Treasury ready to advise on privatisation options

Treasury has privatisation advice ready to give Government and is just waiting to be asked for it. Photo / Mark Mitchell

The Treasury is sitting on advice to the government about options for selling state assets, and is just waiting to be asked to produce it for the Cabinet to consider.

At a briefing yesterday, the head of Treasury's Crown Ownership Monitoring Unit, John Crawford, said Ministers "will need to consider Treasury advice on SOE ownership soon", given its promise only to promote asset sales after campaigning on the issue before an election.

A general election is due within the next 11 months, meaning the Cabinet will need to decide a pre-election position by early next year if it is to campaign on the issue.

The Treasury policy review had included examination of "what's best in, what's best out, partial ownership versus zero ownership" and alternative ways of raising capital against state-owned assets, such as the issue of corporate bonds and the "uncalled capital" approach used recently in an agreement to recapitalise KiwiBank.

"We have given other SOEs the ability to have debt instruments that have equity-type characteristics," Crawford said.

The briefing accompanied the first release of an annual report from COMU, which was formed to replace the previous SOE oversight body, the Crown Company Advisory and Monitoring Unit, and oversees the investment performance of its $94.3 billion in SOEs, Crown investment funds, and "multiple objective" businesses such as NZ Post and KiwiRail, which fulfil more than solely commercial purposes.

Among its key findings was that the only government investment fund doing any better than a passive investor is the ACC, which had achieved a 7.8 per cent three to nine year annualised return, against a passive benchmark of 6.8 per cent and a fund objective of 7.4 per cent.

However, the New Zealand Superannuation (Cullen) Fund, Earthquake Commission Fund and two public service pension funds - the Government Superannuation and National Provident funds - are all showing returns either matching or lower than passive investment benchmarks, despite being subject to active funds management strategies.

"At present, the Crown does not appear to be obtaining a net gain from use of the active investment approach by most funds," says COMU. "Five year returns are below the New Zealand government stock index."

The report also found ACC had the lowest administration costs, at 0.31 per cent of its fund, while the GSF's costs were highest at 0.87 per cent of its fund.

COMU also questioned the relatively average dividend payout ratios from the 17 SOE's it monitors, showing an average 2 per cent return, compared to around 4.5 per cent for NZX-listed companies.

"We're looking to actively engage with the companies to understand dividend policies and how we can influence them," said Crawford. The government, as shareholder, had allowed investments of about $2 billion a year by SOE's over the past five years.

"We're looking for the returns now" after five years of declining earnings performance, which COMU says is "not inconsistent with what might be expected given the economic environment."

COMU has also ordered independent valuations of a wider range of SOEs than in the past, with a valuation for NZ Post posted on its website today, and for Solid Energy and Transpower next Tuesday.

Valuations for NZ Post from Macquarie and First NZ Capital valued NZ Post, including Kiwibank, at $1.356 billion and $960 million respectively.