Asset sales: is the Government mad?by Fiona Rae
The only one in parliament apparently able to make a sale is Trevor Mallard, says Jane Clifton.
Government is at least 50% salesmanship – but as they say in the infomercials, results may vary. Currently at its nadir, John Key’s popularity is still level with Helen Clark’s at her most adored – yet despite his acknowledged charm and plausibility, he’s shaping up as a politician who couldn’t sell a cardy to an underdressed Eskimo. The evidence is stacking up so mightily against the partial floats of the four electricity companies, it’s beginning to look like an act of bizarre political martyrdom on National’s part to persevere with them. Even its handy election catch-cry, that there’d be a “$7 billion hole in the Budget” without the floats, has proved moot, to say the least.
Finance Minister Bill English, with typical but unhelpful Southlandic candour, described the new figure for the sales, $6 billion, as “just a guess”. The Prime Minister eventually amended this to “best estimate”, but – as they don’t say in the infomercials – he may as well have added, “But wait! There’s less!” There are also unexplained mutterings about selling less than the 49% stakes initially proposed. So guess again. $6 billion could become … what? $3 billion? But then, as Key burbled in the House the other day, the sales could also return $10 billion. “Probably … you never know!”
And he’s right: you never can know. Market valuations of assets are neither fixed nor terribly predictable. As for official Government forecasts, recent years’ budgetary projections have consistently shown that the Treasury is all about guessing, and very often it guesses wrong. However, the Treasury is the traditional arbiter of dry fiscal prudence, and its latest advice on the sales has been lukewarm to the point of ambivalence.
The bald figures do rather appear to render the whole exercise head-scratchingly pointless. At present, the dividend trajectory of the companies is running at 18.5% – at the high end of returns these days. The Government’s average cost of borrowing is 4%. The Opposition is asking why we would sell something earning us 18.5% because we’re terrified of borrowing at 4% to keep it capitalised and performing?
The question has to be asked of the Government, given the rate of return, the variables of the marketplace, and the fact the companies recently upgraded their plant and should become even more productive and profitable: Are you mad? Why on earth is National in such a hurry to slap a Buy Now – (note to Trevor: you’ll keep till later in this column) – on these companies’ rumps? The general assumption is that it’s bone-headed ideology. But at that rate, it would be selling the whole asset, not just a minority stake.
But wait – there is more. Why the Government isn’t talking about it is the great head-banging mystery, but these floats are not just about the books and avoiding another biff from Standard & Poor’s, but about taking grand new opportunities to earn overseas exchange. The companies could play a big part in getting this country out of the cactus long-term because they’ve got something valuable to export: rare knowledge. Although much despised here for rapacious power pricing, the companies have even greater potential to gouge other countries that are keen to use their expertise in sustainable energy technology and development. They could massively increase their overseas earnings, but are currently legally and financially constrained from maximising that potential.
Mighty River, the first company up for sale, is a world leader in geothermal technology, and has lucrative projects going in Germany, Chile and the United States. It says it can get returns there that are “not constrained by demand for electricity in New Zealand”. In other words, there’s a limit to how much profit can be extracted from the depressed New Zealand market. But overseas is a whole different scenario.
The company has identified a fast-growing niche market for geothermal projects in both developing and developed countries. Capacity is projected to double in the next five years, and our company is a global go-to-guy in the geothermal field. Thanks partly to Japan’s earthquake-wrought nuclear anxieties, countries in Europe and Asia are now looking at reducing dependence on nuclear power. Developing countries – whose economic growth rates are off the scale – are desperate for affordable, sustainable energy to fuel that growth.
Other companies to be part-floated are involved in solar, wind and other projects overseas, also with big horizons that they’re constrained from optimising. In an ideal world, the Government would simply change their governing legislation and write the odd cheque to help those companies into serious overseas-earning activity. But the Government isn’t in a position to do much cheque-writing these days, so it’s hoping private investors will be willing when the time comes.
Politically, however, it’s way too late to get any of this across. Public opinion seems to be hardening against the floats, in lock-step with resistance to the Crafar farms sale to Chinese conglomerate Shanghai Pengxin Group. Parliament’s daily question time has become an amusement park for the Opposition, as it knows the Government can’t bow, even to public opinion, and ban overseas land sales, or call off the floats. Commentators have wondered why Labour’s new leader, David Shearer, hasn’t burst out of the blocks with vision statements and dag-rattling orations. But it’s hard to fault him for taking the energy conservation option. Why break a sweat to oppose the Government when it’s doing all the heavy lifting in its own demise?
The dearth of political salesmanship here is staggering. But then again, in Trevor Mallard’s Trade Me outings, we have in microcosm an example of how big, and utterly inexplicable, politicians’ blind spots can be. And how ingeniously they can contrive to make their pratfalls even more self-injurious.
Joining the annals of petty but telling scandals that are never forgotten – Tuku’s undies, Rodney’s junkets, Shane’s grubby movies and Chris Carter’s “They’re only picking on me because I’m gay” – Trevor’s profiteering on concert ticket sales has every possible ingredient for immortality. He made about 70% profit, against Ticketek rules. But wait, there’s more, he: a) sold them to impecunious students; b) told a lower bidder his offer was “cheeky”; c) happily admitted he does this regularly; d) used parliamentary computers and his electorate office to do it; e) handed the envelope to the students in the street, saying to passers-by, “This is not what it looks like”; f) expressed annoyance at the public fuss, saying he’d now have to change his Trade Me identity (“Pisses me off!”); g) slagged off the students in the social media, saying that’d teach him to deal with kids from Newlands; and h) – my personal favourite – said he didn’t know how to do a Buy Now, and “didn’t read the fine print” on the tickets.
Fine print? Trevor is to the head of a pin what the Occupy movement is to Aotea Square. He uses up hours of parliamentary time each year with point-of-order hair-splitting, making even Winston’s way with semantics seem sloppy. He is also a cyber-ninja, seldom out of the social media – someone to whom Buy Now ought to be as natural as breathing.
In fairness, Trade Me’s allure can make canny barrow boys out of the mildest-mannered amateur salesperson and Trevor, a hyper-competitive alpha male, succumbed in a way that was probably inevitable. And you have to wonder at the students’ epiphany – happy to connive at the immoral profiteering, until they discovered it was a Labour MP clipping the ticket.
But even when it comes to petty sinning that “everybody” does, MPs just can’t. What’s more, when you’re on $170,000 a year on the public purse, you can’t afford to be seen nickel-and-diming it. Nor is there any privacy on a public website. And if you’re a habitual scrapper with a history of lobbing dirty bombs at opponents, you need to be especially careful, making this a most bewildering fall from grace for such an experienced, thorough and tough political operator. Still, it does at least go to show that someone in Parliament knows how to make a sale.
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