Asset Sales: two down, three to go!

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Oh dear, National seems to be in a spot of bother over it’s planned partial privatisation of  five SOEs…

Earth, Air…

One state owned enterprise, Solid Energy, appears now to be off the sales list. According to Finance Minister Bill English,

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On top of that, there appears to be a real questionmark over the sale-value of Air New Zealand, as well, according to outgoing chief executive Rob Fyfe,

“However, outgoing chief executive Rob Fyfe has said he would be “surprised if the Government would be wanting to sell” at the current low share price.

The company was in the midst of a “cyclical low” on its share price, Fyfe said in June.”

See: ibid

Fyfe is correct.

A look at Air New Zealand’s recent and longer term share price history shows that it has been badly affected by the Global Financial Crisis (GFC).

In 2007, Air New Zealand’s share price stood at $2.47 a share,

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Source: Google Finance – Air New Zealand Ltd

At the end of trading (22 Aug), today, that share price stood at 92.5 cents each. That’s a loss of  $1.545 per share,

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Source: Google Finance – Air New Zealand Ltd

In fact, the share price dropped from 94.5 cents a share yesterday (21 Aug) to it’s current level of 92 cents.

Looked at another way; it’s like having your home valued at $247,000 in 2007, prior to the onset of the GFC – and having it valued at only $92,500 today.

Not a good environment to be a seller.

NOTE: It is interesting that, of all the SOEs, Air New Zealand is the only one that has a small, privately-owned component. The state owns 73.13% of Air New Zealand, other investors own 26.87%.

See: Air New Zealand – Shares on Issue

This situation is a ‘quirk’ of Air New Zealand’s re-nationalisation in October 2001, when it faced collapse under a massive $NZ1.425 billion operating loss incurred by then-private owners.

See: Wikipedia – Air New Zealand, Re-nationalised era

So it’s current share value is a relatively true reflection of it’s present market-value.  There is no “guesswork” involved, as Bill English revealed in February this year, with the other four SOEs,

See: English admits his SOE figures just a guess

Helluva way to run an economy…

Most sane people wouldn’t sell at such a ridiculously low price and would wait for the market to recover.

However, despite misguided belief, National’s commercial nous is vastly over-rated. In fact, some of their commercial decisions have been absolutely apalling.

The most famous being that these assets – especially the power companies – actually return a higher dividend to government than would be the cost of borrowing that same money. As BERL reported in May,

” Partial asset sales will do nothing to curb New Zealand’s growing debt problem, a new report by economic analysts Berl says.

The Berl report, commissioned by the Green Party and released today, says the Government’s partial asset sales programme to build new assets would leave the Crown accounts ”permanently worse off”.

Government debt, the ratio of debt to assets, net worth and total assets would all be worse off after the programme was carried out, Berl found.

”The interim loss of earnings resulting from reduced dividends and the period of time before the new assets reap benefits is never recouped,” the report said.

”Subsequently, the option of asset sales can only significantly improve the Government’s accounts if a set of assumptions are adopted that are at the extreme ends of plausibility“.”

See: Asset sales will leave Govt worse off – BERL

Madness.

The up-shot?  Unless the global economy stages a miraculous recovery in the next two years (about as likely as The Second Coming or Klingons camping out in my backyard),  and National ministers are dumber than I thought, Solid Energy and Air New Zealand can be scratched from the privatisation agenda.

Added to this, is a brewing toxic mess involving commercial interests and  Treaty claims over water rights…

Water…

At the beginning of August, Key realised that the partial-sale of SOEs was not going to go smoothly.  Until now,  state owned power companies were exploiting water resources for the benefit of the nation as a whole.

Maori were content with that status quo; for as long as no one owned the power companies – they were owned by us all – the same could be said of water.

But the moment that private ownership of  hydro-power generation was mooted – the situation changed. Water would be used to generate power, which would be sold, and would deliver profits to private owners.

Saying that “no one owns the water” that hydro-power stations use is akin to saying no one owns the coal or gas that are used in coal-powered and gas-powered stations.  Ridiculous.

The Waitangi Tribunal will shortly be delivering it’s response to Maori Council claims over water rights.

Most likely, the Tribunal will find in favour of Maori. This blogger can conceive of no reason why this should not happen, and just as land can be owned – so can water rights.

It’s a bit late-in-the-day for capitalist National voters and politicians to now be claiming socialist principles of  “collective ownership”. That just ain’t gonna wash, Jethro.

If National over-rules the Tribunal findings, then Maori will go to Court – the High Court to be precise. Of all Pakeha institutions, Maori have a great affinity for the legal system. They know how to use it for greatest advantage.

Going to Court will have one result; a lengthy delay in the asset sales programme.

On 22 August, National admitted what the rest of us already knew,

” The Government says it is going to have to start making judgments about how much of its partial asset sales programme can be completed in this term of office…

[abridged]… Finance Minister Bill English says the Government also has to deal with other issues, such as the Waitangi Tribunal report on water rights relating to the partial sale of Mighty River Power, and possible legal action.

