Asset Sales are promoted by many, as “paying our way” or “reducing our debts”. Does NZ have an overseas borrowing problem, and are asset sales really a sensible strategy to deal with it?

Advocates claim that sellling up to 49% of NZ’s power companies — Meridian, Mighty River, Genesis Energy — as well as coal company Solid Energy, and part of Air New Zealand — will produce cash for investment in schools, hospitals & transport projects.

However, the real question is — does this even make sense?

Historically, the SOEs have been an excellent profit-generator. Over the past 5 years, they have returned 17.5% a year according to Treasury — a lucrative revenue stream, which after capital costs of 4 to 4.4%, gives a 13% per-annum ‘free’ profit stream.

Imagine if you owned a house worth $1 million dollars. The mortgage to the bank cost only $44,00 a year. But the rent from the property, with no tenancy or letting hassles, returned $175,000 a year!

You’d be mad to sell it. It will make the Government poorer, not richer. But this is exactly, what National under John Key is driving at.

So, who exactly will benefit?

Families & ordinary working NZ’ers won’t benefit — power prices will increase following sale. I’ll go to the lengths of personally guaranteeing this.. You can probably expect to be paying an extra $200 a year, within 5 years.

Investment bankers, brokers, solicitors & financial advisers all get to the clip the ticket, when assets are sold. Management and directors will be looking for share options and massive rewards if privatised companies do well (ie. raise power prices & cut back on maintenance).

As Brent Shearer says, investment banking, legal costs & scoping studies will probably run to at least $180 million.

So, overseas investors, asset strippers & a limited number of locals (wealthy enough to invest) will profit. The NZ Government, and NZ’ers in general — will lose  ; due to loss of profitable revenue streams, and increasing power prices.

So, the last question. What else could be done?