Tony Ryall, Minister of State Owned Enterprises, turned up to the Finance and Expenditure Committee today to justify their plans to partially privatise the state owned energy companies.
With a little bit of creative licence, the exchange went something like this:
Tony: We need to partially privatise them so that Government can raise capital to spend in other areas and so that the energy companies can get access to more capital.
Russel: But the energy companies could just issue bonds to raise capital, you don’t have to privatise them.
Tony: Yes but selling shares is better than issuing bonds.
Russel: But you just forced Genesis Energy to buy Tekapo A&B power stations from Meridian with $821 million in borrowed money, and then Meridian used that money to pay Government a special dividend of $521 million. So effectively you made the power companies go further into debt making it harder for them to get the capital.
Tony: They might have done that but we didn’t make them.
Russel: But if you do sell them, none of the proceeds of the sale goes to the companies, it goes to the Government, so it doesn’t help them get access to more capital at all.
Tony: That’s right. But they can then issue more shares to raise capital.
Russel: But if they issue more shares then the Govt’s share will be diluted and will be less than 51%, and hence you will lose control of them.
Tony: [Pause] Um, well…. if that happens then the Government will buy some of the shares to ensure that we keep at least 51% ownership.
Russel: So to protect your 51% ownership you would need to buy 51% of new shares offered, so half the new capital raised will actually be provided by the Government?
Russel: What was the point of all this exercise again?
Tony: Life in Wonderland has its own point.