23 November 2011

National set to repeat same privatisation mistakes made with Telecom

The National Party is planning to sell state assets at the time when they are likely to start returning significantly higher dividends, the Green Party said today.

“Based on recent dividend streams, our energy SOEs have been underperforming,” said Green Party Co-leader Dr Russel Norman.

“However, low dividends have been partly due to high levels of capital investment in new plant and other assets. Over the last three years, Genesis, Meridian, Mighty River Power, and Solid Energy have doubled their investment in new plant and equipment from $1.7 billion (2006–2008) to $3.4 billion (2009–2011).

“Now that the future earning potential of our SOEs has been enhanced, the Crown can expect to see considerable growth in dividend streams from this point on.

“Treasury makes this point explicit in their 2010 Annual Portfolio Report. They say the Crown should now expect to receive higher returns.”

Dr Norman said John Key’s plans to sell SOEs at the time when dividend payments are expected to rise was a case of repeating all the worst mistakes surrounding the sale of Telecom in 1990.

“Like our energy SOEs, Telecom had invested significant amounts of capital in building a modern telecommunications network in the years before privatisation,” Dr Norman said.

“Following Telecom’s privatisation, dividend streams for its new private owners doubled, then tripled within six years.

“The taxpayer basically funded the construction of a state-of-the-art telephone network and then foreign-owned companies reaped all the profits from that public investment.

“History now seems to be repeating itself with our energy SOEs. This is clearly not the time to be selling them.”

The pattern is not surprising. CEOs managing SOEs have strong incentives to invest heavily in new capital in the run up to privatisation; A CEO stands to collect large pay bonuses once their SOE is privatised and revenues and dividends rise as a result of the prior investment.

“National is repeating all the same privatisation mistakes made with Telecom,” Dr Norman said.

“The Green Party has a different plan for our SOEs, however.

“We plan to retain our SOEs and refocus them towards booming export markets in renewable energy. Renewables are set to become an $800 billion marketplace by 2015. If we capture just one percent of that market, we’d create a $6-8 billion new export industry here at home, creating 59,000–81,000 new jobs.”

Green Party’s alternative plan for our energy SOEs:
http://www.greens.org.nz/greenjobs

Link to Treasury’s 2010 Annual Portfolio Report:
http://www.comu.govt.nz/resources/pdfs/apr-10.pdf

ENDS

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