Kushlan Sugathapala: We deserve better custodians of the family silverware

Auckland Mayor Wayne Brown and council officials propose to sell its shares in the Auckland Airport - a monopoly asset whose value has more than tripled in the last 10 years - to pay off debt. Photo / Brett Phibbs, File

OPINION

“Asset sales have a terrible history in New Zealand”, said Labour councillor Fleur Fitzsimons, voting against the proposal to sell Wellington City Council’s share of its airport amid a pandemic.

A clause to require 60 per cent of votes in parliament to privatise water assets was shot down after a protest from the legal fraternity arguing this would set a “dangerous precedent”.

In 2011, the National government voted down a bill by Phil Goff proposing 75 per cent of votes in parliament or a majority in a referendum to sell state assets. Phil Goff argued, “Assets like our power companies were built through the blood, sweat, and tears of New Zealanders. And paid for by Kiwis over generations. They are not National’s to sell without the support of Kiwis. These assets belong to New Zealanders, and once sold, they are lost forever.”

John Key sold 49 per cent of Genesis Energy despite 67 per cent of New Zealanders voting against it in a referendum. He called the referendum a political stunt, “We’ve had a referendum. It was called a general election”.

The stake was sold for $733m in 2014 ($904m in today’s money); and is worth $1.5b today.

Someone like Key is hardly a neophyte at managing investments. But would you sell a well-performing investment in a stable economic environment to pay down debt borrowed at the lowest interest rate in the country?

This criteria for selling state assets is ideology, not financial sense or increasing the country’s wealth.

In October 2021, Wellington councillors voted down a proposal by its officers and Mayor Andy Foster to sell its 34 per cent stake in the Wellington Airport. This was an attempt to recover from the pandemic when travel assets were not exactly the flavour of the month.

In 1998, Jenny Shipley’s government sold 66 per cent of Wellington Airport to Infratil for $96m (approximately $168m in today’s dollars). Winston Peters was fired as Deputy PM and Treasurer for publicly criticising the sale.

The airport’s shareholder equity as of June 2022 was $750m; the government stake would be $495m.

In the article “How asset sales went wrong” for the Herald in June 2000, Brian Gaynor wrote about the story of Telecom NZ, which was sold for $4.2b in 1990. Richard Prebble, Minister of State-Owned Enterprises, was particularly upbeat, saying, “the sales process has been extraordinarily competitive. And the government achieved an absolutely top price for the taxpayer.”

In the decade to 2000, Telecom paid dividends of $5.5b and increased in value to $16.6b.

Eighty per cent of the gains went to overseas investors. Gaynor said, “with just a little foresight, these profits could have been kept for the benefit of domestic investors and taxpayers”.

In an NZ Herald debate in 2011, Jacinda Ardern argued that selling income-earning assets should be a last resort. The argument of Kiwi mums and dads benefiting from a sale is false – we already own it, all of us (not a few wealthy folks).

While the assets would be initially owned by Kiwis, they would soon wind up with overseas investors.

Selling high-performing assets was shortsighted, and returns were higher than interest savings on debt.

Former National MP Nikki Kaye argued that asset sales enabled debt to be paid faster; provided opportunities to mums and dads, Kiwisaver funds and the Superfund; and freed up cash to invest in schools, health etc.

Now, Auckland Mayor Wayne Brown and council officials propose to sell its shares in the Auckland Airport - a monopoly asset whose value has more than tripled in the last 10 years - to pay off debt.

Council’s stake tripled from 2011 to 2018, from $632m to $1.8b, a capital gain of $1.2b in seven years. And $485m in dividends and a share buyback - a profit of $1.7b in eight years from 2011 to 2019. The council projects a sale value of $2b (less $100m in costs to sell), with cash cost savings averaging just $24m per year from 2024 to 2031 (less than $16m per year from 2027).

It’s like selling an investment, which has tripled in value in eight years, to pay off debt. Saving 1.2 per cent in interest (compared to renting the home), ignoring any potential capital gain.

While investment values can fluctuate, many state assets have increased in value.

The council justifies the sale by arguing the airport is a non-strategic asset. And, if it invests in nonstrategic assets, it must satisfy standard investment criteria such as a diversified portfolio and liquidity to realise profits.

Kushlan Sugathapala. Photo / Supplied

Shares in an airport are automatically considered strategic assets under the Local Government Act. All our major airports – Christchurch, Wellington and Dunedin have council stakes.

Auckland Council’s current shareholding policy is to hold a strategic stake in the airport as an important national and regional asset.

The mayor stopped council staff from working on Three Waters. Shouldn’t a cash-strapped council look at the complete picture, including the financials, before rejecting a central government proposal to fund a share of infrastructure spending?

An alternative would be to sell the shares to a government-owned entity like the Superfund, which invests in New Zealand assets.

We have a long investment horizon and the ability to invest in illiquid assets to earn a premium over time.

And look for opportunities to earn sustainable returns from infrastructure.

Shouldn’t we have better protection against trigger-happy politicians and government officials from selling our family silver?

- Kushlan Sugathapala is a researcher and writer on social justice issues.