Monday, April 11, 2011

Crony Capitalism III

On Thursday evening, TVNZ revealed that Communications Minister Steven Joyce decision to bail out his former company Mediaworks with a $43 million soft loan was contrary to all advice from his officials. My copy of these documents (obtained under the OIA) arrived over the weekend, and I've been going through them. And they show that the story is, if anything, worse than TVNZ suggests.

I'll be gradually scanning the relevant documents and putting them online (so more links will appear in this tomorrow). But here's the core story:

  • Radio Rhema writes to Steven Joyce pleading poverty over their long-expected bill for broadcasting rights, and asking for a concession. Joyce responds that he "do[es] not see it as appropriate to deal with these sorts of requests on an individual basis" and points out that the government is short of cash too.
  • The Radio Broadcasters Association writes to Joyce on behalf of its members asking for its broadcasting fees to be spread over the term of the licences, effectively a return to annual fees. The Ministry of Economic Development hires Deloittes to analyse the financial situation of broadcasters and concludes that
    the modelling has shown that the current contractual payments will affect the profitability of the broadcasters, but all but the most pessimistic scenario sees that operations remaining viable based on the financial assumptions made. [That scenario assumed the broadcasters would remain unprofitable until 2030 - I/S]

    The Ministry does therefore not see a strong case for the Government to accede to the Associations request, a move which would place the Government in a credit financing role in lieu of the existing market mechanisms.

    In English, that translates as "they don't need the money and should piss off".
  • Followup advice from MED, in response to "anecdotal information that the trading position of at least one of the main broadcasting companies has deteriorated", repeated this conclusion, and warned of the danger of the RBA lobbying other Ministers.
  • According to the Herald, that is exactly what happened: the RBA lobbied and lobbied until they found someone ignorant enough of the situation to agree to their demands: the Prime Minister. But the documents show this to be false. Key met with Mediaworks CEO Brent Impey in early August, but Joyce had already asked MED to present him with options for deferred payment in July. On July 30, a week before Key's meeting with Impey, he wrote to the RBA informing them of this decision.
  • Over August and September MED negotiates with the RBA, and gets major broadcasters Mediaworks and The Radio Network to open their books. A further analysis by Deloittes on the data again finds that they do not need the money: the payments will affect profitability, but they can afford it. Alternative payment options make only a marginal difference. The real problem is the capital structure imposed by their foreign parent companies - a problem entirely of their own making. Despite this, negotiations continue.
  • In late September MED realises they need Cabinet approval for a change in policy and push through an urgent Cabinet paper. The paper highlights the modelling showing the deferral is unnecessary, but introduces the threat of Mediaworks defaulting on its licence payment and going into liquidation. Cabinet is scared into line. Mediaworks laughs all the way to the bank.
  • Six months later, in May 2010, MED realises that the deferred payments are a loan and therefore require the approval of the Minister of Finance [link to come]. The advice Treasury gave him on this will be fascinating...
So, this isn't just a case of Steven Joyce giving taxpayer's money to his old company - its a case of Steven Joyce giving taxpayer's money to his old company when the modelling showed they did not need it, and scaring his Cabinet colleagues into line with a scare story about TV3 imploding - a threat he knew to be false. Its crony capitalism and corporate welfare, all rolled into one, with a side-dish of lies and incompetence. This is how Steven Joyce, the heir apparent to John Key, operates. And its not a pretty picture.