Consumer on Power SOEs
January 28th, 2011 at 8:46 am by David FarrarThe Herald reported:
Consumer NZ chief executive Sue Chetwin agreed with Mr Key’s assessment that electricity prices would not increase with partial privatisation.
“The power companies over the past 10 years have been rapacious in putting up their prices and I don’t see that making part of the company available for the public to invest in will make much difference there.”
However, Ms Chetwin said companies would become more transparent and would have to explain their actions to the public.
“At the moment nobody really looks at the SOEs [state-owned enterprises] because their shares aren’t being traded. But once they are being traded, the company will have to adhere to stock exchange rules and be much more publicly available.”
Having a company listed on the stock exchange means that it has to be more transparent over what it is doing, and will also require public AGMs where minority shareholders can attend and speak.
There is considerable debate about the value of some of the power companies, and hence what is a reasonable return on their asset base. A stock exchange listing will also proviide a market valuation of the company’s worth.
Related posts:
- Labour on power prices
- An advantage of listing SOEs
- Debunking the lies about power prices
- Grey Power on power prices
January 28th, 2011 at 8:49 am
The sale is ALSO about providing good investment opportunities for people. The Labour Party basically told those people to risk their life savings in Finance Companies which went belly up. Where does the Labour Party think people should invest their money??
Vote:January 28th, 2011 at 9:04 am
And be completely ignored. The government will be the majority shareholder and therefore the boss.
Apparently, shareholders also get to elect the board. Just like in North Korea.
Vote:January 28th, 2011 at 9:18 am
On National Radio this morning David Cunliffe claimed that foreigners would control the power companies even if the Govt still owned 51% of them. It is disturbing that Labour’s proposed finance minister has such a shaky grasp of arithmetic.
Vote:January 28th, 2011 at 9:25 am
Probably the most useful comparison is with Contact Energy. Its current setup is remarkably similar to the proposed setups of the three Government generators, the only difference being the ‘controlling’ Australian interest as compared with the proposed ‘controlling’ Government interest of the three SOE companies. Hence the Contact share value would give a fairly good indication of the market values of the SOE’s.
Vote:January 28th, 2011 at 9:37 am
s.russell, isn’t a 20% stake in a company “controlling” these days? what if an institutional investor, say someone with a shaky track record in delivering consumer satisfaction like Macquarie, were to buy up available shares and gain that? then they get a board seat or two, then they muscle their way in, slowly get more sympathetic directors etc etc.
Not to mention that we, as NZers own those assets already…
Vote:January 28th, 2011 at 9:40 am
It is all academic. It will never happen. The sheeple who elect governments will not have it. A decade of socialism has embedded them to their dead rats and sacred cows (no mining, no asset sell downs etc) and regardless of how illogical it may be, they are not going to allow John Key to interfere with any of it.
John Key should never have signed up to all those dead rats. Now he is stuck with them and all the sacred cows as well.
Phil Goff must be a happy man knowing John Key is determine to try and get re-elected on this platform.
Vote:January 28th, 2011 at 9:42 am
lets hope no other issues ursurp what appears to be “the issue” of election 2011. Its as clear as black and white between red and blue
Vote:January 28th, 2011 at 9:50 am
malcolm>Apparently, shareholders also get to elect the board. Just like in North Korea.
That’s another reason not to touch a government majority company’s shares with a barge pole… You know that within a month of the 2011 election, Goff and King will have resigned parliament and be sitting on the boards along with some National MPs that needed an income so that’d they go quietly and allow new blood to stand in their electorates.
When you’re in a field that is government owned or heavily regulated then directors tend to be people with government contacts and experience manipulating the political process. Not experience in managing a large business or selling things.
Vote:January 28th, 2011 at 9:50 am
There’s a simple way to ensure SOE shares to remain in NZ hands – that’s for those New Zealanders that buy the shares to choose to keep them and not on-sell them. And for those shares that are put on the market – for New Zealanders to choose to buy them.
