Fran O'Sullivan on business

Business analysis and comment from Herald columnist Fran O'Sullivan

Fran O'Sullivan: Left's power plan a bid to plug back into office

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Policy amounts to renationalisation of electricity sector

Russel Norman (left) and David Shearer have rushed out their policy to scare the Mighty River Power investors. Photo / Mark Mitchell
Russel Norman (left) and David Shearer have rushed out their policy to scare the Mighty River Power investors. Photo / Mark Mitchell

The ghost of Hugo Chavez is alive and thriving within the Labour Party as it turns its back on its free-market past to buy itself back into power courtesy of the taxpayers' chequebook.

If David Shearer and Russel Norman muster enough votes to win the next election, they say they will toss us all the equivalent of a free 300KW block of electricity, use a new state-owned entity to push electricity prices down across the board so we can all get cheaper power, generously forgo dividends and tax flows from the three predominantly state-owned generators (in other words, run them at a loss) and force the entire sector to split into generating and retail arms if they don't get the required results.

We are asked to believe this policy will also produce 5000 new jobs and generate $450 million worth of new economic activity because two pages of bare analysis on Berl's equilibrium model tells us so.

I don't think so. No one with any residue of grey matter left will believe Shearer's protestations that the timing of this joint announcement has nothing to do with the pending Mighty River Power IPO.

This policy has all the signs of being rushed out with one aim in mind: To spook the private investors (including the many smaller shareholders who are being enticed back into a New Zealand sharemarket, which was on the verge of its own demise a few years back) who are lining up to buy shares in the forthcoming float.

This pre-emptory strike makes good politics for Shearer and Norman.

But the decision to insert a state-owned monopsony - or monopoly buyer - called New Zealand Power between the supply and demand sides of the electricity industry without first undertaking any stringent analysis and submissions from existing privately listed companies like Contact Energy, TrustPower, Infratil and the privately owned Todd Energy really amounts to nothing more than effective renationalisation of the competitive sector.

I shouldn't be surprised at the naked opportunism that is now on offer as some of Labour's own market disciples start trading in their principles for the sniff of electoral power. This was the party that, after all, bribed students with taxpayers' money to get back in the 2005 election.

But what takes the cake is the way the previously ardent capitalist Shane Jones has executed his own about-turn.

The Labour Party regional development spokesman told BusinessDesk he had taken some convincing to abandon the market model that Labour presided over during its nine years in power from 1999.

Jones was quoted as saying he was convinced that lower-priced electricity would create jobs in energy-intensive regional activities such as the timber industry. It would deliver an "equity dividend" for households and businesses by removing some of the profits currently made by power companies.

It's worth noting that Jones - who was a Cabinet minister in the Helen Clark Government - did not call for an "equity dividend" for consumers when the Wolak report found the four big generators had made super profits of $4.3 billion at power consumers' expense. That Government was happy to book the dividends and tax flows for its own purposes.

But what is really instructive from the BusinessDesk report (a good scoop, by the way) is Jones' admission that not only do asset owners need dividends but "politicians need dividends as well".

The report went on to note that to win the 2014 election, Labour needed to move about 5 to 7 per cent of the voting public to favour it.

Jones suggested energy analysts' capacity to "make 5 to 7 per cent of the public hate us [because of this policy] is zero. Our capacity to impress that percentage [with this policy] is infinite".

In other words, the sniff of power is so enticing to Jones that he is prepared to give away the return on state-owned assets to consumers to bribe his party's way back to power. The most he can say is he is honest about that.

I'm not suggesting the workings of the electricity market should not be subject to review. But there is a right and a wrong way to go about this. There is also a price to pay for this arrogant behaviour.

International investors will recall the lack of compensation for Telecom investors at the hands of the last Labour Government.

They will want to know if a prospective Labour-Greens Government has any respect at all for private rights.

On this week's showing the answer is clearly no. Chavez would be pleased.

Debate on this article is now closed.

- NZ Herald

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