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Budget 2011: Government commits to SOE selldowns


The government has finally committed to selldowns of major SOEs, which will be used to help finance infrastructure spending.

Niko Kloeten
Thu, 19 May 2011

The government has pledged to sell stakes in major state-owned enterprises if it wins the election, and it says the money raised will go towards improving New Zealand's infrastructure.

Infrastructure is a big focus in this year's budget, with an extra $1.6 billion of infrastructure spending going to broadband, rail and schools.

The spending, which includes over $500 million of reprioritised capital, follows about $3 billion of new spending in infrastructure and other major capital investments in budget 2009 and 2010.

In addition to budget initiatives, the government is also spending about $12.2 billion over the next 10 years in New Zealand's state highway network and $3.8 billion through Transpower until mid 2015 to upgrade the national grid.


Part-privatisation as a funding tool

The government will go to the election in November promising to sell shares in the four big state-owned energy companies (Mighty River Power, Meridian, Genesis and Solid Energy) and to reduce its majority shareholding in Air New Zealand.

And it says New Zealand investors will get priority.

Finance Minister Bill English and State Owned Enterprises Minister Tony Ryall say the selldown programme will reduce government debt, increase investment opportunities for "mum and dad investors" and improve the companies' financial performance.

If National wins the election the asset selldown will happen in a three to five year programme starting in 2012, subject to market conditions and the results of detailed scoping studies.

Treasury estimates the part-privatisation of the four SOEs and the reduction of the Crown's shareholding in Air New Zealand would free up between $5 billion and $7 billion in capital.

"The government will be a substantial net acquirer of assets in the five years to 2015. Its total assets are expected to rise by $34.3 billion to $257.7 billion in 2015," Mr English said.

"Rather than simply borrow this amount, the government will use proceeds from the mixed ownership model to recycle existing capital towards high priority future investment in assets like schools, hospitals and broadband.

"The proceeds will fund about a third of the government's new investment in core social infrastructure."


Treasury gives the thumbs up

Treasury has given the go-ahead to the government's SOE selldown plans after they met the five tests put in place by the government.

These tests included that New Zealanders will be at the front of the queue and the government is satisfied regulations will adequately protect New Zealand consumers.

One of the tests is that the government is confident of "widespread and substantial" New Zealand share ownership.

This is why the selldown will take place over three to five years: according to Treasury there would be domestic demand for up to $2 billion in any given year, meaning a maximum tranche of about $1.5 billion.

Treasury says there is substantial capacity between KiwiSaver funds, other managed funds and retail investors, the government's own investment arms and iwi.

Initial Public Offerings are the preferred method of selling the shares, while no decision has been made yet as to how much of each company will be sold.

No other SOEs are being considered as candidates for the mixed ownership model.


Where the money is going on infrastructure

Capital spending outlined in the budget includes $942 million to complete the government's funding for ultra-fast broadband and $28 million more to connect fibre to schools.

KiwiRail gets $250 more for its 10-year Turn Around Plan, as well as $88 million for Wellington's Metro Rail.

Education gets $109 million for leaky building repair work, a public-private partnership at two new schools at Hobsonville and other initiatives.

The government has also set aside a contingency fund of $45 million for spending on social housing in 2011-2012.
 

Niko Kloeten
Thu, 19 May 2011
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Budget 2011: Government commits to SOE selldowns
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