Mr English says he is not taking it for granted that the Government will be able to complete the full programme this term. “

See: Govt less bullish about partial asset sales

Fire…

And as if that was not enough to put a spoke in the wheels, two corporate interests have recently made announcements that could have a significant impact on share prices for the remaining three SOEs; Mighty  River Power, Meridian, and Genesis.

Norske Skog Tasman

” Norske Skog Tasman’s plan to halve newsprint production at its Kawerau mill will have implications for the power generation industry if it goes through with it, says an industry analyst.

The company, which accounts for about 2.9 per cent of New Zealand’s power demand, is looking at cutting its annual production to 150,000 tonnes from 300,000 tonnes because of dwindling domestic and offshore sales.

The analyst, who requested anonymity, said the partial closure would further extend the “significant” generation over-capacity in the New Zealand electricity market.

A 50 per cent reduction in Norske Skog Tasman’s electricity demand would equate to about one year of demand growth estimated in Ministry of Economic Development forecasts. “

See: Paper mill cuts threat for power industry

By coincidence, Norske Skog buys most of its power from Mighty River Power, which is the first SOE that National  plans to partially privatise.

Any potential “mum and dad” investors may be warned off from investing in MRP shares. If  Norske Skog proceed with their plans, power consumption will decrease dramatically – and so will profits.  Which will mean a cut in dividends paid to shareholders.

Tiwai Aluminium Smelter

Perhaps the ‘nastiest’ surprise for National and it’s Dear Leader was this announcement on 11 August from multi-national conglomerate, Rio Tinto,

” Meridian Energy’s announcement that it had been approached by New Zealand’s biggest power user, Rio Tinto, to discuss potential changes to its supply contract has created uncertainty for the Government’s plans to partly privatise the three power generators, analysts said.

State-owned South Island power generator Meridian said it had been approached by Pacific Aluminium, a business unit of Rio Tinto, the majority shareholder of New Zealand Aluminium Smelters (NZAS), to discuss potential changes to the electricity contract with the smelter.

The statement comes a time when Rio Tinto is assessing its options for the NZAS smelter at Tiwai Pt.

Tiwai takes about 15 per cent of New Zealand’s electricity, so the prospect of changes to the contract between Meridian and Rio was enough to send Contact Energy’s share price down 20c to $4.80 on Thursday.

Few in the financial markets expect Tiwai Pt to close, but if it did, much more power would be added to the national grid, depressing prices and affecting the profitability of all the power generators. “

Rio Tinto’s announcement immediatly  sliced 20 cents off  Contact Energy’s share price. What will it do to the three state owned power companies?

It’s hardly surprising, really. Everyone else appears to be putting their hand out, or up, to gain benefit from the asset sales – why not multi-national corporations who are already parked here in our country?

The Herald report goes on to say,

” Morningstar analyst Nachi Moghe said there was ongoing concern about the feasibility of Tiwai Pt and the possibility that it might eventually shut down.

“Obviously, if that happens it will hurt everyone, but it will hurt Meridian the most,” he said.”That additional supply will throw the supply-demand balance out of kilter.”

One fund manager said the news was a “bolt from the blue”.

In the contract negotiations, he said, the pressure could go on Meridian to reduce its price, or to reduce the volume of power it supplies, which would have an impact on the wholesale electricity market.

“It’s poor timing but great timing on behalf of Rio Tinto as we go into the mixed ownership model process,” said the fund manager, who did not want to be identified.”

See: Smelter power review ‘bolt from blue’ for asset sales

Rio Tinto appears to be exploiting current uncertainties and confusion in  the current  environment.  As pressure mounts on National from every direction, this appears to be an opportune moment for corporations to start  flexing their own muscles.

Just what the Nats needed – their own corporate allies to shaft them at the worst possible moment.

Capitalism. Ya gotta laugh.

Weather

And the most critical factor to impact on the electricity generation industry: the weather.

This is something that even the “invisible hand” of the free market is utterly powerless to influence. Meridian’s profits have already been affected,

” The worst inflows into its hydro lakes for 79 years took a toll on Meridian Energy’s earnings in the year to June 2012.

The state-owned generator and electricity retailer yesterday reported a net profit after tax of $74.6 million, down from $303.1 million the year before.”

See:  Dry year helps knock 28%  off Meridian profit

At this point, Dear Leader John Key might be starting to wonder. With all these ‘forces’ ranged against his Party’s plans to flog off our state assets – perhaps the Fates are trying to tell him something?

What next?

This blogger is surprised that China and Australia – both nations with which we have Free Trade Agreements – have not put their hands up to line up and buy shares.

After all, that is what FTAs are about. Legally, we might not be able to stop them.

Will we be hearing from our Chinese and Aussie cuzzies next?

Watch this space.

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Additional

Tiwai Pt threat could delay Mighty River sale

Energy float may turn into a s(t)inker

Other blogs

No where to go on Maori water rights

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Cigarettes – now THIS takes political courage!

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In a radical move that can only be described as extraordinarily bold, Tasmania has begun to address the problem of tobacco addiction, head-on. No faffing about; no tip-toeing around,

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One of the constant whinges from some cigarette smokers; mis-guided libertarians, and their supporters, is that tobacco is a legal product and therefore it is unjust to target it with restrictions, higher taxes, control of advertising, availability, etc.

