Mixed Ownership Model Bill – 51% ownership amendments

In a Supplementary Order Paper No 42 – proposed amendments change 51% voting rights to 51% ownership.

Hon Tony Ryall, in Committee, to move the following amendments:

Explanatory note

The Bill currently contains 2 ownership limits for mixed ownership model companies: a 51% Crown control requirement and a 10% ownership cap for non-Crown persons. These ownership limits currently apply to voting rights attaching to shares and other securities of the company. This Supplementary Order Paper extends these 2 ownership limits so that they apply to shares of the company (including non-voting shares), as well as to the voting rights. The effect of doing so is that—

  • the Crown must hold 51% of every class of shares in the company, as well as 51% of every class of the voting securities (which are voting shares and other securities with voting rights); and
  • no person (other than the Crown) will be able to have relevant interests in more than 10% of any class of shares in the company or more than 10% of any class of the voting securities of the company; and
  • if a person has relevant interests in shares or voting securities that exceed the 10% limit, as well as the person not being entitled to exercise voting rights attaching to the shares or voting securities in excess of the 10% limit, no dividend or other distribution may be paid in relation to them. So as to enable the company to act with certainty (eg, to deal with complicated shareholding situations), the company may determine which are the excess securities, in accordance with the constitution, in implementing the consequences of exceeding the 10% limit.

In addition, it is clarified that the current prohibition on sales of shares by Ministers that would result in the Crown ceasing to have 51% control applies also to other types of voting securities that the Ministers may acquire.

I’m more than just pleased about this. 51% total ownership was something I and United Future campaigned on, and it was agreed to in the United Future/National Confidence and Supply agreement, so this holds fast to that stand.

It also shows that United Future can act as a moderator on National.

Regulatory Impact Statement

Providing for greater controls over Mixed Ownership Model companies, by including non-voting shares in the 51% floor and the 10% cap Agency Disclosure Statement

This Regulatory Impact Statement has been prepared by The Treasury.

This RIS provides an analysis of options to ensure that the Mixed Ownership Model Bill (MOM Bill) includes economic interests in the 51% floor and 10% cap, to ensure consistency with the Confidence and Supply Agreement dated 5 December 2011 between the New Zealand National Party and United Future New Zealand (UFNZ) (the Confidence and Supply Agreement), specifically around introducing “statutory limits on the sale of public assets to no more than 49% of shareholding to private interests including limits on the extent of single entity ownership.”

This RIS has been informed by discussions between the Office of the Minister for State Owned Enterprises and the Office of the Leader of UFNZ. Those discussions have prescribed the nature of the regulatory response, particularly in the context of the MOM Bill.

Full Regulatory Impact Statement PDF

Asset sales 49% ownership at risk?

National signalled their intentions on partial asset sales early last year.

Government to pursue mixed ownership model

by Hon Bill English, Hon Tony Ryall, Finance, State Owned Enterprises, Budget 2011

The Government’s five tests for proceeding

The Government has decided to pursue extending the mixed ownership model after being assured the following five tests can be met:

  1. The Government will maintain a majority shareholding stake by owning more than 51 per cent of each company.

How much will the Government retain in each company?

No decisions have been taken on precisely how much of each company will be retained by the Crown – other than the Government will retain a majority shareholding.

That is quite clear on retaining majority shareholding.

John Key: Trust us

Prime Minister John Key says the public should trust his government’s word it will not sell more than 49% of five State Owned Enterprises, although there will be no legislation to stop future governments from doing so.

The government would not be legislating to ensure State ownership of the companies could fall below 51%.

“I think the feeling is we don’t need that. But look, we have built up over the last three years, I think, a very strong sense of trust with the New Zealand public. When I say I’m going to maintain 51%, or [not] sell more than 49%, I think New Zealanders will take me at my word,” Key said.

“I can’t bind future Parliaments, but my view is it would be highly contentious for any future government to want to sell down the majority stake,” he said.

I felt I could trust Key on that. He had kept his word about no asset sales in his first term as Prime Minister. He was open about signalling his intentions for his second term and putting that to the electorate.

