John Roughan: Love will oil the wheels

Bill English mischievously mentioned a Kiwibank share issue. Photo / Mark Mitchell

Behind every good business, I imagine, there are shareholders who love it.

Newspapers know this better than most; you've got to love them to own them these days.

State-owned companies will be no different. They need the kind of love that can crack the whip on the operation when it needs it.

If I was a believer in Kiwibank I'd welcome the hint from Bill English that the Government might issue shares in it.

Members of this Government do not love the little Anderton bank. They regarded it as a waste of public money from the start and their distaste turned to contempt when Jim Bolger accepted its chair.

Now, according to English, it needs "an awful lot of capital" and a share issue would be one way to raise it.

English, bless him, has a mischievous streak. He dropped the hint last week just as the Budget was going down a treat. He would have known the consternation he would cause, not least to John Key who has undertaken to sell no assets in his first term.

English and Key are polar opposites. English is mentally stimulated by a political challenge. His mind is drawn to the danger zone between rational policy and public acceptance. Key doesn't want to go there.

English relishes the challenge in theory, in speeches and spontaneous comment which he delivers with a reckless grin, but when it comes to the crunch, he doesn't want to go there either. I wouldn't blame Key entirely for the soft Budget.

In fact Key may be braver than he wants to sound. His instinct is to say nothing that tests the boundaries of public opinion even while his action may be doing so.

A partial float of Kiwibank is a proposal Key could probably sell. He would call it a "public-private partnership" and it would be an exemplary one.

The value to the economy of even a minority private share of a state company is that the sharemarket becomes its dominant influence.

Directors have a duty to all shareholders that lawfully trumps any political pressure they might feel.

Political bodies are fairly passive shareholders even when they are keen on a holding. Private stakeholders take a closer look at the likely value of what is done with their money and the taxpayer's.

I'm not sure what Kiwibank wants to do with additional capital but it would be better for the country if it had to justify its need in a prospectus for a share issue.

If the bank simply has to drum up political support, television images of Sam Neil battling big bad foreign banks would probably do it.

But whatever capital Kiwibank needs is probably small change compared to the demands of that other business the previous Government repossessed: KiwiRail. That old horse has had a lot of love over the years.

Public and private masters have tried to make it pay. Two private owners have been no more successful than Governments used to be. The network's earnings simply cannot cover its maintenance.

The second owner, Toll Holdings, tried to charge the full cost of certain lines to their main users, bulk dispatchers of coal, fertiliser, wood and dairy products.

They resisted, making concerted complaints to Michael Cullen that eventually had their desired effect. First Cullen repurchased only the infrastructure and tried to share its maintenance cost with the train operator.

Then, when the full scale of the effective subsidy became apparent, he baulked at providing it to a private company and had to offer Toll a price it could not refuse.

The price astounds National's Transport Minister Steven Joyce who has to make the best of it. He has just approved an extra $750 million three years capital improvement programme without much conviction. The main beneficiaries of all of this will be those bulk users who couldn't, or wouldn't, pay the true cost of lines that existed mainly for them.

What would they do, I wonder, if the Government decided to abandon rail. It is possible that port companies and quite a number of their bulk customers would find a way to keep their lines open.

The present main trunk might not survive but how important is that really? Nearly three-quarters of freight movements in New Zealand are over short distances. Rail began as provincial lines to ports and the main trunk came later, mainly for passenger services.

These days it can't compete with air for passengers, or with roads for freight. It carries just 6 per cent of freight tonnes, or 15 per cent if the market share is calculated by weight and distance carried.

Rail survives largely on sentiment. There is something reassuring about a line from one end of a long country to the other. But a better love would never give up the challenge to make it pay.