Home > The Body Politic > Asset Sales: two down, three to go!

Asset Sales: two down, three to go!

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Oh dear, National seems to be in a spot of bother over it’s planned partial privatisation of  five SOEs…

Earth, Air…

One state owned enterprise, Solid Energy, appears now to be off the sales list. According to Finance Minister Bill English,

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Full story

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On top of that, there appears to be a real questionmark over the sale-value of Air New Zealand, as well, according to outgoing chief executive Rob Fyfe,

However, outgoing chief executive Rob Fyfe has said he would be “surprised if the Government would be wanting to sell” at the current low share price.

The company was in the midst of a “cyclical low” on its share price, Fyfe said in June.”

See: ibid

Fyfe is correct.

A look at Air New Zealand’s recent and longer term share price history shows that it has been badly affected by the Global Financial Crisis (GFC).

In 2007, Air New Zealand’s share price stood at $2.47 a share,

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Source: Google Finance – Air New Zealand Ltd

At the end of trading (22 Aug), today, that share price stood at 92.5 cents each. That’s a loss of  $1.545 per share,

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Source: Google Finance – Air New Zealand Ltd

In fact, the share price dropped from 94.5 cents a share yesterday (21 Aug) to it’s current level of 92 cents.

Looked at another way; it’s like having your home valued at $247,000 in 2007, prior to the onset of the GFC – and having it valued at only $92,500 today.

Not a good environment to be a seller.

NOTE: It is interesting that, of all the SOEs, Air New Zealand is the only one that has a small, privately-owned component. The state owns 73.13% of Air New Zealand, other investors own 26.87%.

See: Air New Zealand – Shares on Issue

This situation is a ‘quirk’ of Air New Zealand’s re-nationalisation in October 2001, when it faced collapse under a massive $NZ1.425 billion operating loss incurred by then-private owners.

See: Wikipedia – Air New Zealand, Re-nationalised era

So it’s current share value is a relatively true reflection of it’s present market-value.  There is no “guesswork” involved, as Bill English revealed in February this year, with the other four SOEs,

See: English admits his SOE figures just a guess

Helluva way to run an economy…

Most sane people wouldn’t sell at such a ridiculously low price and would wait for the market to recover.

However, despite misguided belief, National’s commercial nous is vastly over-rated. In fact, some of their commercial decisions have been absolutely apalling.

The most famous being that these assets – especially the power companies – actually return a higher dividend to government than would be the cost of borrowing that same money. As BERL reported in May,

Partial asset sales will do nothing to curb New Zealand’s growing debt problem, a new report by economic analysts Berl says.

The Berl report, commissioned by the Green Party and released today, says the Government’s partial asset sales programme to build new assets would leave the Crown accounts ”permanently worse off”.

Government debt, the ratio of debt to assets, net worth and total assets would all be worse off after the programme was carried out, Berl found.

”The interim loss of earnings resulting from reduced dividends and the period of time before the new assets reap benefits is never recouped,” the report said.

”Subsequently, the option of asset sales can only significantly improve the Government’s accounts if a set of assumptions are adopted that are at the extreme ends of plausibility“.”

See: Asset sales will leave Govt worse off – BERL

Madness.

The up-shot?  Unless the global economy stages a miraculous recovery in the next two years (about as likely as The Second Coming or Klingons camping out in my backyard),  and National ministers are dumber than I thought, Solid Energy and Air New Zealand can be scratched from the privatisation agenda.

Added to this, is a brewing toxic mess involving commercial interests and  Treaty claims over water rights…

Water…

At the beginning of August, Key realised that the partial-sale of SOEs was not going to go smoothly.  Until now,  state owned power companies were exploiting water resources for the benefit of the nation as a whole.

Maori were content with that status quo; for as long as no one owned the power companies – they were owned by us all – the same could be said of water.

But the moment that private ownership of  hydro-power generation was mooted – the situation changed. Water would be used to generate power, which would be sold, and would deliver profits to private owners.

Saying that “no one owns the water” that hydro-power stations use is akin to saying no one owns the coal or gas that are used in coal-powered and gas-powered stations.  Ridiculous.

The Waitangi Tribunal will shortly be delivering it’s response to Maori Council claims over water rights.

Most likely, the Tribunal will find in favour of Maori. This blogger can conceive of no reason why this should not happen, and just as land can be owned – so can water rights.

It’s a bit late-in-the-day for capitalist National voters and politicians to now be claiming socialist principles of  “collective ownership”. That just ain’t gonna wash, Jethro.

If National over-rules the Tribunal findings, then Maori will go to Court – the High Court to be precise. Of all Pakeha institutions, Maori have a great affinity for the legal system. They know how to use it for greatest advantage.

Going to Court will have one result; a lengthy delay in the asset sales programme.

