Posts Tagged ‘Asset sales’
The 15% of Ohariu voters who say selling state-owned assets is not an important election issue are right.
Selling, more correctly selling down, or keeping 100% of the power companies and Air NZ won’t create more jobs, end our balance of payments catastrophe or even result in cheaper electricity.
The other 85% look fully capable of bursting ideological blood vessels. Sell or hold, when the forces of darkness win, as one of them will, there’s going to be a bitter aftermath during which vows of revenge will flow forth.
But these people should get a grip. Big picture – who owns these assets will make virtually no difference to the country’s economic future.
For starters we’re talking about halving any effect that could be had, good or bad, because the Government only plans to quit at the most 49% of its holdings.
The pluses for selling (improved investment opportunities and having a bit more cash) are startlingly small, but the negatives (reduced government income and a wealth transfer) are hardly slam dunk either.
Whichever way this fight goes, the result will look a hell of a lot like the status quo.
Anyone wanting real change to our economic fortunes should look elsewhere.
Rod Oram Sunday Star Times piece on rail’s revival overlooks one big issue.
Significant parts of the rail network – for example the Napier to Gisborne line – are million dollar millstones and should have been shut down years ago.
KiwiRail has given the affected regions two years to come up with viable clients so these lines can stay open.
Declaration of interest here – I’m a supporter of the Napier-Gisborne rail trail.
Lines like the Napier-Gisborne one are big culprits in the underinvestment in rail over the years, sucking up good money to be invested after bad. At last count, one train a week travels on this line, returning to Gisborne pretty much empty.
Like many of the marginal lines it is incredibly expensive to maintain thanks to its tough typography (which BTW is why it’d make a great rail trail).
Getting it up to speed, if KiwiRail wants to keep it open, will also require huge investment, inevitably continuing the drain on the good parts of the business.
BigCake has quietened down a bit over the nationalisation of rail, because the new owners have done what the private sector couldn’t or wouldn’t do – invest.
But there’s still the fundamental issue that parts of the rail network are commercial duds and, if not closed, will continue to weaken the rail network as a whole.
Government ownership is just going to make it that much harder to do anything about this.
[Further declaration of interest - I worked for Tranz Rail from 1999 to 2001]
An old myth is that the Chinese word for crisis is a combination of the characters danger and opportunity.
It’s a great idea, but it’s a “curious specimen of alleged oriental wisdom“.
However, it does give you a clue about how to handle crises.
In today’s NZ Herald, columnist Brian Gaynor sees opportunity in the Christchurch earthquake.
He says although the quake has had a devastating impact on local residents “it will divert resources into an area of the economy that is much more likely to take us out of the recent recession.
“The economic argument, which is becoming increasingly popular in the United States, goes a bit like this.
“The consumer, who accounts for around 70 per cent of economic growth, is shopped-out because of too much debt and the depressed state of the housing market. In other words economic recovery is not going to be consumer-led, there have to be other economic drivers.
“Construction and infrastructure-led recoveries are obvious alternatives to a consumer-led recovery.”
BigCake has posted before on why our spending power has taken a hit. It’s not just that we’re now more sensible with money and debt, but we’ve run out of ways to ensure we can continue to buy what we want rather than what we need.
These mechanisms are:
• Two-income families
• Working longer
• Debt.
The Global Financial Crisis killed the last one.
And now to the danger bit in a crisis.
Gaynor says influential US business people, looking for ways to fill the economic hole left by newly thrifty consumers, want US federal and state governments to sell infrastructure assets and use the proceeds to build new infrastructure projects or repay debt .
“A similar approach needs to be looked at in New Zealand because the debt-loaded consumer is in no position to drive the economy out of recession through increased spending.
“An obvious alternative is for the Crown to sell minority shareholdings in its commercial companies and use these proceeds to invest in the country’s rundown infrastructure assets.
