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Solid Energy and LandCorp – debt and doom, courtesy of a “fiscally responsible” National Govt

28 December 2015 3 comments

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solid-energy-chief-executive-don-elder-and-hon-bill-english-at-mataura-9-sept-2011

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In May 2013, I first reported on National’s gutting of Solid Energy, detailing how Finance Minister Bill English and then-SOE Minister, Simon Power, had used the State Owned Enterprise as a cash-cow, to assist the government to balance it’s books;

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Solid Energy – A solid drama of facts, fibs, and fall-guys

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The story details National’s ministerial interference on Solid’s Energy’s financial affairs; under-mining (pun unintended) it’s bio-fuels programme; and extracting huge dividends, as well as taxes paid, to fill government coffers.

At the end, as Solid Energy teetered on collapse, National ministers did what National ministers do in time of crisis; they blamed others for the crisis;

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Prime Minister criticises Solid Energy

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Solid Energy was in debt. But not to “diversify” as Key claimed. The Prime Minister lied.

The debt was due in large part to Ministerial demands that Solid Energy borrow BIG, and pass those borrowings onto the government. This was a piece of accounting trickery, so National could claim, hand-on-heart, that it was not borrowing billions more. In actuality, the SOEs were doing the borrowing, and then passing the cash on to it’s shareholder, the government. This was borrowing-by-proxy by the government.

That is how desperate National was to claw back as much lost revenue due to the Global Financial Crisis/Recession, and unaffordable two tax cuts (2009, 2010) which they had promised during their 2008 election campaign and which has cost government an estimated $4.5 billion annually.

In 2009, English instructed all SOEs to increase their debt. This Statement of  Corporate Intent is clear in National’s expectations;

I would like all SOEs to increase their gearing from current levels, to a level more consistent with a BBB flat credit rating. In this regard, I have been advised by officials that Solid Energy may have the capacity to sustain a 40% gearing ratio.

I urge the Solid Energy Board to give serious consideration to this proposal, and to release all surplus capital to the shareholder as special dividends. “

Not only was National instructing SOEs (including Solid Energy) to borrow more (and then pass the cash on to the Government’s Consolidated Fund), it was also openly raiding their bank accounts by demanding “all surplus capital to the shareholder as special dividends“.

Furthermore,  not only were English and Power expecting higher profits diverted from SOEs, they  demanded two dividends per year instead of just one;

“I would also like to standardise and simplify the dividend policy for all SOEs, to ensure that a larger and more consistent share of profits is returned to the Crown as shareholder.

In this regard, I propose that the Solid Energy Board give serious consideration to adopting a dividend policy equal to 65% of operating cash flows (including net interest paid) from 1 July 2009.

Related to dividend policy, I wish to outline an expectation that all SOEs pay two dividends per year, an interim and a final dividend.”

On  18 August 2009, Bill English met with Solid Energy’s then-Chairperson, John Palmer. After that meeting, Solid Energy increased its gearing (borrowing/debt) from around 25% to 35%, and changed the way it  accounted for mine rehabilitation costs.

This was a cash-grab on an unprecedented scale, and one that went largely un-noticed by media, Parliamentary Opposition, and the public.

On 13 March 2013, soon after Solid Energy’s massive $389 million debt became public, English was forced to concede that  National has mishandled governance of Solid Energy;

“The decisions about how much debt to incur was made by the board.

In Solid Energy’s case it turned out that a company operating in the world coal market, which is now so volatile, would have been better off with no debt – in retrospect that’s easy to see, at the time it wasn’t.”

However, in claiming that “decisions about how much debt to incur was made by the board“, the Finance Minister lied.

Solid Energy had been directed to increase it’s debt by Ministers English and Power – not by the SOE’s Board. The Treasury document above are a paper-trail evidencing National’s determination to increase it’s revenue at any costs (literally).

Both Key and English have consistently lied on this issue.

More recently, on Radio NZ’s Morning Report, on Friday 14 August, Guyon Espiner interviewed Finance Minister, Bill English, on Solid Energy’s corporate demise.

