Cosgrove Clayton: State-Owned Enterprises (AgriQuality Limited and Asure New Zealand Limited) Bill — Second Reading 
Cosgrove Clayton: State-Owned Enterprises (AgriQuality Limited and Asure New Zealand Limited) Bill — Second Reading 
[Volume:639;Page:9217] 
Hon CLAYTON COSGROVE (Minister for Building and Construction) 
 on behalf of the 
 Minister for State Owned Enterprises 
: I move  
That the State-Owned Enterprises (AgriQuality Limited and Asure New Zealand Limited) Bill be now read a second time 
. In speaking to the second reading of this bill I first wish to thank the Commerce Committee for reporting this bill to the House in a short period of time although giving full consideration to the public submissions it received. I am pleased to see a majority report back recommending the bill be passed subject to the incorporation of two additional clauses proposed at the select committee. I will come back to those clauses after briefly reviewing the two key objectives of the bill. 
Subpart 1 of Part 2 concerns directions to AgriQuality. This part permits shareholding Ministers to direct the board of AgriQuality not to provide certain services under the Animal Products Act 1999 without risking a breach of Part 2 of the Commerce Act 1986. AgriQuality indicated in late 2006 that it wished to enter the export red meat inspection market. Currently Asure is the sole player in that market. As the owner of both companies the Government wishes to prevent AgriQuality’s entry to the export red meat inspection market because that would erode shareholder value—in particular due to the potentially large redundancy costs involved. 
I wish to clarify one point in the Commerce Committee report which states: “If the Government issued a direction under the State-Owned Enterprises Act 1986 to prevent AgriQuality from providing export red meat inspection services without merging the two entities the Crown might run the risk of breaching Part 2 of the Commerce Act 1986 …”. Inclusion of the words “without merging the two entities” is not strictly correct as such a direction risks breaching the Commerce Act irrespective of whether the companies merge. 
Subpart 2 of Part 2 concerns the merger. This part of the bill enables a merger of AgriQuality and Asure to occur provided the shareholding Ministers are satisfied that a merger is viable. To enable a possible future merger legislation is required to remove one or both companies from schedules 1 and 2 of the State-Owned Enterprises Act 1986 and consequentially amend a number of other enactments. The bill enables that to occur. 
Public submissions raised concerns that by reducing the prospect of competition in the export red meat inspection market the bill could result in higher prices and lower service levels than would otherwise be the case. The Government has worked closely with United Future to develop a Supplementary Order Paper that incorporates two new clauses to address those concerns. These clauses provide that firstly export red meat inspection prices will be subject to Commerce Commission scrutiny within 3 years of the enactment of the bill; and secondly should overseas regulatory authorities in countries responsible for importing a significant majority of our red meat exports change their policy to recognise the private provision of export red meat inspection services the Crown will review its policy in relation to those services. These amendments combined with the ongoing constraints imposed by the Commerce Act and Asure’s relatively transparent pricing model for export red meat inspection services go a long way towards addressing the key concerns raised during the select committee process. 
Another concern raised during public submissions relating specifically to the prospect of a merger is that if a merger of AgriQuality and Asure takes place it will reduce the amount of competition in the provision of TB testing services until such time as the current contracts expire in 2009 potentially resulting in reduced service levels and higher prices after the expiry of the current contracts. Those concerns are mitigated by the fact that any merged company would be obliged to honour its existing contracts which I understand specify price and quality parameters and by the fact there are other actual and potential providers of TB testing services that are likely to show great interest in the next tender round due in 2009. 
Although the benefits of the merger are still being assessed preliminary indications suggest that the bill will firstly protect and enhance shareholder value through economies of scale and scope and through reduced risk of costly redundancy; and secondly enable a more effective and efficient biosecurity response capability. In short the bill by enabling a merger of the two companies should this be viable will have significant benefits for shareholders and the New Zealand economy as a whole. This bill is critical to maintain and enhance shareholder value in AgriQuality and Asure—companies owned by the Crown on behalf of all New Zealanders. It also enables a more effective national biosecurity response capability. 
The main principles of the bill are designed to firstly enable shareholding Ministers to direct AgriQuality not to provide export red meat inspection services in competition with Asure; and secondly to enable a merger of AgriQuality Ltd and Asure New Zealand Ltd provided shareholding Ministers are satisfied that that is viable. I commend the bill to the House.