Report on SOEs tells only part of the story

The Ernst and Young report on the performance of SOEs shows they make healthy “economic profits”.

But that is only part of the story.

Dene Mackenzie showed that returns from the SOEs which are likely to be sold are lacklustre:

While some of the state-owned enterprises provide a large dividend payment to the Government in dollar value, the dividend yield is well below the industry average. 

Macdoctor has come to a similar conclusion:

. . .  I tend to look only at the cash figures involved. . . . The first is the amount of actual cash paid to the government in the fiscal year – not the capital gains or retained earnings – just the cash. That figure is $95 million. 49% of that is $46.5 million. That is how much money the government loses each year by selling MRP.

The second figure is how much it would cost to keep. The independent valuation for MRP is $3,631 million. 49% of that is $1,779 million. Assuming the government could borrow at a mere 5% . . . the interest on borrowing this amount is $89 million. This figure is bigger than 46.5 million, so it is worth selling Mighty River Power.

But it’s not just the money:

National want to sell down these assets because they (correctly in my opinion) see no reason why a government should be dabbling in electricity generation. Labour hate the sales because they think government should be the be-all-and-end-all of everything. They like to call these assets “strategic”. This is code for “we don’t trust the market”.

I’d rather trust the market than politicians and I’d rather sell a minority share in a few SOEs than borrow more which is the alternative if we are to ocntinue to invest in necessary infrastructure.



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