KEY POINTS:
BG Groups's $15.8 billion takeover bid for the parent of Contact Energy throws open the question of whether the Labour-led Government will try to bring New Zealand's only listed power generator back under state ownership.
As the country hunkers down to face another cold winter made more difficult
by the prospect of electricity blackouts, it's a fair bet the Beehive's occupants will again be wondering whether this is the opportune time to get Contact Energy firmly back under state control by buying it from BG Group in a post-takeover mop-up.
There are two basic arguments that would make this move attractive to the Government (although its ability to do much with an election pending might weigh against this prospect).
It would enable the Government to restore New Zealand's integrated electricity system and better co-ordinate moves to offset greenhouse gas emissions without delivering bumper windfall gains to Contact's shareholders at the expense of electricity consumers.
Most analysts believe BG Group's bid for Australia's Origin Energy, which owns 51 per cent of Contact, is a resource play to get control of Origin's major coal seam, gas and LPG assets within Australia.
Under New Zealand takeover laws the giant British group (previously British Gas) must make an offer to Contact's other shareholders if it succeeds in grabbing control of Origin. But many analysts believe BG won't stick around and is more likely to flick its major stake in Contact on somehow. Already there are suggestions that potential buyers could include Macquarie Bank or Hong-Kong based Chinese company CLP Holdings.
But there are a few hoops to pass through yet.
BG will need to gain approval from Australia's foreign investment review board, not just from shareholders, for the acquisition to take place - and the Rudd Government is expected to put its oar in along the way.
There are also obvious foreign ownership sensitivities in New Zealand. Finance Minister Cullen introduced new foreign ownership criteria earlier this year to block the sale of Auckland International Airport. These now require the Overseas Investment Commission to assess whether any foreign ownership application involving important strategic infrastructure assets on sensitive land assists New Zealand control.
The Government will not want to tempt shareholder wrath again by thwarting any potential takeover in the same way - particularly as the electricity-generating asset has already been through two sets of foreign majority owners, the very argument Cullen used to avoid intervention in the sale of Vector's Wellington power network.
But Cullen, a statist at heart, will find himself tempted by the pro- Government-acquisition arguments.
The first argument is that New Zealand would be better off if the country's previously integrated electricity system was restored. That would mean investment in generating assets could again be centrally co-ordinated so that new plant came on stream in time to meet increased demand.
Such an argument would clearly appeal to Cabinet ministers who will face lots of political flak this year if widespread blackouts do occur.
It would also enable Labour to position the previous National Government as a privatisation-mad ogre which left New Zealand exposed to the vagaries of the market, and itself as the political saviour.
This argument is not entirely a nonsense, even though the Labour Government refused to do just this in 2001 when Greens co-leader Jeanette Fitzsimons urged it to buy a major stake off Contact's then major shareholder, which was facing financial problems.
Many prior players in the electricity sector, including then Electricorp chairman Sir Selwyn Cushing, felt the break-up of the then Electricity Corporation into competing generators in the late 1990s was barking mad. They believed the system had been designed as an integrated whole and was just too small to get the efficiencies claimed by the architects of the break-up.
But the previous National Government flicked the then state-owned enterprise into private ownership in 1999, 60 per cent going to the New Zealand public at $3.10 a share and a 40 per cent cornerstone stake sold to Edison Mission, a California-based utility.
All other state-owned assets that made up the old ECNZ (Transpower, Meridian Energy, Genesis Energy and the Mighty River Power Company) remain in Government hands.
As major industries such as Tiwai Point shut down production again, sentiment will swing back towards a central-planning approach.
The second argument is that it would be much simpler to orchestrate the policy shifts required in energy planning, with all the complications that will be introduced to bring the sector into the planned Emissions Trading Scheme, if the Government is once again in the ownership chair.
That would mean the multi-million-dollar windfall gains accruing to all generators as a result of the inevitable power price hikes, which will occur when the sector is brought within the scheme, could more easily be diverted towards funding projects that will cut greenhouse gas emissions.
This argument has had traction behind scenes for some time. But no ownership change option has been presented until now.
There would be considerable support for such a move among Labour MPs and the Greens, who opposed the move by the previous National Government to split Electricorp into competing power generators and privatise Contact.
As already mentioned, in January 2001, Greens co-leader Jeanette Fitzsimons did in fact suggest the Government should investigate repurchasing the major stake then owned by Californian-based Edison Mission when it came under financial pressure.
Fitzsimon's rationale was that New Zealand would be far better off if the country's integrated electricity system was restored and management duplication, with all its attendant costs, stripped out.
The argument has not gone away.
