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Speech by Philip York, Federated Farmers Spokesman

30 November 2009

Speech by Philip York, Federated Farmers spokesperson on electricity, at the launch of the NZIER report on compensation for transmission infrastructure.

"I would like to thank Barry McAlley and his family for hosting us here in Clevedon to launch the NZIER report on compensation for transmission infrastructure.

While I think the scale of what landowners face is out there for us all to see, Federated Farmers does propose a positive way to resolve something that causes frustration for Transpower and unhappiness for a number of landowners.

First, I would like to acknowledge those bodies who have contributed to this study. It is very important because the NZIER report removes emotion and replaces it with evidence.

I would also like to acknowledge Transpower, which has been open and receptive to Federated Farmers and to the NZIER within the limits of confidentiality. We do have our moments but we sincerely hope going forward that we transition away from resentment to a solution that incentivises and rewards the relationship.

I’d also like to acknowledge the farmers who have assembled here today along with the Member of Parliament for Hunua, Dr Paul Hutchison. Welcome.

We are here because landowners, especially farmers, feel they are increasingly under-compensated for transmission infrastructure on, or running across, their land.

The NZIER report is about investigating the economic evidence behind this proposition, so I would like to start with the numbers.

The NZIER has estimated the net benefits to Transpower, considering the costs but also the benefits such as reduced dispute resolution and faster network build, is just $29,000 per year.

$29,000.

I ask you, is $29,000 worth the grief and aggravation that makes lawyers smile, aggravates landowners and slows down the vital upgrade to our national grid?

After all, in the context of the $5 billion capital expenditure that will be invested into the national grid over the next 10 years, we are not talking about a large sum, in fact, it’s less than the cost of a brand new Hyundai i30.

Federated Farmers does not want re-litigation of past agreements. What we want is a positive path into the future for landowners as much as for Transpower.

The biggest increase Transpower will face is adding the cost of payments, with periodic reviews based on the current value of land, into its operational spending.

Yet the NZIER report highlights that lower dispute costs are assumed with annual payments and periodic reviews based on the current value of land or land use. Lower dispute costs and faster resolution benefits everybody.

So let’s look, for instance, at what happens right now with the effect of rising land values.

Over the past 10 years, the increase in rural land prices has been phenomenal. There is no way farmers could have anticipated this when they settled easements, in some cases many years ago.

While not in the report’s remit, our arcane rating system illustrates the impact landowners’face. Many have seen council rates increase in the year to March at almost three times the rate of inflation - an average of 8.4 percent. It’s well known that farmers pay disproportionately more in their rates so that drives us to maximise the return from what is, our land.

Yet the effect of having transmission infrastructure on our land sees us getting less and less over time from the value of any one-off payment to settle an easement. We further suffer from an inability to farm our land at full productivity due to the constraint such infrastructure enforces, yet we are required to pay our rates irrespective.

This means that the financial liability for existing payments, over time, increasingly falls more and more upon the landowner. We get the ‘disbenefits’ but Transpower the benefits.

It has to be remembered that landowners in the past accepted transmission infrastructure as part of the national good. We effectively did our bit for the country as a whole.

Then in the 1980s, Transpower was formed as a private company in state ownership – a state owned enterprise. Transpower has a strong ‘for profit’ incentive to return to its shareholder, the Government, an acceptable return on investment.

Landowners are invariably private businesses too. We have a confluence of commercial drivers on both sides that must now result in a commercial solution.

The NZIER has found landowners will be settling for less than they would like, even if at fair market value, determined by a registered valuer. This is because Transpower has the power to compel landowners to sell. It has compulsory acquisition powers.

The report states that it was difficult to determine whether this is a widespread issue for a number of reasons.

But it does seem possible some settlements do not cover the full cost that easements impose on landowners, as the valuation process may miss some costs of easements on particular properties. This is due, in part, to the absence of other evidence for comparison.

There’s another issue in this as well. As easements move across more productive or versatile land, it’s likely new uses will emerge that increase the value of land totally unforeseen at the time of settlement.

Need I mention the relentless march of urban New Zealand’s expansion onto productive farmland?

The NZIER found it was difficult to determine if Transpower pays the right amount of compensation because settlement agreements tend to be strictly confidential. This creates a paucity of data on easement prices. There were also few sales transactions of comparable properties with and without easements, which could have provided the NZIER with another way to check prices.

