Power firms turning backs on NZ: Weldon

Mark Weldon says he was surprised EnergyHedge went with the ASX. Photo / Mark Mitchell

NZX chief executive Mark Weldon says a decision by five power companies to trade energy derivatives on the Australian Securities Exchange is like "shooting ourselves in the foot" when it comes to developing the local capital market.

But John Wood, general manager of wholesale for Contact Energy and chairman for EnergyHedge, which represents Meridian, Mighty River Power, Genesis, Contact Energy and Trustpower, says it broke off talks with the NZX because of concerns over delays in launching its new clearing house and a lack of clearing participants.

Weldon yesterday played down the significance of the energy derivatives trading to the NZX's new clearing house which is due to go live on July 26.

"The main game has always been dairy and agriculture. Energy has always been a 'nice to have'. It won't affect our plans or prospects."

But Weldon said it was disappointing from a markets perspective that the New Zealand companies had chosen the ASX.

"It is really disappointing from a long-term capital markets perspective when there is a focus on developing markets. It's a bit like shooting yourself in the foot."

But Wood said its members had concerns about timing and liquidity in the local market.

"We had gone through a period where we were working only with the NZX, but three or four weeks ago we reached a point where the board was concerned with the progress being made with the NZX and then opened talks with the ASX."

Wood said the board was small and could not sustain two sets of negotiations at the same time. On Wednesday it decided to sign a deal to trade on the ASX.

Wood said the ASX market had at least five clearing participants and the potential for banks to trade.

"The ASX has a wider set of clearing participants and the more we have got into this issue the more we realised the number of participants was critical. As a board we have to be cognisant of that risk."

While it did compare costs of the two platforms they had not varied widely.

Wood said two of the five generators, Meridian and Mighty River Power, were already trading on the ASX market and he expected others to begin trading in the next six weeks.

Weldon said NZX had not been given an explanation for the decision and had been surprised because it had met every timeframe and milestone put forward by EnergyHedge. "We thought last Friday we were pretty much there."

Weldon said the move would make it tough for local institutions to take part in the trading. "The local brokers are not connected to the SFE [Sydney Futures Exchange] platform."

"We listed some option products on that platform and the feedback from everybody was it was a difficult and costly platform to connect to."

Rickey Ward, domestic equities manager for Tyndall Investment Management, said it was costly for local brokers to sign up to the SFE.

He said the Government had campaigned on trying to get more foreign investment into New Zealand but the decision by EnergyHedge, which includes three state-owned enterprises, did not appear to support that.

"It seems not even the Government believes this when they are not willing to invest in their own country which is what this agreement appears to indicate."

The NZX yesterday closed down 3c on $1.58.