Govt does) and the Canadian proposal to purchase some shares off existing private owners in Auckland International Airport, with a maximum 25% voting strength (which I support, but the Govt will turn down):

There’s one footnote to FTA. The two internationalists, Clark and Goff, know that back in New Zealand, there are politicians who are less expansive in their views on free trade and other cultures.

They are ready to stir up xenophobia to take advantage of the electorate’s insecurities, and boost their polling chances.

Your correspondent refers, of course, to Michael Cullen. The finance minister this week will be waiting with baited breath for the decision of his junior ministers (David Parker and Clayton Cosgrove) on whether the Canadian Pension Plan Investment Board can buy 39.5 per cent of Auckland International Airport shares.

Cullen was the driving force – or at least, the public face – of government opposition to the possibility of the Canadians acquiring a “strategic asset” like the airport.

He fronted the decision to amend the Overseas Investment Agency’s test to make the Canadians’ bid for 39.5 per cent of the airport (now only 24.9 per cent of votes) more difficult.

Why does Dr Cullen oppose the Canadian deal so vehemently?

Perhaps one concern is Canada’s poor record on human rights: the country only passed entrenched human rights legislation in the late 1970s.

Perhaps it is the Canadians continued oppression of their French-speaking minority, and refusal to grant the outlying province of Quebec greater autonomy.

Or perhaps, to paraphrase Enoch Powell and more latterly New Zealand First’s Peter Brown, Dr Cullen fears that opening the door to Canadian investment will lead to cultural disharmony and “rivers of maple syrup” in the street.

Very good points. The Govt gets full marks for the FTA, but their behaviour over a mere 25% voting strength in what is already a privately owned airport is petty political posturing.

As NZ First rails against the evil Canadian pension fund, wanting to buy a minority stake in Auckland International Airport, it is useful to recall that the Airport has been in private ownership for around a decade – it is not Government owned.

And who sold it in July 1998? Well the Treasurer did. And who was the Treasurer? It was the Rt Hon Winston Peters. So let us enjoy some of his statements at the time:

“I’m pleased that high-profile New Zealanders like former All Black captain Sean Fitzpatrick are involved in promoting the float, which shows it is a float for the people.

“With the recent criticism of MMP in the past week, it is good to see such a positive event that would probably not have occurred under the old electoral system,” Mr Peters said.

and

Reports that phones were running hot with people seeking copies of the Auckland International Airport Investment Statement were pleasing, Treasurer Winston Peters said today.

“We have heard reports of some Post Offices running out of copies and of telephone operators being besieged by over 14,000 calls.

Whale Oil has spotted that the NZ Super Fund has both voted for the Canadian offer and agreed to sell its 77 million shares.

So if the Government turns it down, there will be less money available for future pensions!

A massive 63% of shareholders (close to 90% when you exclude the Council stakes) have agreed to sell their Auckland Airport shares to the Canadian pension fund.

Why so many?

Simple.  The Government’s actions have driven the current share price down so much, that it has made the Canadian offer much more attractive.

The next step, assuming over 50% have also voted for the bid, is for David Parker and Clayton Cosgrove to pretend to impartially consider the bid.  They will go through the farce of asking for reports, and taking time to make a decision, and then shock horror they will turn it down.

And then the Canadian pension fund will haul their little behinds into court, and point to massive and compelling evidence they predetermined the matter because persons no less than the Prime Minister (who can sack them) and the Finance Minister (who controls their budgets) has made it very clear they are expected to turn the bid down.

And so the Canadians will get their 24.9% voting share – which is less than the current level of overseas voting strength I suspect.

John Armstrong reviews the latest move by the Canadians:

An unadulterated shareholding of 40 per cent is widely considered to amount to control. However, the act’s criteria refer to “control” – not “ownership”. The distinction is important because the ministers’ decision is open to judicial review.

I am sure the Canadians were aware of this point.

The Prime Minister, who declined to comment on CPP’s move, yesterday suggested a 25 per cent stake fell within the definition of control if the remaining shareholding was widely dispersed, as it is in Auckland Airport’s case.