At one point, under persistent questioning by ‘Checkpoint‘ host, Guyon Espiner, English admitted National’s role in Solid Energy’s financial woes;

Espiner: But I’ll tell you what you also did, and you’ll remember this well in 2009, you looked at the balance sheets of SOEs and you decided that many of them could carry more debt and in fact you presided over a massive expansion in Solid Energy’s debt and in formal letters your government encouraged them to significantly increase their debt. That was a mistake wasn’t it?

English: Well, at the time it was valued, well actually that time, was valued about $3 billion and they took debt up to $300 million. It was a… As it turned out it was the pressure that put on the cash flow, well, the issues it raised, that got the government and, ah, the officials differing with the Board and that’s all on the record.

Espiner: Yes, so why did you, because you took their gearing ratio from about 14% in 09 up to 35% in 2010, 41% in 2012. So you presided, in fact, encouraged Solid Energy to take on the debt that they have eventually drowned in.

English: Well we worked with the Board over , over making sure the Crown was actually getting something out of the business. Um, certainly, in retrospect the debt levels got too high [garbled].

Espiner: So do you take the blame for that? Because, you failed there. You encouraged them to take on more debt and they’ve drowned in it.

English: Ahh, between us and the company, yes, we’re responsible for that.

There we have it. Under Espiner’s persistant questioning and quoting of facts, English had no place to hide; no one else to blame; and no lies he could resort to.

English had admitted that his government had gutted Solid Energy, and used it as a proxy for borrowing.

Then, under further questioning, English made one of the more bizarre assertions ever made by a politician (incest, chem-trails, and  moonlanding hoaxes notwithstanding);

Espiner: What about the dividend programme? You stripped more than $160 million in dividends out of this company over four years. Was that a good thing to do, given the state of the company, and couldn’t if they’d reinvested that money in the company been in some sort of position to keep the thing afloat?

English: Ah, no, precisely the opposite. And this has been the case with SOEs for years. If you leave the cash in there, generally, ah, they waste it. And, ah, in fact, one of the interactions here was we required a dividend because it was a company that was making money –

Espiner: Well hang on. Sorry to interrupt you but that’s an extraordinary statement to make, ‘You leave the cash in there and they waste it’?

National, of course, never wastes money. They never waste money on subsidising Rio Tinto; subsidising SkyCity; subsidising Charter Schools; subsidising Hollywood corporations like Warner Bros; subsidising Saudi businessmen to the tune of $11.5 million. Nor does National waste money on two tax cuts which were utterly unaffordable, being funded by  heavy overseas borrowing.

Espiner quite rightly mocked English’s ludicrous justification for government looting of Solid Energy;

Espiner: So it was better for you to take the money out, put it in the Consolidated Fund, let the company take on more debt, and they’ve eventually blown up.

This is the party that many New Zealanders believe is a “fiscally responsible manager of our economy”?!

Unfortunately, National’s mis-management does not end there.

The latest SOE to disclose financial difficulties is Landcorp;

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Landcorp in 'pretty tight situation' – English

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Landcorp’s current liabilities amount to $359 million, whilst it’s assets amount to $1.846 billion, according to the company’s half-yearly statement.

What is not mentioned anywhere is that, according to a document from Treasury’s Crown Company Monitoring Advisory Unit (CCMAU), the National Government sent a letter to Landcorp’s Board  making similar demands for higher dividends that it made to Solid Energy;

Firstly, as the CCMAU chart below shows, National’s expectations were that Landcorp increase its “gearing” (borrowed funds against a company’s equity) from 11% to 20% – a near doubling;

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CCMAU - SOE gearing and dividend expectations - national government

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Note also that National demanded 75% of Landcorp’s net operating profit as a dividend; two dividend payments per year;  and  as much as  100% of operating cash flow.