Yet, it must be said that Transpower has significant negotiating advantages while lacking strong incentives to be unduly tight.

Unlike private companies that share Transpower’s commercial drivers, Transpower has compulsory acquisition rights by dint of statute. This gives it an unqualified advantage over those it negotiates with. Transpower is experienced at negotiating easements and has the advantage of knowing exactly what it pays for easements.

Landowners do not have these advantages.

This is why the shareholder should require the company it owns to offer annual payments and periodic review as a solution to provide balance.

Not every landowner going forward will take it up, but it’s a vital option to have in the toolbox.

Every New Zealander, us included, recognises the need for Transpower to maintain its infrastructure over a long period of time. As a single container demonstrated recently in Onehunga, we need the lights on.

We are very vulnerable to energy shocks so the $5 billion upgrade to the national grid is absolutely essential. The faster it can be done, the better.

This is where good relations between landowners and Transpower will pay handsome dividends.

Aggrieved people can become obstructive and unhelpful and that benefits no body. Protracted easement negotiations are a symptom that would be cured by negotiating payments with periodic reviews based on the current value of land or land use.

The NZIER report also throws up another tantalising issue. If Transpower pays too little for easements, there is real potential for inefficiency to creep in.

In other words, Transpower starts to build its network based on the easiest means when alternatives exist.

For instance, the efficiency of routing infrastructure along public roads rather than cross country. In such a scenario, it has to work with other utilities and councils, whereas farmland represents a greenfields solution.

Introducing the option of payments with periodic review based on the current value of land or land use could reduce economic inefficiency. By making Transpower plan strategically, rather than use the easiest legal solution, we may see a more efficient network.

Remember, Transpower has the whip hand in current negotiations by dint of its compulsory acquisition powers.

In other countries and jurisdictions, our situation would be addressed by applying a premium to the assessed valuation change – making it less likely landowners will be left worse-off by having to accept an under-priced easement.

Any perceived inefficiency from over-compensating landowners is less marked because the extra costs for Transpower are passed onto its customers and spread so widely that it has negligible overall impact.

As noted earlier, the costs and benefits of undertaking this form of settlement has been estimated by the NZIER at just $29,000.

There’s another big advantage. By allowing for periodic review and revision of the settlement, things unforeseen at the time of the original settlement then come into play. Whether that’s changing land use or developments that directly impact the value or use of land up or down.

Yet, no doubt, there will be some who believe we may be opening up a proverbial can of worms. That farmers and landowners will be seeking to impose their property right on in-ground assets, such as sewage pipes, water mains and the like.

I can put that totally to rest.

Federated Farmers ambition applies only to above ground infrastructure because what runs beneath our farms usually has no impact on the property right or freedoms to farm above ground.

It’s above ground where Federated Farmers feels landowners are not getting a fair deal.

In our mind this is all about setting up a future whereby landowners have incentives to work with Transpower as partners. That by ‘farming pylons’, farmers will have economic incentives to be constructive and welcoming because it is an economic asset.

The fact is, with the impact of inflation, the value of any one-off payment is steadily eroded over time. This sees, over time, the cost of hosting infrastructure being borne by us, the landowners and not Transpower, which benefits economically from the infrastructure.

It’s perhaps ironic that Peter Garrett, the anti-establishment rock star from the Australian band, Midnight Oil, is now the Australian Minister for the Environment. I must say that at least Mr Garrett has the strength of his convictions to put his mana where his mouth is.

I can think of a few New Zealanders who would earn my respect if they did likewise.

Yet I must say one of his songs, The beds are burning, has resonance for farmers and landowners with transmission infrastructure on their land.

If we slightly amend the last line in the following lyrics, our message to the Government and to Transpower is essentially this:

“The time has come
To say fair's fair
To pay the rent
To pay our share
The time has come
A fact's a fact
It belongs to them
Let's pay it right.”
What Federated Farmers wants is for the shareholder, our Government and for Transpower, which operates under commercial drivers, to recognise the best path forward is to offer landowners the option of payments with periodic review.

Farmers are used to, and experienced in, dealing with such arrangements. Whether it’s run-off, contract grazing, share milking or share cropping, this is not alien to us, nor should it be alien to companies that lease assets.

Farmers’ farm for profit and Transpower runs the transmission infrastructure for profit.

There is a natural meeting of minds to be had here. The logic for offering annual payments with periodic review is inescapable. Above all else, it’s actually the right thing to do.

Thank you."

ENDS

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