On 22 August, National admitted what the rest of us already knew,

The Government says it is going to have to start making judgments about how much of its partial asset sales programme can be completed in this term of office…

[abridged]… Finance Minister Bill English says the Government also has to deal with other issues, such as the Waitangi Tribunal report on water rights relating to the partial sale of Mighty River Power, and possible legal action.

Mr English says he is not taking it for granted that the Government will be able to complete the full programme this term. “

See: Govt less bullish about partial asset sales

Fire…

And as if that was not enough to put a spoke in the wheels, two corporate interests have recently made announcements that could have a significant impact on share prices for the remaining three SOEs; Mighty  River Power, Meridian, and Genesis.

Norske Skog Tasman

Norske Skog Tasman’s plan to halve newsprint production at its Kawerau mill will have implications for the power generation industry if it goes through with it, says an industry analyst.

The company, which accounts for about 2.9 per cent of New Zealand’s power demand, is looking at cutting its annual production to 150,000 tonnes from 300,000 tonnes because of dwindling domestic and offshore sales.

The analyst, who requested anonymity, said the partial closure would further extend the “significant” generation over-capacity in the New Zealand electricity market.

A 50 per cent reduction in Norske Skog Tasman’s electricity demand would equate to about one year of demand growth estimated in Ministry of Economic Development forecasts. “

See: Paper mill cuts threat for power industry

By coincidence, Norske Skog buys most of its power from Mighty River Power, which is the first SOE that National  plans to partially privatise.

Any potential “mum and dad” investors may be warned off from investing in MRP shares. If  Norske Skog proceed with their plans, power consumption will decrease dramatically – and so will profits.  Which will mean a cut in dividends paid to shareholders.

Tiwai Aluminium Smelter

Perhaps the ‘nastiest’ surprise for National and it’s Dear Leader was this announcement on 11 August from multi-national conglomerate, Rio Tinto,

Meridian Energy’s announcement that it had been approached by New Zealand’s biggest power user, Rio Tinto, to discuss potential changes to its supply contract has created uncertainty for the Government’s plans to partly privatise the three power generators, analysts said.

State-owned South Island power generator Meridian said it had been approached by Pacific Aluminium, a business unit of Rio Tinto, the majority shareholder of New Zealand Aluminium Smelters (NZAS), to discuss potential changes to the electricity contract with the smelter.

The statement comes a time when Rio Tinto is assessing its options for the NZAS smelter at Tiwai Pt.

Tiwai takes about 15 per cent of New Zealand’s electricity, so the prospect of changes to the contract between Meridian and Rio was enough to send Contact Energy’s share price down 20c to $4.80 on Thursday.

Few in the financial markets expect Tiwai Pt to close, but if it did, much more power would be added to the national grid, depressing prices and affecting the profitability of all the power generators. “

Rio Tinto’s announcement immediatly  sliced 20 cents off  Contact Energy’s share price. What will it do to the three state owned power companies?

It’s hardly surprising, really. Everyone else appears to be putting their hand out, or up, to gain benefit from the asset sales – why not multi-national corporations who are already parked here in our country?

The Herald report goes on to say,

Morningstar analyst Nachi Moghe said there was ongoing concern about the feasibility of Tiwai Pt and the possibility that it might eventually shut down.

“Obviously, if that happens it will hurt everyone, but it will hurt Meridian the most,” he said.”That additional supply will throw the supply-demand balance out of kilter.”

One fund manager said the news was a “bolt from the blue”.

In the contract negotiations, he said, the pressure could go on Meridian to reduce its price, or to reduce the volume of power it supplies, which would have an impact on the wholesale electricity market.

“It’s poor timing but great timing on behalf of Rio Tinto as we go into the mixed ownership model process,” said the fund manager, who did not want to be identified.”

See: Smelter power review ‘bolt from blue’ for asset sales

Rio Tinto appears to be exploiting current uncertainties and confusion in  the current  environment.  As pressure mounts on National from every direction, this appears to be an opportune moment for corporations to start  flexing their own muscles.

Just what the Nats needed – their own corporate allies to shaft them at the worst possible moment.

Capitalism. Ya gotta laugh.

Weather

And the most critical factor to impact on the electricity generation industry: the weather.

This is something that even the “invisible hand” of the free market is utterly powerless to influence. Meridian’s profits have already been affected,

The worst inflows into its hydro lakes for 79 years took a toll on Meridian Energy’s earnings in the year to June 2012.

The state-owned generator and electricity retailer yesterday reported a net profit after tax of $74.6 million, down from $303.1 million the year before.”

See:  Dry year helps knock 28%  off Meridian profit

At this point, Dear Leader John Key might be starting to wonder. With all these ‘forces’ ranged against his Party’s plans to flog off our state assets – perhaps the Fates are trying to tell him something?

What next?