In a 2009 letter to Landcorp, Ministers Bill English and Simon Power demanded the following from the SOE’s Board;

“I am minded to increase the gearing of all SOEs from current levels, to a level more consistent with a BBB flat credit rating. In this regard, I have been advised by officials that Landcorp may have the capacity to sustain a 20% gearing ratio. I urge the Landcorp Board to give serious consideration to this proposal, and to release all surplus capital to the shareholder as special dividends.

I am also minded to standardise and simplify the dividend policy for all SOEs, to ensure that a larger and more reliable share of profits is returned to the Crown, as shareholder. In this regard, I propose that the Landcorp Board gives serious consideration to adopting a dividend policy equal to 100% of operating cash flows (including net interest paid) from 1 July 2009.

Related to dividend policy, I wish to outline an expectation that all SOEs pay two dividends per year, an interim and a final dividend.”

In the same letter, English and Powers  outlined revising “the land sale moratorium imposed on Landcorp as part of the Protected Land Agreement (PLA)“.

The letter to Solid Energy followed the same pattern;

I would like all SOEs to increase their gearing from current levels, to a level more consistent with a BBB flat credit rating. In this regard, I have been advised by officials that Solid Energy may have the capacity to sustain a 40% gearing ratio. I urge the Solid Energy Board to give serious consideration to this proposal, and to release all surplus capital to the shareholder as special dividends. I note that Solid Energy currently has a gearing target of 35%, including the company’s rehabilitation liability as if it were debt.

Given that the nature of the rehabilitation liability is significantly different from debt, I am sceptical that this is an appropriate treatment. I have asked my officials to engage with you on this issue.

I would also like to standardise and simplify the dividend policy for all SOEs, to ensure that a larger and more consistent share of profits is returned to the Crown as shareholder.

In this regard, I propose that the Solid Energy Board give serious consideration to adopting a dividend policy equal to 65% of operating cash flows (including net interest paid) from 1 July 2009.

Related to dividend policy, I wish to outline an expectation that all SOEs pay two dividends per year, an interim and a final dividend.

Almost identical letters. Except for the 20% gearing ratio, which differed from Solid Energy’s more onerous 40%, the demands placed on Landcorp were the same; high gearing (borrowing); higher dividends; and all surplus cash to be paid over to the Crown.

National was looting every SOE of every spare dollar.

The questions now demanding  answers;

  • How many other SOEs have been left in a similar parlous state to Solid Energy and Landcorp?
  • How much damage has been caused to SOEs due to unreasonable dividend and cash demands made to their Boards?
  • How much longer are New Zealanders willing to maintain the fiction that National is a “prudent fiscal manager of the economy”?

And the last question;

  • Which SOE will be next to disclose a dire financial state?

For Bill English and John Key, a whole bunch of chickens have suddenly come home to roost.

Some very, very expensive chickens.

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References

Radio NZ: Prime Minister criticises Solid Energy

Green Party: Asset sales bring in less than cost of National’s tax cuts to top 10%

Treasury: Solid Energy Information Release March 2013 (Document 1875419)

Treasury: Solid Energy Information Release March 2013 (Document 1732352)

TV3 News: Solid Energy was allowed to increase debt

Radio NZ: Morning Report – English defends Govt’s record over Solid Energy (alt. link)

TV3 News: Landcorp in ‘pretty tight situation’ – English

New Zealand Farming Landcorp Farming Limited: Half year report for the six months ended 31 December 2014

Additional

Radio NZ: When is an asset sale not an asset sale?

Previous related blogposts

The real cause for Solid Energy mass redundancies?

Dirty Dealings with Solid Energy

That was Then, This is Now #18 (Solid Energy)

Dear Leader Key blames everyone else for Solid Energy’s financial crisis

Dear Leader Key blames everyone else for Solid Energy’s financial crisis (Part Rua)

Mediaworks, Solid Energy, and National Standards

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Mediaworks, Solid Energy, and National Standards

17 June 2013 3 comments

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Solid Energy looking to sell Southland land

Acknowledgement: Radio NZ – TV3’s owners in receivership

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Stupidity heaped upon government incompetence – there is no other way to describe the fiasco that Solid Energy has become since National took office in 2008. Whether it was National Ministers  encouraging Solid Energy to expand their operations during a time of  recession or  forcing it to borrow huge sums and then pay it to the National government as “dividends” – Key, English, Joyce, et al have a lot to answer for.

