Idiotic? Perhaps not.

Optimal financing for the Christchurch rebuild involves a mix of spending cuts elsewhere, debt now, and future tax increases. But what about asset sales? Gordon Campbell says forcing Council to divest assets would be idiotic: you'd only get fire-sale prices in the current environment. 

Big picture, he's almost right. Unless privatization comes with an increase in firm profitability, there's an equivalence between the value of the flow of dividends coming from the asset and the selling price of the asset. In that case, fire-sale prices reflect the real reduction in value that comes from holding a damaged asset: it's worth less either to Council or to a private firm. So it doesn't make much difference whether Council borrows against the flow of earnings from its holdings or sells its holdings. It's not idiotic to sell off assets, but it doesn't do a lot of good. Unless the privatization increases value. Or, unless Council faces financial market constraints on borrowing. I'd explored things in more depth a year ago.

So I'm not sure there's much case for selling off the Council's power lines company, Orion. We'd have to replace monopoly Council ownership with regulation of a natural monopoly; I can't see a whole lot of gain to be had either way. It's sure not the first place I'd look for potential privatization.

But what about Lyttelton Port of Christchurch? An insurance-funded rebuild of the Port's capital stock could put it in better shape than it was prior to the earthquake; there's a good case to be made for privatization bringing efficiencies to port operations. It's (as best I understand things) the threat of those efficiencies that had Port Otago block Christchurch Council Holdings' attempt to sell the port to Hutchison Port Holdings five years ago. It wouldn't be crazy to argue that Council might never get a better price for the Port than when it's all bright and shiny with fresh infrastructure, so long as LPC is able to get insurance settled. If the Port can earn greater returns under private ownership than under Council ownership, then privatization is far from idiotic. At latest share prices, it's worth about $200 million.