The decision to proceed with the share float of Meridian Energy is outrageous enough, given that a referendum on the entire asset sales programme is pending – and the claims by Prime Minister John Key and SOE Ministers Tony Ryall to have a mandate to proceed are looking less convincing by the day. At yesterday’s post-Cabinet press conference. Key would not give an unequivocal assurance that even the bottom of the range of $5-7 billion in proceeds would be reached. What is the best current guesstimate, Scoop asked Key, of the returns from the asset sales programme overall. His reply:
We’ve made some indications it will be between $5-7 billion. We stand by that. Obviously not having Solid Energy and being able to take it to market… that makes life a little bit trickier for us and makes it more likely that it would be at the lower end.
But it will reach $5 billion?
We’re trying very hard to get there.
TV3’ s Tova O‘Brien: But there’s a chance it might not scrape over the $5 billion?
Look…I’m reasonably confident. Let’s see (inaudible)
This fact alone would seem to invalidate the government’s claim to have a mandate to proceed. The public didn’t vote specifically for asset sales at the last election – they voted in the Key government for a mixture of reasons : both despite and because of this policy. At the time and subsequently, the government has claimed it would achieve a $5-7 billion return from these selldowns. It is now no longer giving any guarantee that it can reach that target, in the wake of:
(a) the poor initial return from the Mighty River Power share float
(b) the ongoing problems at Solid Energy
(c) the referendum call opposing asset sales signed by 400,000 New Zealanders
(d) the problems at the Tiwai Point aluminium smelter that have cast a long shadow over the Meridian sale and motivated the government to temporarily prop up the process with a $30 million subsidy to Rio Tinto and
(e) the policy implications should there be a change of government next year…All these factors have come to the fore since the government’s shaky claim to have been given a ‘mandate” for asset sales at the 2011 election. As a consequence, the potential returns may well have been pushed below even the basement price that the government was promising to the public. Surely, that voids the mandate. If these energy companies were being sold on Trade Me, they’d be being withdrawn because the reserve price hadn’t been met. After all, the public didn’t agree to sell these assets at whatever fire sale price the government could muster.
Furthermore, the government’s own logic on the long term nature of the Mighty River Power investment can be used against it. When questioned yesterday about MRP’s relatively poor sharemarket performance since the float, Key replied that these were long term investments and therefore the short term fluctuations didn’t bother the government unduly. Right. But if that is the case – and long term prospects really are what is important – then this makes a strong case for deferring the selldowns of Meridian, Genesis and Air New Zealand ; at least until such time as market conditions can deliver the taxpayer better returns for the assets they own, and until the government has received a clear and specific mandate from the public to proceed any further down this plainly perilous road. They own these assets, after all. The place to do that is at the next election where the question can be specifically put.
Point being, if these really are seen to be long term investments, then a year’s delay should be of little concern to the investors in question. What’s a year, if a delay will lend clarity – and crucially, a bi-partisan political mandate – for what is planned to be a 10 or 20 year investment commitment? A pig-headed determination to proceed now in the face of political uncertainty, ( not to mention the uncertainty over Rio Tinto’s long term commitment to Tiwai Point) can only serve to drive down the returns the public will receive. More and more, the case cannot be made that it has been wiser to sell off assets to fund the social spending that the government has in mind. As the costs of the asset sales process continue to rise and the likely returns continue to fall, the alternative that existed in 2011 – of borrowing the money at rock bottom interest rates and retaining the full revenue stream from these assets for future needs – looks like the better option that should have been taken.
History is going to judge this government harshly for pursuing these asset sales, which are looking fully as stupid and as ideologically driven as the asset sales of the 1980s. But this will be cold comfort to ordinary New Zealanders who, by then, will have been robbed of their heritage.