It is not often that a government will run a SOE into the ground and then blame others for their incompetance. (See previous blogpost: Solid Energy – A solid drama of facts, fibs, and fall-guys )

News that Solid Energy may be planning to sell 3,500 hectares of land, and which may be purchased by offshore investors, is the final humiliation.

At this stage, I will make the following point;

  1. I don’t care if a foreign purchaser resides in Boston, Berlin, or Beijing. The negative economic consequences to New Zealand are all the same.
  2. Rightwingers maintain that it doesn’t matter if the land is sold into foreign ownership; “no one can take it away”. But that’s not the point. It’s not the land that is removed – but the profits  generated for owners. It is dividends  to overseas investors that can be “taken away”, thereby reducing our income; worsening our balance of payments; and ultimately pushing up interest rates.
  3. Land sales to overseas investors denies the birthright of  all New Zealanders to participate in land based enterprises. It is difficult for young people to buy a farm when competing with wealthy  investors from Boston, Berlin, or Beijing. In the end, those young New Zealand may end up tenants in our own country – which Dear Leader himself said was not desirable (see: PM warns against Kiwis becoming ‘tenants’ ).

The most common sense solution to this problem (I refuse to call it an “issue”) is simple and straightforward.

If local buyers cannot be found, the land should be transferred to SOE Landcorp, to hold it in stewardship. Good, productive farmland could be later sold/leased to young New Zealanders who want to get on the first rung of the ladder to farm ownership.

Selling/leasing to the next generation of New Zealanders – our children – is a sound way to give them opportunities in our own country.

Why we would deny them that birthright and instead prefer to sell to faceless foreign investors, sitting in offices halfway around the word, defies understanding.

As Bruce Jesson said in his book, about the neo-liberal mentality to sell off everything to the highest bidder, and bugger  the consequences; Only their Purpose is Mad.

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MediaWorks in receivership

Acknowledgement: NZ Herald – MediaWorks in receivership

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It is a great shame that Mediaworks is in this position. Their flagship broadcaster, TV3, has raised the quality and standard of programming in this country. Unlike the mediocre rubbish on state-owned TVNZ, TV3 has treated the viewer with a fair measure of respect.

Programmes like Campbell Live, Outrageous Fortune, and Inside Child Poverty have been nuggets of gold at a time when mainstream media is dumbing down faster than John Banks’ integrity post-Skycity and Dotcom donations scandal.

This leftwing blogger wishes the company all the best for the future; fervantly hopes that no one loses their job; and looks forward to more high-quality programming  from TV3.

See more at The Daily Blog by Selwyn Manning: Breaking News: New Company Newco Positions To Purchase MediaWorks Off Receivers

Breaking News: New Company Newco Positions To Purchase MediaWorks Off Receivers – See more at: http://thedailyblog.co.nz/2013/06/17/breaking-news-tv3-radiolive-owners-mediaworks-has-gone-into-receivership/#sthash.YBRLNczb.dpuf

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Teachers to boycott trial of national standards computer system

Acknowledgement: Radio NZ – Teachers to boycott trial of national standards computer system

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The biggest problem and greatest threat from National Standards is the American phenomenon, “Teaching to Tests”. As Gordon Campbell wrote, four years ago when National Standards were first mooted by the Nats,

The main risk is that national testing will foster mechanical ways of assessing of children’s learning, as teachers get pressured into ‘teaching to the test’ – thus narrowing what they teach, and fuelling a focus on simplistic measuring rather than on creating a richer, and more child-oriented environment.

Quite simply, what this means is that for schools to “look good” in league tables (another right wing invention that inevitably follows National Standards), they will be pressured to teach  students solely to answer tests. Nothing more, nothing less.

