Mai Chen: Amber light flashing over sales

Mighty River Power has started the partial privatisation process. Photo / Sarah Ivey

The unresolved issue of Maori water rights may yet have an impact on the company's future operating costs.

The implications of the Supreme Court decision dismissing the Maori Council's attempt to halt the sale of Mighty River Power are not necessarily straightforward. Risks remain to the company's free use of water and therefore to those buying shares in it on that basis. While clearly a win for the Crown, the decision was not simply a blank cheque enabling asset sales and instead came with a number of hooks which may yet bite.

While the court was careful to stress the need for Mighty River to be able to continue "effective operations", the court also stressed the need for action on claims to water and that this action should not be "an empty exercise". Substantive options, such as review of existing water permits, were noted.

The court has also left it open over what may happen should the Crown fail to honour the commitment it made during the hearing that the sale process would not be relied upon to argue against Maori rights in water, or if the current reforms are seen to be an empty exercise. It may be that in enabling the part sale of the company to proceed, the court has also created a leverage point for claimants further down the track.

For example, by relying heavily on the perceived protection provided by ongoing work in defining and providing for Maori interests in water, the court's finding has also raised questions for the particular context in which Mighty River Power operates. The risk is that any future resolution of Maori water rights may result in increased operating costs for the company and thereby impact on its profitability. Such risks will inevitably go into the mix when the market gets the opportunity to assess the value of the shares soon to be on offer.

This ongoing work includes the latest Resource Management Act reforms announced last week, the freshwater reforms (building on the recommendations of the Land and Water Forum) which Amy Adams will announce on Saturday - and which the Government intends to implement concurrently with the RMA changes - and negotiations with iwi leaders and individual groups in the settlement process.

As well as the implications for Mighty River Power itself, the court found the structure of the legislation allowing for the sale process meant Treaty principles and protections must apply to the partial privatisation process as a whole. The process relating to the selldown of the company complied with those principles. The finding that the Crown actually complied with the Treaty was limited to just this sale and the particular process and context that applied in that instance.

But the general requirement that the asset sale process must comply with Treaty principles will also apply to any future asset sales, and could be tested on a case by case basis. This general finding must be some consolation for the Maori Party who fought for the extension of the Treaty protections from the current SOE Act into the new legislation. It also means the Crown cannot take the court ruling, giving a green light to the partial sale of Mighty River, as an indication that all future asset sales can simply proceed with no outstanding issues. Instead the court decision isn't so much a green light, but an amber one which signals "proceed with caution".

If, in putting the next SOE on the block, whether Genesis or Meridian Energy, the Crown confuses the specific approval with its general obligations, and fails to properly consult or otherwise have regard to Treaty principles in each particular case, then there is a real risk of each of the further share offers being open to similar challenges. This is particularly so if the next SOE had significantly different interests from Mighty River Power and the Crown's promises regarding water reform do not apply. Hopefully, that analysis is being done now for Genesis and Meridian Energy.

The Crown may be now free to sell interests in Mighty River, but the company's interests in water are an open question for the near future, and there is the possibility these challenges may be repeated with the next SOE to be offered for sale. The Supreme Court decision may have reduced the risks in the process but it has not removed them entirely for those buying shares in Mighty River Power or future SOEs being partially sold down, or for the Government getting the SOEs to sell their shares.

Mai Chen is a founding partner of Chen Palmer lawyers.