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 But that course means that the national discussions over water policies have been superseded by the asset sales: some existing water rights are been assured, while others will be contested.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.