However, limiting CPP’s voting rights to 24.9 per cent would give the pension fund less influence than that of the Auckland and Manukau City Councils when their two holdings are combined – arguably not control.

The PM’s knowledge and experience of commercial law is limited, to say the least. As Armstrong points out two local Councils will have a combined greater controlling stake.

What is interesting is that her comments strongly suggest it is purely about politics, and not about any actual concern about control of strategic assets.

The law requires the two ministers to decide on the basis of Overseas Investment Act criteria – not political factors. Yesterday’s move by CPP effectively makes it that much harder for Parker and Cosgrove to say “no” without sounding political and ending up in the courts.

I have little doubt it will go to court, if turned down. The comments by all the other Ministers, the off the record briefings, and the decisions by Cabinet to keep changing the rules will make it almost impossible for the Ministers to argue they were not affected by political factors.

The Canadians have today said they will reduce their voting strength in Auckland International Airport to 24.9%, even if they get 40% of the shares.  This is definitely below the level regarded as having “control” and makes it very difficult for the Government to turn the bid down, unless they want to be exposed as total xenophobes.

The Hive reports:

CPPIB intends to voluntarily reduce its voting power for all shareholder resolutions, with the exception of resolutions that affect the rights attaching to CPPIB’s shares, to 24.9% of all AIAL voting shares on issue. CPPIB will also provide that the limitation to 24.9% can only be relaxed or revoked by CPPIB if it is permitted by a New Zealand overseas investment law or regulatory approval to vote more than 24.9% of the voting shares in AIAL on issue. The voluntary restrictions that CPPIB will put in place in relation to its voting rights reinforce the fact that CPPIB will not have control over AIAL in any respect.

The Government’s response will be most interesting.  If they still send out signals saying no, then it will be clear they have done a full 180 degree flip and are now against overseas investment in New Zealand, regardless of control of assets.

A great quote from Bill Ralston which gets to the heart of the matter:

Am I the only person who finds it slightly hypocritical that we move to stymie the Canadian Pension Plan buying one of our “strategic assets” when Dr Cullen’s New Zealand Superannuation Fund is prowling the planet, merrily buying up other people’s strategic assets?

The NZ Super Fund already has assets of $13.2 billion – making it larger than almost any NZ company. And in just another 15 years it will be a staggering $100 billion in size and will own strategic assets in dozens of countries I suggest.

It already own assets in Argentina, Australia, Austria, Belgium, Bermuda, Brazil, Canada (that nasty country which can’t be trusted to own 30% of an airport), Cayman Islands, Chile, China, Colombia, Czech Republic,  Denmark, Egypt, Finland, France, Germany,Greece, Guernsey, Hong Kong, Hungary, India, Indonesia, Ireland, Israel, Italy, Japan, Liberia, Luxembourg, Malaysia, Marshall Islands, Mexico, Netherlands Antilles, Netherlands, Norway, Pakistan, Panama, Philippines, Poland, Portugal, Puerto Rico, Russia, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, UK, and the USA.

And amongst those investments in around 50 different countries are a couple of airports!

Two separate columnists in two separate papers have used the “Muldoonist” tag in relation to Dr Cullen’s overnight secret law change regarding overseas investment in private companies.

Brian Gaynor in the Herald writes:

Finance Minister Dr Michael Cullen’s decision to effectively stymie the partial takeover offer for Auckland International Airport (AIA) is an unwanted reminder of the meddling policies of former Prime Minister Robert Muldoon.

Dr Cullen’s edict was so appalling, and so inconsistent with his policies of the previous eight years, that one can only conclude it was strongly influenced by political considerations ahead of this year’s general election. …

Cullen’s decision was announced nearly a decade after the Crown sold its 51.6 per cent controlling interest in the airport and more than seven months after the first offer for AIA was revealed. As a result the offer has been a terrible waste of resources – the airport had already spent $5.8 million on the process by the end of December.

Meanwhile Garry Sheeran in the SST says:

The crudely political nature of the government’s late-night move to block the Canadian bid for 40% of Auckland International Airport is highlighted by a barely cold, two-year review of the Overseas Investment Act.

That review, enacted into law in August 2005, was supported by a government “committed to maintaining a liberal investment regime”.

