John Roughan 's Opinion

John Roughan is an editorial writer and columnist for the New Zealand Herald.

John Roughan: Discount the politics and buy

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Labour/Greens unlikely to be elected, or do market mayhem

Mighty River Power will be monitored closely by those who have bought an interest in it. Photo / APN
Mighty River Power will be monitored closely by those who have bought an interest in it. Photo / APN

Investors in Mighty River Power should send the champagne next week to Russel Norman, Green Party, Parliament Buildings, Wellington.

The stock looked a good buy even before he talked the Labour Party into threatening price control on electricity. It looks an even better one now.

We will find out on Wednesday how much their stunt has lowered the price of shares issued to those such as me who have subscribed to the public offering that closed yesterday.

Brokers and fund managers expect the bids from institutions to be at the bottom or even below the range the Government considers fair value. Taxpayers should send the Greens' financial larrikin something else - a bill.

Brian Gaynor has estimated the likely cost to the public purse at $400 million.

When the stock starts trading on the New Zealand and Australian exchanges, probably on Friday, we could begin to see the "significant upside", as they say. But it might take a little longer for the price to rise, as it will when those who were too nervous to subscribe this week reassess the political risk.

Before the electricity market could be replaced with a state-controlled pricing regime, two things would need to happen. Labour and the Greens would need to win the next election, and if they did they would need to carry out this policy. Neither, I think, is likely.

John Key remains the most widely admired of any New Zealand Prime Minister I have seen. National continues to lead all polls by a margin that is remarkable five years into the life of a government.

Unless something disastrous happens, he looks certain to win again next year.

Winning, in the sense of being first past the post, of course, no longer guarantees that a party remains the Government.

But it nearly does. We have held six general elections under MMP and we have yet to see a government formed by a party that finished second.

Market analysts calculating the odds of a Labour-Green victory next year at 50/50, are roughly reflecting the ratio of recent polls that show National or Labour-Green ahead. Democracies, though, have an uncanny habit of getting the governments they want, and we don't seem to like coalitions at all, let alone coalitions of second and third. We have consistently punished smaller partners and let the leading party govern alone for all practical purposes.

We have adapted MMP to our preferences by establishing a convention that the party first past the post has priority in post-election negotiations. If National is the leading party at the next election, that, one way or another, is the government we will get.

Should National go into the election with no partners in prospect, an absolute majority is conceivable. Conventional wisdom says it is practically impossible because it hasn't happened since 1951. But before then, it was not unusual.

Labour won more than 50 per cent of the vote in 1938 and 1946, as did National in 1949 as well as 1951. Since then many have gone as close as 47 per cent, including National at the last election when it became only the third post-war government to be re-elected with an increased share of the vote.

There is nothing magical about an extra 3 per cent. Conventional wisdom is destined to be surprised sooner or later.

It becomes more possible the more often David Shearer stands too close to the larrikin.

Shearer is a sensible man. To enact Norman's scheme or Labour's version of it, he would need to ignore all the economic advice available to him.

Electricity is the prime fuel of every modern economy. It is hard to think of a more important price.

The elaborate market that established a price every 30 minutes at numerous different points on the grid might not be perfect - none are - but it is bound to be better at matching supply and demand than a panel of public servants in Wellington.

Incredibly - and I mean that - this omniscient agency would pay generating companies different prices based on what it reckoned their costs of production to be. That would leave the companies no reason to contain their costs and every reason to increase them.

Internal costs rise because profits are not the only way that people benefit from providing a valuable service. State servants derive benefits in the form of generous staffing and conditions.

State-owned enterprises have not entirely dropped their old departmental culture. The last I heard, Mighty River Power staff were provided with morning tea. It remains to be seen whether Key's "mixed ownership model" makes a difference.

But it should, the shares will be on the market and the company will be monitored more closely by those who are buying an interest in it. I doubt any government will put the clock back. I'm putting money on it.

- NZ Herald

John Roughan

John Roughan is an editorial writer and columnist for the New Zealand Herald.

John Roughan is an editorial writer and columnist for the New Zealand Herald. A graduate of Canterbury University with a degree in history and a diploma in journalism, he started his career on the Auckland Star, travelled and worked on newspapers in Japan and Britain before returning to New Zealand where he joined the Herald in 1981. He was posted to the Parliamentary Press Gallery in 1983, took a keen interest in the economic reform programme and has been a full time commentator for the Herald since 1986. He became the paper's senior editorial writer in 1988 and has been writing a weekly column under his own name since 1996. His interests range from the economy, public policy and politics to the more serious issues of life.

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