The latest round in the arguments against partial sales of assets is the treasury report from Ernst and Young which apparently says that these assets are performing well when compared to similar assets in the private sector. I confess to viewing that piece of information a little dubiously when the same annual Crown monitoring report (PDF found here) says that Mighty River Power (said to be the first company on the block) lost 20,000 customers in the 2010/11 fiscal year. That does not sound like a great performance to me. Plenty of room for improvement, I would have thought.
Still, be that as it may, in my simplistic economic world, I tend to look only at the cash figures involved. To me, those are the only figures that truly matter and there are only two of them. The first is the amount of actual cash paid to the government in the fiscal year – not the capital gains or retained earnings – just the cash. That figure is $95 million. 49% of that is $46.5 million. That is how much money the government loses each year by selling MRP.
The second figure is how much it would cost to keep. The independent valuation for MRP is $3,631 million. 49% of that is $1,779 million. Assuming the government could borrow at a mere 5% (English was borrowing extra last year because he could get a rate a little over 5%, so this is conservative), the interest on borrowing this amount is $89 million. This figure is bigger than 46.5 million, so it is worth selling Mighty River Power.
This is very “rough and ready”, of course. The government may get more or less money for its 49% shareholding. The actual loss of income from the sale is less because this money will now be going to others as taxable income and therefore some of it will return to government coffers as income tax. Actual cash from shares may be more or less than this depending on how Mighty River does with more private input.
All of this financial consideration is probably irrelevant anyway. National want to sell down these assets because they (correctly in my opinion) see no reason why a government should be dabbling in electricity generation. Labour hate the sales because they think government should be the be-all-and-end-all of everything. They like to call these assets “strategic”. This is code for “we don’t trust the market”.
You could call Ports of Auckland a strategic asset for Auckland. Look what the (local) government has achieved with that. I suspect their inability to stand up to a strong union will cost rate-payers dearly. Does anyone think for a moment that Labour would not find itself in a similar position eventually with State Owned Enterprises?