“The new Auckland Super City could do the same by selling a stake in Ports of Auckland and a number of other assets and use the proceeds to invest in badly needed infrastructure assets, particularly roads and public transport.
“Unfortunately, the domestic political environment is not sympathetic to that approach so it looks as if we have to rely on a natural disaster to create a construction/infrastructure led recovery.”
There’s a growing heap of stuff that needs to be sold.
Gaynor says “it is patently clear that we are not going to have a consumption-led recovery …
“…the preferred option is to have a government policy-led construction/infrastructure boost instead of just waiting for the next natural disaster.”
BigCake would add this boost should be funded by asset sales as Gaynor suggests, not debt (of which we have already got more than enough).
A follow up on my earlier post about state businesses creeping into pastures that at one time belonged to the private sector.
Missed from the list in this post were:
• ISP Orcon, a subsidiary of state-owned enterprise Kordia, picking up NZ’s second largest website hosting company, iServe, for an undisclosed sum. That was back in May. Orcon itself of course was snatched from the private sector in 2007 by Kordia for $24.3 million. The NBR has chronicled Kordia’s “capex spree”.
• Solid Energy’s 2002 purchase of Todd Coal’s half share in the Spring Creek underground coal mine.
Keep feeding further examples.
Biggies mentioned previously were KiwiRail and Air New Zealand returning to the state fold. And the Government is now looking at taking a stake in Telecom’s network arm Chorus.
Other state-owned enterprises in buy up mode include NZ Post and Quotable Value.
Among businesses, you the taxpayer, possibly never knew you owned include:
• Learning Services which publishes, produces, markets and sells educational materials. It also has professional development and consultancy arms.
• The Pacific Forum Line – The NZ Government holds nearly a quarter of PFL shares.
• Research and Education Advanced Network New Zealand – REANNZ o operates a high-speed telecommunications network (called KAREN) for NZ’s researchers and educationalists.
If you think of the country’s commercial sector as the board of the NZ version of Monopoly, then the state owns Cathedral Sq (4th most expensive location), Fenton St (8th), Cameron Rd (9th), Devon St (14th) and East St (20th).
That’d be Air NZ, Genesis Energy, Meridian Energy, Mighty River Power and NZ Post representing a quarter of the country’s top 20 businesses that are majority NZ state owned.
None of these can be sold at the moment with Kiwis dead set against state asset sales. A recent TV3 poll showed 80% of respondents opposed state asset sales.
But more worrying is the way houses and hotels are being put on these and other streets as the state stealthily expands its hold on what used to be private assets, or moving into new private sector pastures, not forgetting the occasional street purchase.
So while the Government has been focusing on restraining the size of central government, its businesses have been merrily expanding away. [Afterthought - this is not a criticism of the individual businesses. Standing still = slow death]
For sure the former aims to contain costs and the latter could be viewed as sources of income, but BigCake reckons there’s been a scary creep in the size and reach of state businesses. At last count they were worth a total $25 billion (versus Fonterra $14 billion).
And BigCake’s pretty sure this is not a good thing.
He won’t to try to nail every bit of this state expansion (haven’t got the time), but here’s a flavour…
Not so secret have been the returns of KiwiRail and Air New Zealand to the state fold. And now we also have the Government looking at taking a stake in Telecom’s network arm Chorus.
But in the background state-owned enterprises (SOEs)have been building commercial empires, adding houses and hotels if you like. For example:
NZPost
NZ Post has a business arm, ECN, who’s job it is to invest in technology and service businesses to replace or enhance New Zealand Post’s traditional postal and payments services. The NZ Post empire now includes communications, courier, logistics and retail companies. And of course KiwiBank.
Between 2006/07 and 2008/09 NZPosts’s assets more than doubled to $11.3 billion.
Quotable Value (QV)
NZ’s largest valuation and property information company. QV last year bought DTZ’s commercial valuation business in NZ. It businesses also include QV Australia which provides valuation and property consultancy services in New South Wales. Other QV subsidiaries include:
o Darroch (bought 2005)- one of New Zealand’s largest commercial and industrial property service businesses.
o PropertyIQ (joint venture) – a web-based residential property information service.
o Egan National Valuers – market valuations for the commercial and industrial markets.