Vote:January 28th, 2011 at 9:52 am
There are positives and negatives in the move to sell minority stakes. At a political level the government maintaining a majority stake will suppress the price that they acheive on sale but on the balancing side will go some way to appeasing those that think private enterprise will simply increase prices, strip out the cash and leave a debt burdened shambles in their wake. (NZ Rail will be held up by labour and their supporters as a prime example of how priviate enterprise will asset and cash strip an essential infrastructure company leaving the government with no alternative but to buy it back.
The Governance model will be citical if the government are going to convince the majority that this is a good idea. Even this sites poling on the issue to date is not supportive which is a fairly stong signal that Key has a lot of work to do on this issue.
A sideline benefit of selling down chunks of these companies will be to give some increased substance to a struggling NZ stock exchange. $10b of new listings could be a 20 – 25% (I am speculating here and have not checked the numbers before you train spotters get bogged down in the detail) inclease in the size of the NZX which is a huge boost.
This issue and Labours removal of tax on the first $5k whilst bringing back the increase in tax on those earning north of $100k look like being the defining election issues. The sale of state assets is going to provide a launching pad for Winston and NZ First to get stuck into an issue that will fire up the oldies. National are playing a dangerous game becuase if Winston gets momentum on this issue the fact that labour may have weakened their chances with a daft tax policy move the Labour/Green/NZ First model will run National very close at the election
Vote:January 28th, 2011 at 9:59 am
The argument that power prices won’t go up quickly in the future because they did go up quickly in the past is a complete non-sequitur, I’m afraid. Unlike lines companies, whose charges are regulated by the Commerce Commission, generators and retailers are under no form of price regulation. So there has been nothing to prevent prices increasing at rates far faster than infaltion. Whether that is because of the cost of generation, or of the need to fund new generation, or because Government wanted a nice fat dividend doesn’t matter. The point is there is nothing to stop generators charging as much as they like, other than the perpetually elusive notion of competition in the electricity market.
The Government has not suggested that it is going to change this regulatory landscape. So we have to assume that the partial privatisation will take place against the same environment.
So the question is, will private shareholders be satisfied with the returns these compaies are making, or will they look to increase those returns? And if they want to increase returns, will the Government try to stop them?
If I was investing in these companies, I know what I would want the Board to do. Raise those prices sky high, rake in the cash and pump out the dividends.
The problem for the Government is that if it gives any indication now that it intends to constrain the Boards’ right to do this, it will undermine the value of the shares it intends to sell.
Not easy.
Vote:January 28th, 2011 at 10:12 am
NickR>If I was investing in these companies, I know what I would want the Board to do. Raise those prices sky high, rake in the cash and pump out the dividends.
If we had a genuinely competitive market then competition would prevent unreasonable price rises. But competition doesn’t exist when the government owns three quarters of the market. Then boards are free to raise prices to deliver whatever dividend the government requires, which is what they did when Cullen was in charge and needed giant surpluses so that he could spend them all in election years.
If I were the government I’d give all the SOEs away. Divide the shares by 3.5 million and give them to the KiwiSaver accounts of every NZer over the age of 18. People would be happy to see their retirement savings increase by $10 or 20k each, it’d be politically impossible for Labour to nationalise people’s superannuation accounts in the future, and the KiwiSaver fund managers would be able to trade the shares and bring about both genuine competition and market discipline.
Vote:January 28th, 2011 at 10:19 am
Certainly price controls will be an issue moving forward considering the limited capacity of our generators. Sue Chetwin of Consumer is disingenous in claiming power companies have been rapacious in their pricing models, the limited capacity has set powerco’s against each other in a bidding frenzy due to spikes in consumer demand.
Vote:The issue going forward is of investing in new capacity, particularly in the largest market Auckland which is dependent on external supply channels thereby making the city vulnerable to outages as experience has revealed.
There is still a good case for the private sector to invest in new projects in the long term.
