What to do if you’re a government with an ideological fixation on selling assets, which is hugely unpopular? The public will catch on if you put SOEs as full entities up for auction. So, you don’t sell off the companies. Instead, you sell off the things they own or, through bond issues, their profit streams. We’ve been warning this would happen. Now, it is.
Check out this press release from SOE Genesis Energy:
“Genesis Power Limited, trading as Genesis Energy, is considering making an offer of up to $300 million unsecured, subordinated Capital Bonds to the New Zealand public. The proceeds of the offer are intended to be used as part of the funding for the acquisition of the Tekapo power stations.”
Meridian is being forced to sell these power stations to Genesis as part of Gerry Brownlee’s reforms that have already caused power prices to skyrocket. Genesis sell some power stations to Meridian in return but they’re not worth as much. To fund the difference, Genesis will have to borrow. But what will Meridian do with the extra cash it gets from the swap?
It looks like they’ll be forced to give the money to the government as a special dividend (which Treasury suggested in papers to the government earlier in the year). The net effect is the SOE’s debt is increased – effectively, the profit stream from Genesis is privatised by the bond payments – and the Government ends up with cash. It’s privatisation by stealth.
The other privatisation move is less stealthy.
The government is preparing to sell off the emergency generator at Whirinaki. This power station was installed to provide emergency back-up during dry years. Brownlee thinks that’s no longer necessary thanks to his amazing reforms (yeah, I’m laughing too). So, he’s going to sell that asset, probably to the private sector. Inevitably, because the private buyers will want maximum return on their investment, this diesel-fueled power-generator will go from being an emergency back-up to part of the baseload electricity generation in this country (perhaps as dedicated generation for a Fonterra processing plant) meaning more emissions and nothing to fall back on when the rains don’t come.
This is privatisation. And the government has no mandate for it, having promised no to sell or part-sell SOEs this term.