Thursday, 5 April 2012

SOE decision making

From the TVNZ website,
State-owned MightyRiverPower wasted around $100 million on an unnecessary hunt for natural gas in the last decade, its chief executive Doug Heffernan told the commerce select committee.

He was answering questions from Labour MP David Cunliffe for examples of decisions the company might not have made, had it been partially privatised.
Asked to nominate decisions that would have been made differently, Heffernan volunteered the company should not have spent around $100 million searching for natural gas in the mid-2000's, when its subsequent strategy has seen the company concentrate instead on geothermal generation.

"We should have stopped earlier, or not started at all," said Heffernan. "Under private sector disciplines, we would have corrected much faster. From my experience, in a listed company environment, that would not have happened."
I do wonder just how much difference a private stake of 49% would make to the SOE's decision making. After all if the 49% is held by a very large number of small investors they will face huge costs in organising themselves to try and change the way an SOE acts. 51% of the SOE will still be held by a single shareholder, the government, and thus the government will determine the business environment within which the SOE works.

I can't help but think that the statements made by Doug Heffernan are a better argument for full privatisation rather than a partial sell off. Full control by the private sector would be a lot more likely to overcome the kind of issues Heffernan points to.

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