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Should the Council retain its 19% shareholding in Auckland Airport? Reading the arguments that Councillors were giving regards whether or not to sell the Council's shares revealed only one thing: they're clueless on such matters. Those in favor of keeping the shares were saying the same kinds of things - namely that the Council's shareholding "comprises a blue chip investment, providing alternative income to rates, predicted to earn ongoing dividends and capital gains" (Mike Lee). Using this argument, the Council may as well become a hedge fund or investment bank and start playing the stock-market, looking for "blue chip" stocks.

What a silly argument for the Councillors opposing the sale to make. The only one that has economic validity must be couched in terms of increasing social welfare. It must be based on building the case that Auckland Airport has monopoly powers & the Council's share-holding is a way of exerting influence over how the Airport conducts its business, so it acts more in the public interest. However, the Council has not been taking anything remotely resembling this course of action. It has a minority shareholding - its powers are very limited - and it hasn't even been exercising this limited power in any case. Quite the contrary, Councillors have been arguing the opposite - namely that they'd like the Airport to exert greater monopoly powers to stress the good citizens of Auckland out of their minds so the Council can get higher dividends to fund its bureaucracy.

Given the Airport has developed a bad reputation for lousy service & high prices, most of us economists would argue it has been taking full advantage of its monopoly powers. So what is the best course of action in the national interest? Since the Council has proven itself totally incapable or unwilling to exert influence over the Airport's day-to-day management, the shares have simply become a play on the stock-market. As a consequence, they should be fully sold. The Council has no business in this game.

Next, since the Airport has taken advantage of the public via its market dominance, it should be met with the full-force of Central Government anti-competition law - and if that is not up to the job then those laws should be strengthened. The model would be similar, in other words, to Heathrow Airport in the UK, which is a private company subject to financial regulation by both the Competition & Markets Authority and the Civil Aviation Authority.

What takes the cake are the endless financial & economic commentators - in addition to the Councillors - arguing the shares are a good investment (when the Council should not be in the business of playing the markets). Even those commentators trying to make a public interest argument don't get the fact that the Council has almost no power to play that game - it has only a small minority shareholding & no authority to implement competition policy, so can do next-to-nothing to address the Airport's monopoly position.

It's the usual story of the big media outlets in NZ trying to influence public debate by pumping out endless false arguments by journalists & commentators who have never studied economics.

Auckland Councillor Julie Fairey, who is the wife of under-fire Cabinet minister Michael Wood, has been advised by the Auditor-General she doesn't have a conflict of interest arising from her position as trustee & beneficiary of a Trust that owns Auckland Airport shares and so can vote today on the sale of the Council's shares in that company.

"I have now received written advice from the office of the Auditor-General and from [the] council's legal team that, in their view, my situation does not represent a conflict of interest - as I cannot reasonably expect financial loss or gain from these decisions and that I am, therefore, able to participate [in the vote] under the Act".

The Auditor General's advice is incorrect. The argument against the sale of the Council's 19% shareholding is primarily based on the ability of the Council to influence the future direction of the Airport's development, with has huge implications in terms of the value of that company. Sir Barry Curtis, who was Mayor of Manukau from 1983 until 2007 and a former member of the Auckland Regional Authority, wrote a few days ago that:

"The combined leadership of the two pre-amalgamation councils proved that a significant shareholding of around 20 percent does offer the opportunity to nominate directors onto the board [of Auckland Airport] to influence the direction of the company" and due to this fact, "Auckland Council must protect the city’s interest in NZ’s main gateway to the world".

He is stating that the Council's influence over Auckland Airport via its shareholding has direct bearing on how it performs, contradicting the Auditor General that there cannot be expectations of a financial impact coming from the decision to sell the Council's shares.

Take another example to prove the point. The Finance Minister has put in writing that since the government is a large shareholder of Air NZ, there are expectations on the airline which include maintaining a "comprehensive domestic route network that allows people & goods to move across NZ in a timely fashion at a reasonable cost" and "To demonstrate its commitment to environmental sustainability". The reason why the government continues to maintain its shareholding in Air NZ is to influence its decisions, with vast commercial impact.

Maybe the Auditor-General should stick to auditing and stop trying to do economics, particularly on the topic of privatization.


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Robert MacCulloch

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