Selling our SOEs

While Finance Minister Bill English and State Owned Enterprises Minister Tony Ryall are putting on brave faces, there must be a few Government MPs who are more than a little disappointed at the amount of money the partial sell-down of Meridian Energy raised.

Prime Minister John Key went into the 2008 election with a policy of the partial sale of five assets controlled by the Government: Mighty River Power, Meridian Energy, Genesis Energy, coal producer Solid Energy and Air New Zealand, the national carrier already listed on the New Zealand Stock Exchange.

The sales were meant to raise between $5 billion and $7 billion to be used to build roads, schools, hospitals, pay off debt and reduce New Zealand's reliance on overseas borrowing.

The Government has raised just under $3.6 billion from the partial sales of Mighty River Power and Meridian. Solid Energy was withdrawn from sale and was lucky not to be closed down when the extent of its debt was revealed.

The coal producer received a bail-out from the Government and a partial agreement from its bankers on providing future credit.

That leaves Genesis, the smaller of the energy companies, and Air NZ for the Government to sell - and to try to get at least $5 billion to meet its minimum sale proceeds target.

It will be tough going.

Mr Key rightly says he received a mandate for the sell-downs at the election because the Labour and Green parties campaigned against the policy, and lost.

However, neither Labour nor the Greens gave up and have forced a referendum to be held later this year.

This newspaper does not believe the referendum result will be binding on the Government - it was elected to govern.

However, what the Government will fear is the ongoing negative publicity being generated by its opponents as the referendum draws closer.

Some National Party MPs with slim electorate majorities, or those well down the party list, will be thinking about their re-election chances if the asset sales programme becomes unpopular with even their own supporters.

Mr Key is under real pressure to prove to the electorate that the decision of selling state assets does indeed meet his lofty goals for returns.

The lack of success of the Mighty River Power float, where the shares remain trading below issue price, and the lower demand for Meridian shares will be thrown up at every opportunity.

Air NZ is the most likely company to be sold down because it is already listed on the NZX, the Government owns 73%, the company is growth-oriented and the company is well researched and understood. Air NZ is one of the world's best performing airlines and will be an easy sell to investors.

On the other hand, Genesis is not well known and will be a much harder entity to sell - experienced or new.

Suggestions are being made for Genesis to be split up and sold off in parts to existing listed energy companies, saving the Government the cost of a public listing and the printing of a prospectus.

Political risk has been blamed for the slide in Mighty River shares and the less-than-expected take-up of Meridian shares.

But it is too easy to point the finger of blame at Labour and the Greens - it is their job to fight battles based on their political beliefs.

It is a reasonable strategy for any Opposition to take and the risks and reward strategy of business investment comes into play in these circumstances.

The Green Party's opposition to the Sky City Entertainment convention centre deal is a case in point.

No future government is bound by the decision of a previous administration, but Labour Party leader David Cunliffe points out contract law in New Zealand plays an important role in ensuring legislation is not constantly revoked with every change of government.

Sky City will be weighing up the political risk of proceeding with the deal of building a convention centre in return for having more gaming machines. It is business.

And when it comes to the business of government, Mr Key and his colleagues will no doubt now be thinking carefully about its SOE sales strategy - and considering whether it should pause the programme until investor sentiment returns.

 

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