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'Three avenues to drive a truck through' on privatisation promise: Cunliffe

Friday 20th April 2012

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Partially privatised state-owned enterprises have shown they have at least three ways to get around the 50 percent Crown ownership clause that underpins the government’s unpopular asset sales programme, says Labour’s commerce spokesman, David Cunliffe.

In recent weeks, it had become clear there were “three avenues you could drive a truck through” to circumvent the 50 percent rule and still achieve private ownership of state assets.

The first was the use of “quasi-equity” non-voting shares or bonds, which Labour discovered under the Official Information Act had been approved as part of a Cabinet decision described in official papers as “minor”.

This effectively allowed SOEs to raise new capital without having to involve the government, since they would not carry voting rights. A similar mechanism is being used to deal with farmer sensitivity to new capital in Fonterra’s contentious Trading Among Farmers non-voting tradeable units.

The second method had been revealed to the Commerce Select Committee by state-owned coal miner Solid Energy’s chairman, John Palmer, who said there was nothing to stop a board proposing the 100 percent sale, including by public float, of a subsidiary of the company.

The third example Cunliffe cited was this week’s sale of the railway workshops in Hillside, Dunedin, by KiwiRail.

Cunliffe told BusinessDesk that while SOEs had long been able to buy and sell assets, there was a “materiality threshold” above which SOEs should have to consult shareholding Ministers.

That threshold should have applied to the Hillside workshops decision, since its heavy engineering capacity is part of KiwiRail’s infrastructural backbone.

Likewise, if Solid Energy were to try to develop its controversial, multi-billion dollar plans to turn vast, low quality Southland brown coal, known as lignite, into fertiliser or diesel, it should be obliged to consult Ministers.

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