Editorial: Brown should keep open mind on assets

Mayor Len Brown instructed the agency managing the council's investments to

Opinion

The Government may be reviewing its mix of assets but there seems no possibility the Auckland Council might do the same. Mayor Len Brown sent a list of his priorities to each of the council-controlled organisations last week. His instruction to the agency managing the council's investments was simple: "Commit to keeping assets in public ownership".

That might not preclude their partial privatisation, such as the Government is contemplating for its energy companies, but it probably does. Knowing the political leaning of Mr Brown and the council majority, the investments agency will feel its hands are tied. Whatever new capital its companies may need, whatever new assets might recommend themselves for purchase, the money cannot be raised by an issue of shares in existing assets.

This is not the way wise investors behave. They constantly review the value they are getting from their mix of assets and remain alert to changing circumstances and opportunities. Public investment should be just as dynamic. To freeze the public portfolio is not good for the performance of the companies or the public that is forced to finance them.

The Auckland Council has inherited an unbalanced portfolio with far too much sunk in Ports of Auckland Ltd. Ports had a 25 per cent private shareholding until the former regional council, for reasons never clear, increased its stake to 100 per cent some years ago. Presumably it imagined that taking the company off the sharemarket would make no difference to its commercial performance. The council soon found the port in need of more capital.

Mr Brown's instruction to his investment agency on Ports of Auckland is to "develop a long term strategy". Whatever that may be, it does not sound like the sort of shareholder demand that keeps a company on its toes.

The mayor and council will no doubt be watching the reaction to the Prime Minister's announcement last week. Labour will try to re-awaken public sentiment against asset sales but the Government may be able to fashion a float that would satisfy public sentiment.

John Key stressed last week that the share issues would be designed to ensure New Zealanders were "at the front of the queue". Critics have predicted the bulk of the shares would flow offshore on resale. If they did it would be to the enrichment of New Zealanders at the front of the queue.

Those who could not afford personal shares could benefit through KiwiSaver and other funds that would be certain to want the stock, as well as through the Government's retained majority holding. The three state-owned power companies and Solid Energy are likely to compete and innovate more keenly when they appear on the sharemarket.

Public bodies are passive shareholders, particularly when their ideology is not to sell at any price. That can make life more comfortable for executives who are usually recruited from the private sector and paid accordingly. But it does not do much for the public apart from maintaining nominal ownership.

"Mixed ownership", as the Prime Minister calls his proposal, may preclude any private shareholder having a controlling stake, and consequently there will not be the opportunity to cash in for takeover premiums. But ordinary share trading should make a difference.

If this year's election gives the Government a mandate for the floats, all public bodies should take note. The popular aversion to asset sales was a symptom of a time of necessary but unsettling economic change. The public may be ready now to see its asset portfolio managed more sensibly. Public bodies should be prepared to do it.