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Roll-call of blunders marks asset sales agenda

4 September 2012

Roll-call of blunders marks asset sales agenda

National’s flagship asset sale policy has been marked by mismanagement and crisis while the real economic problems facing our country have been neglected, Green Party Co-leader Russel Norman said today.

The Green Party today released a list outlining the economic and political mismanagement of the asset sales policy by the National Government and renewed its calls for the policy to be dropped.

“National’s flagship asset sales programme is in crisis and needs to be scrapped,” said Dr Norman.

“The asset sales programme has lurched from blunder to blunder while National has neglected the economy and failed to create jobs.

“Asset sales would create not one extra job for New Zealanders, yet they are the centrepiece of this government’s economic agenda.

“Now that the Government’s mismanagement of the water rights issue has caused a delay in the sale of Mighty River, it is the perfect time to drop asset sales altogether.

“New Zealanders don’t want our assets sold. It is time for asset sales to go the same way as National’s plans to increase class sizes and mine our most precious land – in the dustbin,” said Dr Norman.

National’s asset sales: a roll-call of blunders

From the start, National failed to come up with a good reason for the asset sales. Each reason they’ve offered has been comprehensively disproven:

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Privatisation would lead to greater efficiency and better management

Treasury found “there is little evidence of systemic under- or over-performance in the SOE portfolio”. Mighty River Power was recently awarded Energy Company of the Year at the Deloitte Energy Excellence Awards. The history of privatisation is that private mangers often under-invest and take big risks that have led to the Government needing to buy-back the companies (eg AirNZ, Kiwirail) or make the investments that the private owners have failed to make (eg Telecom).

Asset sales would allow the Government to reduce debt

The Budget shows that asset sales would make the deficit worse by about $100 million per year. This is because the Crown can borrow at under 4% while the companies return far more than that.

Privatisation would give the companies access to capital for growth

They can already raise capital on the bond market or by not paying out dividends Partial privatisation mean that the Crown would have to find money to participate in any new share floats by the companies to maintain its 51% share.

Asset sales would increase competition

Private power companies complain right now that competition with the SOEs is too strong and preventing them from raising prices. Public ownership allowed National to force Meridian and Genesis to swap some generating assets, in a move it claimed would increase competition. That power would be lost if the companies were privatised.

Asset sales would let “mum and dad” buy shares

50% of families have less than $1,700 in the bank. Only 17% of people polled say they would be interested in buying shares. And Treasury expects only 7% of the adult population would take part in a share offer. “Mum and dad” simply don’t have thousands of dollars sitting around to buy shares in the companies that already belong to them.

Asset sales would cut power prices

The private power companies have higher prices than the SOEs. 12% higher on average. This was originally denied by the Government when they denigrated Green Party and Greypower research, but it was later revealed that Treasury had provided a paper to the Government confirming that the private power companies have higher prices. Adding more privatisation to our energy market would only increase prices as private shareholders demand higher returns to cover their higher cost of capital. Asset sales would increase power prices.

The mandate that wasn’t there

As recently as this Monday, John Key has said that he received an “overwhelming majority” for asset sales in the 2011 election. Actually, the majority, 51.5%, of people who voted in 2011 voted for parties that oppose National’s asset sales. The asset sales legislation passed by only one vote – and only because National rorted the system in Epsom and Ohariu to get its sidekicks into Parliament.

National has mismanaged every aspect of the sales process, and it’s the taxpayer that is picking up the bill:

The share giveaway

Mr Key announced the so-called ‘loyalty bonus’ share giveaway to retail investors who hold on to their shares without costing the scheme and without the legislative authority required to give away potentially hundreds of millions of dollars’ worth of public property. Later, he admitted that he may need Parliament’s approval before he can give away our shares and he doesn’t have it. The cost of the share giveaway is still unknown. The experience in Australia is that share giveaways don’t stop people selling their shares, anyway.

The sham select committee

The select committee process was a shambles and a sham with submitters being given only five minute slots. National Maggie Barrie demanded that a submitter identify which party they voted for. Treasury submitted a draft report before the committee had heard all the submitters. The government moved to return a report early, before Treasury could submit a report requested as to whether private companies had higher prices, now we know why, because Treasury's report confirmed it.

No limits on foreign ownership

National says it is its “expectation” that 10-15% of the shares would end up in foreign hands (that’s 20-30% of the shares sold) but there is no mechanism to prevent more of the shares than that going to overseas ownership. Contact Energy, for example, started off with 240,000 New Zealand investors but only 80,000 are left. The bulk of the shares are now owned overseas. National voted down amendments to the asset sales legislation designed to limit foreign ownership.

The water rights issue

The most obvious hurdle facing the asset sales is the ownership of the rights to the water used to power the generators. The issue was identified early on by iwi but was dismissed by National. The Crown’s legal position in any potential court action was made much worse when Mr Key said he could ignore the Tribunal, even though by law he is required to give it due consideration. The uncertainty has undermined the potential sale price. By leaving the issue unresolved to the last minute, National has been forced to delay the sales by six months.

The market situation

While the government has been going headlong for privatisation the potential value of the companies has been undermined by Rio Tinto threatening to close the Tiwai Point smelter, and the Kawerau pulp mill cutting demand for electricity, on top of already flat demand. The Government has had to admit that Solid Energy is in no position to be sold after coal prices collapsed.

The referendum

Over 250,000 New Zealanders have signed the petition calling for a referendum on asset sales. With the delay in the sale of Mighty River, there is no reason why the referendum can’t be held before any sale takes place. National has refused to pay any attention to the calls for a petition so far but how will they be able to continue with sales after a referendum on their precise asset sales policy overwhelmingly rejects it?

The mounting costs

National has spent over $16 million so far on these asset sales that the vast majority of people don’t want. The delay to the sale of Mighty River will cost another $10 million, according to the Prime Minister. There’s a further $96 million budgeted for costs like PR spin doctors, lawyers, ads, and brokers’ fees. On top of that, there’s unbudgeted costs to the companies themselves, Waitangi Tribunal and Court costs, and hundreds of millions of dollars for the share giveaway. All for a policy that would carve a permanent $100 million a year hole in the Government’s books.


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