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New Zealand Economic and Financial Overview 2014

Government Enterprises

State-Owned Enterprises and Crown Entities

In May 1986, as part of its overall economic strategy, the Government announced a major programme for reform of government enterprises. The aim of the reforms was to improve the efficiency and accountability of the enterprises and reduce the Government's exposure to business risk. To this end, the Government restructured a large number of its departmental trading activities and established them as businesses operating on a basis as close as possible to private sector companies.

SOEs are required to operate on the basis of principles and procedures contained in the State-Owned Enterprises Act 1986. Under the Act, the Boards of SOEs have complete autonomy on operational matters, such as to how resources are used, pricing and marketing of output. Competitive advantages and disadvantages, including barriers to entry, have been removed, first, so that commercial criteria provide an objective assessment of performance and, secondly, to increase efficiency. Under the Act, SOEs have no responsibility for continuing non-commercial operations and the Government is required to negotiate an explicit contract if it wishes an SOE to carry out such activities.

Boards of directors drawn from the private sector are appointed to manage SOEs. Each Board is required to present to the shareholding Ministers a statement of corporate intent and an outline of business objectives, defining the nature and scope of activities and performance targets. These are closely monitored and SOEs are expected to achieve performance targets and pay dividends on a basis comparable to their private sector competitors. The shareholding Ministers may determine the levels of the dividends.

The SOEs borrow in their own names and on their own credit, in most cases without a guarantee or other form of credit support from the Government. All SOEs have been informed that Government policy requires that they disclaim in loan documentation the existence of such guarantees or credit supports.

Crown Entity is a collective term for bodies owned by the Crown that are not departments, Offices of Parliament or SOEs. Crown Entitites range from Crown Research Institutes to regulatory bodies, such as the Commerce Commission and the Securities Commission.

Government Share Offer Programme

Since 2011, the Government has been working on a programme of reducing the Crown's shareholding in selected SOEs, while maintaining a controlling interest of at least 51%. Initial Public Offerings (IPOs) of up to 49% of the shares in Mighty River Power Ltd and Meridian Energy Ltd were completed in 2013. These companies are now dual listed on the New Zealand and Australian stock exchanges. A similar IPO of shares in Genesis Energy Ltd is anticipated to take place in 2014, subject to market conditions.

The Crown's shareholding in Air New Zealand Ltd has also been sold down to around 53% through an off-market sell-down. The other company originally included in this programme, Solid Energy Ltd, has encountered financial difficulties and is currently undertaking a restructuring plan in conjunction with its major lenders.

Proceeds from the programme are being allocated to the Future Investment Fund to finance new or improved infrastructure for New Zealand and to reduce the need to borrow from overseas lenders. More details on the programme can be found at: www.governmentsharesoffers.govt.nz

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