This blogger is surprised that China and Australia – both nations with which we have Free Trade Agreements – have not put their hands up to line up and buy shares.

After all, that is what FTAs are about. Legally, we might not be able to stop them.

Will we be hearing from our Chinese and Aussie cuzzies next?

Watch this space.

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Additional

Tiwai Pt threat could delay Mighty River sale

Energy float may turn into a s(t)inker

Other blogs

No where to go on Maori water rights

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= fs =

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  1. 23 August 2012 at 1:11 am

    Summarised beautifully Frank.. Just came from Switch Off Mercury Energy meeting earlier, where planning, researching and ‘testcasing well into next doing stage.. This with regard to MRP who 100% own Mercury Energy.. Ooops to a less than loyal dwindling customer base via their own industry shafting them while marketing Power Switch too as are we think we are on a roll!

    Our stated aim to educate persuade, cajole, assist 100,00 why it will be a two-fold win win if consumers would switch from Mercury TO Any Other Provider.
    a)to help themselves B) the rest of us. Do think of changing, to anyone EXCEPT the already privatised Contact Energy..
    Actually probably only need to swing 50,000 ish to effect another massive ((DING)) In the Asset sale hull…;-)
    JUst thought we’s let you know “-) Or has Cubic Corporation already beaten me to it?

  2. Shane Hayes
    23 August 2012 at 1:14 am

    Things are looking up! … with these things going down.

  3. Shane Hayes
    23 August 2012 at 1:19 am

    Every little bit is a win for NZ.. it’s beginning to look like bigger bits are falling off the Asset sales program.

  4. Robbie Kaiviti
    23 August 2012 at 1:50 am

    It is well for New Zealanders that this lot can’t organise a piss up in a brewery Frank.

  5. 23 August 2012 at 2:10 am

    Summarised beautifully Frank :D.. Just came from Switch Off Mercury Energy meeting a little earlier, where planning, researching and ‘testcasing’ is well into next *doing* stage..
    This with regard to 1st asset officially, MRP who 100% own M
    ercury Energy.. Ooops to a less than loyal dwindling customer base via their own industry shafting them while marketing Power Switch too. anyone else think we may be keeping on a roll, but some still working tirelessly to do that may I add!

    Our stated aim to educate persuade, cajole, assist 100,00 why it will be a two-fold win win if consumers would switch from Mercury TO Any Other Provider.
    a)to help themselves B) the rest of us. Do think of changing, to anyone EXCEPT the already privatised Contact Energy..
    Actually probably only need to swing 50,000 ish to effect another massive ((DING)) In the Asset sale hull…;-)
    JUst thought we’s let you know “-) Or has Cubic Corporation already beaten me to it?

  6. fury12
    23 August 2012 at 6:55 am

    Kiaora. I’ve been looking at the ‘first cab off the rank’, for partial sale, so to speak.

    Mighty River Power appears to me to be investing, developing, exploring and concentrating more in its renewable energy operations, i.e. geothermal energy, which the SOE refers to as a “Game-Changer”.

    http://www.mightyriver.co.nz/Media-Centre/Media-Releases/PDFs/2011-PDFs/AnnualResultFY11_AnalystPresentation_FINAL30-08-11.aspx

    Mighty River Power as you will read, was and still is, the significant backer of a “privately held, geothermal investment and development company,” called GeoGlobal Energy LLC and this company is “focused on the worldwide development of geothermal resources.” They [Apologies, I mean we the owners of the said Mighty River Power assets], they [MRP management], also state on OUR behalf that complementing OUR strong earnings base is OUR international geothermal growth investments in the USA, CHILE and GERMANY.

    http://www.geogloballlc.com/News.aspx

    Mighty River Power’s 2011 Annual Report opens with this statement, “2011 has been a year of quality and focus. Our results show a new quality and strength in earnings and shareholder returns.This quality is built on a clear strategy, on the calibre and commitment of our people, enduring commercial partnerships and involvement in our local communities. Our focus on growing value in Mighty River Power is creating a positive change in New Zealand’s energy mix and opening up new opportunities – for high-value skills, informed capital and growth for our economy.”

    Performance Highlights

    11.4% Total Shareholder Return in FY2011, reflecting a 16% lift in underlying earnings, and growth in the Company’s value.

    $110.4m Dividends for the year, up $24 million or 28%. Interim dividend of $64.7 million and final dividend of $45.7 million.

    6,833GWh Record total electricity generation, up 17% on 2010, with increased contribution from new geothermal plant and better hydro conditions.

    96.5% World-leading availability of 140MW Nga Awa Purua geothermal plant in first
    full year of operation.

