Water erodes asset sales

18/07/2012 § 3 Comments

I feel a bit sorry for National. They made asset sales a central issue in the last election, they won, and now they want to go ahead with their plans. It was all clear and above board. See where that got them.

On the other hand, the Maori Party, Winston Peters, and assorted other people and organisations have a point. How can you sell hydropower companies if you haven’t first worked out who owns the water?

At first, the question seems daft. The State Owned Enterprises have reservoirs and dams, these are used to generate power, and the power produces a revenue stream. The Government wants to sell shares in the company, that is, shares in the future potential net revenues. They aren’t selling water; they are selling company shares.

A little more reflection, and the Maori objection to selling the companies because of the water is very clever. The SOEs might own dams and turbines and whatnot, but they are of no value if they can’t use the water. That’s a spanner in the Government’s plan to sell SOE shares.

The Government could tell prospective buyers that existing water practices will be recognised and grandfathered and everything will tick along as before. But that course means that the national discussions over water policies have been superseded by the asset sales: some existing water rights are been assured, while others will be contested. Alternatively, the Government could sell the shares while acknowledging that there’s a bit of uncertainty over water. That puts the future revenue at risk, which means the shares will sell at a discount.

The issue about water rights, by the way, is this. Well-specified water rights include the amount, quality, timing, and location of the water. Now imagine that a farmer has rights to extract a certain amount of water from a river in January. A power company might need to hold that water in its dam until January to meet that obligation. Let’s say water levels are a bit low in December. The company has a choice: let the water turn the turbines in December, or release the water in January for the farmer. Is it going to look after its revenues, or after the farmer’s water rights?

So the various Maori organisations have put National in a bind:

  • it sells the shares, with a pledge to protect the SOEs’ water allocations, undermining the water talks (including with the rural base)
  • it sells the shares, but takes a discount because it doesn’t pledge to protect the allocations; the asset sales generate less revenue than expected, vindicating the opposition
  • it holds off selling the shares until the water issue is sorted, halting one of its second term’s signature intiatives and handing its political opponents a victory.

Of course, the sale doesn’t have to be all or nothing. The Government could have a partial partial asset sale, only selling those shares that aren’t at risk from the water controversy. That’s a halfway measure that won’t appease anyone.

Which means it’s probably perfect politics.

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§ 3 Responses to Water erodes asset sales

  • detmackey says:

    Not sure why you’re sympathetic to National. All of this was entirely foreseeable given decades of previous court and tribunal decisions. Pretending your policy is clear and above board is different from it being clear and above board!

  • JC says:

    The issue isn’t ownership or rights.. but the overriding influence of the RMA which determines the whole thing. The RMA determines what happens to the water, not Maori, the Govt, the fishermen, farmers or whoever.

    And the RMA is governed by the consent process, public input and appeals. In short, the Govt could declare Maori own the water, or Bill Blogs from the Trout hatchery, but it makes no difference to the way water is administered under the RMA.

    Ownership is meaningless on running water and so are claimed “rights” against the reality and (hopefully) practicality and practice of the Act. Indeed, ownership and rights so greedily and repulsively sought can have consequences:

    “PORTIA
    Therefore prepare thee to cut off the flesh.
    Shed thou no blood, nor cut thou less nor more
    But just a pound of flesh: if thou cut’st more
    Or less than a just pound, be it but so much
    As makes it light or heavy in the substance,
    Or the division of the twentieth part
    Of one poor scruple, nay, if the scale do turn
    But in the estimation of a hair,
    Thou diest and all thy goods are confiscate.”

    Also, there are further penalties:

    “PORTIA
    Tarry, Jew:
    The law hath yet another hold on you.
    It is enacted in the laws of Venice,

    If it be proved against an alien
    That by direct or indirect attempts
    He seek the life of any citizen,
    The party ‘gainst the which he doth contrive
    Shall seize one half his goods; the other half
    Comes to the privy coffer of the state;
    And the offender’s life lies in the mercy
    Of the duke only, ‘gainst all other voice.
    In which predicament, I say, thou stand’st;
    For it appears, by manifest proceeding,
    That indirectly and directly too
    Thou hast contrived against the very life
    Of the defendant; and thou hast incurr’d
    The danger formerly by me rehearsed.
    Down therefore and beg mercy of the duke.”

    So finally, gaining ownership or rights against the public interest or ethical concerns quickly force:

    “PORTIA
    The quality of mercy is not strain’d,
    It droppeth as the gentle rain from heaven
    Upon the place beneath: it is twice blest;
    It blesseth him that gives and him that takes:”

    To mix it up a bit I think this would be called a Pyrrhic Victory.

    JC

  • This policy has been in the works by National for so long, its hard to fault them for getting in the situation they found themselves in.

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