The benefits of mixed owners
April 6th, 2012 at 8:02 am by David FarrarThe Herald reports:
State-owned MightyRiverPower wasted around $100 million on an unnecessary hunt for natural gas in the last decade, its chief executive Doug Heffernan told the commerce select committee.
He was answering questions from Labour MP David Cunliffe for examples of decisions the company might not have made, had it been partially privatised. …
Cunliffe and colleague Clayton Cosgrove peppered Heffernan and MRP chair Joan Withers with questions designed to demonstrate the company has operated no differently than it would have as a private listed owned company, despite its government ownership. …
Asked to nominate decisions that would have been made differently, Heffernan volunteered the company should not have spent around $100 million searching for natural gas in the mid-2000′s, when its subsequent strategy has seen the company concentrate instead on geothermal generation.
“We should have stopped earlier, or not started at all,” said Heffernan. “Under private sector disciplines, we would have corrected much faster. From my experience, in a listed company environment, that would not have happened.”
Having private shareholders and the discipline of being a listed company will make a difference. This is in fact the main rationale for the part-sales (in my eyes), rather than the debt for equity swap.
Related posts:
- Cameron on Mixed Ownership Model
- An advantage of listing SOEs
- The mixed ownership debate
- No SOE shareholder will be able to own 20%
April 6th, 2012 at 8:10 am
I’m not sure what’s worse: Cunliffe asking such a inane question, or Hefferman bothering to answer it.
Vote:April 6th, 2012 at 8:15 am
Has it made a real difference to Air NZ? Still doesn’t make any money worth counting.
Vote:April 6th, 2012 at 8:40 am
Something funny here. Doug has been the CEO of Mighty River right from when ECNZ was split into 3 generator SOE’s (as well as Contact and Transpower). If natural gas hunting was a daft thing why did Doug apparently support it. He is either implying that he goofed, the Government ordered the exploration work or an incompetent board wanted this. He seems to be saying that a ‘harder nosed’ board and large corporate shareholders would have steered Mighty River in a different direction, but then would they have supported geothermal development in the late 1990′s or early 2000′s?
Vote:April 6th, 2012 at 8:43 am
Well that article simply highlights that Cosgrove and Cunnliffe are just mugs (repeating their rehearsed anti-part privitisation rhetoric) and have little understanding of how the real business world works.
Also since this all happened in 2005 perhaps the MSM should be questioning the Labour Minister of Energy at the time as to what their rationale was to allow such companies spend vast amounts of money – were there any limits imposed? I suppose the public paid for these activities via the escalating power prices of the 2000′s Labour Helen Clark Administration. Cosgrove and Cunliffe – foot meet mouth.
Also the NZH headline is rather misleading and emotive though, NZ was meant to run short of natural gas in the early 2000′s remember, so no wonder power companies were looking and no doubt under instruction from the Govt of the time to secure NZ’s energy/economic future (and presumably it would take a number of years to survey, seek consent and start work etc). A more honest headline from the NZH would have been something like “A partly-privatised Mighty River would not have wasted $100m looking for gas, says CEO”, there that fixes it for them now where’s my fee?
Vote:April 6th, 2012 at 8:44 am
Peterwn
Vote:I gained the impression that it was politically driven.
April 6th, 2012 at 8:56 am
I don’t think this makes much of a difference at all. Telecom’s purchase of AAPT and Air New Zealand’s purchase of Ansett are two examples of listed companies making appalling decisions. A higher standard of corporate governance is more important.
Vote:April 6th, 2012 at 9:00 am
Can someone explain why a mixed-ownership model is being proposed? What is the benefit to the country of retaining a half share as opposed to full ownership or complete privatisation? It seems to me that it is possibly a politically expedient half-step. May the sort of thing Peter Dunne would relish, neither one thing nor the other.
Vote:April 6th, 2012 at 9:07 am
That’s a fair question MM and hopefully people answering from both sides of the political spectrum won’t resort to wearing blinkers and rhetoric.
I guess one advantage would be that when it comes to infrastructure/capital works investment it isn’t the Govt (ie taxpayer) fronting all costs, just their share.
In some respects it was a pity the Lange administration (and Treasury) didn’t support partial privatisation in the 80′s, instead we got the full flogging off (to put into govt coffers, mind you we were broke) and associated heartache that followed in some cases.
Vote:April 6th, 2012 at 9:32 am
I argue here that partial ownership will make very little difference to how SOEs act. To change the decision making at the top of SOEs you need full privatisation.
Vote:April 6th, 2012 at 9:40 am
Being privately owned didn’t help Pike River, in fact you could argue the opposite.
Vote:April 6th, 2012 at 9:54 am
Being publicly owned didn’t help Cave Creek.