Along the way it has also bought Hamilton-based Attewell Gerbich Havill Registered Valuers (2006).
Landcorp
Since 2000 the state farmer’s assets have increased more than three fold from about $500 million to $1.7 billion in 2008/09. Over this time, land under its control has slowly increased from 369,000 hectares to 375,000. Now it is famously interested in buying the Crafar farms.
Among Landcorp’s subsidiaries is Landcorp Estates which sells residential sections.
Mighty River Power
Between 2004/05 and 2008/09 Mighty River’s assets increased from $2.6 billion to $4.4 billion. The SOE’s businesses include one of the country’s largest energy retail businesses, Mercury Energy, and a meter reading service.
In 1987 there were 14 SOEs; today there are 17.
Anyway, you get the picture. The above is just a snap shot of what’s been happening among state businesses over the past decade or so.
BigCake’s sure there are more examples of state (and local body) business creep out there, perhaps even larger and more significant ones. Let me know if I’ve missed anything important.
You could take the view that this growth is sh!t hot. These businesses represent (mostly) good assets and sources of government revenue through dividends. And the Government has indicated it wants more of the latter.
Nationalisation is a bit of an exaggeration, but where’s it going to stop?
What the hell is the state doing expanding into courier companies, retail and real estate.
BigCake is a small government kind of guy, but not in an ideological way. He has no problem with some SOEs remaining in state hands – including KiwiBank – but given state business expanionism, a blanket ‘no’ to state asset sales is just dumb.
How about making sale decisions on their merits?
Heaps of former state assets (VTNZ, Works, State Insurance, National Film Unit, Government Print, NZ Steel…) are now happily ensconced in the private sector; but sale opponents focus on the few that were cocked up.
Of the 45 or so asset sales (worth $19 billion), only a couple – Air NZ and Rail – and maybe Telecom, could be regarded as delivering poor results. Bank of NZ did initially, but came right.
Yet it’s these “failures” that asset sale opponents appear to obsess about.
Can the state run all of its businesses better than the private sector? In the long run, I wouldn’t bank on it.
Today’s Dominion Post has an ad (Closing the NZ v Oz gap – Mission impossible) from a Leon Dale whose beef is against selling New Zealand state-owned assets overseas.
He asks the classic growth sceptic question: 20 years after Government reformers promised we would be better off after selling state assets and restructuring public assets, why do we need to borrow $250 million a week to balance the books?
Which is a fair enough question, though there’s the effect of the recession. No recession and the Government books (like many companies) wouldn’t be in such a big mess.
Dale’s worry is about profits from our overseas-owned banks, supermarkets, electricity retail and transport services leaving New Zealand.
BigCake is not sure this necessarily leaves us poorer – it depends what these companies put back in to New Zealand.
Without Australian-owned banks we wouldn’t have much of a banking system.
Being clever about how we sell our assets is the key. As Dale points out, some sales in the past were bad for the country, but that doesn’t mean we can’t get it right in the future.
One thing BigCake would like to see is more New Zealand public ownership of state-owned assets that are sold.
The problem here is we ain’t got enough savings to do it, though KiwiSaver and the New Zealand Superannuation Fund are helping put this right.
Dale also believes, like BigCake, we should be encouraging foreign ownership in our export companies.
Selling New Zealand businesses, whether state or publicly owned, is not necessarily a bad thing to do.
We’ve just got to make sure the new owners put more back into New Zealand, through investment, jobs, access to markets and introduction of new technology and ideas, than they take out in profits.
Dale’s parting shot is: “If this situation isn’t fixed soon, my family and I will be on our way to a country that can look after its own interests.”
Rod Oram Sunday Star Times piece on rail’s revival overlooks one big issue.