Letter: SOE structure separates Kordia from regulatory system

The Minister of Communications addresses the interaction between State Owned Enterprises and regulation

I refer to your article in the June 18, 2007, issue of Computerworld, titled "Is our new SOISP kosher?" I am writing to clarify the issue raised in your article, namely, the interaction between State Owned Enterprises (SOEs) and regulation.

As you know, SOEs is a Crown company model where state trading activities were transformed into limited liability companies subject in many cases to the State Owned Enterprises Act 1986 (SOE Act), as well as the same legislation that applies to private sector companies (principally the Companies Act 1993). A key principle under the SOE model is the separation and maintenance of a clear division between the government’s ownership, purchasing and regulatory interests. As such SOEs:

• operate at “arm’s length” from the government;

• have independent boards that are accountable for the companies’ performance; and

• are separate legal entities, with directors who are responsible for overseeing the management of the business and affairs of the companies.

The SOE model further defines the responsibilities for each SOE so that:

• it has the principal objective of acting as a successful business;

• it takes managerial responsibilities for all operating decisions;

• competitive neutrality is maintained between the SOE and the private sector; and

• each SOE is a separate legal entity, established as a limited liability company.

Under the SOE Act, each SOE has two shareholding ministers. For Kordia Group, these are: the Minister of State Owned Enterprises and the Minister of Finance.

The Minister for SOEs has responsibility for appointments to SOE boards. The boards have responsibility for overseeing the management of the business and affairs of each SOE. SOE boards are accountable to the Minister of SOEs for their performance. The Minister of SOEs is, in turn, accountable to Parliament for the performance of SOEs. Select committees review performance according to the requirements of the relevant Act (for example, the SOE Act). The Minister of SOEs receives advice on SOEs from two main sources: CCMAU (Crown Company Monitoring Advisory Unit) and the Treasury.

These accountability requirements are important to protect the investment in the SOE on behalf of the people of New Zealand.

Of particular relevance to your question is that the SOE model ensures there is a separation and maintenance of a clear division between the Government’s different interests as they relate to a company, that is, ownership, purchasing and regulatory. As such, while I am the Minister of Communications and therefore responsible for the regulatory aspects of the communications market, the Minister for SOEs is responsible for the ownership and purchasing aspect of Kordia Group.

This clear division is to ensure that there is a level (regulatory) playing field for all communications providers and is consistent across the entire SOE portfolio.

As outlined above, New Zealand’s constitutional convention prescribes that all ownership/capital/purchasing issues regarding Kordia Group are the responsibility of the Minister for SOEs, but ultimately all operational decisions are the responsibility of the Kordia board. Consequently, as the regulatory Minister for Communications, I do not have any involvement in the ownership/capital/purchasing issues regarding Kordia Group, including the Kordia board’s approval of the acquisition of Orcon Internet.

I hope the above information helps clarify some issues raised in your article.

Hon David Cunliffe

Minister of Communications

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