KEY POINTS:
All investors - New Zealanders and foreigners alike - should be pressuring Finance Minister Michael Cullen to designate forthwith the list of strategic assets that the Government wants to maintain within New Zealand control, or, subject to additional covenants before allowing control to pass overseas.
Right now New
Zealand's hard won reputation as a "fair dealer" towards foreign investors is in jeopardy as the Government - with the aid of New Zealand First - sets about re-erecting Fortress New Zealand by using the results of political polls to determine which bids get over the line rather than rational criteria.
The least Cullen could do is give investors the courtesy of spelling out which assets will henceforth have to stay under effective Kiwi ownership control.
This is an important issue as the global credit crunch has increased the price of debt funding.
Internationally-based institutions will be less inclined to take up equity parcels in our major blue chips - think Telecom, Contact Energy or even Infratil - if they think there is a risk that such companies are included on an unofficial Government "strategic asset" list.
Telecom already has strictures on its foreign ownership levels through a golden (Kiwi) share arrangement that was struck when it was privatised in 1990.
The other two companies don't.
Neither does Vector - which is currently trying to flick its Wellington lines assets in a bidding war where the major participants are believed to be Chinese.
The problem is the investing community can't read Cullen's mind.
No sensible investor knows whether the Government has simply been whipping up anti-foreigner sentiment for electoral reasons as was clearly the case with the doomed Dubai and Canadian bids for Auckland Airport, or whether it has genuinely reached the view on the basis of observed practices that it's time to place a cache of New Zealand assets in the "strategic" camp and protect them against foreign control.
This is an important distinction.
Cullen's stance that there is no need to isolate which assets fall within the new category of "strategic infrastructures on sensitive land" - a "trust us" approach - leads investors to the belief that the Government has no intention of making a rational assessment of overseas investment applications.
We don't know either if Cullen's refusal to stipulate an asset list is because he genuinely wants to play his cards close to his chest, or if he is simply going along with the anti-foreigner sentiment to keep other players like New Zealand First close until after the election.
Australian Governments of both Liberal and Labor stripes have placed clear foreign ownership restrictions on ports and airports, trading banks, and news media (this has since been relaxed.). The Australians have made clear they want to keep Qantas and major mining companies under Australian control.
But the key point is that the Australians (in the main) have clear rules or criteria for assessing applications. New Zealand used to - but now doesn't.
This is seen by the fact that two Cabinet Ministers failed the Canadian bid because they believed it did not stack up sufficiently against the full range of the national interest tests in the overseas investment rules. The Overseas Investment Office believed it passed muster subject to written agreement constraining the fund's ability to vote at the 24.9 per cent level.
The Government can't afford to play politics with this for too much longer.
It has a working group looking at the feasibility of a public private partnership to build the $2 billion Mt Albert-Waterview tunnel.
It's highly likely that the $2 billion plus would come from overseas. The tunnel would clearly fall within the new category of "strategic infrastructure on (or adjoining) sensitive land" - but on what basis would the Government assess any offshore application?
The problem is that the current rules require the Overseas Investment Office - and in this case ultimately two Cabinet Ministers - to assess such an application against criteria that were initially devised for examining offshore bids to buy up farms and headlands which butt up against lakes, rivers and the foreshore and seabed.
Criteria for assessing infrastructure bids are not separately specified as part of the national interest test criteria.
It's a bugger's muddle about to be made even more complex by the "national treatment" and expropriation settlement provisions in the China free trade agreement.
The relevant clause speaks for itself.
"Each party shall accord to investments and activities associated with such investments, with respect to management, conduct, operation, maintenance, use, enjoyment or disposal, by the investors of the other party treatment no less favourable than that accorded, in like circumstances, to the investments and associated activities by its own investors."
In certain circumstances this could set the scene for compensation to be paid to Chinese investors if the Government shifts the regulatory landscape for reasons other than "may be reasonably justified in the protection of the public welfare, including public health, safety and the environment".
One trade expert I canvassed put forward these three hypothetical "what if"' scenarios.
What if the Government had turned down the Auckland Airport bid after the FTA had come into force? Any Chinese investors would have had many millions of value wiped off their shares.
There would be a clear potential for a case for compensation under the Investor State dispute settlement provisions.
What if the Government decides next year that Vector is a strategic asset and can only be sold to New Zealanders?
This would be a breach of the National Treatment provisions of the FTA because, at the time of the agreement coming into force, no determination had been made that Vector was a strategic asset.
It was not a non-conforming measure until after the agreement came into force.
What if the FTA had been in force on January 1 this year? The Government could not have stopped the Auckland Airport sale to Chinese interests if they wanted to buy. The OIO regime existed prior to the agreement so will still apply. It is only where changed policy is involved or where there is no policy that the agreement will kick in.
Time for more clarity please.
