Spotlight shifts to SOE finances

By SIMON COLLINS

The Government is reviewing the financial structure of state-owned enterprises as it gears up to find $1 billion to $2 billion to upgrade the national electricity grid.

Finance Minister Michael Cullen said in yesterday's Budget speech that he had commissioned work on the implications of keeping the state-owned enterprises in public ownership.

"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.

Analysts said the second-biggest state enterprise, Transpower, would urgently need from $1 billion to $2 billion to upgrade the national grid urgently - far more than it is likely to be able to afford by itself.

But the biggest enterprise, Meridian Energy, has relatively little debt and is likely to be able to pay for its $1.2 billion Project Aqua from profits and borrowing by the time it starts building in 2005.

The head of research for sharebroker ABN Amro, James Miller, said the state-owned power companies tended to have less debt than private companies so they were in a position to borrow when they needed to.

"It reflects the fact that they don't have the flexibility to be able to change their financial structure easily," he said.

They could not raise more share capital through the markets, and were often reluctant to seek more from the Government.

The executive director of the Crown Company Monitoring and Advisory Unit, Murray Wright, said the only recent case where a state enterprise sought extra capital from the Government was when NZ Post set up Kiwibank. He said the review was approved by the Cabinet.

No decision has been made on whether the review will be done by officials or contracted out.

Dr Cullen said the review would look at:

* How ministers should determine the scope of SOEs' activities, their willingness to take risks, dividend policies and expansion.

* How to keep pressure on the SOEs to perform, and how to benchmark them against private companies.

* How to give SOEs financial disciplines (such as the need to pay interest on loans), while ensuring they have enough money to make investments without needing extra capital from taxpayers.

* How to incorporate any SOE requests for more capital into the normal Budget process.