Asset Sales are going to be the issue of the week in the last week according to Phil Goff:
Labour's campaign in the last five days before the election will focus on a single policy - opposition to National's promised sale of up to 49 per cent of five state-owned assets.
The sales were the primary focus of a speech by Labour leader Phil Goff at a rally in central Auckland yesterday of 800 supporters.
But Mr Goff's plans for a strong run in the final week are being dogged by persistent questions about whether he is on top of the detail of his economic policy.
Mr Goff again made asset sales personal as well as political yesterday, recounting how his wife's father had returned from the war to build the dams on the Waikato River that National planned to sell.
Accordingly, it seems like a very appropriate time to refresh the post which follows; it details Phil Goff's record on asset sales. Much as he wants to, and much as his past record as being a member of the Cabinet which sold more state assets than any before or since, Phil Goff cannot rewrite history.
Labour has already signalled its intention to make asset sales an election issue in 2011. The Labour Party has already managed a SMOG (Social Media Own Goal) or three with its social media campaigns, and polling would suggest that they're flogging a dead horse.
But it's worse than that. You see, Labour was the party that pioneered state asset sales. There was none of National's Mixed Ownership model with the state retaining control; Labour hocked off the family's silverware, the assets that they say that we all owned, with gay abandon and to the highest (or sometimes the only) bidder.
We happened across a very interesting document this week; a Treasury paper entitled Income from State Asset Sales as at 30 September 1999. It's a public doucment, sourced from the Treasury website. And it should be mandatory reading for anyone interested in rebutting Labour's anti-asset sales rhetoric. Bear with us; this will be a lengthy post, but worthwhile reading.
Labour's first asset sale was New Zealand Steel; Treasury notes:
The decision to sell the Crown's interest in New Zealand Steel was announced in 1986. In October 1987 the Government signed a contract with Equiticorp for a sale price of $327 million. The cash proceeds were received on 22 March 1988.
In succession came the following:
The Company issued the equivalent of 30% of its shares in 1987, 15% by tender and the remaining 15% by public float. The intention to sell the Crown's remaining shareholding was announced in the 1987 Budget. Following a tender and negotiation process, the Government concluded a final contract with Fletcher Challenge Limited (FCL) on 3 March 1988. Payment for the shares (in US dollars) was equivalent to NZ$801 million. The contract included a "put and call". FCL exercised the put whereby the Crown purchased 104.5 million FCL shares for $400 million on 31 March 1992. These shares were sold on 16 December 1993 (see Fletcher Challenge Limited shares).
Health Computing Service
The Health Computing Services (HCS) was a division of the Department of Health responsible for the provision of health information services in New Zealand. In 1987 the Government established a Steering Committee to review the financial viability of HCS and to recommend a future structure for the organisation. On the basis of the Steering Committee's recommendations, the Government decided in February 1988 that the business should be tendered for disposal to the private sector.
Following protracted discussions with a number of interested parties, HCS was eventually sold to Paxus Information Services Limited for $4.25 million. The sale agreement was completed on 7 October 1988 and settlement was effected on 7 November 1988.]
The decision to sell the Crown's 100% equity investment in DFC New Zealand Limited, New Zealand's largest investment banking organisation, was announced in the July 1987 Budget. On 28 June 1988 a sale and purchase agreement was signed between the Crown and a purchasing consortium of National Provident Fund (80%) and Salomon Brothers (20%). The price paid was $111.28 million; settlement took place on 18 November 1988.
The sale of the Crown's 100% shareholding in the Post Office Bank Limited was announced as part of the 1988 Budget. Following a competitive bidding process, on 21 December 1988 a sale and purchase agreement was entered into with ANZ Banking Group (New Zealand) Limited for the Crown's shareholding. The price paid was $665.4 million; settlement date was 28 February 1989. As part of the sale, it was agreed that the purchase price would be adjusted following completion of audited settlement accounts. This resulted in a further payment to the Crown of $13.078 million on 31 October 1989.