January 28th, 2011 at 10:43 am
Yeah because we all know that the primary interest in private business is fairness and community cohesion and never about profits.
You have got to be frigging kidding me.
When national forced Westpower to sell off it’s generation, the community was bent over and sodomised, the sodomy continues today under Trust power.
Vote:John Key has lost my vote.
January 28th, 2011 at 10:56 am
Yeah because we all know that the primary interest in private business is fairness and community cohesion and never about profits.
And for the last four terms of government, the Power companies have really shown their fairness and love for the community haven’t they….
John Key has lost my vote.
Bullshit, he never had it to lose in the first place.
Vote:January 28th, 2011 at 10:56 am
Profits and community well-being are not in opposition.
If you want to live in an economy where “community” is paramount, Cuba is one of the few surviving examples.
Certainly there are examples of bad private companies that rip off their consumers. They tend to go broke pretty quickly.
While not a recipe for nirvana, we have many years of experience that shows us that economies based on lightly-regulated private sector companies do better at providing for the well-being of their citizens than economies based on government-owned enterprises.
Vote:January 28th, 2011 at 11:01 am
Bullshit, he never had it to lose in the first place.
I wouldn’t have said it then would I,
Vote:moron.
January 28th, 2011 at 11:04 am
If you want to live in an economy where “community” is paramount, Cuba is one of the few surviving examples.
You guys are hilarious.
So because I don’t want to be screwed over by greedy power companies I am advocating for a banana republic?
You chaps are just as blinded by right wing ideology as the left wing morons are by theirs.
Vote:January 28th, 2011 at 11:11 am
At least the Government will now have to come clean on the influence of the ETS on these companies and prices to the customers.
Vote:January 28th, 2011 at 11:11 am
“While not a recipe for nirvana, we have many years of experience that shows us that economies based on lightly-regulated private sector companies do better at providing for the well-being of their citizens than economies based on government-owned enterprises”
An exellent example being the NZ Finance Company sector. Whilst over regulation is often debilitating NZ has too many examples of poorly regulated markets enabling the poorly managed, poorly governed and simply dishonest companies having easy access to other peoples funds.
I am a strong advocate of the free enterprise model however a sensible regulatory programme is needed or we end up with the sort of debacle that we have been through with the cowboys running finance companies in NZ
Vote:January 28th, 2011 at 11:16 am
“A stock exchange listing will also proviide a market valuation of the company’s worth.”
Not if you are listing 20% of a company.
It is because of lazy financial journalism that people believe if 20% of a company is being traded, one simply has to multiply 5 times that amount to get the total value of the enterprise.
Vote:January 28th, 2011 at 11:40 am
Shunda barunda : your quote was “Yeah because we all know that the primary interest in private business is fairness and community cohesion and never about profits. You have got to be frigging kidding me”.
My point is that profits and fairness and community cohesion are not an either/or proposition. Private enterprise delivers both.
Government-controlled enterprises, directed at fairness and cohesion alone, without a profit motive, delivers poverty, which is neither fair nor cohesive.
Vote:January 28th, 2011 at 11:44 am
I wouldn’t have said it then would I,
moron.
You’ve barely said a damn thing in support of the National party! And now you expect us to believe you supported them in the first place? Riiiight….
You’re full of shit.
So because I don’t want to be screwed over by greedy power companies I am advocating for a banana republic?
Hey genius, you’re being screwed over by them when they are 100% public owned. How does that feel?
Vote:January 28th, 2011 at 11:52 am
National Radio, for some reason, felt the need to call up Mark Weldon and ask him for his thoughts on the merit of partial privatisation. Can you imagine a single person in the entire country with a greater conflict of interest on that question than him?
Let’s just say he was mildly in favour of the idea.
Vote:January 28th, 2011 at 11:55 am
National are only testing the water at this stage with “partial privatisation”. Still I wonder where anyone who thinks that we are served well by private energy companies has been residing over the past couple of decades.
