Mark Lister, 26 August 2022

I believe it’s important we retain control of Kiwibank, and keep the bulk of its profits within New Zealand.

Many of us want a bank we can support, rather than one with a head office in Melbourne or Sydney.

What I don’t like is the idea of politicians running businesses. They’re just not very good at it, and we see evidence of this time and time again, at both central and local government level.

Ports of Auckland is one obvious example. Wholly owned by the local council, it’s been subsided by ratepayers for years on the back of an underwhelming operating performance.

In contrast, its key competitor has gone from strength to strength. Port of Tauranga is a much more successful company with far better governance. It’s majority owned by its local council, but also partially listed on the sharemarket.

We’ve come to know this as the “mixed ownership model”, after the phrase was used ahead of the partial sale of the three state-owned electricity companies a decade ago.

subscribe banner

During 2013 and 2014, the Government sold just under half of Mighty River Power (now known as Mercury NZ), Meridian Energy and Genesis Energy, and listed the three of them on the NZX.

I started my career in the electricity industry a little over 20 years ago. We used to make fun of those companies back then.

They were bloated, slow and inefficient, compared with their publicly listed peers. At the same time, they were difficult to compete with.

Not because they were particularly well-managed, but because they didn’t always operate commercially, nor did they seem as fussed about getting a fair return on their assets.

Like many organisations which are governed and run by politicians, there wasn’t enough respect for the capital taxpayers had invested.

A year or two after listing, I remember asking one of those Chief Executives about the biggest change he’d noticed since the sharemarket float.

“Scrutiny” was his answer, because of the increased pressure to manage the business efficiently, spend every dollar wisely, and to have a clear strategy.

There’s nowhere to hide when you have an army of competent, experienced analysts and investors watching and judging your every move.

Those three electricity companies are far better businesses today than they were in 2013, which is reflected in the steady earnings and share price growth we’ve seen over the period.

Contrary to popular belief, this success hasn’t come at the expense of consumers. According to MBIE, electricity costs per unit have increased at a much slower rate in the past decade than they did when SOEs dominated the landscape.

The Government still owns 51 per cent of each of them, so they’ve continued to benefit as a major shareholder, while also retaining control. I’d rather own half of a great business than all of a lesser one.

The rest half of the profits have largely stayed in the country too. Meridian Energy remains 81 per cent owned by New Zealanders, via Kiwisaver funds and private investors as well as the Government.

This approach has allowed the government to release funds to spend on other priorities, fostered stronger businesses and broadened our sharemarket and range of investment options.

It’s also made things much easier when new capital has been required, with the Air New Zealand’s (also a mixed ownership company) massive capital raising earlier this year an example of that. Having enough capital, as well as access to more, is crucial for a bank to be successful.

The mixed ownership model has provided the best of both worlds for all involved, and politicians of all stripes would be wise to keep this in mind as they ponder the next phase of growth for Kiwibank.