The legislation’s sponsor, Finance Minister Michael Cullen, said at the time that New Zealand needed foreign capital to develop the economy.

No surprise, then, at the collective gasp which greeted the same minister’s announcement late on Monday that the same act would be amended to send the Canadians packing, once and for all.

Political commentator Chris Trotter said the use of an order-in-council to rewrite the law harked back to the 1980s. “It would have been just another day under Rob Muldoon,” he said, “but using the governor-general and most of the cabinet to rewrite the rules is not something we are used to any more.

Also the NZ Herald Editorial calls on Cullen to name the assets covered by this new law:

Dr Cullen suggests the infrastructure he has in mind comprises only a “narrow” group. The inclusion of Auckland airport means it could be narrower. But, hopefully, dams and ports are the other ingredients. Certainly, there is no need for the likes of Television New Zealand, which can, in an emergency, be easily replicated.

The other factor in this equation is xenophobia. That is the unspoken reason for the obstacles installed by many overseas jurisdictions. It should not be an issue here. Dr Cullen must list what the Government considers strategically important infrastructure. That should be the prelude to a reasoned debate. From that, it should not be difficult to reach bipartisan agreement on strategic assets, and the degree of protection they should be afforded.

Indeed Dr Cullen has resorted to Winston’s old trick of xenophobia. And it is quite unacceptable for people not to know which assets or companies the Government now deems strategic. Why would people spend money investing in a company when the Govt by overnight whim can declare it is strategic and off limits.

Has been a somewhat messy couple of days for John Key as he took a day to clarify National’s position on Auckland Airport and also gave a wrong impression on National’s treaty policy.

I’d guess that with such a huge lead in the polls, there has been a semi-natural inclination to try and avoid saying anything which might upset the pundits.  I don’t mean this to suggest that National will not have any policy which differs from Labour – I am sure it will. But that when Labour manufacture an issue, such as Auckland Airport, an inclination not to be forced into declaring whether or not one will reverse it is understandable. But a failure to clearly state what one will do in response can be worse than taking a position, even an unpopular one.

I’m pleased to see today that this has not happened with Labour’s attempts to buy Toll. Instead of fudging on their position, I am very glad to see NZPA report the following from National:

A National government would consider selling off a renationalised railway company, the party’s finance spokesman Bill English said today.

Finance Minister Michael Cullen confirmed today the Government had made an offer for Toll’s rail and ferry business, but the Crown and company remained poles apart about a fair price.

Mr English said the last thing New Zealand wanted was the Government to own the rail company.

“We certainly wouldn’t be buying Toll. The worst thing for our railway network would be for the Government to take it over using the OnTrack company, (the State-owned enterprise which runs the rail tracks) which is chaired by the Labour Party president Mike Williams,” Mr English said.

“We would be back to strikes in school holidays on the ferries and featherbedding in the system. We need to look after the taxpayers’ interests and the network and the best way to do that is to have a competent operator.”

Governments had a bad record on operating rail companies and he did not think Labour would be any better.

If the purchase was completed then a National government would get out of the business as quickly as possible.

Excellent.  A nice strong attack on the Government, a reminder of the bad old days, and a very clear response.

Now going back to Espiner, he writes:

The wonder, then, is that he did not say this loudly and clearly on Tuesday. There were certainly grounds for attacking Labour. The Government has intervened late in the piece, effectively shifting the goalposts. It has all but admitted it has done so for populist reasons. Allowing foreign investment in our companies has never bothered it in the past – indeed, Labour used to welcome it.

Labour remains responsible for selling some of New Zealand’s most strategic assets of all, such as Telecom, the railways, and more recently, the national electricity grid.

Nevertheless, Labour has snookered National over this one and both parties know it. I’d hate to think that Labour announced the new provisions purely to trap Key, because that would not only be the height of cynicism but terrible government. I’m sure it didn’t. But it would surely have crossed Labour’s mind.

I suspect they did actually. Not solely, but their decision was a terrible unprincipled act. That is why it should have been attacked strongly.

I understand Labour has a series of other traps for Key this year, and it’ll be interesting to see whether National’s leader is a little more careful where he stands.

