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Airways deal renews privatisation call

Friday 19th May 2000

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State-owned enterprises are in the firing line again, spooked by scrutiny of their normal business practices and their diversification into overseas markets. MICHELE SIMPSON finds Airways Corporation isn't the only one

When Electricorp took a string quartet and guests to the top of Queenstown's Remarkables a decade ago for a bit of light entertainment, taxpayers were outraged.

Former Prime Minister Jenny Shipley and her famous nosh with advertising executive Kevin Roberts set off alarm bells over the Tourism Board's decision to go with Mr Robert's agency, Saatchi & Saatchi, for a budget-busting international campaign.

Now the Airways Corporation is dodging accusations of financial kickbacks over its contract for the supply of a new air traffic management from Lockheed Martin.

SOEs and government departments have not escaped having their business dealings heavily scrutinised in the media and now the auditor-general's office - another government body - is being called in by SOE Minister Mark Burton.

"The government is a shareholder and a monitor - that's a big conflict in itself. I think the problem is that the government does not have a diversified portfolio," economist Brent Wheeler said.

Dr Wheeler was the author of a 1989 report for the SOE advisory unit which argued for privatisation of the government-owned businesses.

Submissions closed last week on the Public Audit Bill, now before the government's finance select committee. At issue: whether SOE "effectiveness and efficiency" should be audited by the government.

The auditor-general's office already looks at the books of SOEs, evaluating them like any private company. Under the new legislation it would get a wider brief to probe financial prudence and waste.

The bill could snag a deal such as Airways Corporation's contract with Lockheed Martin.

New Zealand First leader Winston Peters has made allegations that four Airways Corporation figures - board chairman John Maasland, chief executive Craig Sinclair and group finance manager John Bole and international business manager Paul Woodbury - could benefit personally by as much as $30 million from the deal with Lockheed Martin.

The contract was not tendered and accusations centre around what is wrongly being called "insider trading" within Airways Corporation. Mr Peter's claim is that the four men were to receive "sweeteners" for doing the Lockheed deal.

Mr Maasland and the three executives maintain the claims are without substance.

Criticism of the Audit Bill centres on whether it would erode shareholder growth for the government or else be too loose and let instances of bad management slip through.

In a briefing last month the Treasury quoted a previous finance and expenditure select committee statement: "We believe it would be inappropriate for the audit office to be authorised to conduct efficiency and effectiveness reviews of service performance, since this concerns purely contractual matters to which Parliament is not a party."

SOEs and government departments admit they operate openly in the marketplace when looking for business partnerships - sometimes without a strict tender.

Through a separate international company, SOE New Zealand Post has a number of large offshore contracts in countries such as South Africa, Botswana and Trinidad & Tobago. As part of those wins, New Zealand Post International also has to subcontract out for other services as well as for staff.

Contracts are sometimes drawn up without tender but always made openly and fairly, NZPIL managing director Drew Stein said. There were also instances where an international partner was chosen because there were no other choices.

NZPIL had to subcontract for its large venture with South Africa's postal service. It needed technical experts for the job and in this case had to go with Lockheed Martin, using its postal system unit, without a tender. The job could not be tendered as all other postal equipment manufacturers were linked with rival bidders for the contract.

The restrictions of a tender process can stamp out growth opportunities and hold government bodies back.

In one example, government agency Transit New Zealand was pleased last year to link up with a large insurer for sponsorship of the Auckland Harbour Bridge. The plan was hatched without a tender but it fell over when Transit was told it had to adhere to legislation and tender for the bridge sponsorship contract. A tender went out in March but Transit is now struggling to find a partner.

"This seems to be the conundrum. [The government] wants its business to thrive and grow but there are all these financial constraints," Dr Wheeler said.

The government's decision this year to halt TVNZ's digital plans was another example of how an SOE intertwined financial viability and growth, he said.

Debt markets and equity markets put a lot of resources into monitoring the private sector but were not as hard on SOEs, Dr Wheeler said.

"[Credit agency] Standard & Poor's isn't going to be as hard on [an SOE] as it is hardly going to fall over. A government has never let an SOE goes bust."

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