26 Jan 2011

PM signals partial sale of energy firms

9:54 pm on 26 January 2011

Prime Minister John Key says the Government will explore partial sell-offs of four of New Zealand's major energy companies.

Mr Key says the partial privatisation of its companies could cut how much the Government needs to borrow by $7 billion to $10 billion.

The Treasury will also look at the merits of selling off more of the Government's shareholding in Air New Zealand.

Mr Key made the comments in Auckland in his first major speech of the year, saying New Zealand is in danger of becoming too heavily reliant on foreign creditors with the rate of borrowing money offshore, and is vulnerable to credit downgrades.

He said the Government wants to free up some capital from the Crown's $220 billion asset base, which could be achieved through a partial share float of Mighty River Power, Meridian, Genesis and Solid Energy.

Tests that would have to met first include the Government retaining a majority shareholding, New Zealand investors would have to be at the front of the queue and any capital raised would have to be spent on funding new assets.

Mr Key said the mixed ownership model has worked well for the likes of national carrier Air New Zealand, and the Treasury has been tasked with exploring the merits and viability of extending that to the four State Owned Enterprises.

The Prime Minister says it makes sense to tap into the Crown's $220 asset base to reduce debt and the Government plans to grow the Crown's overall balance sheet by acquiring another $33 billion worth of assets over the next five years.

Mr Key believes the partial sale of energy companies will also help them expand and be more efficient.

Another advantage of a partial float, he says, is that it provides investors with a broader investment pool, including through funds such as Kiwisaver.

New Zealand investors will be first in line to buy shares in the power companies if the National Party decides to proceed with its plan, he says.

Brian Gaynor, a business analyst at Milford Asset Management, says Mr Key's plan is better than the selling that occurred under a National government in the 1980s.

"Unfortunately, when we sold our SOE's in the 1980s we did it all the wrong way. This is the first time that I've really heard a government talking about selling some of their assets in partial sales in a sensible way that means the control of those are going to stay within New Zealand."

Spending cuts

Mr Key said the Government intends cutting new spending in this year's Budget, as one way of helping to stabilise the economy.

At present, the Government has a new spending limit of $1.1 billion a year.

Mr Key said that is likely to be reduced to about $800 million to $900 million a year in the Budget in May.

He said this should mean that the books are back in surplus in 2014, a year earlier than in forecast.

Recipe for disaster - Labour

The Labour Party says the Government's plan to explore partial privatisation of energy assets and cut government spending is a recipe for disaster.

Labour says power prices will rise if energy companies are opened up to the market and a cut in spending will mean less money for critical areas, including health and education.

The party says it is socially and morally wrong to make such cuts after giving substantial tax cuts to New Zealand's most wealthy.

Labour leader Phil Goff believes privatisation will be a defining issue in this year's election.

Mr Goff told Checkpoint on Wednesday the proposal will mean soaring power prices, foreign ownership and cuts to hospitals and schools.

"I think it is radical, I think it's going back to the days of Ruth Richardson. This is about privatisation, this is about cutting basic services in health and education to pay for tax cuts for the wealthy. That is a defining issue."

Mr Goff says the privatisation of Contact Energy and Air New Zealand were failed experiments.