Why we should not own commercial competitive companies

February 16th, 2013 at 11:00 am by David Farrar

Jason Krupp at Stuff reports:

says years investing in overseas geothermal projects have given it the confidence to go it alone internationally at a time when Kiwi development opportunities are drying up.

The state-owned energy company yesterday announced it had reached a deal with GeoGlobal Energy (GGE) to withdraw from the GGE Fund after five years.

Mighty River is taking two Chilean development projects and a minority stake in US firm EnergySource with it, currently held by the GGE fund. In exchange, GeoGlobal will take control of the fund’s interest in Germany, and other non-EnergySource related assets in the US.

Mighty River has been a big investor in the GGE Fund for more than five years, with the bulk of the US$250m committed to the venture already invested. It will also pay GGE US$24.8 million (NZ$29.1m) to exit the fund.

“The fund was a way to learn about the international market, and we learned about what works and doesn’t work, and it is timely for us to move on,” said MRP chief executive Doug Heffernan.

NZ taxpayers should not be having their money at risk in a company that is investing in risky projects overseas. I don’t think there is anything wrong with MRP investing as they have. Business always has a degree or risk. Only those with no business experience fail to understand this. They think business is a licence to print money.

The only companies the Government should own are those that provide some sort public service (Radio NZ but not TVNZ) or maybe monopoly infrastructure providers (Transpower – but once could actually have that as a club-type membershp).

Take . That used to be a profitable company. But it has been hit by two major external factors. A drop in the price of coal due to China over-supply and a global move away from coal as fracking has opened up shale gas as an alternative energy source.

If Solid Energy had been sold some years ago, then private owners would bear the risk of the business downturn. There is no strategic reason for the Government to own a mining and energy company.

But now the taxpayer is going to be left having to finance a likely bailout of Solid Energy. Rather than spend money on hospitals or schools, the taxpayer is going to have to bail out a mining and energy company that it shouldn’t even own. I doubt it will ever be sold now – the global market has changed fundamentally. So we will be left with a dog that will cost taxpayers money.

I want a Government that invests in schools and hospitals – not coal mines and hydro-dams. It’s a great pity they were not all sold many years ago.

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31 Responses to “Why we should not own commercial competitive companies”

  1. thor42 (971 comments) says:

    Agreed, with the proviso that I’d go even further and privatise the schools and hospitals too. There is certainly no reason at all for the government to own a coal-mining company and hydro dams.

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  2. tropicana (79 comments) says:

    Shame about the last bit. What are schools and hospitals, if not commercial businesses? And why radio but not TV? Answer in each case is “tradition”, not logic.

    Logic says:
    What if every fifth patient left our hospitals untreated?
    Well this is what we do in our schools routinely.

    What if every fifth customer in a commercial pharmacy left with the wrong medicines?
    Well this is what we do in our schools routinely.

    What if every fifth customer at the car mechanical repair shop left with faulty repairs?
    Well this is what we do in our schools routinely.

    What if every fifth customer at the Mad Butcher left with rotten meat?
    Well this is what we do in our schools routinely.

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  3. Simon Arnold (109 comments) says:

    I think the error in DPF’s logic is he doesn’t understand the difference between investing in propaganda, health and education, and investing in radio stations, hospitals and schools.

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  4. policyparrot (11 comments) says:

    “If Solid Energy had been sold some years ago, then private owners would bear the risk of the business downturn. There is no strategic reason for the Government to own a mining and energy company.”.

    David, the evidence doesn’t bear out your argument. Big companies, for example: Air NZ, BNZ, TranzRail, South Canterbury Finance, have not been allowed to fail at all. In fact the taxpayer has socialised the loss, and privatised the gains. So why not have the state get the gains as well as the losses?

    In addition, the state will also be able to set social policy objectives that would not be possible under a privately held company. And the actions of the entity will be subject to the requirements of the OIA.

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  5. edd (157 comments) says:

    What’s the ideal ratio of state own enterprises to privately owned enterprises in a modern economy? Because as we all know 100% state owned is a path to poverty, but at the same time 100% privately owned is the path to slavery…

    What’s the balance point…

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  6. gazzmaniac (2,307 comments) says:

    edd – arguably 100% privately owned enterprises is the path to freedom.

    the state will also be able to set social policy objectives that would not be possible under a privately held company.