Now; here's where it starts to get interesting. Labour's asset sales are generally considered to be the work of Sir Roger Douglas, David Lange's Finance Minister. But in late 1988 the relationship between Lange and Douglas soured when Lange called for a "cup of tea" over Douglas' flat tax proposal. Douglas' response was to resign as Finance Minister.
Did Labour call a halt to asset sales at that point? As they say in Coronation Street - "did they 'eck as like!"; the pace picked up - read on (but you might want to get comfortable; there's a lot to read!):
The decision to sell the Corporation was announced in the 1988 Budget. Competitive bids were called, and in March 1989 the bid by ACT (NZ) Limited. was accepted. An initial payment of $18.5 million was received on 3 April 1989, and a final payment of $15 million was made on 19 March 1990, making total receipts from the sale of $33.5 million. The Crown continues to deal with liabilities arising from the time when the Corporation was owned by the Crown.
Air New Zealand*
The decision to sell equity in Air New Zealand was announced in the 1987 Budget. At the outset, the process was oriented toward sale of a strategic stake to a single (probably foreign airline) buyer, with the prospect held open for further sales over time to domestic interests. Uncertainty over the ultimate share ownership structure, however, culminated in the Government's decision in October 1988 to call off the negotiations which had started with Qantas and reopen the sale process to new bids. The new process was specifically geared toward sale of up to 100% of the equity, on the basis that 65% must remain in New Zealand hands, with 30% of the total being made available to Air New Zealand staff and the public, and the Government retaining one special rights preference share (the "Kiwi Share") to control the foreign ownership level and safeguard the airline's New Zealand identity.
An agreement for sale of 100% of the ordinary shares on the above basis, at a price of $660 million, was signed on 22 December 1988; following Commerce Commission clearance, settlement took place on 17 April 1989. The initial share distribution was: Brierley Investments Limited. 65%; Qantas Airways Limited. 19.9%; Japan Air Lines Co Limited. 7.5%; and American Airlines Inc 7.5%. As a condition of sale, BIL was required to sell down 30% of its initial shareholding to the New Zealand public, institutions and Air New Zealand staff. The offering took place on 6 October 1989 and the shares were listed on the Stock Exchange on 24 October.
The Government announced the sale of Landcorp Mortgages in the 1988 Budget. The sale of mortgages was completed in February 1990. This was not strictly an asset sale by the Government, as Landcorp sold the financial instruments and then released much of the revenue to the Crown through redemption of preference shares totalling $77 million.
Rural Banking and Finance Corporation
The 1988 Budget announced the intention to sell the commercially viable parts of the Rural Banking and Finance Corporation, and to decide on the sale or reorganisation of the remaining assets so as to achieve the greatest contribution to assisting the rural sector.
As part of the preparations for sale, the Rural Bank's debt to the Public Account was written down by $1.1 billion. In March 1989 the Bank repaid $200 million of debt to the Government.
On 18 August 1989 the Government announced that it had concluded a sale to Fletcher Challenge for a cash price of $550 million, with provision for a clawback of any surplus loan loss provision in three year's time i.e., after June 1992. The claw-back has resulted in a further payment of $137.5 million on 30 September 1992, taking the total purchase price to $687.5 million in nominal terms.
In addition, the Rural Bank under its new ownership, continued its obligation to repay its remaining $454 million debt to the Crown as it fell due. The existing Government guarantee on the Bank's other borrowings will continue. Fletcher Challenge has given the Crown a counter-indemnity against default. This indemnity has now been extended to include the National Bank who have recently purchased the Rural Bank from Fletcher Challenge.
Communicate New Zealand
The intention to dispose of the assets, or the ongoing operations, of the New Zealand Tourist and Publicity Department's business units was announced in the 1988 Budget. These consist of the National Film Unit, Communicate New Zealand and the NZTP Travel Offices. On 8 December 1989 the Government announced the sale of Communicate New Zealand (CNZ) to the DAC Group Limited, a New Zealand media services business. The purchase price will be based on a formula involving revenue from contracts with existing CNZ customers during the first year of ownership by the DAC Group. Final settlement took place on 31 January 1991.