    US$160m Deployed to international geothermal investment at year-end from current
    US$250 million commitment to GeoGlobal Energy (GGE) Fund. Projects across eight
    reservoirs in the US, Chile and Germany.

    http://www.mightyriver.co.nz/PDFs/Results/Annual-Reports/Mighty_River_Power_Limited_Annual_Report_2011.aspx

    I am very much pro-renewable energy if it means GOODBYE to DIRTY FOSSIL FUELS and I am yet to be convinced that ‘Fracking’ will not impact negatively on our freshwater in fact on ALL our resources and our environmental safety and well-being as well.

    I don’t for a moment believe that John Key and his band of ‘blue-nosed brothers and sisters’ are acting in the best interests of the Public, who are the LEGITIMATE PROPRIETRY INTERESTED Owners of the Assets and THE WATER…and I don’t just mean MAORI either.. A tatou katoa (All of us New Zealander’s).

    Key and English are using that tiresome old excuse of partially selling to buy other new assets and to service debt…Rubbish! Its to open the door to foreign investors, the republic of china already gets a free swipe card into OUR KAINGA OUR HOUSE (parliament), i.e. VECTOR aka Nicholas Albrecht – government relations manager for infrastructure company Vector.

    http://www.stuff.co.nz/dominion-post/news/politics/7349554/Lobbyists-with-free-access-to-Parliament-revealed

    Frankly Speaking…The hefty dividends that Mighty River Power has been paying to its ONE and ONLY SHAREHOLDER…Some should have been used to BUY ROAD BOMB PROTECTIVE MILITARY VEHICLES!! Commander-in-Chief-Chicken-SHITE!

  7. Mick
    23 August 2012 at 8:13 am

    The best approach to the Key Government seems to be do nothing ! Everything they propose self destructs from the inside !

    It’s like John Key is channeling George W Bush .

    • James D
      23 August 2012 at 9:20 am

      they probably have the same masters

      • SpaceMonkey
        23 August 2012 at 1:15 pm

        They do.

  8. Craig Coffee
    23 August 2012 at 8:29 am

    Nice blog Frank

  9. 23 August 2012 at 10:25 am

    Actually, its Karma, she knows the people do not want the assets sales so she is making life very hard for the Nats…. if I were John Key, I’d end poverty and watch Karma work in my favor… for once.

    • James D
      23 August 2012 at 10:36 am

      I’d like to peek inside his head, would he even believe in Karma? The ruling class are just as socially conditioned as us except their type of conditioning is slightly different in that they are taught how to manipulate the system for their own gain to maintain their status.

    • SpaceMonkey
      23 August 2012 at 1:20 pm

      I wonder if it simply group consciousness at work. The majority don’t want the asset sales and so the universe is reflecting that and creating it… just as we requested. The intention and desire has been stated… now we watch the sales collapse, our collective consciousnesses willing it on. Just a thought… :)

  10. 23 August 2012 at 10:49 am

    lol their incompetence is funny

    • Toko Saito
      23 August 2012 at 12:52 pm

      Well thane its good to know they cant sell two of the electricity companies only 3 more left but having read franks post jk may never get to selling any of them so smiling happily away to myself kind of best thing to hear since this debacle started n all nzders should be rejoicing, without proper media coverage, thankgoodness franks bloggs keep us in the know…enjoy the rest of your day.

      • 23 August 2012 at 1:36 pm

        Frank Macskasy’s post just suggests they would be incredibly stupid to sell air nz, but they are incredibly stupid, so i wouldn’t rule it out

  11. 23 August 2012 at 1:48 pm

    I dunno about the Fates trying to tell him something, I’d say he never listened to the people, his mandate is looking pretty tatty just now. :D

  12. Toko Saito
    23 August 2012 at 1:49 pm

    I believe this is why jon keys came into power to get his hands on nz assets plus digup our shores n land for minerals, i was looking at the sats figures of kiwis that have left to go to ozz, now a labour minister in ozz is saying stop the kiwi migrating over there was slightly offended, but nothing like home sweethome

  13. John D
    23 August 2012 at 9:48 pm

    Notwithstanding their utter lack of imagination; instead of creating a better and more viable economy through innovation and government backed investment, they chose to put all their chips on selling the family silver to finance the welfare
    payments to their wealthy cohorts because by giving these wealthy people tax cuts a miracle was going to occur, and we were all going to be okay. This gambler PM only bets with other peoples money.

    i mean what was all the pain for??

  14. murray
    26 August 2012 at 12:18 pm

    Recently switched from Mercury and was contacted and offered a $300 sweetener. They got quite terse when I refused. I’m thinking they are getting worried about the exodus.
    As for Air NZ. I see no reason why they won’t continue with the sale. The low share price might be an obstacle it it were being done with the taxpayers interests at heart, but how is that likely? The low price can only be a bonus to our PM and his investor mates, who want the best deal they can get for themselves.

  1. 24 August 2012 at 5:27 pm

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