Why National's plans for partially privatising our assets is a bad idea

[shrub]

I'm not an economist, but I have a few ideas, and I can see some huge flaws outside of the overused and emotive "selling the family silver" bollocks.

1. Partial privatising is the worst option. If the state owns 51%, then they will always the controlling interest, which means power prices may be held down etc. That limits the potential profitability of the company which means the market has to factor that into the equation. Partial sales is an attempt to make the sale more politically palatable and gives the worst of both worlds. Either keep them or sell them outright.

2. Selling shares in all of the power companies is excessive - English hopes to get around $5bn, and given the NZX has a capitalisation of around $53bn with $4bn already in energy companies, that would make 15% of the NZX in energy shares which is way too high. Fund managers won't be as keen as we're told they are because they'll be spoilt for choice. Apart from specialised energy funds, having 15% of your assets in one sector is not prudent portfolio management.

3. The technology is probably 10 years away from being able to extract energy cleanly and efficiently from coal, so why sell it now when it will be worth a lot more then?

4. Cleantech energy is predicted to be one of the strongest markets in the future producing trillions in revenue and with our existing energy companies we have the infrastructure and resources to capitalise on that, but we are still sitting on our hands - again, why sell something that will be worth a fortune while it's cheap?

5. Government revenue is down with no real likelihood of rising, and we are spending more than we earn, so why sell an income producing asset to purchase an asset that generates no revenue (schools etc) when times are tough?

[Vgygrwr]

Hate to think it but could it just be there are some really good mates looking for a long term tax free capital gain. Any renewable energy source will surely increase in value as the oil runs out.

[darkwolf]

One of the factors that needs to be considered about the "Revenue" argument is that we need to remember that we currently have a significant amount of debt. The costs to service this debt, interest etc can mean that the extra revenue we receive does not translate to a surplus.

The purpose of investments is a) to generate revenue b) to provide a place to save. Again, we have a large debt issue. Though it's nice to have the extra income from dividends etc the funds held in the investments may be better utilised by reducing debts or some such.

Ideally, we wouldn't need to sell these assets but we also wouldn't have experienced expensive events such as the Canterbury Quakes, Pike River and Rena. These events have taken a toll and it isn't a bad move to use the investments for the purpose they were intended.

[MisterD]

I'm not an economist, but I have a few ideas, and I can see some huge flaws outside of the overused and emotive "selling the family silver" bollocks.

1. Partial privatising is the worst option. If the state owns 51%, then they will always the controlling interest, which means power prices may be held down etc. That limits the potential profitability of the company which means the market has to factor that into the equation. Partial sales is an attempt to make the sale more politically palatable and gives the worst of both worlds. Either keep them or sell them outright.

You're neglecting that these companies have an opportunity, with an expanded capital base, to invest in growth. The government control gives a stability to the company, stock market float adds extra transparency and discipline. The government should end up with 51% of a much bigger entity.

4. Cleantech energy is predicted to be one of the strongest markets in the future producing trillions in revenue and with our existing energy companies we have the infrastructure and resources to capitalise on that, but we are still sitting on our hands - again, why sell something that will be worth a fortune while it's cheap?

Leaving aside the fact that there appears to be no "cleantech" that can exist outside of a subsidised environment (Solyndra, anyone?), see point 1. Expanding the capital base of these companies would allow them to invest more easily in new technology and I'd rather that was under the commercial scrutiny of professional investors than some behind-closed-doors lobbying of government.

[shrub]

You're neglecting that these companies have an opportunity, with an expanded capital base, to invest in growth. The government control gives a stability to the company, stock market float adds extra transparency and discipline. The government should end up with 51% of a much bigger entity..

That is probably the only really strong argument I know of in favour of partial privatisation. The only flaw with that argument is that most of the investors look like they will be institutional investors like Tower, and depending on the trust deeds of the fund purchasing the equities, they will almost certainly buy and hold. However, if, say, they sold two parcels of 24.5% of Meridian to Energex and China Light and Power, then it would be logical for those companies to invest capital in Meridian in order to improve the value of their asset by building it's capacity and capabilities. But a scenario like that won't happen for several years, if ever, so is hypothetical.

Leaving aside the fact that there appears to be no "cleantech" that can exist outside of a subsidised environment (Solyndra, anyone?), see point 1.

Ah yes, Solyndra. A privately run company that has had government investment. I am old and my memory fails me, so please remind me, how well are they doing? I'm guessing that because they're private they're doing really, really well.