Government Printing Office
The sale decision was announced prior to the 1988 Budget. An agreement for the sale of the Government Printing Office (GPO) to Rank Group, a New Zealand publicly-listed investment company, was entered into on 24 January 1990. The offer accepted for the sale of the core business was $23 million. Settlement was effected at the end of June 1990. In addition, $20 million was received by the Crown over the previous 18 months from the sale of GPO assets, including its main building in Mulgrave Street, Wellington which was sold to National Archives.
National Film Unit
The National Film Unit (NFU), one of the business units of the Tourist and Publicity Department, was announced for sale in the 1988 Budget. On 9 March 1990 the sale of NFU to TVNZ was announced for a negotiated price of $2.5 million, $1.5 million of which was received on 23 March 1990. The balance was paid on 21 September 1990.
State Insurance Office
Following consideration of a scoping report on the future of the State Insurance Office (SIO), the Government announced on 2 November 1989 that SIO was to be sold. It was announced on 3 May 1990 that Norwich Insurance (a British insurance company) had signed an agreement to purchase SIO for $735 million. Settlement on 28 June 1990 followed the passing of legislation reconstituting SIO as a company with shares owned by the Crown.
Tourist Hotel Corporation of New Zealand Limited*
On 15 June 1990 the Government sold the Tourist Hotel Corporation of New Zealand Limited (THC) to Southern Pacific Hotel Corporation (NZ) Limited for the sum of $73.85 million. As a prior condition of sale, the Crown assumed THC's term liabilities which had a book value of about $73 million at the time and included a $100 million zero coupon bonds issue maturing in June 1993.
The sale marked the culmination of a lengthy sale process which started with the 1988 Budget announcement of planned state-owned business sales. The sales process entailed a competitive tender involving prospective purchasers from New Zealand and overseas. SPHC's bid was accepted on the basis that it provided the maximum value to the Crown.
The telecommunications industry in New Zealand was opened to full network competition from 1 April 1989. Over the following year, detailed studies were undertaken of the regulatory environment and Telecom's suitability for sale. On 20 March 1990, the Government announced its decision to sell the Corporation, on the basis that the shareholding of any single foreign shareholder or consortium would be limited to 49.9%, the Government would retain a Kiwi share, and at least $500 million worth of shares would be made available in a public offering on the New Zealand market, either by the Government or a new owner.
The sale process comprised two components: the negotiated sale of a "strategic stake" in the Corporation, and arrangements for a public offering of shares in New Zealand and overseas immediately thereafter, in the event that the initial sale comprised less than 100% of the shares. Following the distribution of an Information Memorandum and receipt of indicative offers, bidders undertook due diligence investigations during April and May 1990. Negotiations were held with all parties on the sale documentation. Formal offers were received in early June. Following further negotiations, the Government on 14 June 1990 signed an agreement with two major US telecommunications companies - American Information Technologies Corporation (Ameritech) and Bell Atlantic Corporation - as part of a consortium including Fay Richwhite Holdings and Freightways Holdings for sale of 100% of the shares. Initially Bell Atlantic and Ameritech will purchase 100% of the shares, with Fay Richwhite and Freightways buying 5% each over three years. The new owners will be required to offer shares publicly over a three year period to reduce the two foreign parties' holdings to 49.9%.
On 10 July 1991, Bell Atlantic and Ameritech sold some 30.9% of the shares to the public and institutions in New Zealand and overseas. Some $483 million worth of shares were purchased in New Zealand. On 13 March 1993, Bell Atlantic sold 4.6% to BZW New Zealand who onsold the shares to NZ institutional investors and overseas buyers. Ameritech sold 4.6% to Capital Group in June 1993.
The Government will retain a Kiwi share to control the ownership restrictions and ensure that the residential telephone service commitments made by Telecom remain in force.
