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Half Year Economic and Fiscal Update 2013

Government Share Offer Programme

At the time of the Budget Update, no transactions in the Government Share Offer programme had been completed. Since that time minority shareholdings in Mighty River Power, Meridian Energy and Air New Zealand have been sold and the Government has indicated that the sale of up to 49% of the shares in Genesis Energy will follow in the first half of calendar 2014. At the time the assumptions for this Half Year Update were finalised, the proceeds from the Crown reducing its shareholding in Air New Zealand were not known.

Table 2.9 - Progress to date (core Crown)
Gross proceeds
$millions
Net proceeds1
$millions
% sold Gain/(loss)
on disposal
$millions
Mighty River Power 1,685 1,638 48.20 167
Meridian Energy 1,883 1,829 48.98 (422)

Note:

  1. Net of direct costs and present value discounting.

Source: The Treasury

As a result of the progress to date (Table 2.9), two key assumptions underpinning the forecast fiscal impact of the programme have been updated in this current Half Year Update:

  • Total proceeds are now expected to be within an estimated range of $4.6 billion to $5.0 billion, which is based on actual proceeds from the Mighty River Power and Meridian transactions and estimated proceeds from the Genesis Energy and Air New Zealand transactions. The Half Year Update forecasts assume the mid-point of this range of $4.8 billion. The previous $6 billion assumption was a mid-point estimate of a range of potential outcomes across the entire Government Share Offer programme. These outcomes have now narrowed considerably since the Budget Update. This section includes discussion on the changes in the estimate in proceeds over time.
  • Given the Government's announcement regarding the timing of the Genesis Energy share offer, all proceeds from the programme are now expected to be received by 2014/15. The Budget Update did not forecast the timing of individual share offers, none of which had been completed by that point, and so assumed proceeds were spread evenly across the four years 2012/13 to 2015/16.

The fiscal impacts of these changes in assumptions are that, while net debt will decrease sooner than previously forecast, that reduction will be smaller as proceeds have been re-estimated. In addition, while the proceeds are received earlier (and so the estimated finance cost savings occur earlier), dividends and profits are also foregone earlier than previously forecast as the Government's share of the companies is reduced.

Table 2.10 - Estimated profile of gross cash proceeds
Year ending 30 June
$millions
2013
Actual
2014
Forecast
2015
Forecast
Cash/Debt impact      
Forecast cash proceeds 1,690 2,490 620

Source: The Treasury

This estimated profile is based on the mid-point of the estimated range of $4.6 billion to $5.0 billion, which was set before the proceeds from the Crown reducing its shareholding in Air New Zealand were known.

Table 2.11 - Estimated fiscal impact of the Government Share Offer programme
$billions Note Actual to date
and forecast
Cash/Debt impact  
Forecast cash proceeds   $4.8 billion
Forecast foregone dividends 1 $321 million p.a.
Estimated finance cost savings 1 $219 million p.a.
Reduction in net debt   $4.2 billion by 2017/18
Accrual impact  
Forecast foregone profits 1 $327 million p.a.
Estimated finance cost savings 1 $219 million p.a.
Net decrease in OBEGAL 1 $108 million p.a.
Loss on disposal recorded in taxpayers' funds 2 $383 million

Notes:

  1. Based on an average of the fiscal forecasts subsequent to the programme being completed.
  2. Based on the mid-point estimated cash proceeds, the published gain from the Mighty River Power sale and loss from the Meridian Energy sale, and the published net asset position of Air New Zealand and Genesis Energy at 30 June 2013.

Source: The Treasury

The final fiscal impact of the Government Share Offer programme remains uncertain and dependent on a number of factors, including market conditions.

The figures in Table 2.11 are based on the current profit and dividend forecasts supplied by the companies, and forecast interest rates on government debt. This means the figures are a static estimate, at the current time, of the fiscal impact of the Government Share Offer programme.

The figures do not account for uncertainty and risks, and in particular the commercial risks around the estimated profits and dividends from the companies, and risks around future interest rates on government debt. The risks in relation to Mighty River Power and Meridian Energy were explained in the offer documents for these companies. Because of uncertainty and risk, a commercial entity would usually forecast profits that are greater than the Government's cost of borrowing. Whether forecast profits are actually delivered will depend on actual company performance.

Previous Economic and Fiscal Updates have disclosed annual estimated fiscal impacts of the Government Share Offer programme, as well as a five-year total. It is no longer possible to give annual figures, as the progress in the programme to date means that providing the latest annual estimates could allow forecast profits and dividends for individual companies in the programme to be calculated. Individual company forecasts are commercially sensitive, and may be “inside information” in relation to the Securities Markets Act 1988. Forecast profits and dividends are supplied to the Treasury by the companies under a confidentiality deed, under which the Treasury has agreed to preserve the confidentiality of this information, and to comply with the provisions of the Securities Markets Act 1988.

Given this, only totals or averages have been disclosed, consistent with section 26V of the Public Finance Act 1989. Future disclosures of the impacts of the Government Share Offer programme will follow the same approach.

Future Investment Fund

In Budget 2012 the Future Investment Fund (FIF) was established to allocate the estimated proceeds from the Government Share Offer programme, rather than issuing debt. So far, $2.1 billion of this fund has been allocated. A large portion of this allocation is expected to be spent on the Canterbury rebuild as well as investments in schools, hospitals, technology and irrigation.

Table 2.12 - Analysis of Future Investment Fund
$billions Total Fund
Forecast cash proceeds 4.8
Allocated in Budget 2012 (0.5)
Allocated in Budget 2013 (1.4)
Commitments against future budgets (0.2)
To be allocated 2.7

Source: The Treasury

With the proceeds from the Government Share Offer programme now expected to be between $4.6 billion and $5.0 billion, the amount remaining to be allocated over the life of the FIF has declined since the Budget Update. However, based on current forecasts, the Government does not need to alter the current FIF spending profile as the current profile still ensures the FIF funds all new capital expenditure through to Budget 2016.

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