Because otherwise, a school risks looking poorly in National Standards results. Couple this with “performance related pay”, and “teaching to the test” to guarantee a high ranking in League Tables, becomes a dead cert.

Parents should not only be worried – they should be downright angry. This undermines our education system and turns it into a farce. Kids become expert at answering tests – but not much more. Problem-solving, initiative, increased knowledge, and even more tradition curricula, become secondary.

Because, really, if we’re going to have “performance related pay”, then teachers will make damn sure that their school doesn’t fall behind in any National Standard and subsequent League Table.

Interestingly, China, Sth Korea, Singapore, and Hong Kong are also at the top of the OECD PISA scale.  International education scholar, Yong Zhao (see bio here), pointed out why in December 2010;

… China has become the best education nation, or at least according to some experts and politicians. Chinese students (a sample from Shanghai) outscored 64 countries/education systems on the most recent PISA, OECD’s international academic assessment for 15 year olds in math, reading, and science…

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I don’t know why this is such a big surprise to these well educated and smart people. Why should anyone be stunned? It is no news that the Chinese education system is excellent in preparing outstanding test takers, just like other education systems within the Confucian cultural circle—Singapore, Korea, Japan, and Hong Kong…

[…]

That’s the secret: when you spend all your time preparing for tests, and when students are selected based on their test-taking abilities, you get outstanding test scores.

Acknowledgement:  A True Wake-up Call for Arne Duncan: The Real Reason Behind Chinese Students Top PISA Performance

Is this education?. Or is this a  corruption of education and turning our children into mass-trained cogs, able to pass tests, but not much more in terms of free-thinking and expanding knowledge?

Make no mistake. This is setting us up for failure in the decades to come.

Perhaps, instead we should be looking at the Finnish experience,

In his country, Dr. Darling-Hammond said later in an interview, teachers typically spend about four hours a day in the classroom, and are paid to spend two hours a week on professional development. At the University of Helsinki, where he teaches, 2,400 people competed last year for 120 slots in the (fully subsidized) master’s program for schoolteachers. “It’s more difficult getting into teacher education than law or medicine,” he said.

Dr. Sahlberg puts high-quality teachers at the heart of Finland’s education success story — which, as it happens, has become a personal success story of sorts, part of an American obsession with all things Finnish when it comes to schools…

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Both Dr. Darling-Hammond and Dr. Sahlberg said a turning point was a government decision in the 1970s to require all teachers to have master’s degrees — and to pay for their acquisition. The starting salary for school teachers in Finland, 96 percent of whom are unionized, was about $29,000 in 2008, according to the Organization for Economic Cooperation and Development, compared with about $36,000 in the United States.

More bear than tiger, Finland scorns almost all standardized testing before age 16 and discourages homework, and it is seen as a violation of children’s right to be children for them to start school any sooner than 7, Dr. Sahlberg said during his day at Dwight. He spoke to seniors taking a “Theory of Knowledge” class, then met with administrators and faculty members.

“The first six years of education are not about academic success,” he said. “We don’t measure children at all. It’s about being ready to learn and finding your passion.”

Acknowledgement: New York Times – From Finland, an Intriguing School-Reform Model

Solutions?

1. Don’t vote for National in 2014.

2. Look at Finland for our answers to improve education – not the US which is lower on the OECD PISA ranking than us. (Finland is near the top.)

3. Be wary of simplistic rightwing agendas.

Other Blogs

Gordon Campbell: National Education Tests, And Michael Jackson

The Political Scientist:  National Standards and Neanderthals – “They will know what is required …” – Part I

The Political Scientist: National Standards and Neanderthals – “They will know what is required …” – Part II

The Political Scientis: National Standards and Neanderthals – “They will know what is required …” – Part III

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That was Then, this is Now #10

5 February 2012 9 comments

The second colonisation of New Zealand

1 October 2011 9 comments

This recent story in the media should give us all cause for concern,

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Full Story

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I should start with a disclaimer: I hold no real enthusiasm nor liking for  Michael Fay’s method of operation. He and his colleague, David Richwhite, gutted NZ Rail during their tenure as part-owners of that asset.  (The  New Zealand Securities Commission  investigation into Fay & Richwhite’s alleged insider trading – and whilst no prosecution resulted – did result in an out-of-court settlement, where they paid NZ$20 million to the Securities Commission in June, 2007. )

As taxpayers, we are still paying for the upgrading and  maintenance of railways that was neglected during 15 years of private ownership.

