Solid Energy is closing its underground coalmines, Rio Tinto is speeding up layoffs at the Bluff aluminium smelter, and BHP Billiton has canned its Olympic Dam project, the largest mining project proposed in Australia.

At home, electricity demand has been flat for the past five years.

If the problems created by Waitangi Tribunal challenges to the partial sale of state-owned enterprises weren't enough, this backdrop of global industrial weakness only compounds the problem of how and when to part-sell state-owned power companies.

As Milford Asset Management noted last week, the Treasury's $1.7 billion valuation for Mighty River Power is now looking "very stretched", and a more realistic figure might be $1.1b.

To the opponents of partial privatisation, it's terribly good news that the value of taxpayers' assets is crashing in response to global economic events and a sluggish local economy. It becomes another reason not to sell, based on the argument that "now is not the right time".

Since for this lobby, the right time to sell is never, this is an argument of convenience.

However, is it one the Government should heed?

Governments are classically bad at timing asset sales, partly because politics dictates their timetables as much, if not more than, commercial considerations. They often only get their ducks in a row in time to find that it's hunting season. Inevitably, pot-shots follow.

Meanwhile, into the already volatile environment created by the water rights issue, that long-time fairweather friend of New Zealand governments - the Bluff aluminium smelter - has injected its own set of uncertainties.

The Tiwai Pt smelter is for sale and has lost money in the past two years. While the Rio Tinto-controlled company renegotiated new 27-year electricity contracts with Meridian in 2007, it now wants another go-round before the new arrangements kick in next year.

This has been widely interpreted as a threat of closure and a major blow to the valuation of the SOEs being put up for sale. That fear is justified, at least to some extent, if only because the smelter contracts represent about 15 per cent of total New Zealand electricity consumption.

However, closure is the apocalyptic option and, as Prime Minister John Key disclosed this week, Meridian has a "rock solid contract" with Rio for the first three years of the new contracts' operation. In other words, Rio is most likely seeking to exercise wiggle room built in from the fourth year onwards.

On that basis, it's likely that, rather than closure, Rio wants a combination of a lower electricity price and a smaller proportion of its total offtake covered by take-or-pay terms.

That would allow it to ramp production up and down more easily and lower costs. It would also make the smelter more attractive to the second-tier operators who might show interest in Rio's suite of ageing, but well-maintained Australasian smelters.

While Meridian chief executive Mark Binns has said his company won't "take one for the team" by accepting some silly price for its power to the smelter, he also knows Rio has him over a barrel, since there's nowhere else to sell the juice. A commercial accommodation is clearly reachable.

Meanwhile, electricity producers would react to reduced aluminium production, and the threatened loss of big units such as Norske Skog's Tasman pulp and paper mill at Kawerau, by running fewer of the most expensive units in the New Zealand electricity system.

Genesis, for example, might shutter more of its elderly Huntly power station more quickly than planned, while Contact Energy might be quite happy to sit on minimal gas holdings mid-decade, since it would expect to run its gas-fired plant less.

Either way, Key concedes the smelter issue won't be resolved by the second quarter of next year, when the MRP partial float is now due.

That being so, there will be two broad schools of thought about how to proceed.

One will be that the slump in valuations shows why the Crown should de-risk its balance sheet and not hold 100 per cent of businesses that are susceptible to economic swings and roundabouts.

The other is the "wait and see" approach which, as noted above, is a recipe for perennial inaction.

The latter approach is in tune with the desires of the New Zealand public, whereas the former is the rational economic approach to selling, perhaps, stakes in one or two power companies.

It's not a rationale for flogging minority stakes in all three state-owned power companies in the next 21 months.

Even if the Government gets the MRP float away next year, can it really justify going hell for leather on the other two? BusinessDesk

- BusinessDesk