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Budget 2011: Government to pursue mixed ownership model

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Fuseworks Media
Fuseworks Media

The Government believes there is significant merit in extending the mixed ownership model to four state-owned energy companies and reducing the Crown's majority shareholding in Air New Zealand.

It will help reduce Government debt, increase investment opportunities for mum and dad investors and improve the companies' financial performance, Finance Minister Bill English and State Owned Enterprises Minister Tony Ryall say.

They confirmed the Government will take the policy into the election in November and that New Zealanders will be at the front of the queue for shares.

Treasury will now undertake preliminary work to prepare for extending the mixed ownership model to Mighty River Power, Meridian, Genesis and Solid Energy and reducing the Government's majority stake in Air New Zealand.

This would happen in a three to five year programme starting in 2012, should the Government be re-elected in November - and subject to market conditions and results of detailed scoping studies.

"As we promised, we are now clearly setting out our policy to New Zealanders well before the election in November," Mr English says.

"The Treasury estimates that extending the mixed ownership model to the four energy SOEs and reducing the Government's majority shareholding in Air New Zealand are likely to free up between $5 billion and $7 billion of capital - depending on the final structure of the programme.

"The Government will be a substantial net acquirer of assets in the five years to 2015. Its total assets are expected to rise by $34.3 billion to $257.7 billion in 2015. About $21 billion of this increase is funded directly from within core Crown finances.

"Rather than simply borrow this amount, the Government will use proceeds from the mixed ownership model to recycle existing capital towards high priority future investment in assets like schools, hospitals and broadband. The proceeds will fund about a third of the Government's new investment in core social infrastructure."

Mr Ryall says the Treasury has confirmed that proceeding with the mixed ownership model can meet the five prerequisite tests set by the Government.

"This includes the Government maintaining majority control in the companies, New Zealand investors being at the front of the queue for shareholdings, and having confidence in New Zealanders securing widespread and substantial ownership in the SOEs," Mr Ryall says.

"Ministers agree with Treasury advice that extending the mixed ownership model offers significant opportunities for New Zealanders - either directly or through their KiwiSaver accounts and other managed funds - to invest more in quality New Zealand companies.

"In addition, it will bring sharper commercial disciplines, more transparency and greater external oversight for the companies involved. And finally, it will provide opportunities for the companies to obtain capital to grow without depending entirely on cashed-strapped governments to support them," Mr Ryall says.

Initial public offerings are the preferred method for extending the mixed ownership model, given the Government's requirement to achieve widespread and substantial New Zealand ownership across the five companies.

No decisions have been taken on precisely how much of each company will be sold or when - other than the Government will retain a majority shareholding.

The Treasury will now prepare a mixed ownership model work programme for 2012 - although this will not commit the Government to proceeding before it receives a mandate at the election later this year. Iwi will also be consulted before the programme is finalised.

"It's important to remember that the Government will remain a strong net investor in the next few years - it will accumulate an extra $34.3 billion of assets over the next five years alone," Mr English and Mr Ryall say. "But we can't continue to fund these assets by building up more debt indefinitely."

The Treasury's latest advice on the mixed ownership model is available at:

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