SOEs in the “not for sale” era

The government has commissioned work on the implications, both for the Crown and for State Owned Enterprises, of the decision to hold SOEs in long-term public ownership.

Finance Minister Michael Cullen highlighted the importance of the project, which was initiated around 18 months ago, by referring to it in his 2003 Budget speech.

“Because of the size and strategic significance of the SOEs, it is crucial to the success of the economy that they perform well and are able to achieve their full potential to best advance the government’s economic objectives,” Dr Cullen said.

“There is no intention to abandon the basic framework established in the 1986 State Owned Enterprises Act, or to become involved in operational matters or compromise the accountability of SOE boards.

“But we do need to adjust to the post-privatisation environment. Specifically, we need to get the balance right between allowing SOEs to grow and diversify, and ensuring that Crown capital is available for the government’s other priority areas,” he said.

Key issues under review include: How ministers’ statements of shareholder expectations should reflect the government’s view regarding the focus and scope of the SOE’s activities, risk and return preferences, dividend policy and attitude to expansions for each SOE. Mechanisms to maintain pressure on SOEs to perform, including better benchmarking. Developing appropriate capital structures which impose financial disciplines on SOEs while ensuring they have sufficient capital to make operational investment decisions without recourse to the Crown. Incorporating SOE requests for equity for significant investments into the normal budget process, where commercial realities allow, so that the Crown can better integrate its capital management.

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