Expanding the capital base of these companies would allow them to invest more easily in new technology and I'd rather that was under the commercial scrutiny of professional investors than some behind-closed-doors lobbying of government

The modern MMP government is one where it is quite hard to get deals done behind closed doors - despite the left's insistence that is happening with asset sales. Having worked in a senior role in a very big publicly listed company there is an awful lot that happens behind closed doors there, and major shareholders (who are rarely majority shareholders) are able to exert enormous pressure on corporate governance. Plus we have one of the least corrupt governments in the world, so I think your argument is a little weak.

[shrub]

One of the factors that needs to be considered about the "Revenue" argument is that we need to remember that we currently have a significant amount of debt. The costs to service this debt, interest etc can mean that the extra revenue we receive does not translate to a surplus.

The purpose of investments is a) to generate revenue b) to provide a place to save. Again, we have a large debt issue. Though it's nice to have the extra income from dividends etc the funds held in the investments may be better utilised by reducing debts or some such.

Ideally, we wouldn't need to sell these assets but we also wouldn't have experienced expensive events such as the Canterbury Quakes, Pike River and Rena. These events have taken a toll and it isn't a bad move to use the investments for the purpose they were intended.

The asset sales were planned well before either quake or Pike river, and Rena is only a few million, and they're not being sold to repay debt, plus I believe that the dividend yield is higher than the rate we (currently) pay on our loans.

[ynot slow]

Interesting Key stated last night we have approx $222-225billion in assets but wanted to sell only $5-7billion.Sounds feasable the figures,but then we know they can be interpretted wayyy differently eh.

[steve_t]

I thought the law was going to be changed so no single entity (outside of our government) could legally own more than 10%.

Would $16 billion more debt put us closer to being like Italy/Greece?

[MSTRS:Me]

Would $16 billion more debt put us closer to being like Italy/Greece?

Then, because of CER, Oz could bail us out...

Correct me if I'm wrong, but quite a few years ago NZ had a Govt owned bank, the Post Office, which a dickwad govt minister decided would be a great thing to sell. To ANZ. Then another dickwad MP sold us on how great it would be to 'have our own bank'...

[steve_t]

Then, because of CER, Oz could bail us out...

Oooh, could that be a plan? Rack up so much debt that we can't service the repayments and then beg Australia to make us a state?

[Oscar]

The asset sales were planned well before either quake or Pike river, and Rena is only a few million, and they're not being sold to repay debt, plus I believe that the dividend yield is higher than the rate we (currently) pay on our loans.

I'd like to see a comparison between dividend yield and interest payments - I find it very dificult to believe that interest rate is less than the yield (actually half the yield as only 49% is being sold).

Notwithstanding that, who's to say that the interest rate will remain at that level? Indications are that the cost of Sovereign debt will increase.

[HenryDorsetCase]

I think the most telling point Goff has made in any of the leaders debates is he challenged Key innumerable times to put the briefing papers and the numbers in the public domain. I believe it is significant that the numbers have not been made public. I have inferred from that that in fact the numbers do not stack the way we have been told by Key they do, therefore the only reason for sale is ideological. I therefore will be voting accordingly. Green, Legalise Cannabis or NZ First, I havent decided as yet.

[Oscar]

I think the most telling point Goff has made in any of the leaders debates is he challenged Key innumerable times to put the briefing papers and the numbers in the public domain. I believe it is significant that the numbers have not been made public. I have inferred from that that in fact the numbers do not stack the way we have been told by Key they do, therefore the only reason for sale is ideological. I therefore will be voting accordingly. Green, Legalise Cannabis or NZ First, I havent decided as yet.

How can the Govt table something that doesn't exist?
The info. that hasn't been released relates to the cap on investment by any one investor.
Limiting investment to 10% is a political decision, not an economic one and is something that can be addressed if and when the shares are sold.

[Swoop]

I therefore will be voting accordingly. Green, Legalise Cannabis or NZ First...

Interestingly, a few chaps at work have decided to vote for winnie. The reason they state is that they can't trust either major party (one person being a dyed-in-the-wool labour supporting unionist!) but want someone in parliament who will happily keep an eye on them and speak out if needed.

My prediction of winnie being ousted this time around, may be well off of the mark if others are feeling the same way about the "majors".

[oneofsix]

Interestingly, a few chaps at work have decided to vote for winnie. The reason they state is that they can't trust either major party (one person being a dyed-in-the-wool labour supporting unionist!) but want someone in parliament who will happily keep an eye on them and speak out if needed.

My prediction of winnie being ousted this time around, may be well off of the mark if others are feeling the same way about the "majors".

They have a point as Winnie likes to blow the whistle. It has the added advantage of seriously pissing the major parties off which should be good for a laugh. If John tries any funny deals with the asset sales Winnie will shout cause he knows that is how he gets votes.