Reporting on SOEs 'lacks transparency'

A parliamentary report has given a damning assessment of the monitoring and valuation of state-owned enterprises, describing the lack of transparency as "indefensible".

This has prompted NZX chief executive Mark Weldon to offer free listings for five per cent of SOE shares so the market can enforce a higher degree of transparency and accountability.

Mr Weldon described the recent report by the Commerce Committee on the valuation and reporting of the country's 18 SOEs as "shocking reading" and an "abysmal" reflection on the Crown Company Monitoring Advisory Unit, which monitors the Government's investment in state-owned companies.

Every year Treasury and the CCMAU publish a statement of corporate intent providing information such as shareholder rates of returns. There were no statistics included in the statements in 2007 and 2008.

The committee said it had been told by officials "informally" that satisfactory portfolio performance data was not published because of a lack of resources.

The report said this implied that portfolio performance and public accountability were not considered relevant or important, respectively.

The committee said it was concerned because Government documents, particularly the State-owned Enterprises Act, state the main aim of an SOE is to be as efficient and profitable as a comparable private company.

The committee said if Treasury or the CCMAU lacked the resources to do the analysis, they could put the work up for tender.

One funds research analyst said the private sector "couldn't do a worse job even if we were drunk in charge".

Mr Weldon said two research analysts could do the job at less cost and more efficiently and accurately than CCMAU.

One "shocking" implication was that ministers had no clear view of the risk attached to the SOEs and no real way of assessing those SOEs seeking taxpayer money for investment or acquisition, he said.

"This is an urgent situation and at the minimum CCMAU needs to be moved off this and [the job] given to someone who knows what they're doing," he said.

The inquiry did not call for public submissions, instead inviting the CCMAU and seven SOEs to comment. Four made submissions.

The most recent financial statements value the Crown's interest in the 18 SOEs at $23.5 billion at June 30, 2007, the equivalent of 40 per cent of the $59 billion market capitalisation of the New Zealand sharemarket at June 2008.

The report put the Government's equity in New Zealand Railways Corporation at $10.5 billion at the time and Meridian Energy at $5.55 billion.

New Zealand's largest listed company, Telecom, is capitalised at $5.85 billion.

The report's authors put the surplus from all SOEs at $727 million for the year to June 2007. The Crown's equity interest at the end of June 2006 was $11.5 billion, a rate of return of 6.3 per cent.

Nine SOEs, including Solid Energy, Transpower, Kordia, and Quotable Value New Zealand, outperformed a government stock rate benchmark of 6.9 per cent in the 2006/2007 year.

Of the nine SOEs with rates of return below 6.9 per cent, Timberlands and Agriquality New Zealand had negative returns.

Mr Weldon said the $23.5 billion valuation was very conservative.

"So 6.3 per cent [rate of return] is the absolute maximum and given the OCR [official cash rate] has been at 8 per cent, that's an absolutely disgraceful performance," he said.

The committee recommends that the CCMAU be required to report the SOE portfolio performance annually and that Statistics New Zealand be asked to look at including the portfolio in its annual productivity statistics.

 

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