Power Company Dividends

I’m very cynical of Labour’s new stance on state owned power company dividends. The reality is that during a period when the Government enjoyed massive and record surpluses, Labour took in hundreds of millions of dollar in dividends.

And then suddenly within a few months of losing office, they now say it is wrong to do so – at a time when the Government is now running massive and record deficits and any reduction in dividends would be far more difficult.

I’m not arguing for the energy SOEs to price gouge – far from it. The sector needs reform. But there does need to be a return on capital that at least matches the cost of financing crown debt.

Labour also seems to be confused about the difference between dividends and retained earnings:

“Labour can and will stop price gouging. We will not demand excessive dividends coming back into state coffers above what is needed for investment in new generation.”

The dividends do not fund investment in new generation. It is almost the opposite. It is the amount of profit that you do not pay out in dividends that is used to fund new generation.

I’ve just added up the total net profit after tax for the six state owned energy companies for the last five years, and they were:

  1. 2004 – $406m
  2. 2005 – $561m
  3. 2006 – $1,230m
  4. 2007 – $622m
  5. 2008 – $451m
  6. Total – $3.27b

So under the last five years of Labour, the state made a profit of $3.27 billion (after tax) from the energy sector. And again, this was at a time of record crown surpluses. I don’t have handy how much was paid as dividends, but people should remember the $3.27b when Labour go on about excessive profits. Over their total nine years, it might be as high as $5b.

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