THE PRESS SATURDAY, MARCH 5, 1988. The resale of Petrocorp

Press, 5 March 1988, Page 20

THE PRESS SATURDAY, MARCH 5, 1988. The resale of Petrocorp

The breath-taking series of events over Petrocorp will probably rank high for all lime in the history of deals between New Zealand Governments and corporations. Most New Zealanders will probably feel rather more comfortable with Fletcher Challenge's purchase of 70 per cent of Petrocorp than they felt about the idea of a foreigner, British Gas. taking the Government's shareholding. It means that Petrocorp will remain in New Zealand hands while Fletcher Challenge does. What happens if Fletcher Challenge itself is sold, or if Fletcher Challenge decides that it will sell a majority shareholding of a Petrocorp subsidiary, may be stipulated in the fine print of the agreement. This has not yet been disclosed publicly, though .the deal includes a proviso about the possible sale of Fletcher Challenge shares to the Government in four years.

Fine print has so far played a key role in the whole affair. The Government said that British Gas wanted too many guarantees in the special conditions for the contract of sale. That was as may be. The astounding’aspect is not merely the cancellation of the deal with. British Gas but the Government’s ability to find a second buyer at the same amount, who will pay the price in foreign currency, and who, with a final swish of a polishing rag that cleaned up the British Gas mess, is going to offer minority, shareholders $1.75 a share just as it is offering this price for . the Government’s shares. 1

Politically the Government should come out of all this reasonably well, certainly better than it would have from the British Gas deal. People who worry about the effects on the economy of huge amounts of debt might well have seen the advantages of selling to British Gas and getting the foreign currency . without the Government itself buying the currency. However, public opinion was clearly disturbed about the selling of a basic, strategic asset to a foreign company, albeit; from a country which spawned European settlement in New Zealand and which remains a good friend and associate in trade.

The Government’s accomplishment lay in getting all the advantages of the British Gas deal without the disadvantages of foreign ownership. British Gas’s intentions have not been made clear, but, at the very least, the sale to Fletcher Challenge should ensure that the management of Petrocorp will be in New Zealand hands, that jobs will be provided for New Zealanders, and that the tax and profits should stay in New Zealand.

The domestic political advantages to the Government will not be a major factor among those who weigh the New Zealand Government's international reputation as a country with which to do business. Many will continue to suspect that [the deal with British Gas was abandoned for domestic, political reasons and that the; late reversal was heaven-sent opportunism. The Government will do all within its 'power to repair its image. Its reputation as a wheeler-dealer may have been enhanced, but that is not necessarily to the 'Government’s longterm benefit. What is good in American oil opera is not necessarily good for New Zealand.

Enthusiasm for New Zealand private ownership should not bbscure the fact that privatisation of a national resource will bring its own complications. Electricorp is apparently determined (to drive up the price of electricity; and the Government wants the maximum price for the sale! of its assets to Electricorp. Will Petrofcorp be far behind in the price of gas if electricity prices afford gas an easy ride? Can, in fact, there be a coordinated energy policy in the country when the Minister’s influence is near enough to being removed altogether from every source of energy and Government’s control is, at best, indirect. Are market forces always so desirable if they are always upwards in respect of price? | ! The Government has laid great emphasis on accountability, but most of that has meant financial accountability. Accountability in Government should also mean co-ordinated and sensible policies [so that the citizens of the country can benefit from the country’s natural advantages at (reasonable cost and not see others spoil or squander them or run riot with prices. In energy) — electricity, gas, coal, petroleum — the Government has virtually guaranteed corporate monopolies or overseas ownership. This 1 is not healthy unless : the fuels are competitive or interchangeable. On both counts the limits : seem narrow, and too narrow to excite much price competition. Although the Government, by acccident or adroitness, has retrieved its Petrocorp position a little, the jaasic decision to sell off one possible means o[f price restraint remains highly , questionable. The often-repeated defence that Petro'corp. has not been a profitable enterprise for the New Zealand taxpayer to own does not stack up well against the readiness of Fletcher Challenge — or others — to buy in.