Vote:April 6th, 2012 at 9:57 am
@YesWeDid
Doing some reading you will find that the original (safe and economically viable) design of the mine was opposed by Greenpeace and Forest and Bird. The final design insisted on and approved by Helen Clark, Chris Carter and the Department of Conservation contributed to this mine being unsafe. It was the meddling of ‘special interest groups’ and politicians that made this mine a potential economic failure and a disaster waiting to happen.
Vote:April 6th, 2012 at 10:02 am
Other_Andy You are saying that Clark insisted on only one entrance ?
Vote:April 6th, 2012 at 10:02 am
“…Having private shareholders and the discipline of being a listed company will make a difference…”
..this will also be much of the rationale behind/driving increased prices for consumers..
..bowing to those demands..
phillip ure@whoar.co.nz
Vote:April 6th, 2012 at 10:06 am
@grumpyoldhori
Due to the location, the conditions of the access arrangement required special consideration for the environment, such as a need to minimise tree felling and a requirement to reinstate all above-ground areas after mining ceases. Opponents of the mine strongly criticised the approval of the access agreement, noting that the coal is not intended for domestic use but simply a commercial operation, and thus should not have been allowed to go forward in a sensitive location. Forest & Bird also criticised the fact that the Minister of Conservation chose to ignore the report from the Department of Conservation stating that the mine would be damaging to the local environment. Greenpeace Aotearoa New Zealand also criticised the project for furthering the use of fossil fuels instead of developing sustainable alternatives.
Vote:Those protestations by the green movement and together with the constraints placed upon the operation by the Department of Conservation and its minister (Chris Carter) at the time, meant that Pike River mine was built in a highly unique way, with a method that well may be proven to have led to the build up of gases to such a critical level.
By insisting that the mine entrance be placed outside Paparoa National Park and also, information suggests, veto-ing the boring of a second ventilation shaft because of a blue duck living in the area meant that undue risks were placed on the miners. They had to tunnel from below the actual seam of coal and through more than 2kms under the National Park in order to gain access to the resource. Normally mines are built atop the mineral to be extracted, if normal mining operations are being undertaking, thus boring down onto the resource, but also allowing lighter than air gases such as methane to escape.
This is the only mine in the world that has its entrance BELOW the resource and mines up and towards the resources.
April 6th, 2012 at 11:02 am
Re: Other Andy at 0957 et seq
Hear Hear! Its high time that the Clark Labour Government’s fatal involvement in the planning of the mine by deferring to Green susceptibilities received wide and prominent exposure.
It seems to have been a case of ‘Never mind common sense and good and proven mining practice – lets defer to the so-called and self-styled ‘Saviours of the Planet’.
Well, look at what happened.
Happy now, Greenies?
Vote:April 6th, 2012 at 11:13 am
@ peterwn
Mighty River also wasted taxpayer owned capital on useless/management time wasting projects on harvesting gas from landfills. Stupid green director driver initiatives allow political driven ‘social’ investments to occur.
@ philur
Vote:stupid lefties need to get it through their thick skulls that power prices went up during the decade of labour.
April 6th, 2012 at 11:19 am
You mean the shareholding ministers in the 2000′s wanted Mighty River to finance natural gas exploration and Labour’s stooges on the board went along with it. There are occasions when CEO’s like Doug have to swallow dead rats like this now and again – so it seems Doug was sledging Labour MP’s at the Select Committee. This would make more sense. I remember some concerns about Mighty River expressed by National ministers in 2009, but once rid of dead rats, Doug seems to be delivering what the current shareholding ministers want.
Vote:April 6th, 2012 at 11:56 am
grumpy –
Vote:April 6th, 2012 at 12:07 pm
Peterwn — On another blog I commented that Heffernan was an idiot to raise this waste of money in answer to the question. But now I think you and others maybe onto why he said it –a not so subtle dig at the Labour MPs. But he is playing a dangerous game because in effect he is showing himself up to be a political lackey by “swaying with the wind”. So maybe not a total idiot but he is being stupid.
Vote:April 6th, 2012 at 12:29 pm
While I think it true that partial private ownership will add discipline to (ex) SOEs decisionmaking, I do not see this making a huge difference. Private companies also make big stuff-ups.
What I think is more important is the effect on investors. The share floats will be a wedge for expanding share ownership and rehabilitating the idea of investing in shares – thus hugely strengthening NZ capital markets.
If we (New Zealanders) save more and invest it in building up companies instead of pursuing capital gains in a property market bubble (and borrowing billions from overseas to back that) it will pay off in stronger economic growth.
A huge secondary benefit is retaining NZ ownership of NZ. At present Kiwi demand for shares in Kiwi companies is so low that prices are (relatively) depressed, and ergo tempting targetrs for foreign ownership.
Vote:April 6th, 2012 at 12:47 pm
That’s just peachy s.russell. A model that relies on the taxpayer to create NZX listings, again.