About 12 tears ago our local power board was scrapped & it’s assets were distributed to it’s subscibers & district councils in the form of shares. Within a short period of time a local sharebrokers firm offered to by the parcels of shares for cash. The district was just climbing out of a recession & many people took up the offer including our scungy local authorities. The buyer turned out to be Powerco who have since offered a substandard patch & repair to keep the now creaking infrastructure going. I would estimate their investment in updating the local network since it’s purchase to be in the order of $150.00 max.
One of the owners of Powerco is USA based Brookfield Infrastructure. They would be one of the likely purchasers of a fully privatised NZ energy company. The quote below is taken from their website.
“Brookfield Infrastructure Partners operates long life, high quality infrastructure assets with high barriers to entry and low maintenance capital requirements that generate stable and growing cash flows”
If that doesn’t read as an instruction to grease up, bend over & grab ankles than what does?
Vote:January 28th, 2011 at 12:12 pm
I think the discussion about Power Companies can be legitimately different to other SOEs becuase of the existance of monopoly lines companies in other areas.
Transpower will still be a monopoly, as will the lines companies. A large section of power price rises is due to these two. In fact a lot of the power companies proceedures are determined by these lines companies.
Myself I’ve spent quite some good portion of my life working the electricity industry and I’m doing a blog series at http://www.thepowerpanda.blogspot.com as it really has some unique workings.
Vote:January 28th, 2011 at 12:32 pm
I think Georgebowling has it right. Private interests are orthogonal to public interest in that they do not necessarily result in poor public outcomes, in fact they Are often improved. But I’d also argue that the reverse is true; public ownership doesn’t necessarily mean a poor return. That said, I support Key’s initiate including the way he is waiting for a mandate to proceed.
Vote:January 28th, 2011 at 1:03 pm
Talking of returns on capital and assets. A power company only has value because of the ability to produce income, or in the case of both government and privately owned ones, the ability to extort cash out of the comsumers, both individuals and other business.
Vote:A dam for example is only a physical device which requires maintaince, and in the long run, dismantling. Physically a liability.
Thus it would be sensible that power companies, given their control of markets and prices, not be allowed to count the physical devices as assets that they can use to justify returns. Capital value is nil.
Combined with a limit on the return they can offer on the acutal assets that should determine the actual power price. Which now we have created these generating devices, should be quite minimal and a fraction of what they are now. they really only need to cover maintaince and operating cost.
January 28th, 2011 at 1:07 pm
This argument that prices will go up under private ownership is always said without any backup. Is there any research around that suggests that prices will go up under private ownership (in whole or in part). I doubt it – so it is just scare tactics.
From my take Telecom has not increased prices overall under private ownership – in fact telco prices have been steadily falling. I accept that line rentals have gone up but that is due to government regulation rather than competition and they are lower where there is competition.
It now costs me less to fly with Air New Zealand than in the past
Contact Energy prices are not out of step with other competitors
Rural Bank went to National Bank (now ANZ) and they cannot charge higher interest rates than their competitors.
It would be good to see some actual analysis.
Vote:January 28th, 2011 at 1:09 pm
You’ve barely said a damn thing in support of the National party! And now you expect us to believe you supported them in the first place? Riiiight….
You’re full of shit.
Oh poor blind little man Bevan.
Vote:Perhaps you should go through kiwiblog archives there captain ignoramus.
January 28th, 2011 at 1:22 pm
Government-controlled enterprises, directed at fairness and cohesion alone, without a profit motive, delivers poverty, which is neither fair nor cohesive.
Does solid energy deliver a profit or poverty for NZ?
Solid energy has a significant presence in the West Coast community, sponsoring sports teams, rescue helicopters, swimming pools etc, unlike the privately owned Pike River that has offered us heartache, and potential financial ruin for Greymouth.
