Dr RUSSEL NORMAN (Co-Leader—Green) to the
Minister of Finance: Has the Treasury underestimated the forecast lost profits to the Crown from the sale of State-owned energy companies in light of Mighty River Power’s enhanced earnings and dividend announcement?
Hon STEVEN JOYCE (Associate Minister of Finance) on behalf of the
Minister of Finance: No, the Minister does not believe so. The nature of New Zealand’s electricity market means that wholesale market conditions that are positive for one company—in this case, Mighty River Power—are likely to be negative for other companies, including, possibly, some energy State-owned enterprises. This is due to rainfall patterns. South Island lake inflows, for example, this year are low, increasing the electricity wholesale price. On the other hand inflows into Lake Taupō and the Waikato River are about normal. Mighty River Power would therefore expect to benefit from a higher wholesale price and normal generating capacity. Other companies would be negatively affected by the same weather pattern. Overs and unders like this are a feature of New Zealand’s electricity generation system.
Dr Russel Norman: Has the Minister of Finance read the table on page 6 of the Budget Policy Statement 2012, which indicates that the cost to the Crown per year in
2016 as a result of the privatisation will be a loss of $360 million per year in lost profits to the Crown?
Hon STEVEN JOYCE: I am sure he has seen that table, but the reality is, as the member knows, that there are a number of unders and overs involved in the transactions, and they come out broadly equivalent over the forecast period.
Hon Clayton Cosgrove: In light of the increased profitability of Mighty River Power, what guarantee can he offer that this asset sales programme that he is proposing will not widen the Crown’s deficit by more than at least the $100 million a year he has already admitted to?
Hon STEVEN JOYCE: I would refer back to my answer to the primary question. I think the member is drawing too much from this particular or single announcement.
Dr Russel Norman: Has the Minister read the table on page 6 of the Budget Policy Statement 2012, which indicates that the forgone profits as a result of privatisation will be $360 million a year, whereas the estimated finance cost savings will be only $260 million a year, and hence the Crown will be about $100 million a year worse off?
Hon STEVEN JOYCE: I am sure he has read that table, and again I think the member needs to look at the other unders and overs in relation to that table.
Hon Clayton Cosgrove: Do the improving profits from the energy State-owned enterprises not prove that Treasury was indeed right when it said that these companies were already operating efficiently under Crown ownership, and what would change under his privatisation agenda, other than the outflow of at least $100 million in profits per year flowing offshore?
Hon STEVEN JOYCE: The profits are not flowing offshore, and we could expect further efficiency improvements over time—
Hon Clayton Cosgrove: They will when you flog off the assets.
Hon STEVEN JOYCE: No, that is not correct, Mr Cosgrove. We have stated in answer to an earlier question that 85 to 90 percent is being held in this country, including the Government’s 51 percent share.
Dr Russel Norman: Has the Minister of Finance read, again, the table on page 6 of the Budget Policy Statement 2012, which says that the net decrease in operating balance, before gains and losses, will be $94 million a year as a result of the privatisation programme, and does that not mean that the Government will have $94 million less per year in 2016 as a result of privatisation?
Hon STEVEN JOYCE: My answer remains the same. I am sure the Minister has read the table, and the member is aware that there are a number of unders and overs in relation to those calculations, which are clearly stated in the table.
Dr Russel Norman: What are those unders and overs?
Hon STEVEN JOYCE: I do not have those tables with me, but I would point out—[Interruption] Well, if he is quoting page 6, he will know them. He does not need to ask me personally. But also, again, the transactions are that the money is obtained by the Crown and then progressively spent from the Future Investment Fund over a number of years.
Dr Russel Norman: Does he think it is a smart way to run a Budget to sell something that is earning a total shareholder return, according to Treasury, of 18.5 percent per year, in order to avoid debt, according to Treasury, of about 4 percent a year?
Hon STEVEN JOYCE: I am sure whether you buy or sell anything depends largely on the price. I point out that the Government is talking about selling minority shareholdings in these State-owned enterprises. For the member to make that suggestion without any reference to price suggests that he is actually operating on a philosophical view, rather than on any sort of economic view.
Dr Russel Norman: Can the Minister of Finance tell us whether the return on these assets is greater than the cost of Government borrowing?
Hon STEVEN JOYCE: I think the member should be reminded of his opening question. In his opening question he was talking about the variability of earnings in these companies. That is the reality of the situation. You actually cannot judge that looking forward; you can make an estimate. But we are confident that it will be a net positive for the New Zealand Government in selling those minority shares, and it will have the benefit of strengthening New Zealand’s capital markets and have the benefit of strengthening the accountability and performance of these companies over time.
Dr Russel Norman: I raise a point of order, Mr Speaker. It was a very clear and simple question. The Minister talked about many things. He did not compare the return on the asset versus the cost of Government borrowing. That is the substance of the question.
Mr SPEAKER: I accept that the Minister’s answer was not as straightforward as the member’s question, but perhaps the question is not capable of quite such a straightforward answer, because what the Minister said was that if you project ahead, the variations in return and the variations in the cost of capital mean it is difficult to predict which will be the greater. I think that was what the Minister indicated. He concluded, if I recollect correctly, though, that it is the Government’s belief that they will be of similar magnitude. I think that is what the Minister indicated. Now if I am wrong on that, the Minister had better correct me. I accept that that was not exactly as simple as the question was, but then I think one has to accept that the question sounded simpler than it really is. As one projects these things ahead there is significant variability, and I think that is what the Minister was pointing out in his answer.
Dr Russel Norman: If the return on this asset may be actually less than 4 percent—the cost of borrowing to the Government—why on earth would anyone buy one share in this company?
Hon STEVEN JOYCE: The assessment as to who will buy shares, of course, will be made at the time the share offers are made. But, again, the projection forward of the income for those companies will be one of the factors in determining not only the number of offers but also the price. The member seems to be operating completely devoid of any consideration of price, which seems a rather strange approach to take.