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Gordon Campbell on the Mighty River Power debacle

Gordon Campbell on the Mighty River Power debacle

by Gordon Campbell

Abuse directed at anyone opposed to what you’re wanting to do. Repeated mis-representations of what you said, and did. Not to mention the flat denials that there is a problem, when the evidence happens to contradict your version of events. No, I’m not talking about Aaron Gilmore….but about Bill English, John Key etc over the Mighty River share float. Gilmore is no position to point this out, but his sins pale into insignificance when stacked against the government’s asset sales experiment.

So…. despite all the talk about Mum and Dad investors and revitalising the local sharemarket, only 113,000 New Zealanders have signed up. As the Greens Co-Leader Russel Norman has pointed out, that’s 3% of the population, and almost exactly half the number that signed up for the Contact Energy float. Moreover, those 113,000 amount to barely more than a third of the circa 300,000 New Zealanders who signed the petition opposing the asset sales programme. This is the outcome we get after a throwing a million dollars at marketing the MRP share float to New Zealand investors?

We can take from this debacle a number of lessons (a) the vast majority of New Zealanders simply don’t have disposable income to risk on the sharemarket and (b) they refused to be suckered into re-investing in what they already own. Keep in mind that before this asset sales programme was conceived, it was already known that only about 10% of the population invest in shares. So the 3% who have decided to buy into Mighty River Power are a small minority of a small minority. Even among this minority it is clear most of them (c) regard it as foolhardy to put four energy companies on the market at once and (d) had already soured on their flirtation with Contact Energy and (e) are spooked by what the fate of the Tiwai Point smelter might mean for the energy sector.

Yes, the NZ Power regulatory proposal put forward by the Greens and Labour would also have deterred some investors – but that after all, is only democracy at work. Surely, no one seriously expects there should be a total moratorium on political debate about a contentious issue, purely for the benefit of investors. Oh, this guy evidently did. And this guy. So did SOEs Minister Tony Ryall:

"We can't know for sure but we can surmise that some New Zealanders were intending to take part in the IPO and were scared off by the Opposition's interference…

And of course, all of them present the spectre of the NZ Power proposal on the outcome as being a lost opportunity for all of us, and a cost to ordinary New Zealanders. According to them, it is only by selling out (at a premium) the profitable assets that we already own that the government can continue to afford quality social services. LOL. Saner commentators, such as Carmel Fisher of Fisher Investments, have pointed out that the $2.50 share price is in the mid-range, and shows that the mooted NZ Power proposal had surprisingly little effect.

The worrying thing about the Mighty River Power flop is that the government will treat the selling down of its stake in our energy companies as a politically bad idea – it never made sense on economic grounds - and will now turn instead to Air New Zealand. Rod Oram had a good recent column on this option, and Oram later interviewed Larry Williams about the pros and cons.

As Oram says, the Air New Zealand option would makes (short term) political sense for the government. The fate of the Tiwai Point smelter makes Meridian and Genesis an uncertain bet. Solid Energy is barely in survival mode. By comparison, Air NZ could look quite attractive. As he explains:

Superficially, Air New Zealand would be an easy and attractive float. It is already partially listed; investors, analysts and the public are very familiar with it; and its profits and share price are rising.

But hang on:

But the reality is radically different. Worldwide, airlines are a nightmare for investors. Always have been, always will be. Air New Zealand is no exception. The problem is the industry itself, as IATA, the airlines' global association, described in its extensive 2011 analysis "Vision 2050 - Shaping Aviation's Future". (The report is available at

Aviation is profitable for all the players except airlines, IATA concluded. Aircraft and engine makers, fuel suppliers, airports, air traffic control organisations and a plethora of other providers have made money from the tenfold growth of aviation in the past 40 years. But airlines haven't.

As Oram concludes, Air New Zealand is in a vulnerable position:

Air New Zealand is particularly exposed to these economics because it generates a very heavy proportion of its passenger revenue kilometres on very long, very thin routes, that is ones with small passenger volumes by international standards. For example, 12 extra passengers on an Air NZ 747 at the average fare yield doubles the profit from the flight.

Air New Zealand has already had a brief flirtation with private shareholding and management and that ended quite disastrously: Air New Zealand went bust in 2001, partly due, as Oram says, to the dysfunctional bickering among its private shareholders. As a result – and given the importance of this long range carrier to a trading/tourism dependent nation like ours - the government then proceeded to bail out Air New Zealand, and brought coherence to its management and stability to its financial position. The necessity for maintaining that same degree of government involvement in our national airline in the country’s wider interest, remains unchanged:

Broadening Air New Zealand's stockmarket ownership, even with a 10 per cent cap on each investing entity, runs the risk of attracting hostile airlines with unhelpful agendas to harass Air NZ. The Clark government recapitalised Air New Zealand with $1b of equity, knowing we as a tiny nation at the very end of world routes need a very strong national carrier to ensure adequate international air service.

Regardless, the sharemarket is now reportedly expecting that Air New Zealand will be the next state asset put on the auction block. In which case, we will be playing Russian roulette with the country’s future as a trading nation and tourism destination. And doing so purely for ideological reasons, in order to benefit a tiny minority of investors – in a process that makes no economic sense whatsoever. This morning, as the scale of the government’s Mighty River Power failure sinks in, many voters will be feeling a bit like that waiter in Hamner Springs: angry, abused, and hankering for a just outcome to this whole sorry business.


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