    There is nothing stopping the government from paying a private company to carry out the policy objectives, if that is what they want.

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  7. tvb (4,430 comments) says:

    Your comment that the taxpayer would not bail out a privately own solid energy is a rather optimistic hope. Faced with closing all coal mines would a government do nothing. Lets hope so but I doubt it.

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  8. Anthony (796 comments) says:

    Air NZ should have been left to fail. It would almost certainly have been restarted as a new entity without government money – or for a lot less government money.

    The idea that the government should own and run commercial enterprises is totally nuts. Yes, private businesses need some controls on their behaviour but to think businesses run by people with no ownership interest can generally do better is madness!

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  9. gazzmaniac (2,307 comments) says:

    Air NZ should have been left to fail.

    The government of the day should have allowed Singapore Airways to bail them out, instead of blocking it because of foreign ownership rules. Then it would have cost the government nothing and the company still would have been saved.

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  10. marcw (249 comments) says:

    I don’t agree that our Government shouldn’t own a power company business. Power is an essential commodity, and our community could not survive without it – much like public water supply and sewage disposal services. The political question is, how much of the business should they own? Especially when the infrastructure has been built up using taxpayer and customer resource. I don’t see the logic that owning a radio station is more important for a Government than a power supply. Maybe the SOE power companies should stick to their knitting – providing an adequate and reliable power supply to NZ customers (and taxpayers).

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  11. Fox (206 comments) says:

    The headline to this article should really read; “National Party ETS lunacy claims yet another victim”.

    The only real external force besetting Solid Energy was successive Governments hell-bent on regulating the company into annihilation.

    Were it not for that, we’d have a thriving energy company providing Kiwis with cheap affordable electricity sourced from NZ’s own vast and plentiful resources.

    Instead our vulnerable and elderly will have to shiver through yet another winter faced with some of the highest electricity prices in the OECD, simply so National MPs can prance around at local Beltway cocktail parties claiming how ‘progressive’ and ‘green’ they are, and how thanks to them global temperatures in 100 years time will be 0.001C cooler than otherwise, had they not acted.

    It’s an absolute travesty.

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  12. Tom Jackson (2,553 comments) says:

    Privatizing water and power is in practice, rather than theory, nothing but a rort. The cost of power in nz is a disgrace.

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  13. edd (157 comments) says:

    Gazzmaniac – “arguably 100% privately owned enterprises is the path to freedom”.

    I think the kiwi bank model is the way to go. A hole bunch of private banks and one government owned option giving lower mortgage rates when the government wants them lowered, instead of the cash rate coming down and the government ordering the banks to lower their rates.. One step in the direction of freedom where banks are free to choose their rates and customers can go to kiwi bank for the lowest rates in town… Perfect…

    What about a government owned supermarket chain to compete against the big boys? Any takers?

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  14. Tom Jackson (2,553 comments) says:

    Too big to fail = too big to be privately owned.

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  15. The Scorned (719 comments) says:

    Trouble is Tom…the States dead hand is still clenched around the neck of power generation in NZ….hence the problems.

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  16. Reid (16,491 comments) says:

    Hey if they’ve found a niche in the international market they can exploit what’s wrong with that? I didn’t read anything negative has actually happened so what’s the problem?

    I wish NZ corporations would do this a lot more, export their business model as a franchise opportunity in another market. What’s wrong with that? If it was a dumb business model it probably wouldn’t work, but if this the case I doubt MRP executives would have done this if it was.

    I applaud it. This kind of thinking is Celtic Tiger thinking. If this whole country thought like that Irish thinking was in the 80, 90’s and Noughties, we’d have been leading Australia today, instead of the other way round. And this is just a tiny example of that.

    Like a faint flare briefly illuming on the horizon in the middle of the darkest night you have ever been in. Let’s hope they don’t bungle it.

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  17. Johnboy (16,651 comments) says:

    Hydro dams tend to silt up after a few decades or three. I wonder if the Leftie/Greenie folks that will seemingly form our next (perish the thought) Gummint have thought on that?

    Selling them now to dumb private investors would seem like a good idea. :)

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  18. berend (1,709 comments) says:

    DPF: But now the taxpayer is going to be left having to finance a likely bailout of Solid Energy.