As I said above, the response to a possible buy back of Toll looks much much better.

Will it make any difference to the polls? The short answer is I don’t believe it will. Not in the short term anyway. The average punter doesn’t watch Parliament with a clipboard keeping score of the exchanges (at least I hope they don’t or they’re as sad as the press gallery).

Heh so true

But it might hurt National during an election campaign.

That is the concern.  There’s only a few months to tighten things up.

Lots written on Auckland Airport today. I’ll divide it up into the legal, political, and economic. First of all look at this story by Audrey Young:

On Monday night, after the Australian sharemarket closed, the Government changed overseas investment rules ensuring that if even the Overseas Investment Commission approved the sale, the two ministers with the final say, Clayton Cosgrove and David Parker, would be able to say “no” and withstand judicial review.

I would not be so confident about it withstanding judicial review. Despite attempts to isolate the two decision making Ministers, it is obvious that the issue has been pre-determined for them. And as Chris Carter found out with the Whangamata marina, the Courts do not like Ministers pre-determining issues.

On the political side, Vernon Small blogs:

Labour is cock-a-hoop today over the Auckland Airport (we-won’t-let-it-be-bought-by-a-Canadian-pension-fund-but-don’t-want-to-say-it-that-blatantly) regulation change.

Just a day after Prime Minister Helen Clark predicted the ‘fun would begin’ once National started debating policy John Key has looked surprisingly leaden-footed in response to the change – a popular move with the electorate, I would imagine, but one which National would instinctively reject.

National’s response hasn’t been particularly well-targeted it seems to me. The issues I would focus on are:

• One shouldn’t change the rules at the last second – moves like that destroy investment and jobs and push up interest rates
• The rules should be clear as to what is and is not allowed, and this change means no one will be sure now what the ground rules are

Tracy Watkins has an article in the Dom Post, with the headline being “Nats will not ban airport sale”. Now please bear in mind Tracy does not write the headline even though it is her story. The headline though is a misleading one as it suggests Labour is banning the sale, and they are not. They are changing the rules, but they are not banning it.

On the economic front NZ Herald economic editor Brian Fallow looks at the dangers:

The Government is running risks with New Zealand’s reputation as an investment destination by suddenly turning Overseas Investment Office approval, long a rubber stamp, into a serious hurdle for the Canadian bid for Auckland Airport.

It has changed the rules in the closing minutes of the game.

And it does this reckless thing at the worst possible time.

The country has for 20 years enthusiastically taken advantage of the opportunities globalisation provides to access foreign capital.

Had we not, had we relied on what we ourselves are prepared to save and invest, the economy would be a lot smaller than it is.

Indeed.

Fran O’Sullivan counts the cost:

Helen Clark’s Government has wiped hundreds of millions of dollars off Auckland Airport’s value in a vainglorious move to exert “local control” over an asset that passed into majority private ownership more than a decade ago. …

The upshot is that New Zealand’s hard-won reputation as a “fair dealer” that welcomes foreign investment has now been carelessly hammered by a Government which is bent on milking the Auckland International Airport takeover for political advantage.

What Helen Clark and Finance Minister Michael Cullen forget as they blatantly ramp up the foreign investment bogey during election year is that the 50,000 retail shareholders in Auckland Airport also have votes.

The NZ Herald Editorial labels the move xenophobia:

This is populist politicking, pure and simple. An administration reeling in the polls has stooped to courting xenophobia. Only that explains the timing of the intervention. If the Government genuinely viewed this as the right policy, it could have acted when the airport first attracted overseas interest.

Andrew James in the Dom Post reports:

More than $300 million was wiped off Auckland International Airport’s market value after the Government introduced a late rule change …

$300 million wiped out.

And The Press editorial weighs things up:

… But it is doubtful if it is much more amenable to the national interest — whatever that is — under its present ownership than under Canadian ownership. Both owners would be subject to the same laws and regulations, and liable to the same pressures from governments local and national. Both owners would seek to maximise their profits and returns to shareholders. Materially, the only difference to occur under Canadian ownership would be a larger flow of profits offshore.

