Editorial: Focus should be on smelter talks, not Labour's talk

The dam on Lake Karapiro for the Mighty River Power Hydro-electric power station. Photo / Grant Bradley
The dam on Lake Karapiro for the Mighty River Power Hydro-electric power station. Photo / Grant Bradley

Potential Mighty River Power shareholders have had plenty to digest and dissect since the prospectus for the part-sale of the state-owned enterprise was released this month. Uppermost in their minds will have been uncertainty over the outcome of negotiations between the owner of the Tiwai Pt aluminium smelter and its electricity supplier, Meridian Energy, and the possible long-term ramifications for power prices.

Now, however, just as the shares go on sale, Labour Party leader David Shearer has lobbed another imponderable into the equation. Labour, he said, would shake up the electricity market when it was next in power.

Inevitably, Mr Shearer will be condemned for the timing of his comment. He will be accused of spitefully seeking to undermine the sale process. But the Labour leader is right to have spelled out this warning to possible investors.

They need to have such information to assess its importance in the overall picture of the share offer. This is particularly the case given that the prospectus is relatively bland. In the case of the Tiwai Pt negotiations, for example, it offers only that a significant reduction to operations at the smelter or even closure "could lead to a sustained reduction in electricity prices in general".

Mr Shearer said Labour's intention was "to make changes to the electricity sector to stem the relentless rise in power bills and to ease future pressure on prices from foreign investors looking to boost profits at the expense of consumers".

Electricity prices in this country have been rising faster than those in major competitor countries, he noted. Mr Shearer said Labour's proposed changes would be detailed "in the near future". That is frustrating for those interested in buying Mighty River shares because they are left to guess at Labour's intentions and their likely impact.

Most obviously, and most perilously for Mighty River's share price, is the possibility that Labour sees strict regulation as the best way to restrict the rise in power prices. It seems unlikely, however, that Mr Shearer would be this foolish. Such a move would amount to an admission that the splitting of a state monopoly into a market supplied by four main generating companies was fatally flawed. That is, obviously, not the case. While the four have been accused of exploiting their power, the fact that the market has never produced a power failure tells its own story.

Any changes contemplated by Labour should be all about creating optimum competitive pressure. Customarily, this does not come easily but the benefits for consumers can be substantial, as the telecommunications market has illustrated. Even if there were to be some intervention in the electricity sector, it should be a temporary substitute for competition while facilitating its development. This happened in the British electricity sector. As such, Mr Shearer's warning should not be one that strikes fear into the heart of Mighty River investors.

In the three weeks that they have to apply for shares before an expected listing on May 10, the eyes of the 440,000 people who pre-registered their interest in buying shares and those whose interest has been piqued belatedly should, therefore, be focused elsewhere.

Talks that have resumed in Wellington between Meridian and the owner of Tiwai Pt are likely to have far greater influence on Mighty River's prospects. Meridian has said already that it considers a new electricity contract "unlikely", while a Government emergency subsidy offer has been spurned.

The negotiations are due to run for a week, after which the situation will, hopefully, be much clearer. Certainly, potential Mighty River investors must hope so.

- NZ Herald

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