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Partial state asset privatisation a step in right direction

Media release
May 19 2011

Partial state asset privatisation a step in right direction

New Zealand needs to play catch-up on infrastructure investment

Plans to partially privatise state-owned electricity generators and mining company Solid Energy have been welcomed by Deloitte energy and infrastructure leader Paul Callow.

Finance Minister Bill English today announced a three- to five-year programme from 2012 to sell off minority shares in Mighty River Power, Meridian, Genesis and Solid Energy, and to scale back the existing shareholding in Air New Zealand.

Mr Callow says the initiatives have at last provided greater clarity about the Government’s economic priorities and its desire to create an environment to help lift the performance of the assets it owns.

The plan has a threefold benefit of reducing Government debt, encouraging the companies to perform better in the future, and providing a local and attractive new investment destination for savings funds, he says.

“This model has worked well in the past and Air New Zealand is an example of what can be achieved when a company part-owned by the Government is subject to market disciplines,” Mr Callow says.

“Privately owned companies are subject to pressure from shareholders demanding market rates of return and pressure from customers to deliver the services they need creating strong incentives to raise performance.”

The mixed ownership model proposed for the SOEs does raise questions of whether the Government needs to own the majority of the companies it is partially floating, or if it can afford to have that amount of capital tied up in assets which could be 100% investor owned.

“The need for capital elsewhere is pressing and whatever is left tied up in SOEs reduces the amount available for investment in much-needed infrastructure projects.

“New Zealand is well behind the play in its infrastructure development and needs to step up several gears and pedal hard to make up the ground we have lost to other developed economies over the past 10 or 20 years.”

ENDS

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