Selling State Assets, Unlearned Lessons
Bill Rosenberg was appointed Economist and Director of Policy at the CTU in May 2009. He holds a B.Com in Economics, a BSc in Mathematics and a PhD in Mathematical Psychology. Bill was previously Deputy Director, University Centre for Teaching and Learning at the University of Canterbury, a Member of the Institute of Directors, a Commissioner on TEC, and was a member of the Regional Land Transport Committee of Environment Canterbury.
His history lesson reproduced here is one worth remembering:
The New Zealand Rail sale in 1993 was organised by Faye Richwhite who then proceeded to benefit from it hugely by taking a substantial shareholding – a conflict of interest fit for a post-Soviet state. The main shareholders of the purchaser, TranzRail, were Faye Richwhite, Berkshire Fund and Wisconsin Central of the US, and Alex van Heeren. They bought a company which had been freed of debt by a $1.6 billion injection by the government. The price was $328 million, of which they paid only $107 million and borrowed the rest. According to Brian Gaynor they “were responsible for stripping out $220.9 million of equity in 1993 and $100 million in 1995” . By the time they had sold out, they had made total profits of $370 million, mainly tax free because of the lack of capital gains tax, and darkened by accusations of insider trading.
Under Wisconsin’s management the safety record was appalling (by 2000, fatal accidents for employees were eight times the national average) and reinvestment and maintenance were abysmal, leaving the operation in a crippled state. They sold out to Toll of Australia who similarly failed to maintain the system, and who then sold it back to the government in two tranches for a total of over $700 million plus ongoing costs to the government of several hundred million dollars to repair the rail network and replace the antiquated rolling stock. It is difficult to estimate the total costs to the country, but the total cost to the government will be almost $4 billion , greatly magnified by the neglect of the private owners.
The previous government has been accused of paying too much for the rail company, and they probably did, but that was just one element of the huge financial and opportunity losses to the people of New Zealand as a result of the privatisation that were evident well before the renationalisation.