Editorial: Key ignores bad asset sales

17:29, Oct 29 2013

One wonders what John Key, currency trader, would have made of the rationale of John Key, prime minister, for the failure of Solid Energy, a company valued two years ago at $1.7 billion and now dependent on the goodwill of its bankers to continue trading. If the state coalminer had been partly privatised, it probably would not be in the mess it was now in, Mr Key said yesterday.

One doubts he would have been as sanguine as his later self. More likely he would have advised his clients to have no truck with an outfit overseen with such nonchalance.

Solid Energy, lest the prime minister has forgotten, was, at the time it misread the markets and pursued an ill-fated expansion programme, overseen by a board appointed by ministers in his Government. Responsibility for its failure stretches all the way from management through the board to Finance Minister Bill English and State-owned Enterprises Minister Tony Ryall.

One wonders also what John Key, currency trader, would have made of a business that floated a valuable asset during an economic downturn, received a lower return than anticipated, and then, amidst even greater uncertainty, floated an even more valuable asset.

One thing is certain. John Key, currency trader, could have told John Key, prime minister, what the outcome would be – a low price and a low take-up rate from first-time investors.

The Government's asset sales programme has been an unmitigated disaster – so disastrous it borders on economic vandalism. Valuable assets built up over generations have been hocked off at firesale prices to a handful of investors because Mr Key's Government could not bear to admit now was not the right time to sell. Arguing that partial private ownership is an improvement on the status quo whatever the price is fatuous.


A different set of directors might have done a better job of keeping Solid Energy's costs under control and curbing the grandiose ambitions of its former management. However, that is not an argument for partial privatisation; it is an argument for appointing the right people.

The risks associated with public ownership of major enterprises are well understood and well documented. Some top-notch directors have chafed at political interference in the operation of SOEs and departed for less censorious pastures; some of those who have lingered have allowed their eyes to stray from the ball.

Government ministers argued that their mixed ownership model would attract novice investors to the sharemarket and deliver private sector efficiencies. They have been proved wrong about the first. Just 113,000 New Zealanders bought a stake in Mighty River Power and barely 62,000 invested in Meridian Energy.

Mr Key's partial privatisation programme has been driven by political, not economic, imperatives. The price is being paid by everyone.

In the industry in which Mr Key made his fortune, ignorance of the bottom line is a crime for which there is only one price. He will be hoping politics is more forgiving.

The Dominion Post