The sale of the Crown shareholding in the Synfuels plant and the completion of Maui gas contracts with New Zealand Liquid Fuels Investment Limited (for use at the Synfuels plant), and with Petralgas, the Natural Gas Corporation and Electricorp, was finalised on 6 July 1990.
The intention to enter into these transactions was announced initially in December 1988 when the Crown entered into a Memorandum of Understanding with Petrocorp. The original arrangement fell through when it did not receive Commerce Commission approval. The new arrangement (which overcomes the difficulties perceived by the Commission) maintains the Crown's role as the purchaser and wholesaler of Maui gas. In aggregate the new and amended contracts generally match the Crown's rights and obligations in purchasing Maui gas from the Maui joint venture Partners (Shell, Todd and Petrocorp).
On completion date, the Crown received a payment of $254 million for gas to be used by Petralgas and the National Gas Corporation, and paid Fletcher Challenge $174 million to take over the assets and liabilities (including the Crown's contractual obligations to Mobil and the new gas contract) associated with the Crown's shareholding in the Synfuels plant.
Under the new arrangements the Crown also receives a profit element under its gas contract with Electricorp and a clawback from the Synfuels plant operations should gasoline prices be above a schedule of benchmark prices.Export Guarantee Office
As a consequence of the sale of State Insurance Office (SIO), the Export Guarantee Office (EXGO) ceased to take on the new business. On 24 September 1990, the privatised SIO acquired the commercial portfolio of EXGO for $1.25 million. As part of the transaction, EXGO paid $15 million as a dividend to the Crown on 3 October 1990. On 31 March 1991, EXGO ceased to do new business and is running down its insurance liabilities as its insurance contracts expire, and will pay the balance of its funds as a dividend to the Crown. Further payments of $2 million and $0.5 million were made on 31 August 1994 and 20 December 1996 by State Insurance.
There you have it. 17 state assets were sold by the Labour Government between 1984 and 1990, to a total value of $9.490 billion dollars. The National government that succeeded Labour couldn't quite beat Labour's record; they only managed to sell $9.343 billion worth.
Labour circa 2011 would love the electorate to believe that nasty Roger Douglas was the hocker-off of assets. That simply isn't true. Decisions to sell state assets, in whole, not in part, were made by the fourth Labour Government's Cabinet. And sitting around the Cabinet table for six years, bound by the convention of collective Cabinet responsibility was Phil Goff. He was joined at the Cabinet table later in 1989 by Annette King.
Isn't that ironic? Labour will be led into its 2011 election campaign on a platform of opposing asset sales by the last two remaining members of a Cabinet team that sold more assets than any other in New Zealand's history.
But wait; there's more. Over at Gotcha, Cameron Slater had a very informative post on Thursday. In April 1988, Marlborough MP Doug Kidd proposed a Private Member's Bill. Hansard records thus:
PETROLEUM CORPORATION OF NEW ZEALAND LIMITED (RETENTION OF NEW ZEALAND OWNERSHIP AND CONTROL) BILL : Introduction
“Hon. WARREN COOPER (Otago): I rise in support of the initiative of the member for Marlborough in introducing a Bill that will guarantee that the ownership of assets strategically important to New Zealand is preserved.”
Yes, dear readers; this Bill was about preserving the ownership of strategic assets in New Zealand. Can you guess what happened? We'll tell you; it failed to pass First Reading. Recorded in Hansard amongst those who voted against its passage was Phil Goff. And although Annette King was absent from Parliament for the vote, she was paired, as was the custom of the day, and is also recorded for posterity amongst the Noes.
These are the people who now lead Labour's crusade AGAINST asset sales. It is nothing more than a blatant attempt to rewrite history, and it should be seen in that light.
No amount of spin can mask Phil Goff's complicity in selling the family silverware in the 1980's. Annette King is also complicit, albeit slightly less so. And nothing can change this simple fact;
- Cabinets including Phil Goff and/or Annette King sold 17 state assets valued at $9.49 billion.
- Cabinets including John Key have not sold one single state asset, in whole or in part.