New Zealand does not have the capital or human resources to fuel its development, but it does not like the large foreign inflow of people and finance that development needs. The way to solve the conundrum is not to pass regulations but to upskill New Zealanders and make them more wealthy. Then they could own and manage their assets.

The Press gets it somewhat wrong with saying more profits would flow overseas. Because the domestic money freed up from any sale could well result in more money flowing to NZ from overseas.

The Visible Hand  in Economics deals with this and other economic issues. Gives a nice list of benefits and costs of foreign investment.

The Government’s decision to change overnight without warning the rules around overseas investment into NZ is surely a sign of poll panic leading to a desperate attempt at populism.

This is not just about Auckland Airport.  That deal was looking shaky anyway.  It is about having consistent rules that are not changed halfway through a process. And it is also about having a degree of objectivity about over investment decisions.

Financial journalist Bernard Hickey blogs:

The government’s decision overnight to invent a new rule that allows it to block the sale of Auckland Airport is a stunning turnaround of decades of official policy. It will hurt our ability to encourage foreign investors to come here and help us pay for our current account deficit. It is also another sign that the government is on its last legs. Fearing it may not be in power for too much longer, it is showing its true colours and is embedding its naturally anti-foreign-investment instincts into law. 

Suddenly the government has decided that selling the Auckland Airport is a bad idea. It has invented a rule that says it can block any sale of ”strategically important infrastructure on sensitive land” …

I believe there could be a lot of sensitive land out there that needs to be protected from foreign investors. After all, this land could be insulted or bruised in many ways. Are you confident that a minister of the crown can decide this for the nation without reference to Parliament or voters in an election? And will foreign investors give our government the benefit of the doubt whenever they’re considering buying an asset here on “sensitive land”?  

There are a hundred of these types of assets on this type of land. What about our banking system? There is no more strategic asset. Should the buildings with the servers hosting all our accounts be seized back by the government? I jest just a little here, but it shows the absurdity of this decision and how it could be extrapolated by an even more insensitive and insane government. For example, what about the assets of Fletcher Building. It is held in large part by foreign investors and is responsible for a good chunk of New Zealand’s public and private infrastructure building. Sounds a good enough reason to stop foreigners from owning it.

Read Bernard’s full column.  It is justifiably scathing.  This is a kneejerk abandonment of a decades old policy. And it is not a reversal after public consultation, and careful policy analysis. It is poll driven panic politics. Bernard goes on:

And finally, what was the government of a debtor nation with a current account deficit of around 8% of GDP thinking? That it doesn’t matter if we discourage foreign investment? That the foreign institutional investors will understand if we change our minds about the fundamental rules of the game right at the end of a bidding war? That they won’t mind? This is a plainly dumb thing to do when we need foreign investors to keep funding our way of life and building up our infrastructure. We spend more than we earn. We need to borrow from foreigners to do that or we need to encourage foreign investment.

What will turning off foreign investors mean for voters? It will mean higher interest rates on mortgages. When foreign investors believe we are a riskier proposition, they will increase the risk premium they demand for the money they lend us. That will increase wholesale interest rates and that will be passed on (as we’ve found in recent weeks) to us in the form of higher mortgage rates.

What on earth was the government thinking? Clearly, it was not thinking clearly at all.

And NBR Editor Nevil Gibson writes:

The simple take from the government’s decision to tighten overseas investment rules is that the country’s ports and airports will be run more by political whim than business strategy.

In a sudden move, taken a year after the first move by overseas interests to take control of Auckland International Airport, the new rules extend the ‘importance of local control’ to the approval process.

Under the Overseas Investment Act regime, two cabinet ministers have to approve changes of ownership of ‘sensitive land.’ In other words, political imperatives are paramount to business ones.

Even if one agrees with the rule change, the way the Government has gone about it is atrocious. The Canadian Pension Fund could have saved millions of dollars if it was told a year ago, the Government will not allow the airport to be sold.  They could have announced an intention a year ago to change to the rules and consult on them.  Investors – both domestic and foreign – will be very wary of a Government which acts so capriciously. And as Bernard Hickey says – the price may come in higher interest rates.