However, the reality is that Michael Fay is leading a New Zealand consortium to buy the 16 Crafar farms. These farms amount to 11,000ha of property throughout the central North Island.   Their transfer into foreign control would be a significant loss to the NZ economy.

There are three  major issues highlighted by this story, and another,  that convincingly illustrate why overseas investors should be permanently denied ownership (or even  leasing) of our productive farmland.

Issue 1:

“Receiver KordaMentha has formally declined the Fay group’s $171.5 million offer for the 16 central and lower North Island farms, saying the conditional offer it has accepted from Chinese group Shanghai Pengxin “was by far the best offer at [that] time and remains so today”…

… “Our offer is at a price we firmly believe makes sense it that we are paying the right price for the long-term farming future of these properties,” the group’s negotiator Steve Bignell said. “ Source

This illustrates the risk of permitting foreign interests to bid for our farms. Foreign investors (generally) have very, very deep pockets. When even a millionaire such as Michael Fay can be out-bid  – we need to ask ourselves how ordinary New Zealanders can compete with foreign investors.

In a bidding war, New Zealanders will always lose. Our sons and daughters have zero chance and nil opportunities to own a slice of our country’s natural wealth, when faced with the near-limitless resources from overseas buyers.

We may not like Michael Fay, but  at least he represents an opportunity to keep the Crafar farms – and the wealth they create – in local ownership. That he is unable to acquire these properties because he has been out-bid to the tune of $38.5 million dollars is disturbing.

I believe it is a sign of things to come.

Issue 2:

“Over a certain price level, these farms don’t work.”Ibid

If true, then the question that begs to be asked is: why? Why are overseas investors willing to pay inflated prices for our productive farmlands?

The answer is not very complicated nor obscure.

The human population on Planet Earth has reached 7 billion.

By 2050AD it is estimated that the population will reach 9 billion.

All 9 billion will require food – lots of it.  And unfortunately for the Human race, there is only a limited amount of arable land on this little planet of ours. With ongoing desertification, arable land is reducing each year. Soil erosion  is another factor in this problem.

On top of that, as populations increase, so does pressure on food supply. In countries such as India and China, as their middle classes grow and become  more affluent, they will demand access to more and better food.

Countries such as New Zealand offer sources of clean, well-processed, safe, reliable, sources of protein.

In other words: supply and demand.

Just as the U.S. has cornered oil supplies in the Middle East, growing economies in the East and elsewhere will look to “cornering” nett-food suppliers. It is interestimng that the Prime Minister, John Key, alluded to this matter at a public meeting in Lower Hutt, on 24 May. He stated that China’s centralised, autocratic government could not afford to risk disruption to their domestic food production; a hungry population; and a subsequent “Arab Spring”-style uprising.

No government on Earth could withstand one billion hungry people in revolt.

Key hinted that China’s acquisition of land in Africa and here in New Zealand was based on a strategic need to secure food sources.

If true, money is no object. After all, you cannot feed money to hungry mouths.

In which case, it is little wonder that Shanghai Pengxin’s offer for the Crafar farms is “over a certain price level“. China is not interested in selling the food for profit. It is seeking the food for it’s own population. Because by 2050, one billion Chinese will have eight billion other competitors seeking the same food source.

This is what ‘Shanghai Pengxin‘ spokesman Cedric Allan said,

“…  while it initially intends to continue supplying Fonterra with raw milk investment plans include working “in partnership” with an existing processor to develop baby formula, ice cream and cheeses suitable for Asian markets.

“We do not intend to be simply a customer of a dairy processor.

