History

Creation of Crown companies

Crown trading organisations have always been an important component of New Zealand’s economy. Until the mid-1980s, government businesses were mostly managed within traditionally structured public service departments with mixed policy, regulatory, service delivery and trading functions.

However, by 1984, it was recognised that the performance of public trading activities was negatively affected by mispriced goods and services, weak performance monitoring, and confusion between commercial, social and regulatory objectives.

Reform process

In 1985, the Government embarked on a wide programme of reform to improve the efficiency of public enterprises through contestable service delivery. The state sector was separated into four main components:

• Government departments with separate policy, regulatory and trading functions, as defined in the Public Finance Act 1989.
• State-owned enterprises (SOEs) : companies registered under the State-Owned Enterprises Act (SOE Act) 1986.
• Statutory entities : statutory bodies.
• Crown entity companies : companies established under individual legislation e.g. Radio New Zealand Ltd established under the Radio New Zealand Act 1995.

Most airports were corporatised and constituted as companies. Airports still owned by councils are known as council-controlled trading organisations.

Subsequent reforms to the provision of research services in 1992 led to the creation of the Crown research institutes (CRIs).

The framework for the reform process was one of 'corporatisation', with public trading activities restructured along the lines of orthodox limited liability companies. The Government set five governing principles for corporatisation:

• Non-commercial functions would be separated from trading activities.
• Boards would be required to run public trading activities as successful business enterprises.
• Boards would be responsible for using inputs and pricing and marketing their products within performance objectives set by Ministers.
• The enterprise would be required to operate without competitive advantages or disadvantages, so that commercial criteria would provide an assessment of managerial performance.
• Enterprises would be set up on an individual basis depending on their commercial purposes, under the guidance of boards modelled on the private sector.

The primary intention was to encourage efficiency through competition and clear objectives and robust accountabilities. The business gains transformed many of the commercial activities from being loss-making to creating positive shareholder value.

Review of the reform process

As a result of the reforms, there has been a dramatic improvement in the performance of the Crown’s trading activities.

• In place of large losses that required financial support from the Crown, the Crown’s trading investments now earn substantial profits, and pay dividends and tax to the Crown.
• Significant reinvestment has occurred, largely funded from companies’ own resources. This has markedly improved efficiency and created a sustainable portfolio of companies.
• There have been dramatic gains in efficiency and output quality, eg the letters business of New Zealand Post Ltd that benchmarks very well against postal businesses in other countries, resulting in material social benefits as well as financial benefits to the Crown. Prices of many products have decreased in real terms, while services are better matched to consumer requirements.
• Crown companies are financially viable and no longer a significant fiscal liability to the Crown – indeed they are now valuable assets rather than liabilities.

Importance of the Crown company sector

• Television New Zealand Ltd is New Zealand’s leading television network with approximately 48 % combined market share of the television market.
• Genesis Power Ltd, Meridian Energy Ltd and Mighty Power River Ltd provide approximately 70% of New Zealand’s electricity generation capacity.
• Learning Media Ltd is an international publisher of educational titles in English, Māori, Pacific Island and other languages for schoolchildren worldwide.
• Landcorp Farming Ltd is the country’s biggest farmer with 108 farms totalling around 370,000 hectares (owned and leased).
• New Zealand Venture Investment Fund Ltd has $200 million of venture investment capital available to support innovation and emerging new technologies.
• National Institute of Water & Atmospheric Research Ltd owns New Zealand’s fastest supercomputer capable of 638 billion operations per second and, when installed in 2001, was ranked the 64th most powerful computer in the world.
• Kiwibank Ltd, a subsidiary of New Zealand Post Ltd, was established in 2002 and had 519,000 customers as at 31 December 2007.
• Landcare Research’s carboNZero programme is an important tool to measure, manage and mitigate CO2 emissions.  Current participants range from large power companies (such as Meridian Energy) to smaller companies and individuals.
• Created by the merger of Asure and AgriQuality in 2007, AsureQuality is the leading provider of food safety and biosecurity services in the Southern Hemisphere and boasts an accreditation portfolio of more than 22 international standards.
• CRIs provide numerous benefits to enhance New Zealand’s social, environmental, and economic well being.  Case studies of such examples are on this website.