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8.2 Process for consultation

  • Shareholding Ministers are, on occasion, consulted on or asked to approve investment proposals. This usually arises either because the investments are major transactions under the Companies Act, shareholding Ministers are being consulted by the board as required under the SCI and/or Section 8.1.2, or shareholding Ministers are being asked to consider an equity injection. In any case, the SOEs should provide the Ministers and officials adequate time to consider the proposal, regardless of whether the board has given its approval. This is in keeping with the early engagement principle.
  • The consultation process, as distinct from shareholder approval, is expected to be conducted in good faith and to involve the following steps:
    • Based on advice from its management team, the board forms a view on the commercial merits of the proposal.
    • The board advises Ministers of a relevant pending decision.
    • The board provides information to Ministers.
    • Reasonable time is given for Ministers' consideration, depending on the circumstances of the particular decision.
    • The board considers Ministers' comments, with an open mind.
    • The board proceeds to take the final decision for which it is responsible.
  • Key components of a business case that officials expect to see are outlined at Section 5.7.4. The shareholding Ministers will continue to assess investment proposals against the principles set out below:
    • the business case for the proposal, including expected financial risk-adjusted returns and risks, and the sensitivity and volatility of returns to various alternative scenarios
    • the size of the proposal and fit with the SOE's core business
    • the size of the proposal and fit within the wider SOE portfolio and the Crown balance sheet (ie, whether it would involve a greater concentration of risk)
    • the company's track record of success in similar expansions, and
    • whether the proposal can be funded from the company's balance sheet, or via another vehicle, without recourse to new equity injection from the Crown.
  • In addition, the provision of new capital is a decision for Cabinet, which will consider its relative fit within the Government's overall investment priorities and other public policy objectives. Shareholding Ministers, accordingly, expect that any request for additional capital will demonstrate what shareholder value will be added, to assist them in prioritising demands on capital.
  • In order to assess investment proposals, shareholding Ministers prefer that sufficient information be made available to allow them to make an informed assessment of the proposal. If investment approval is being sought during the business planning process, the Ministers' views on the proposals should be explicitly sought. In other words,inclusion in an annual business plan does not constitute consultation, and the Ministers may still choose to consider the proposals outside of the planning process.
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