However, if the product is banned for people born after a certain time-period, then that product is illegal.

Problem solved?

I believe so.

Of course, there will be those rugged individualists who think it is unjust to discriminate between those who are born before and after 2000.

Nonsense.

We already discriminate on legal grounds.

For example, certain medicines are only available to certain individuals, for those  in-need.  Potentially addictive medicines are not available to everyone irrespective of medical circumstances.

Same for firearms; not all people can have automatic access to guns.

Emergency services are allowed to exceed government-imposed speed limits – the rest of us are not.

Sexual predators/paedophiles are permanently banned from working with children, even long after their court-imposed sentences have expired.

And tobacco is already a highly controlled substance.

So there is precedent for  laws in our society which impose controls and conditions, based on circumstances.

If we can stop our children from taking up a habit that will end up killing many of them in horrible, painful circumstances – then our elected representatives should be mandated and supported to do so.

In this respect, every single politician who voted in favour of this proposal should be given a medal for service to their community.  This is courage I would never have dreamed possible for politicians – people whom we often deride for evading difficult issues and avoiding making hard calls.

Outstanding!

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Acknowledgement

Matthew

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Meanwhile, back in New Zealand,

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Mr Ryall – stand your ground!

And let no one in the Opposition deride National’s resoluteness as “nanny statism”. This is too important to play childish political games with.

Quite literally, the lives of our young people and future generations are at stake here.

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Citizen A – 16 August 2012 – Online now!

Cigarette plain-package – “unintended consequences”?

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“British American Tobacco Australia spokesman Scott McIntyre said the industry was “extremely disappointed” by a decision upholding a bad piece of law that would have serious unintended consequences.”

See: Cigarette ruling to light way for others

Yeah, “unintended consequences”.

Like cutting down tobacco use and saving lives?

I can see how tobacco companies are up in arms on this issue. They are so concerned for our welfare that they are fighting to save their branding.

It’s critically important that when a 14 year old looks at a packet of cigarettes, that they can choose between Brand ‘X’ and Brand ‘Y’ to kill themselves.

Pretty pictures on cigarette packets help kids make that all-important decision.

Tobacco companies.

Here to help us.

 

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Dollars and common sense – raising the minimum wage.

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Well reasoned –  David Clark has reasoned the issue very nicely.

Of course, those who argue that raising the minimum wage would harm our economy should consider two things;

1. Our best and brightest will leave NZ for where wages are higher. THAT will harm our economy.

2. If raising the minimum wage is a “bad thing”, consider the converse; dropping the minimum wage to $1 an hour. What would that do to our economy? Wreck it for sure.

Raising the minimum wage means people can share in the “economic pie” and buy the services and products that businesses have to offer. Keeping wages low may mean that ‘Acme XYZ Ltd’ has a lower wages-bill to pay it’s staff – but it also means that other low-paid workers can’t buy ‘Acme XYZ Ltd’s’ products and services.

Meanwhile,

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Interestingly, if those on minimum wage ($13.50) had a 20% wage increase, as did the Top 150 Rich Listers – that would raise their hourly wage to $16.20 an hour.

Question: why is it ok for the Top 150 Rich Listers to increase their wealth by a staggering 20% (during a global recession, no less!) – but not ok for the lowest paid to have a better wage?

Can any National Party supporter explain this anomaly in New Right dogma?

In 2008 and again in 2011, Dear Leader John Key promised to raise wages to match Australia,

“We will be unrelenting in our quest to lift our economic growth rate and raise wage rates.” – John Key, Prime Minister, 29 January 2008

See:  2008: A Fresh Start for New Zealand – John Key

“The driving goal of my Government is to build a more competitive and internationally-focused economy with less debt, more jobs and higher incomes.” – John Key, Prime Minister, 21 December 2011

See:  Speech from the Throne

Instead, the converse has proven to be the reality,

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And it’s a funny old world, really.

Voters abandoned the government that gave them this…

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… for this,

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Never let it be said that some New Zealanders don’t enjoy a bit of masochism every so often, and vote National for a sound bout of  self-whipping.

Unfortunately, it’s the rest of us that end up paying for that self-indulgent choice at the ballot box.

Here’s a clever idea – all those people who vote National should have a wage/salary freeze during the term of that government.  After all, as some National supporters keep insisting, raising the minimum wage “harms the economy”. (I assume the same holds for all  wages and salaries?)

The rest of us, who vote for Labour, Greens, Mana, et al, can have our wages/salaries linked to Australia’s pay rates.

Now I ask you – what could be fairer than that?

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Previous related blogposts

Bill English: Minimum Wage Not Sufficient to live on!

Treasury’s verdict on raising the Minimum Wage?

Treasury’s verdict on raising the Minimum Wage? – Part II

Fifty cents an hour? I’m under-whelmed by Dear Leader’s Generosity

“It’s one of those things we’d love to do if we had the cash”

Jobs, jobs, everywhere – but not a one for me?

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