Vote:April 6th, 2012 at 12:55 pm
I think s.russell makes very valid points. One major problem after the 1987 stock market crash was that kiwi investors lost faith in the share markets (and look at the flow on effects – investment nest eggs going into the property boom pricing housing off the market for young kiwi families and of course kiwi investors putting their nest eggs into these finance companies, some of which came crashing down).
If the Lange Administration (and Treasury) supported a mixed ownership model in the late 80′s (and subsequent 90′s) kiwi investors could have put their money into the likes of Telecom (investing in new technology & keeping some of the huge profits in NZ), and restored their faith in the share market.
Sometimes I wonder if the current Labour MP’s ought to rethink their position on partial privatisation and admit they may have got it wrong in the 80′s (but that would be an admission too far so instead they remain in denial about the 80′s reforms and instead play politiking games).
Vote:April 6th, 2012 at 1:08 pm
The Government was right to push Mighty River into spending heavily on gas exploration. NZ undoubtedly has considerable reserves of gas, “natural” (conventional) or in coal seams.
With so few companies exploring in NZ, the Government did the right thing in allowing Mighty River to plough what is essentially public money into gas exploration.
If anything is going to get developed nations out of the energy hole in the near term, it will be either gas or nuclear energy, and being on the edge of the trembling Pacific Plate NZ offers high, but not insuperable, seismic risk for nuclear plants.
According to a BP report early this year growth in shale oil and gas supplies will make the US virtually self-sufficient in energy by 2030 (source – the Guardian 18 January).
With Mighty River on the brink of being semi-privatised, it’s in Heffernan’s interest to paint his record as richly as possible. He’s earning around a million and a quarter a year, and will obviously want to increase that in a semi-privatised company. So Heffernan’s looking after his own interest in highlighting how profit might have been increased in the past (and his incentive bonuses) by not spending money on gas exploration.
Whether privatising Mighty River will be good or bad for NZ is a coin toss, but regardless, National will be unfairly hammered for it, if the semi-privatisation coincides with electricity prices that are surging for other reasons.
In the meantime, lack of local risk investment and Green stupidity will prevent us from tapping into our potentially rich resources of gas on shore and inshore.
Vote:April 6th, 2012 at 1:43 pm
Politicians have no place in running business…never have or will.Full privatisation now….
Vote:April 6th, 2012 at 2:01 pm
Oh please…
The fact that electricity generators are already being run as businesses rather than public utilities is the problem. Looking at your power bill will tell you all you need to know. It’s ridiculous how much we pay for power.
Deregulation/privatisation of telecommunications worked just fine (who would want to go back?). Electricity has been a disaster. It’s just comical how bad it is. The NZED was better and cheaper than anything we have now, despite its many inefficiencies. Why should I have to pay more for power just to indulge the fantasies of the government?
Vote:April 6th, 2012 at 2:10 pm
Electricity was never privatised in NZ….that was the problem. 60% of the generation remained in state hands….. a nonsense. A free market would have privatised the lot and good options like nuclear etc would be able to be considered on facts not green bullshit.
Vote:April 6th, 2012 at 3:35 pm
@Tom Jackson
“The fact that electricity generators are already being run as businesses rather than public utilities is the problem.”
Oh yes, those evil investors, ’businessmen’ and entrepreneurs are to blame. All those faceless bureaucrats, State aparatnicks and politicians know what’s best for us.
You don’t think for a moment that the following hasn’t got anything to do with the high cost of energy?
1. The taxation on energy, in some cases tax on tax (petrol) to fund all sorts of ‘social’ causes and the wet dreams of our local Marxists, often thinly disguised as greenies. While most of these taxes were introduced by Labour (The ‘greens’ would have gone much further), National is no better for not abolishing them.
2. The RMA which in most cases is so convoluted that even the hardiest give up before. Again, while most of this legislation was introduced by Labour (The ‘greens’ would simply ban everything), National is no better for not abolishing them.
3. The Treaty of Waitangi, which stops many developments in its track and if not, claims ‘compensation’ (pay-offs) for the use of everything, from land to water and air. Is it a wonder why so many ‘greenies’ love the TOW? It’s another way to stifle growth and innovation.
4. The opposition of Labour and especially the ‘greens’ to stop any use of or the exploration of natural resources (Oil, gas and coal) in New Zealand. If they can’t stop it through legislation they will resort to
eco-terrorism‘direct action’ with the help of their many affiliate groups.5. The ETS, designed to raise the cost of fossil fuel and force power companies to invest in costly, economically unenviable energy resources.
Nah, of course not.
Vote:April 7th, 2012 at 1:16 pm
There is no guarantee that private shareholders would prevent this sort of wasted investment. No guarantee unless this arose out of political interference which is always possible. It is the Directors who are responsible and they are generally drawn from the same class of people public or private. I am unaware of the Government making overly political appointments to this Board.
Vote: