State-owned energy companies earmarked for partial sale are generating returns well in excess of the Government's cost of owning them and outperform most similar private sector companies, says a report released just before Christmas.

Labour says the Government delayed the release of the report until after Parliament rose for the holidays because it knew it undermined the economic case for partial privatisation.

The report, by accounting firm Ernst & Young, analysed the "economic profit" of 19 SOEs, including those earmarked for partial privatisation.

Mighty River Power, which will be the first of the three state-owned electricity generators and retailers to be partially privatised, last year produced an 8.2 per cent return on the Crown's $3.48 billion investment.


That rises to 10.9 per cent if revaluations of its fixed assets such as power stations during the year are included.

The "weighted average cost of capital" (WACC) for Mighty River and the two other power companies, which represents the cost to the Crown of owning the companies - including a premium for the risk to the Crown's investment - was 6 per cent.

Genesis Energy, likely to be the second company partially privatised, also produced returns above the WACC, at 6.8 per cent or 9.4 per cent including revaluations.

New Zealand's largest power company, Meridian, did not produce above-WACC returns, returning just 5 per cent because of revaluations associated with the sale of the Tekapo A and B power stations to Genesis and payment of the proceeds to the Government.

Excluding revaluations, Meridian's return on investment was 11.1 per cent.

Announcing his Government's plan to proceed with the part-sales a year ago, Prime Minister John Key said the companies would "reap the benefits of sharper commercial disciplines, more transparency and greater external oversight".

But Ernst & Young's report shows the three companies have performed well compared to their private sector counterparts.

Over the 10-year period which Ernst & Young examined, Mighty River consistently produced a return on investment better than three-quarters of 27 companies in New Zealand, Australia and the US which were used as a benchmark.


Meridian outperformed three-quarters of its private sector rivals in all but one of the past 10 years, and Genesis matched or bettered three quarters in all but two of the past 10 years.

Labour finance spokesman David Parker said the state-owned power companies' strong performance was "no surprise to me".

"This is further proof that these companies are already well run and profitable, and that they're not going to be better run as a consequence of private ownership.

"It further underscores that the only way these companies are going to make more money substantially is by increasing prices."

The Treasury's Crown ownership monitoring unit released the Ernst & Young report on December 22.

Mr Parker said the release of the report just before the Christmas break was a deliberate attempt to minimise its impact.

"It could have been released earlier easily so it could have been commented on in Parliament because it's obviously damaging," he said.

New State Owned Enterprises Minister Tony Ryall issued a statement last night, saying the Treasury portfolio report was released in December every year.


Return on invested capitalReturn on capital excl. revaluations
Mighty River 10.9 per cent 8.2 per cent
Genesis 9.4 per cent6.8 per cent
Meridian5 per cent 11.1 per cent

This story has been changed from an earlier version which said Tekapo A and B power stations were sold to Mighty River.