KEY POINTS:
What an extraordinary state New Zealand has reached when normally tough-minded Kiwis - like Wellington Mayor Kerry Prendergast and leading investment banker Rob Cameron - feel duty-bound to nominate the NZ Super Fund as a stalking horse for "privatisation" (even if of the most partial kind).
Prendergast has
suggested the fund might acquire 8 per cent of Wellington International Airport (the council owns 34 per cent of the total airport shares) so the council can realise some cash as part of its push to get projected rates increases down.
It's the type of thinking that is going to get more commonplace this coming year as councils come under renewed pressure to release cash from mature investments to redirect into new infrastructure investments.
Prendergast is obviously floating a kite to test community reaction. But why shy away from getting as much cash as she can for the council's stake (which is surely in ratepayers' interests) by selling the shares to the highest bidder instead of being a willing but weak seller?
By flicking a stake to the NZ Super Fund, Prendergast hopes to depoliticise any selldown as the fund (now under effective National Government dictate to increase its domestic investment) is essentially a massive retirement savings offset for the baby-boomer generation.
Infratil still retains the dominant 66 per cent holding and the Mayor wants to ensure her council retains sufficient shares to block the infrastructure investor from taking the airport in any direction with which it doesn't agree.
In any event there will be a round of community consultation before the council decides whether to progress.
Cameron - who has just published his most recent dissertation on the State Owned Enterprises governance model - suggests the model would be strengthened if the Government sold a portion of its voting shares in SOEs to the Super Fund, which would have the right to appoint some directors to SOE boards.
The recommendation is tucked away in the back of the Wellington banker's presentation, which (to be fair) is more focused on ensuring political cronies don't dominate SOE boardrooms (my words not Cameron's), ensuring directors get paid a sensible amount to sit on SOE boards so that highly qualified candidates are attracted and investment decisions are made by the boards and their shareholding ministers (not the Cabinet) and, allowing the Government enterprises to issue non-voting equity via SOE bonds or redeemable preference shares.
Cameron ruffled Labour's sensibilities last year when he suggested that the Government should order SOEs to issue a minimum of $100 million of equity, or 10 per cent of their value, through non-voting shares which would result in the state companies being subjected to market monitoring.
Finance Minister Michael Cullen was understood to be reasonably on-song with the proposal. But Cullen ordered a raft of "infrastructure bonds" - not linked to the performance of particular SOEs - to be issued instead after party diehards claimed it would "open the way to privatisation".
Prendergast and Cameron are both coming from different directions. But in their own way each is leveraging both the Government's desire to increase the Super Fund's domestic footprint and the type of thinking promulgated by NZX CEO Mark Weldon and Infratil's Lloyd Morrison to ensure the fund is used in more strategic fashion.
By having what Cameron terms the "Government's expert' investor" sharing the voting register with the Government (if only in a minor capacity) more rigour and contestability is brought to the board table. In the public mind it probably seems simply a reshuffle of assets from one arm of Government to another. But given the fund's management mechanisms it would result in greater scrutiny.
This type of thinking should be music to the ears of National's key economic Cabinet ministers: John Key - who has already had Weldon in to talk new investment scenarios, Finance Minister Bill English, who is a realist when it comes to political doability, and State Owned Enterprises Minister Simon Power.
Pursued energetically, it would enable the NZ Super Fund CEO Adrian Orr to more easily make good on National's target for 40 per cent of funds to be domestically invested.
But the drive to increase the performance of SOEs should not simply rest with the Government. A series of partial privatisations - where the Government retains the clear majority stake - would also raise funds for reinvesting in newly reacquired state "infrastructure" including KiwiRail which will need considerable funds.
All this requires the politicians to stop acting irrationally whenever the "P word" - privatisation - is mentioned.
Where Cameron is pushing the envelope is with his recommendation that Cabinet ministers' decision rights on governance should be reallocated to SOE chairs and boards. In essence, he is suggesting the Government should select the SOE chairs then leave it to the chairmen to ensure appropriate candidates are appointed as directors to their boards.
This might be hard to achieve. But there is widespread concern within top commercial circles over the spread of cronyism. Even a survey of SOE directors found two-thirds believed the process for appointing board members was "too politically influenced".
Cameron also suggests Cabinet should hand back decision rights for all major SOE investments to shareholding ministers who would in turn simply allow the boards to make their own decisions unless a Government equity injection was needed to fund an investment.
Together with fellow partner Murdo Beattie, Cameron mounted successive pushes in 2007 to (among other measures) expose SOEs to capital markets disciplines by listing non-voting equity. Under the 1986 legislation establishing the SOEs, provision was made for the issue of equity bonds and other potential mechanisms like redeemable preference shares.
But these options were shelved when successive Labour and National Governments ordered SOE boards to prepare their companies for sale. Not all the SOEs were sold off. Those that remained stayed in a limbo state for far too long, thus losing out on opportunities for value creation.
But the option to issue equity bonds also stayed on the shelf.
By Cameron Partners' reckoning, there is some $1.4 billion to $1.7 billion of equity/value that was available to investors if the Government allowed SOEs to issue a minimum of $100 million of equity, or 10 per cent of their value, through non-voting shares.
Key and Co should just get on and do it.
