3. MICHAEL WOODHOUSE (National) Link to this
to the Minister of Finance
What economic benefits does the Government expect from extending the mixed-ownership model to four State-owned energy companies?
Hon BILL ENGLISH (Minister of Finance) Link to this
We expect a wide range of benefits will flow from this model. First, it will deepen the local capital markets and give mum and dad investors, KiwiSaver funds, ACC, and the New Zealand Superannuation Fund better investment opportunities in New Zealand, particularly when those fund managers are investing a lot of their capital offshore. Secondly, it will give companies in New Zealand access to the capital to expand from wider sources than simply the Crown. It will place better commercial disciplines on the State-owned enterprises, it will lower Crown debt, and, finally, it will allow taxpayers’ capital to be recycled into higher-priority areas such as investment in infrastructure and the roll-out of ultra-fast broadband.
Michael Woodhouse Link to this
What dividends has the Crown received from the State-owned enterprises it is considering for mixed ownership?
As I pointed out, the reason the Government is proposing a mixed-ownership model is for its wider benefits to the economy, not just because of the dividends of State-owned enterprises. However, over the past 5 years ordinary dividends from the energy State-owned enterprises have ranged between $135 million and $432 million a year. They have averaged $312 million a year. This represents an average dividend yield of 2.1 percent on current commercial valuations. The Crown has, in addition, received capital back through special dividends on three occasions.
Michael Woodhouse Link to this
What impact will the mixed-ownership model have on future Crown cash flows?
It will mean the Crown will reduce its finance costs and forgo some dividends, because, of course, as an ongoing owner of at least 51 percent of these companies it will continue to receive dividends. The Budget included Treasury’s projections, showing that in the 3 years to June 2014 the four State-owned enterprises concerned are projected to pay dividends averaging $380 million a year, a significant increase on the last 5 years, because the Government is focused on better performance of these companies. However, Treasury’s assumption about finance costs shows that the holding costs of these assets are around $800 million a year—that is, the interest costs are more than twice the expected future dividends.
Hon David Cunliffe Link to this
Does the return on State-owned enterprises that he has discussed include special capital distributions worth more than a billion dollars, which take the total shareholder return on those assets to over 16 percent, and is that why Treasury has advised that to realise the economic benefits of privatisation a significant proportion of ownership by foreign investors would be essential to achieve the Government’s objectives?
Mr SPEAKERNo, the answer should not start with what Labour may or may not be doing. A question was asked and, whether or not the Minister likes it, it was more or less within the Standing Orders. There was a fact inserted that the Minister can dispute, but he should not start his answer by talking about what the Opposition or the Labour Party might be doing.
Yes, there were capital dividends, and guess what they came from? They came from the State-owned enterprises selling assets to foreigners. That is where the billion dollars came from—the foreigners who bought the assets off the Government State-owned enterprises.
Hon David Cunliffe Link to this
Would an example of those transactions be the purchase by Meridian Energy of Southern Hydro in Australia, the building up of that asset, and the selling again of that asset, at nearly a billion dollars profit, which profit was returned to the New Zealand taxpayer?
Yes, I can confirm exactly that. Meridian Energy invested in some energy assets in Australia, built those up, sold them to foreigners for hundreds of millions of dollars, pocketed the cash from the foreigners, and brought it back to New Zealand. That is exactly what happened. We, however, are proposing to sell to New Zealanders and put the cash back into New Zealand.
Michael Woodhouse Link to this
What other ownership models for these types of assets is he aware of?
One of the sensible things the previous Labour Government did—one of about two, I think—was to set up Air New Zealand, when it purchased it, under the mixed-ownership model. The Government retained, I think, about 75 percent ownership, and 25 percent of it was listed on the New Zealand Exchange, which is owned by Kiwi mums and dads, KiwiSaver, ACC, and probably some foreign owners, but there are no restrictions on that, apparently—no restrictions on that. I have also seen this model being touted by the Chinese Government, which is apparently a communist Government. It is putting many of its State-owned enterprises into the mixed-ownership model in just the same way as Labour put Air New Zealand into the mixed-ownership model.
Hon David Cunliffe Link to this
Can the Minister distinguish between buying back an airline that has been bankrupted by its private sector board and management; purchasing and developing an offshore asset, which never originated in New Zealand, and selling it, which he opposed; and selling down New Zealand assets already owned by Kiwi mums and dads, when he has said he wants New Zealanders to be at the front of the queue but has no way to prevent them from onselling those assets to foreign multinationals?
I did not actually understand the question, because I think Labour members now find themselves trying to make distinctions they did not think they would have to make, such as how to distinguish between selling large-scale Meridian Energy assets to foreigners and pocketing the cash, which was Labour policy, and New Zealand selling some of Meridian Energy to New Zealanders and pocketing the cash. That is a pretty interesting distinction.
Hon Trevor Mallard Link to this
Has the Minister of Finance read the reports of the comments of the then Leader of the Opposition when he opposed the purchase and development of Southern Hydro, which resulted in a $600 million profit for the New Zealand taxpayer?