Kiwi investors first in line for SOE shares, Govt says

New Zealand investors would have to be at the front of the queue to buy shares in state-owned enterprises if the proposal to partially sell some of them goes ahead, the Government said today.

Giving more details of the proposal announced by Prime Minister John Key on Wednesday, Finance Minister Bill English said the Government wasn't considering any partial sales -- which it calls mixed ownership -- beyond Mighty River Power, Meridian, Genesis and Solid Energy and reducing its shareholding in Air New Zealand.

Mr English and Commerce Minister Simon Power said the Government would go ahead with mixed ownership only if it met these tests:

* The Government would have to maintain a majority controlling stake by owning more than 50 percent of the company;

* New Zealand investors would have to be at the front of the queue for shareholdings, and the Government would have to be confident of widespread and substantial New Zealand share ownership;

* The companies involved would have to present good opportunities for investors;

* The capital freed up would have to be used on behalf of taxpayers to fund new public assets and thereby reduce the pressure on government borrowing; and

* The Government would have to be satisfied that industry-specific regulations adequately protected New Zealand consumers.

The ministers said they had asked the Treasury for advice on the specific SOEs, and released much broader previous advice on mixed ownership.

They said they had made it clear to the Treasury they were not interested in pursuing other options in the previous advice.

Mr English said the Government wanted to reduce borrowing by prioritising and reallocating its capital.

"Our biggest economic challenge is lifting our national savings and reducing our vulnerability to foreign lenders," he said.

"Running a budget deficit was the right thing to do during the depths of the recession -- now, as the economy recovers, the Government borrowing $300 million a week is unaffordable and is holding back the economy."

He said that as well as reducing planned growth in operating spending in his budget this year the Government was considering options for reducing its borrowing for capital investment.

Mr Power said the Government would remain a strong net buyer of assets in the next few years, but that investment needed to be directed to high priority areas and it could not continue to borrow at current levels.

"As outlined in the first Investment Statement last month, the Government will invest a net $33 billion in new assets over the next five years," he said.

"In doing that we clearly can't afford to continue building up debt indefinitely, so we want to look at where we might change the mix of the assets we already own."

The Treasury isn't likely to have any problems with the Government's proposals.

In general advice on state-owned assets, offered to ministers last year and released today, it said it found the main arguments for Crown ownership "fairly unconvincing".

"We see few, if any, circumstances where `strategic' objectives would suggest Crown ownership as the best policy response for companies pursuing commercial objectives," it said.

"While there are (albeit comparatively few) examples where past privatisations went badly -- and these tend to be uppermost in the public mind -- the broader benefits in terms of competition, service and prices can be easily forgotten."