I supported National’s right to promote it’s key asset sale policies and if it won the election I supported it’s right to implement them. I supported National during the election on that basis.

I campaigned on United Future being a responsible centre-ish party, able to keep National honest and if elected in a position to moderate National’s policies. Asset sales were not a part of United Future policy, but limiting ownership was. The election flyer was clear:

After the election a Confidence and Supply Agreement was agreed on between National and UnitedFuture:

Confidence and Supply Agreement

5 December 2011

United Future agrees to provide confidence and supply for the term of this Parliament, to a National-led government

Policy Programme

The National-led government has agreed during this term of Parliament to adopt and implement the following broad principles, policies and priorities advanced by United Future:

  • Introduce statutory limits on the sale of public assets to no more than 49% of shareholding to private interests including limits on the extent of single entity ownership

That seemed very good, key United Future commitments included, which apart from the statutory limits it was in line with National’s policy promises.

This was widely reported.

Dunne holds key to asset sales vote

The UnitedFuture deal signed with National last week included a guarantee not to sell Kiwibank or Radio New Zealand and to legislate for at least 51 per cent Crown ownership and a 10 per cent cap on individual shareholdings.

“The agreement reflects exactly the position we campaigned on,” Mr Dunne said.

Yes, that’s the position I campaigned on. But last week there were reports of a “minor policy decision” that allows otherwise.

Loophole allows sale of over 49pc

A loophole in the law covering partially privatised state assets will allow much more than 49 per cent of the value of the companies to be privatised, providing the extra shares do not carry voting rights.

The Government has pledged to retain 51 per cent of the four energy companies.

But a “minor policy decision” by ministers, revealed in a Cabinet paper released last week, shows that the 51 per cent limit, as well as the 10 per cent cap on individual shareholdings, will apply only to voting shares.

The Cabinet has agreed “the 10 per cent and 51 per cent restrictions should be calculated on the basis of voting rights rather than the total percentage of all securities held (including those with non-voting rights)”.

That does seem to specifically allow for selling more than 49% shares to private ownership. Which would be contrary to the C&S agreement for statutory limits on ownership.

When asked about it Peter Dunne emphasised the importance of government retaining control through majority voting rights. I agree that’s important. This is confirmed in the MOM Bill:

The wording in the Mixed Ownership Model Bill, which has had its first reading in Parliament, would ensure control of the companies remains with the Government.

But it ignores the National commitment to “statutory limits on the sale of public assets to no more than 49% of shareholding to private interests”.

John Key has said he guarantees National would sell no more than 49%:

Speaking to reporters in Jakarta last night Key said he guaranteed the Government would keep a 51 per cent majority.

“It’s a technical argument but the reality is we want to sell up to 49 per cent of stock and retain the other 51 per cent.

“We are not going to do anything tricky there.”

But the Cabinet agreement seems to be doing something tricky. It appears to directly contravene a coalition agreement. If National are adamant they won’t sell more than 49% of any sort of stock (voting or non-voting) why have they specifically allowed for it.

I trusted John Key in his last term.

I think I trust him not to break this 49% promise during this term.

But if National campaign on selling more than 49% during their next term (or even if they don’t campaign on it, Key may not still be Prime Minister with the next National government) they will have legislation ready to do that immediately should they win the next election.

If this Cabinet decision carries through into the Bill and there is no statutory limits on the sale of public assets to no more than 49% of shareholding to private interests including limits on the extent of single entity ownership then National would appear to be breaching the C&S agreement with UnitedFuture.

And they would be legislating for something they have clearly said they won’t do – in this term? While Key is PM? While National stays in government?

If this Cabinet “loophole” is allowed to carry through I’ll be seriously questioning the honest intent of National.

And if United Future just lets this happen, disregarding what we all campaigned on and what was written in the C&S, that will be a major problem for me, and I would have to decide how to deal with it. It’s not something I could just leave and forget, I think it involves a major principle, of why I campaigned for and supported United Future, both during the election and since.

John Key’s trust can’t be contradicted in legislation. If he is true to his word the words of the MOM bill should state what he claims clearly.