Treasury is concerned because while the listed companies are doing well, outperforming their cost of capital, the wholly-owned companies are performing poorly - and their performance could get worse.
The unlisted entities have "underperformed their cost of capital. Revenue, earnings and dividends have all trended down over the past five years," Treasury warned.
The report added that the future was not necessarily bright when it came to SOEs, which are unlisted.
"Many of the Government's unlisted entities are now in sectors with limited growth prospects, exposing some entities to future disruption risks (for example, disruptive technology and shifting consumer preferences)".
Act's SOEs spokesman Damien Smith called for the unlisted commercial companies to be partially-privatised, along the lines of Air New Zealand or the power companies.
"If we are serious about getting the best outcomes from taxpayer-owned assets, we need to apply the Mixed Ownership Model (MOM) to all of our remaining SOEs," Smith said.
"This investment statement from Treasury shows that of the more than $400b in assets owned by the Crown, the ones that are succeeding and offering value to the taxpayer are those already subject to an MOM.
"A partial privatisation would subject these companies to market forces, requiring them to deliver better results for Kiwis as shareholders and customers," he said.
National leader Christopher Luxon had not had the opportunity to look at the report when he was contacted for comment this week, but said National did not want to partially-privatise the other entities. The last National Government part-privatised fully-owned power companies.
"From my point of view there's no - I don't see any reason to change what we've got," Luxon said.
The report found that the listed entities outperformed their cost of capital, with their market capitalisations increasing from $9.3b in 2017 to $14.5b in 2021. The growth came from the three power companies, while Air New Zealand was heavily impacted by Covid-19 and required help from the Crown.
Returns from the unlisted companies failed to outperform their cost of capital.
Treasury said the current portfolio had no coherence, and only reflected the commercial decisions of many Governments past, leaving it with no "unifying set of commercial or ownership objectives".
"Good practice is that the rationale for ownership should continually be monitored," Treasury said.
A complicating factor is the fact the Government sometimes sought to use the commercial companies to achieve something other than simple commercial gain, like furthering government policy on climate change or public media, for example.
Treasury called on the Government to "be transparent about the trade-off between shareholder returns and those broader outcomes, including clear financial expectations".
The Green Party's SOEs spokeswoman Chlöe Swarbrick said there was no "one-size-fits-all approach to this, it really depends on the nature of the entity in question".
Swarbrick was critical of the idea of using cost of capital as a performance metric.
"The success of these organisations should be measured by the contribution they make to our communities.
"The priority should always be on the overall public good, not shareholder dividends," she said.
SOEs Minister David Clark agrees.
He defended the mixed performance, saying there were "a number of factors" including Covid-19 behind the results.
"The performance of commercial entities has been mixed due to a number of factors, as noted in the Investment Statement. For example, Covid-19 has had a significant impact on a number of the commercial entities, with several commercial entities seeking new capital from the Government," Clark said - adding that even the listed company Air New Zealand sought capital from the Government.
He said the SOEs had objectives beyond "shareholder financial returns", including "public policy objectives that can be advanced through public ownership and with the commercial disciplines of the State-Owned Enterprise model".
"For example, KiwiRail offers outcomes for the broader transport system and climate transition, but with a commercial focus," he said.
The issue of what to do with SOEs has been on the Government's radar since it took office. Briefings previously reported on by the Herald showed Labour and NZ First coalition explored rolling all or some SOEs into a large holding company, hoping it would manage them better.
However, Treasury warned that unless that holding company was able to privatise parts of those companies at will, there would not be much value in the new structure. Privatisation is a red line for the current Labour administration, so the idea fell apart.
The Government is currently reviewing the structure of underperforming SOE KiwiRail, as well as TVNZ, which is returning dividends to the Crown but faces challenges in the future.