    Hasn’t the government been bailing out finance company after finance company? In NZ the chance of being bailed out are just way, way too high. So not being part of the government doesn’t mean you don’t get bailed out. We just need to have a fundamental policy about who we are going to bail out, why, and when, and stick to it.

    And obviously IMO we bail out no one. It’s called private enterprise after all.

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  19. Johnboy (16,651 comments) says:

    Begorrah. Thinking loike an Oirishman!

    Who’d have thought Reid? :)

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  20. Reid (16,491 comments) says:

    It’s all those poets Johnboy.

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  21. gazzmaniac (2,307 comments) says:

    Tom Jackson – in the four years after National broke up ECNZ and deregulated the market (in 1997), electricity prices actually dropped. That’s measureable in actual dollars, not even requiring one to take inflation into account. The big increases actually happened after the Labour government began to re-regulate the market, about 2001.

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  22. Johnboy (16,651 comments) says:

    Michael Patrick Shamus O’Reid was one of me favourites! :)

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  23. Redbaiter (9,080 comments) says:

    “The only companies the Government should own are those that provide some sort public service (Radio NZ but not TVNZ) or maybe monopoly infrastructure providers”

    “I want a Government that invests in schools and hospitals”

    Two phrases that identify you David Farrar as a disgrace to the founding principles of the National Party.

    All you do when you show support for such ideas is open the gate to the communists, for in respect of the first phrase, it is only a small step to saying that all companies are providing “a public service” and therefore should be owned by the state.

    In respect of the second, it is government “investment” (what a putrid term) in these sectors that allows them so much control over its citizens in other areas. For example, when government controls health it can control (if it chooses) our diet. When government controls education, it can pervert that service to a political indoctrination process.

    You really have no idea of why our freedoms have been lost, and it is because you do not that NZ is now more firmly in the grip of the left than it has ever been in its history. Nothing is being wound back that should be, and it won’t be when key National Party supporters cling to the ideas you have exposed in this post.

    You might as well be in the Labour party.

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  24. Anthony (796 comments) says:

    Quite right Redbaiter – investing in more state owned schools and more state owned hospitals is unlikely to do anything to help the country become more prosperous – or even improve anyones wellbeing.

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  25. Naturesong (23 comments) says:

    Anthony (612) Says:
    February 16th, 2013 at 3:42 pm
    Quite right Redbaiter – investing in more state owned schools and more state owned hospitals is unlikely to do anything to help the country become more prosperous – or even improve anyones wellbeing.

    Quite right!
    There is no difference between a sick ignorant person, and a healthy educated one.
    Except that they tend to be more productive, less reliant on unemployment/sickness benefits and will likely have a greater quality of life.
    Other than that, exactly the same

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  26. Redbaiter (9,080 comments) says:

    The idea that there were no schools or hospitals (and therefore no educated or healthy persons) until we had socialist government is lunacy.

    What socialist government has brought us is derelict education systems where schools and universities are perverted into uncivil and repellent political indoctrination camps, and in health, they have brought us death panels.

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  27. Johnboy (16,651 comments) says:

    Nonsense Red.

    They have brought us fatarse teacher slags that endlessly intone the fact that they are doing their best for the “KEED’s” despite the worst intentions of the folk who pay their over inflated wages.

    When I hear so called dedicated teachers that call their charges “Children” then I may have more respect for them! :)

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  28. Johnboy (16,651 comments) says:

    Their very lack of command of the English language makes a fellow cry!

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  29. Steve (North Shore) (4,564 comments) says:

    The Government’s job is to Govern. It is not the Government’s job to be in business, otherwise it becomes a cash cow.

    Why do you think Labour are screaming their nuts off? That’s what kept the Socialist scumbags in power for 9 years (money for nothing)
    Sell it, sell it, sell it and let the market level. Change supplier or get your own generator – but keep the corruption out of the SOEs.

    SOEs will still be 51% NZ and the Govt will get some, but the Lefties will not be able to milk it as they have done

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  30. emmess (1,428 comments) says:

    I don’t agree that our Government shouldn’t own a power company business. Power is an essential commodity, and our community could not survive without it

    You mean like food?

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  31. mebemeg (3 comments) says:

    Isn’t a hydro-dam some kind of natural monopoly? And therefore isn’t all that competitive?

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