Here is what Don Elder said when they unveiled the Solid energy rescue helicopter:
“Solid Energy is one of the largest and probably the longest established employer on the West Coast, operating a business in which safety and risk management are prime considerations. The safety of our staff, contractors and suppliers comes before any business objective. Our support for the rescue helicopter underlines our own core value of safety before profit and gives the company an opportunity to support a service of great value to our local communities on the West Coast.”
And what does Westland Dairy, the largest single industry on the West Coast do?
Vote:Sweet f@ck all, nadda, nothing, but the tight arse bastards do fill our rivers with shit, drive their tankers dangerously with a mounting death toll, and limit access to rivers and other traditional recreational areas.
January 28th, 2011 at 2:05 pm
Poliwatch @ 1.07pm
1) Telecom have raised their line rental charges to the maximum allowed under the Government’s golden share agreement. In all areas relying on Telecom’s monopolistic copper network, charges are the absolute max the market will bear. To describe their service as substandard would be out & out flattery.
2) Don’t fly so no comment.
3) Contact Energy’s wishlist of charges is reined in by competition from Meridian etc. If they are sold watch for the cartels. Regulation could slow things down but on the SFO’s record to date I suggest you start stockpiling firewood now.
4) The only factor holding down interest rate from levels Shylock would have found usurious is Kiwibank.
I remain unconvinced by your arguments.
Vote:January 28th, 2011 at 2:20 pm
There is nothing, absolutely nothing to suggest that this will work, yet there is a sh!t load of evidence and recent history to suggest it won’t.
It has to be ideology, it makes no sense, this was always the danger of voting for the National party.
And by the way, who cares what ‘consumer’ says, they are the biggest joke out, just read the comments in their product tests online, and the long string of people refusing to renew membership.
Vote:Their product reporting and advice is often just absurd and extremely poorly researched, free sites offer far better product info than their ‘pay’ site does.
January 28th, 2011 at 2:21 pm
Naska is right. I use to think privitising was a way to go until experiencing in California where they privitized electricity companies. My bill went up 30 percent. I was fortunate, in San Diego prices went up 500 percent. Los Angeles county did not sell out and their prices were a lot lower. If you get into stock market exchange, then prices will definately go up. I can remember Contact Engergy saying they were going to give their stock holders a bigger return, then we got a notice our electric bill is going up. Greedy pricks. We changed and our electric bill has been consistently lower. I don’t know how the grids are managed in New Zealand. I don’t think it is a good idea to privatize electricity or water because it is a utulity we all need. Planes and trains are another story. I have a choice. I can ship something by truck or drive up to Aukland.
Vote:January 28th, 2011 at 2:39 pm
Oh poor blind little man Bevan.
My vision is good actually – both eyes working well. Can’t be said for yourself I’m afraid.
Perhaps you should go through kiwiblog archives there captain ignoramus.
Nice diversion fool – you’re still full of shit. Many have trumpeted the same tired line you did, they were full of shit, and you’re full of shit.
Vote:January 28th, 2011 at 2:45 pm
Bevan,
Last election Shunda voted the following:
Party vote: National
Electorate vote: National
I will not be this time.
And I am amazed at the strength of reaction in people I know to this asset sales nonsense, not lefties, or commies, or any other ‘ies’, just people not prepared to repeat the same FUCKING MISTAKES!
Vote:January 28th, 2011 at 3:25 pm
Davidp, yeah that is hard to swallow, but the silver lining is that the boards of most listed companies have bugger all effect on the running of the company – for better or worse.
So it’s either a spent politician who wouldn’t know their arse from their elbow or it’s a good of one of the other board members. Same difference for the long suffering owners (i.e. the small shareholder).
Vote:January 28th, 2011 at 4:02 pm
Last election Shunda voted the following:
Party vote: National
Electorate vote: National
And on the 24th of December I gathered my Reindeer and prepared to deliver toys to all the good little girls and boys……
I will not be this time.
So your going to vote for Labour, and just how far will they send the economy down the toilet? How much debt is acceptable to you? The bankruptcy of the nation? Your so full of shit.