“To ensure the processor can produce long term and if they needed to increase their capacity to do so then we could help them with that.

“We have no wish to own or control a processor, other than to make sure they are in a position to provide surety long term.” “ Source

Again, no individual New Zealander(s) can hope to compete against  that kind of long-term acquisition-strategy.

Issue 3:

Shanghai Pengxin has lodged its application with the Overseas Investment Office (OIO) to buy the Crafar portfolio after Natural Dairy’s application was rejected.” – 18 April 2011 Source

The OIO (Overseas Investment Office) usually takes between 30 working days (Category 1 applications) to 70 working days (Category 3 applications). Source.

It has been approximately 115 working days since Shanghai Pengxin  lodged its application with the Overseas Investment Office.

One can only assume that,

(a) the OIO has mis-placed Shanghai Pengxin’s application (have they looked behind their cafetaria sofa?).

(b) the OIO has been “requested” by the Minister-in-charge to “review” Shanghai Pengxin’s application. And to report back sometime after the election.

The sale of the  16 Crafar farms is politically explosive. It would do to National what “Corngate” did to Labour in 2002. National cannot risk this matter affecting their re-election chances in November.

Which is why I am betting that,

1. We will not see a decision from the OIO any time this year.

2. The Fay-led consortium will fail.

3. The Shanghai Pengxin application will be approved.

The sale of New Zealand will accelerate, and with the apathetic acceptance of the majority of New Zealanders.

Just how gullible are we?

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+++ Updates +++

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Source

Fay said the group of farmers had “serious concerns” about the state-owned farming corporation’s role with Shanghai Pengxin, whose bid for the 16 in-receivership dairy farms is conditional on getting Overseas Investment Office consent.

“Landcorp is well known in the farming community for buying farm land in competition with locals – effectively using taxpayers’ money to outbid those same taxpayers,” Fay said.

Fairfax revealed recently that Landcorp was in preliminary talks with Pengxin for the job of managing or sharemilking the farms if the Chinese company is successful in buying them.

It has been nearly seven months since Pengxin applied to the OIO for consent.

Fay said Landcorp seems to have become “utterly confused” about its purpose and could have allowed itself to be used as a pawn in the deal – “just to give the Chinese bids an acceptable local face”.

Fay’s group has offered receivers KordaMentha $171.5 million for the farms. Its bid has been declined as too low but the farmers consider their offer “still live”.

Through its OIA request, the farmer group has asked Landcorp to provide all details of its dealings and correspondence with Pengxin, any correspondence it may have had with the OIO, and all correspondence between Landcorp and an unsuccessful bidder for the Crafar farms, Chinese group Natural Dairy and May Wang’s UBNZ companies.

The farmers say they are making a single bid for the Crafar farms because the receivers require it, but if successful they would split the farms up between them to be owner-operated.

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The Big Questions that need to be asked here are;

  1. Why is Landcorp – a State Owned Enterprise (SOE) – working with overseas interests rather than local investors and taxpayers?
  2. Is this an acceptable use of taxpayers’ money and resources?
  3. What is the government’s position on a SOE working with a foreign company, against New Zealand investors?
  4. Has Landcorp  offered to work with the Fay-led consortium? If not, why not?

Perhaps it is appropriate for these questions to be put to Landcorp’s Chief Executive, Chris Kelly, and Shareholding Minister, Simon Power?

Especially when, amongst it’s various “Mission Statements”, “Statement of Corporate Intent”, etc, we find the find Objectives that Landcorp is committed to,

“1.1

– To exhibit a sense of social responsibility by having regard to the interests of the community in which it operates and by endeavouring to accomodate or encourage these when able to do so.

1.4

– To provide the shareholders with maximum sustainable returns by;

Meeting social obligations.

5.4  Opportunities, risks and returns affecting or likely to affect Landcorp,

Returns through,

– stabilisation of rural land values.”

Source: State of Corporate Intent 2011-2014 (PDF)

None of the above seems consistent with supporting a foreign-based investor-takeover of New Zealand farmland, instead of a local initiative.

