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Separate the Power Companies from Natural Resources

Separate the Power Companies from Natural Resources

by Doug Owens
Councillor for Tauranga | Bay Of Plenty Regional Council
16th January 2013

The proposed sale of Mighty River Power is a travesty for the New Zealand general public. It will be a financial windfall for the financial elite and other industry players. The well-off in New Zealand will also have the chance to make some easy money by buying shares and then selling them to foreign buyers in the future. Such investors seem to be the majority of the National Party’s constituency.

Mighty River Power, and other SOEs, claim rights and interests in New Zealand natural resources that are the envy of the world. The value of these companies is totally dependent on their rights and interests in these natural resources. Geothermal and Hydropower energy companies are worth nothing without rights to use water. The sale of shares in effect capitalises the value of those rights.

We must expect that the new private owners, including foreign owners, will fight tooth and nail to extract the maximum value from these resources without regard to the environment, the economic well-being of New Zealand or the social consequences of their decisions. The silent majority in New Zealand should be thankful Maori have given us all more time to think about this sad predicament for our nation.

The duty of the directors of these companies to their new shareholders will be to maximise profits. The directors appointed by the government will be pressured into abstaining from board decisions regarding the regulatory environment as they represent the government which is also the regulator, hence a perceived “conflict of interest”. It is likely that eventually foreign corporates will own the majority of the “free shares” in these companies and control important decisions of the companies relating to environmental and pricing regulations and policies.

The government representatives may need to abstain when a company board considers selling company assets or merging with other companies since the government will have other interests in the other energy companies proposed to be privatised. It is not unlikely that we will soon see these companies merged or sold entirely to overseas dominated interests. Under the current government proposal this would leave our natural resources under foreign entity control without any resource rental or recourse.

Together with the changes proposed to the current environmental regime including the Resource Management Act, the Water Forum, Unitary Authorities and the dismembering of Regional Councils, the privatisation and globalisation of our energy companies severely threatens our control over New Zealand’s natural resources.

To date the profiteering of the previously privatised Contact Energy has been partly held in check by its government owned competitors. Contact Energy’s prices have been shown to be 12% higher than these other companies. What will happen with prices? Surely the private shareholders in these companies will demand their directors lift prices to at least match those of Contact Energy? Surely Contact Energy will then be able to squeeze a bit more out of their customers? Business is business, right? So much for the argument that privately owned companies are more competitive.

I am not against private companies. I am a successful businessman in my own right and I compete and make money.

I am not against commercial competition in the retail, distribution and generation sectors for the provision of electricity in New Zealand.

I am against the effective privatisation of the natural resources that the generation companies depend on. These natural resources are owned by New Zealand. More specifically they should continue to be owned by the government and perhaps shared with Maori customary owners where and when that matter is resolved through the courts.

The “double speak” that “no one owns the water” will be come back to haunt all New Zealanders when we find foreign owners of our power companies insisting they have purchased the right to use and degrade our natural water resources to maximise their profits.

From a business perspective, the ownership of natural resources should remain separately, in the hands of their owners. The owners must control the integrity of their resources and determine a resource rental for their use as water should not be at zero-cost to the power generation companies. The business of supplying the capital, infrastructure and services to generate, distribute and retail the electrical power may well be owned by a mix of others but my view is that power is an AAA+ investment that should be retained and continue to be well managed by the government and certainly not sold as proposed.

If a corporate like Fletchers, for instance, decided to sell half of its business, then this may be driven by several factors. The need to retire debt or for the purchase of better performing assets or to return capital to shareholders. None of these factors are being addressed by the Key Government; these sales are driven by a bankrupt ideology and are unwise, for many reasons including, the further deterioration of the government’s books.

The important issue is that the ownership of New Zealand’s natural resources must be recognised and remain in New Zealand public hands and the power generation companies must pay to use these resources.

The government could easily separate the ownership, protection and resource rental of our natural resources from the business of operating power generating equipment and marketing. Until it does so, selling shares in these companies is economically, environmentally and morally negligent.

Currently, obligations to overseas investors are being cemented into international law through the proposed Trans Pacific Partnership deal (TPP) which is being negotiated in secret. This does not auger well for any of us.

Who is to benefit from the asset sales: –

• Well-heeled National Party supporters?
Yes – easy money from the IPO, flipping shares to foreign corporates.

• Financial market industry players and others having vested interests in the market?
Yes – they make a commission on every share traded or managed, more shares makes them more money.

• Investment Bankers and Lawyers involved in the IPO?
Yes-$300m? $400m?

• Foreign Corporates?
Yes – the right to exploit some of the world’s cleanest natural resources, with profit maximisation being the main goal.

• The Share market?
Maybe – but look what happened to Fonterra. The float of Fonterra resulted in half the new entity being owned overseas.

• Electricity Users?
No – expect higher price rises, to meet increased shareholder dividend expectations.

• The Environment?
No – expect degradation of our natural environment, as companies maximise profits with no requirement for environmental well-being.

• The General Public?
No – sit back and watch as our assets are sold overseas, our electricity prices go up, and our environment is threatened with the ratepayers picking up the tab.

• New Zealand Government Debt reduced?
No – this is very doubtful at best.

Is it not time serious talking on this issue began? We are all entitled to have our positions, but the dismissive attitude to the concerns of the vast majority of New Zealanders, who are solidly against these asset sales, needs to be challenged. Newspaper editors do listen to the general public and very often the public get it right, intuitively, if not on well thought out logical grounds and the next General Election may bear this out.

As for myself – I am driven to write to you and take a public position as I fear for the future of our natural resources under the current government policy and I can only do so much, as a Regional Councillor.

New Zealand has to be smarter with how we own and manage our natural resources or we will see private, mostly foreign, interests control them in the future. The current asset sales program must be stopped now.

ENDS

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