OIC Releases Withheld Advice To Ministers
OIC Releases Withheld Advice To Ministers On Powerco Sale
The whole shabby business of Prime taking over Powerco attracted considerable public controversy in 2004. The Campaign Against Foreign Control of Aotearoa (CAFCA) asked the OIC to supply us with its file. It duly sent us two hefty envelopes of papers.
The most interesting reading was the OIC’s October 14, 2004, letter of advice to the Minister of Finance and Acting Minister for Land Information. It was a five page, 26 paragraph long letter. Only one paragraph was withheld from release, but that was crucial, as it apparently spelled out the grounds on which the Ministers could refuse consent to the takeover. CAFCA appealed to the Ombudsman and, in March 2005, we received the previously withheld paragraph. It is under the heading "National Interest matters – the ‘Other matters’ criterion", and reads:
"Ministers may consider that the manner in which Prime’s proposal is structured (in terms of the proposed NZ SPARCS [i.e. debt securities, which are worse than junk bonds. CAFCA] to holders of capital bonds and [certain] holders of ordinary shares in Powerco) may be a matter that they should have regard to in assessing whether the proposal is in the national interest under the ‘other matters’ criterion. The manner in which the proposal has been structured, combined with the application of the Takeovers Code and a Takeovers Panel exemption, may leave some New Zealand Powerco share- and noteholders with, it is alleged, parcels of NZ SPARCS which may be worth less than their face value".
So, the OIC actually advised the Ministers of exactly the scandalous outcome that came to pass. But it was hasty to advise them not to use that as reason to refuse the application. The next two paragraphs of its letter read:
"However, while it is possible to use this ground to refuse the application, there are substantial risks inherent in this approach, as it brings with it a heightened probability of judicial review. The ‘other matters’ criterion is not a ‘catchall’ clause for any matter the decision-maker may wish to consider. The factors considered under this criterion must be relevant to the national interest. The factors must be reasonable and capable of justification. What is relevant to the national interest must be determined from the scheme and purpose of the Act. Essentially, national interest factors must relate to the supervision and control of foreign investment in some way and not some other consideration (such as the application of an industry or domestic policy).
"In particular, Ministers should have regard to the Government’s stated policy that it welcomes and encourages investment which meets the tests set out in the [Overseas Investment] legislation, and consider the extent to which, should the proposal be refused, there may be a negative impact on the Australian business community, which may in turn impact on trans-Tasman relationships".
So there we have it. The OIC says that we musn’t upset the Aussies. And it successfully put the frighteners on Cullen by warning of a judicial review, if he refused the takeover on the grounds cited in the withheld paragraph. It worked, because Cullen gave the fear of a judicial review as exactly one of the reasons why he "reluctantly" allowed the takeover to proceed.
All of which goes to show what an absolutely gutless foreign investment regime we have now; that the OIC sees its role as a doorman, a facilitator of foreign investment, not a regulator; and that this Government is too timid to do anything about it, even when it so obviously and publicly expresses disquiet about such a shonky deal. Things will only get worse under the new Overseas Investment Bill currently before Parliament.