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from:    [email]
to:         Simon Power <simon.power@parliament.govt.nz>, Chris Kelly <kellyc@landcorp.co.nz>
date:    Thu, Oct 13, 2011 at 12:33 AM
subject:    Landcorp & Shanghai Pengxin

Sir,

According to recent media reports Landcorp  “is in preliminary talks with Pengxin for the job of managing or sharemilking the 16 Crafar  farms if the Chinese company ( Shanghai Pengxin) is successful in buying them.”

Landcorp appears to be supporting Shanghai Pengxin’s bid to purchase the Crafar farms over an offer by a local consortium, led by Sir Michael Fay.

Could you please explain how a New Zealand crown-entity – namely Landcorp, which is owned and resourced by New Zealand taxpayers – can appear to be supporting a foreign bid to gain control of large areas of productive New Zealand farmland; soliciting business from said investors; and thereby undermining a local bid?

Could you please explain how Landcorp can be associated with a foreign investor, instead of local investors, when their Objectives (2011-2014) specifically require Landcorp to be  committed to;

“1.1

– To exhibit a sense of social responsibility by having regard to the interests of the community in which it operates and by endeavouring to accomodate or encourage these when able to do so.

1.4

– To provide the shareholders with maximum sustainable returns by;

Meeting social obligations.

5.4  Opportunities, risks and returns affecting or likely to affect Landcorp,

Returns through,
– stabilisation of rural land values.”

In view of the above stated objectives, it would appear to make better sense if Landcorp were to support the Fay-led consortium, rather than overseas interests. Considering that Landcorp is owned by New Zealand taxpayers, it seems to be a fair expectation that Landcorp support local investors rather than overseas individuals and/or corporations.

I await your response to this matter.

-Frank Macskasy
– Blog-author, “Frankly Speaking”

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Chris Kelly responded the following day with this response,

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from:    Chris Kelly kellyc@landcorp.co.nz
to:    [email]
date:    Thu, Oct 13, 2011 at 4:33 AM
subject:    Re: Landcorp & Shanghai Pengxin

Dear Frank M

If and only if Pengxin have OIO approval to buy Crafar farms might Landcorp be involved in managing the farms.
Land corps preferred option was to buy them ourselves.
We would be happy to work with the Fay consortium.We have not been approached by them.
Landcorp has not been in contact with the OIO to assist Pengxin to buy the farms.

Regards, Chris Kelly

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Which begged the obvious question in return,

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from:    [email]
to:    Chris Kelly <kellyc@landcorp.co.nz>
date:    Thu, Oct 13, 2011 at 8:52 AM
subject:    Re: Landcorp & Shanghai Pengxin

Dear Chris,

Thank you for your response.

Has Landcorp considered approaching the Fay-led consortium to offer a joint-bid for the Farms? If not, why not?

Thank you, in advance, for any light you can shed on this issue.

Regards,

-Frank Macskasy

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To which Chris Kelly replied,

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from:    Chris Kelly kellyc@landcorp.co.nz
to:    [email]
date:    Thu, Oct 13, 2011 at 8:15 PM
subject:    Re: Landcorp & Shanghai Pengxin

Dear Frank,
We have not approached Fay.He represents a group of local farmers who want to break up the farms and run them as separate units.Landcorp wants to run them as a combined group.

Regards, Chris Kelly

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Which is interesting. If  Shanghai Pengxin buys the farms, there would be no guarantees how they are operated. Landcorp will have no control over their management whatsoever.

As a partner, in a Fay-led consortium, Landcorp would have a measure of control.

Is this making sense to anyone?

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Further Reading

Fay says xenophobia played no role in Crafar bid

Foreign Ownership of New Zealand’s Land

OIO Application Assessment & Timeframes

Farmland Grab

Shanghai Pengxin

Landcorp may bid for Crafar farms

Landcorp

Labour on farm sales – NOT good enough!

Kiwis against foreign ownership of farms

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