Vote:January 28th, 2011 at 4:09 pm
There are more than 2 parties Bevan.
Vote:January 28th, 2011 at 4:12 pm
Shunda barunda says:
Precisely. One can argue from one ideological perspective or another why it should or shouldn’t work but that’s pitting theory against theory. Thanks to Max Bradford and others who’ve followed his example overseas we now have multiple examples of actual implementation of these policies on which to base a conclusion.
For instance, jackp notes:
Western Australia went down the same path more recently – about four years ago – and prices are already up by 75 – 100% with reports of aged pensioners pegging out due to the heat and not being able to afford to run their air conditioners. I’m sitting here on a 37 degree day with about 90% humidity running mine, thankful I can “afford” to but having already postponed a major purchase in anticipation of crippling power bills (so denying a retailer, wholesaler and manufacturer an income).
Meanwhile as Bevan points out:
Which is very true. But is that the best argument that supporters of further privatisation can come up with: “Meh, we’re already being screwed, so being DP’ed* won’t hurt that much more”.
* If you don’t know, try browsing the titles in the “behind the curtain” section of your local video store.
Vote:January 28th, 2011 at 4:30 pm
Which is very true. But is that the best argument that supporters of further privatisation can come up with: “Meh, we’re already being screwed, so being DP’ed* won’t hurt that much more”.
That logic doesnt fit – the government is not talking about a complete sale – they are talking about selling all but 51%.
There will be no difference, we will be getting shafted just the same.
Vote:January 28th, 2011 at 5:19 pm
@Bevan
We’ll be getting shafted more (by more shafters) though. The retailers are already screwing us, now the rest of the chain will behave the same way.
Successive governments (Labour included, the shameless hypocrites) have gorged themselves on the returns from the electricity market while pensioners froze to death and the rest of us just shivered.
But at least we notionally have a mechanism – democracy – by which society can control the actions of governments and force them to balance factors other than profit (such as not killing off its older members). We can’t, nor should we, control private investors.
As soon as you sell even 1% to a private investor that investor has every right to expect that the enterprise ought to be run with one aim in mind: to maximise the return on its investment through maximising profits. OTOH we, as “shareholders” of the remainder may prefer different objectives be pursued, such as keeping electricity affordable. The two simply aren’t compatible within the one structure.
Vote:January 28th, 2011 at 6:49 pm
Its time a law was brought in to prosecute people who say such scaremongering without any hard and accepted facts. For Phil goff to say
“Mum and dad investors might get the first bite, but they quickly gravitate to the big investors overseas. Everyone knows that.”
and
“recipe for soaring power prices”
without any proof then he should be prosecuted for lieing to New Zealand
Vote:January 28th, 2011 at 7:18 pm
Charlie Brown @ 6.49pm
If a law making lying by politicians a jailable offense ever saw the light of day NZ would be ungoverned. Row upon row of empty seats in the beehive & local body chambers could be rented out for furniture storage.
NZ would prosper as never before.
Vote:January 30th, 2011 at 2:27 pm
Rex Widerstrom as usual has got it wrong again. There is plenty of evidence that electricity prices will fall or rise less fast under a competitive system than they will under a monopoly system, just as it happens in every other sector of the economy.
The proof in the electricity sector is positive in NZ’s case just as it is overseas. If Mr Widerstrom bothered to look at the FACTS on electricity prices after the introduction of competition in 1998, he would see that electricity prices for all classes of consumers fell in real terms from 1999 through 2002. The official evidence is clear, even though it might not suit those blinkered by ideology.
It was only after Labour introduced ham-fisted regulatory measures from 2002 onwards that electricity prices rose steeply – by 72 percent between 2002 and 2008 when they were ejected from office. If anyone doubts me, send me your email addresses and I’ll send you the proof. And that includes Mr Widerstrom, though I doubt he’ll bother to want to study the evidence.
Vote: