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The Mapp Report: Local Govt - What's Its Role?


One of the critical issues for any government, central or local, is to work out its core responsibilities. What has to be done by government, and what is best left in the private sector.

Proposed takeover of Vector

The Herald on Sunday reported on a joint submission to the Royal Commission on Auckland Governance, by Auckland Regional Council (ARC), Auckland City Council, Manukau City Council and Papakura City Council to take over ownership of Vector, the power lines company mostly located in Auckland and Manukau City. Vector is 75% owned by the Auckland Consumers Energy Trust (ACET) and 25% directly by institutions and individual shareholders. The company is listed on the Stock Exchange.

The three local authorities and the ARC have proposed taking ownership of the 75% shares owned by ACET. The beneficiaries of ACET, who are the power consumers, would be paid $4,000 each. Of course the consumers would then lose out on the dividends they currently receive.

What is the reason?

The basic question to be asked is why the local authorities should do this. Is it their core business to own power lines?

They clearly intend to borrow to fund the purchase, using the dividends to pay the interest.

Will they be putting in additional capital to achieve new objectives, such as greater undergrounding, or will they be little different to their ownership of any other assets, such as Auckland Airport or the Port of Auckland, and act as passive owners?

An unusual step

It does seem an unusual step for the local authorities to take. There is no compelling reason why they need to own the shares in Vector. At a time when TLAs are having to more closely focus on their core businesses (roads, drains and other public infrastructure) it would seem wrong to be moving into a sector of the economy where substantial existing competitive forces are at play.

The role of the Royal Commission is to improve governance in Auckland. That does not seem to include TLAs taking over part of the competitive economy.

28 March 2008



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