Fran O'Sullivan: Labour, Greens push up NZ's risk factor

Opposition seeks to damage Mighty River float, but Govt not planning to call off rest of asset sales programme

Photo / Sarah Ivey
Photo / Sarah Ivey

Mighty River Power and "the Crown" (aka the Government) have poked the borax right back up the Labour and Greens mafia for trying to sabotage the upcoming IPO.

The Greens - hey, let's face it, Labour isn't even the primary driver here; the senior party is clearly playing catch-up as it would not have otherwise agreed to release obviously ill-prepared and absurdly rushed analysis - will not have factored in just how Mighty River Power (and "the Crown") would respond when the company issued its supplementary disclosure document.

Or, the sensible questions that would follow from the words that the legal advisers have generated.

Both opposition parties will be hoping enough potential investors turn off the pending float so they can declare it a disaster.

Otherwise they would not have rushed their combined "policy with specific party differences" into the public domain.

They would have weighed the impact on prospective investors in New Zealand assets, not just the electricity sector; talked it through with sectoral players; and presented the impact of policy changes in the round, not just a simple trade-off between investors and consumers with flossied up analysis which claims all sorts of positive implications for jobs without factoring in the response from investors, who will be jittery about placing their cash in investments they think may become subject to unprincipled policy shifts.

As politicians, Labour and the Greens will hope enough prospective investors will withdraw their commitments to the Mighty River Power float so they are handed sufficient armament to smash the current Government's political face in the mire. That's politics at its most raw.

But neither Finance Minister Bill English nor SOE Minister Tony Ryall plan to call off the rest of the IPO programme.

The ministers will be unlikely to change their primary forecasts for the IPO programme as first, there is plenty of wriggle room in the central forecasts, and, second, there is a degree of uncertainty because of the contract wrangle between Meridian and the owners of the Tiwai Point smelter and the restructuring of Solid Energy.

Less than optimum IPO proceeds could possibly upset the Government's projected track for a return to Budget surplus in 2014-2015. But the Government can always find additional revenue elsewhere or slash expenditure to compensate if the IPO proceeds do not match bottomline forecasts.

English is confident the Budget surplus forecast is still likely to be realised irrespective of the political Opposition's current campaign. The International Monetary Fund managing director Christine Lagarde applauded the Government's fiscal and economic management on Hainan Island just two weeks ago.

The IMF's New Zealand review is due anytime soon. Lagarde has said it would be favourable. The Opposition will be hoping the current imbroglio takes the gloss off English's May 16 Budget.

But on current forecasts, New Zealand is expected to stack up well against Australia, where the Budget track has blown out to the point where that country now faces years of deficits unless strong fiscal management is reasserted.

Back to Mighty River Power.

The combined attempt to monster the Government has a way to go yet before the parties can declare victory.

The Government and the company have acknowledged that the Greens/Labour joint phalanx has introduced regulatory uncertainty through the announcement that their combined intention (if they gain power at the next election) is to enact legislation that materially changes the structure of the electricity industry.

The Mighty River Power prospectus had already factored in the potential for changes in the regulatory environment among the principal risks associated with making an investment in the SOE shares.

The company and Government have now noted: "The jointly announced proposals differ in a number of respects, but a common feature is the establishment of a state agency to act as a single buyer of wholesale electricity from generators ... these proposals are in respect of the electricity industry generally, and are not specific to Mighty River Power."

The coup de grace comes with their observation that the Greens have already noted in their discussion paper that it "will take time to fully implement the single buyer proposal".

"The Green Party's discussion paper states that the MED's 2006 review envisages a two year pre-launch timetable, followed by the single-buyer gradually replacing the existing wholesale market over the following two years." In other words the game won't really shift for five years.

Some prospective investors may be spooked.

But others will see an arbitrage opportunity to buy in at a potentially lesser listing price and make a bet that calmer heads may prevail if there is a change of government, or there is a business-as-usual environment if a National-led government is returned.

The investment community has plenty to say about the way the two parties have rolled out their "policies", and the resultant regulatory uncertainly has impacted on the share prices of Contact Energy and TrustPower. Right now most of the business critique is coming from the investment community - brokers, investment houses and the like.

BusinessNZ's Phil O'Reilly has slammed the proposal as economic sabotage.

But there has been little public response from the prime NZ companies that must access international capital markets to fund their business expansion plans.

Labour and the Greens have arguably pushed up New Zealand's country-risk factor by the way they have trampled over the existing business paradigm.

There is time for cooler heads to prevail.

Debate on this article is now closed.

- NZ Herald

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Head of Business for NZME

Fran O'Sullivan has written a weekly column for the Business Herald since its inception in April 1997. In her early journalistic career she was a political journalist in Wellington and subsequently an investigative journalist who broke many major business stories including the first articles that led to the Winebox Inquiry in both NBR and the Sydney Morning Herald. She has specific expertise in relation to China where she has been a frequent visitor since the late 1990s. She is a former Editor of the National Business Review; has twice been awarded Qantas Journalist of the Year and is a multiple winner of the Westpac Financial Journalism Supreme Award.

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