BUDGET 2013 Meridian mega-float to fund rail, hospitals, schools, irrigation

Thursday 16th May 2013

The country's most valuable electricity company, Meridian Energy, will be partially privatised in the second of this year, assuming market conditions make it a good time to sell, Finance Minister Bill English announced in today's budget.

The widely anticipated announcement could see the government take in perhaps $3.3 billion for its so-called Future Investment Fund, with the state-owned electricity generator and retailer valued independently at $6.5 billion in 2011.

The funds will be used to pay for capital works, including $426 million for the redevelopment of the Christchurch and Burwood hospitals, a further $94 million on top of $880 million for the commercial turnaround of state-owned rail operator KiwiRail, $80 million to support private irrigation projects, and $50 million to accelerate the upgrade of schools' technological capabilities.

The proceeds of asset sales were "only a small percentage of the government's overall spending," said English. "But without them, we would either have to borrow more money overseas or go without some of the new or upgraded hospitals, schools and other infrastructure and investment."

The government believes enough is known about the two biggest threats to Meridian's future profits to allow the sale to go ahead and achieve acceptable value for taxpayers.

Those threats are the potential closure of the Tiwai Point aluminium smelter and the Labour and Green parties' intention to scrap the current electricity market arrangements and revert to a central government agency buying, regulating and determining investment in the sector.

A smelter closure is judged to be potentially positive for Meridian because the company's portfolio of renewables-only power plants would earn higher returns if the 572 Megawatts of output reserved for the smelter were sold to a customer that paid less heavily discounted power prices.

Meridian's smelter contracts account for about one-seventh of total electricity production in New Zealand.

BusinessDesk.co.nz

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