Sharemarket conditions a consideration but investors are expected to snap up utility no matter what is happening

Turbulence on global sharemarkets is unlikely to delay the float of Mighty River Power next year.

The Government said yesterday it would be the first company off the blocks in the controversial sell-down of state-owned energy companies, "most likely in the third quarter of 2012, subject to market conditions".

Finance Minister Bill English said it was hard to anticipate what sort of market conditions would trigger a delay.


"So far we think that, in the absence of very significant events, [conditions] are likely to be reasonably positive," he said.

"The demand for this kind of investment could well be greater when world sharemarkets are a bit more volatile, because these are companies people know about and they are utilities."

State-owned Enterprises Minister Tony Ryall said Mighty River Power had been chosen as the first offering because it had a good record of performance, its chief executive Doug Heffernan was well known to the market and it was a good size.

In uncertain times investors favoured utilities, Ryall said, pointing to the strong sharemarket performance of Port of Tauranga, TrustPower and Vector.

The Treasury cites a survey of Craigs Investment Partners' retail clients in which 89 per cent said they were interested in investing in at least one of the assets earmarked for sale and more than half were very interested or extremely interested.

The Government will legislate to prevent any shareholder other than itself from owning more than 10 per cent of the company.

But when asked why not also legislate a limit on foreign ownership, English said: "It would be a bit difficult to go into a sales process, where you need a bit of flexibility, with some kind of statutory bar in it. That could have quite an effect on the value taxpayers get."

One of the tests the Government has set for the "mixed ownership model" programme to proceed is that the regulatory environment adequately protects consumers.


It was only late last year that it legislated reforms to the electricity sector, flowing from a review headed by Brent Layton, intended to address competition concerns.

But English is confident those reforms have improved the structure of the electricity industry and made it more competitive, pointing to the heightened number of consumers switching electricity retailers.

"These companies have been focusing on having to adapt to a more competitive market with lower electricity demand growth. They have read the signals from Government that there is a possibility of a mixed ownership model and have done a pretty good job of getting themselves in shape," he said.

"Part of the assessment of these companies for the sales process will be investors looking at whether this is a competitive market where it will be hard to grow and there will be pressure on prices - that will tend to push the value down a bit that they are willing to bid - or a market where they can keep sticking up their prices because it is not very competitive."

Ministry of Economic Development data show retail power prices (including line charges) rose 6.2 per cent in the year to August 2011 and a cumulative 31.2 per cent over the past five years.

But analysts say some of the factors keeping a lid on prices recently are temporary.

They include oversupply of generating capacity as projects committed when demand was expected to keep growing at historic rates have come on stream.

And the reshuffling of assets among the state-owed generators has sent them scrambling for customers close to where their new plant is.

English said in the long run the structure of the electricity market and how it was regulated would matter more than ownership to the deal consumers got.