Ministers seek mixed-ownership model advice

Finance Minister Bill English and State Owned Enterprises Minister Simon Power have formally asked Treasury for advice on the merits and viability of extending the mixed-ownership model to four more state-owned enterprises.

As Prime Minister John Key outlined this week, the ministers have asked for advice on the merits and viability of:

• Extending the mixed-ownership model to Mighty River Power, Meridian, Genesis and Solid Energy, with the Government retaining a majority stake in these companies.
• Reducing the Government’s shareholding in Air New Zealand, again while maintaining a majority stake.

In making public their letter to Treasury Secretary John Whitehead, Mr English and Mr Power today made it clear that the Government would restrict consideration of the mixed-ownership model to the four SOEs identified.

The ministers have also today released Treasury’s much broader previous advice on the topic, but made it clear that the Government is not interested in pursuing other options set out in that advice.

Mr English said the Government owed it to all New Zealanders to manage its finances efficiently and to look at areas where it could reduce borrowing by prioritising and reallocating its capital.

“Our biggest economic challenge is lifting our national savings and reducing our vulnerability to foreign lenders,” he said. “The Government needs to play its part by reducing borrowing and getting back to surplus.

“As the Prime Minister said this week, running a budget deficit was the right thing to do during the depths of the recession. Now, as the economy recovers, the Government borrowing $300 million a week is unaffordable and is holding back the economy.”

As well as reducing planned growth in operating spending in Budget 2011 – which would deliver a meaningful budget surplus in 2014/15, a year ahead of previous forecasts – the Government is considering options for reducing its borrowing for capital investment.

Mr Power said the Government would remain a strong net buyer of assets in the next few years, but that investment needed to be directed to high priority areas and it could not continue to borrow at current levels.

“As outlined in the first Investment Statement last month, the Government will invest a net $33 billion in new assets over the next five years,” he said. “In doing that, we clearly can’t continue building up debt indefinitely, so we want to look at where we might change the mix of the assets we already own.”

Mr English and Mr Power reiterated that the Government would proceed with extending the mixed-ownership model only if it met the following tests:

• The Government would have to maintain a majority controlling stake by owning more than 50 per cent of the company.
• New Zealand investors would have to be at the front of the queue for shareholdings, and we would have to be confident of widespread and substantial New Zealand share ownership.
• The companies involved would have to present good opportunities for investors.
• The capital freed up would have to be used on behalf of taxpayers to fund new public assets and thereby reduce the pressure on the Government to borrow.
• The Government would have to be satisfied that industry-specific regulations adequately protected New Zealand consumers.

“The Government will carefully consider Treasury’s advice on the issues we have requested and make its position clear to New Zealanders well before the election later this year,” Mr English and Mr Power said.

The ministers’ letter to Treasury and Treasury’s previous advice is available at: http://www.comu.govt.nz/publications/information-releases/mixed-ownership-model/