Adam Bennett

Adam is a political reporter for the New Zealand Herald.

Asset sales bill down to the wire

Opposition parties say power prices will rise under the National Government's partial privatisation of power companies. Photo / file
Opposition parties say power prices will rise under the National Government's partial privatisation of power companies. Photo / file

Opposition parties warned power prices would rise uncontrollably under the National Government's partial privatisation of power companies as the law approached its final stages in Parliament last night.

The Mixed Ownership Model Bill, which allows for the sale of 49 per cent of Mighty River Power, Genesis Energy, Meridian Energy and coal company Solid Energy, was debated at the committee stage yesterday.

A potential part sale of Air NZ is not included in this legislation.

Once the committee stage is completed, the law will receive its third and final reading before passing, possibly by the end of the week.

That would allow the Government to proceed with the sale of Mighty River shares within three months.

"We're getting to the end of what is to most New Zealanders an obnoxious piece of legislation that overwhelmingly in this country people oppose," Labour leader David Shearer said as the debate began.

The legislation would result in "a wholesale shift of property and assets in the New Zealand public's ownership ... into the hands of a small elite of people who can afford to buy shares".

Before yesterday's debate, Labour, the Greens and New Zealand First lodged a flurry of proposed amendments which will inevitably be voted down but are intended to slow the bill's progress.

"Every hour and every day we can prevent it being passed is an hour and a day that the Kiwi taxpayer keeps their assets which this Government is determined to sell," said Labour's SOE spokesman, Clayton Cosgrove.

Prime Minister John Key said that the public, who polls have shown largely oppose the plan, would come around.

"Over time, as they get to see the merits of the overall programme and recognise what the Government's trying to do, which is basically to build more assets for New Zealanders but not put more debt on the balance sheet, and as they have an opportunity to invest, I think they will warm to that. I think it will take some time but I think they will get there."

But Mr Shearer said New Zealanders he had spoken to in recent months said their biggest concern was that the price of electricity would rise.

"We know that the three major power companies are actually well and efficiently run. So the only way you can get an efficient company to generate more profit is by putting up the price."

Greens co-leader Russel Norman said the electricity market remained "deeply uncompetitive".

"So by the Government transferring these assets away from being state-owned enterprises and the ability of the Government to put some pressure on them, what we are guaranteeing is that these companies can freely pursue their right to charge monopoly rates and monopoly prices."

The Opposition has cited figures prepared by independent energy analyst Molly Melhuish suggesting private companies charged 13 per cent more for electricity than their SOE counterparts as evidence prices will rise under partial private ownership.

Energy and Resources Minister Phil Heatley challenged Mrs Melhuish's figures, saying she had not included all underlying factors such as the geographical distribution of power companies' customers, differing line charges and seasonal variations.

Mrs Melhuish last night stood by her figures, which were compiled from official data, and she offered to take Mr Heatley through them.

Finance Minister Bill English, however, dismissed concerns about prices as "nonsense". More New Zealanders than ever were switching suppliers to find the lowest price, he said.

"Does [Mr Shearer] seriously believe that hundreds of thousands of New Zealanders are systematically paying more for electricity than they could?" Mr English said.

Mr Shearer's theory about prices "relies on Labour's belief that most New Zealanders are stupidly paying 13 per cent more for their power than they could if they just chose to pay less".

A bright idea or dark days ahead?
DEBT REDUCTION

GOVERNMENT VIEW
Profits from the sell-off will enable NZ to make better use of capital locked in state-owned companies, while retaining ownership through majority shareholding. The share floats will mean the Government will not need to borrow extra money to pay for assets like new schools and hospitals. With respect to loss of some of its dividends, the Government says that the minority shareholders will be making an up-front cash payment of $5 to $7 billion in exchange for uncertain future cash flows.

DISSENTING VOICES
A sell-off makes no financial sense. Sales are short-term thinking which will result in permanent loss of nearly half of dividend streams. Opponents say sale of shares to foreigners and the loss of dividends overseas will lead to further deterioration in the balance of payments. Labour points to Treasury estimates showing the reduction in interest costs from lower levels of Government debt under the plan does not completely offset the expected loss of dividends. The Crown could be as much as $90 million a year worse off.

INVESTMENT AND SAVINGS
GOVERNMENT VIEW

Increases the range of investment options - especially safe ones - for NZ Superannuation Fund and ACC, domestic institutional investors such as KiwiSaver funds, iwi and small "Mum and Dad" investors.

DISSENTING VOICES
Asset sales are unfair to low-income New Zealanders. Only the well-off will be able to afford shares and thus receive dividends.

FOREIGN OWNERSHIP
GOVERNMENT VIEW

Strict ownership limits enshrined in legislation mean no one investor will be able to own more than 10% of a company. Government also says it is committed to keeping strong "Kiwi" ownership in these companies.

DISSENTING VOICES
Partial sales will inevitably result in foreign ownership of crucial infrastructure. Partial privatisation is a first step on the road to full privatisation.

MANDATE FOR SALE
GOVERNMENT VIEW

The Government says its intentions were well-signalled before and during last year's election campaign.
DISSENTING VOICES
Polls before the last election showed a clear majority of New Zealanders strongly opposed state asset sales. Government thus has no mandate for sales.

OVERSIGHT
GOVERNMENT VIEW

The companies will be subject to the Stock Exchange's continuous disclosure regime. The Electricity and Gas Complaints Commissioner will provide an avenue for complaints. Cabinet ministers will still be subject to the Official Information Act and Ombudsmen Act.

DISSENTING VOICES
Partially privatised companies will no longer be subject to Ombudsmen Act.

PROFIT MOTIVE
GOVERNMENT VIEW

Will sharpen commercial discipline in companies subject to partial share floats.

DISSENTING VOICES
Will end expectations that state companies behave in a socially responsible fashion, and profit will be the driving force. Private ownership could lead to under-investment in crucial infrastructure as new owners seek to maximise profits - as occurred with NZ Rail. An Ernst & Young report commissioned by Treasury suggested the state power companies were already performing better than most of their private sector counterparts in other countries.

HIGHER POWER PRICES
GOVERNMENT VIEW

Companies subject to partial share floats are already expected to act in a commercial fashion. Electricity prices are not constrained by state companies' social responsibility provisions, but by electricity market regulations.

DISSENTING VOICES
Opponents say higher electricity prices are still inevitable as companies seek to maximise profits for private shareholders.

What they're selling
Up to 49 per cent of the Crown's shareholding in state-owned electricity generators Mighty River Power, Genesis Power and Meridian Energy and up to 49 per cent of state coal company Solid Energy. The Government is also planning to reduce its shareholding in Air New Zealand. The airline is already in mixed public-private ownership.

The first public share offer - for a minority stake in Mighty River Power - is expected in the third quarter of this year, "markets permitting".

MERIDIAN ENERGY
Value* $6.3b to $6.7b
2011 dividend to Government: $694m
Staff: 800
Biggest state owned generator.

GENESIS ENERGY
Value* $1.6b to $1.7b
2011 dividend to Government: 0
Staff: 960
Biggest retailer with 670,000 customers.

MIGHTY RIVER POWER
Value* $3.4b to $3.9b
2011 dividend to Government: $95m
Staff: 784
Generates close to 13% of NZ's power.

SOLID ENERGY
Value* $1.7b to $3.3b
2011 dividend to Government: $20m
Staff: 1430
Produced four million tons of coal in 2010.

* Currently 63% of the electricity generation is owned by the taxpayer via Mighty River Power 13%, Genesis Power 18%, Meridian Energy 32%. When National's mixed ownership model is completed that will fall to about 32%.


- NZ Herald

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