In case there are still one or two New Zealanders remaining who haven’t yet cottoned on to one very simple truism about National in office, let me spell it out; they are rank hypocites of the highest order.
And in case you, the reader, happen to be a true-blue National supporter, let me explain why.
In the last four years, National has been beavering away,
- slashing budgets
- sacking nearly 3,000 state sector workers
- closing schools
- attempting to close special-needs services such as Nelson’s Salisbury school
- cutting state services such as DoC, Housing NZ, Police, etc
- freezing wages for state sector workers (whilst politician’s salaries continue to rise)
- cutting back on funding to various community services (eg; Rape Crisis ands Women’s Refuge)
- and all manner of other cuts to state services – mostly done quietly and with minimum public/media attention.
In return, the Nats successfuly bribed us with our own money, giving us tax-cuts in 2009 and 2010. (Tax cuts which, later, were revealed not to be as affordable as what Dear Leader Key and Little Leader English made out – see: Key: $30b deficit won’t stop Nats tax cuts, see: Government’s 2010 tax cuts costing $2 billion and counting)
One such denial of funding for public services is an on-going dispute between PHARMAC and the New Zealand Organisation for Rare Disorders (NZORD) which is struggling desperately to obtain funding for rare disorders such as Pompe’s Disease,
Acknowledgement: Fairfax Media – Mum not prepared to wait and die
NZORD and it’s members have been lobbying National for the last four years to gain funding for much-needed medication. They are in a dire situation – this is a matter of life or death for them.
This blogger has blogged previously about their plight,
Previous related blogposts
- Priorities? (19 Oct 2011)
- Terminal disease sufferer appeals to John Key (12 Nov 2012)
- “There’s always an issue of money but we can find money for the right projects” – John Key (20 Jan 2013)
- “One should judge a society by how it looks after the sick and vulnerable” – part tahi (4 March 2013)
- “One should judge a society by how it looks after the sick and vulnerable” – part rua (4 March 2013)
- “One should judge a society by how it looks after the sick and vulnerable” – part toru (4 March 2013)
This blogger has also written directly to the Prime Minister and to Health Minister, Tony Ryall.
One response from Minister Ryall is presented here, for the reader’s attention,
So there we have it, folks. If you’re a New Zealander dying from a rare disease, and PHARMAC won’t fund life-saving medication – don’t expect an assistance from this rotten government. Their response will be, and I quote,
“While I share your concern [snort!!!] for people with Pompe disease, as I advised you in my letter of 22 November 2012, in the current fiscal environment, unfortunately funding is not available for all treatments.”
So “in the current fiscal environment, unfortunately funding is not available for all treatments“?!
But funding is available for;
$1 Rugby – $200 million to subsidise the Rugby World Cup (see: Blowouts push public Rugby World Cup spending well over $200m)
$2 Movies – $67 million paid to Warner Bros to keep “The Hobbit” in New Zealand (see: The Hobbit: should we have paid?) and $300 million in subsidies for “The Lord of the Rings” (see: Hobbit ‘better deal than Lord of the Rings’ – Key)
$3 Consultants - After sacking almost 3,000 state sector workers (see: 555 jobs gone from public sector) – and with more to come at DoC – National seems unphased at clocking up a mind-boggling $1 billion paid to “consultants”. (see: Govt depts clock up $1bn in consultant fees)
And on top of that, we are now faced with the prospect of a trans-national corporate – Rio Tinto – with their hands firmly around Meridian Energy’s neck, attempting to extract a greater subsidy from the SOE powerco. The story began in August last year,
Acknowledgement: NZ Herald – Rio Tinto seeks power deal revision
We know why. Despite implausible assertions to the contrary by National Ministers, Genesis Energy, and Rio Tinto executives – the partial sale of SOE powercos (Meridian, Genesis, and Mighty River Power) have made them vulnerable to the demands of Big Businesses.
Rio Tinto knows that the share price of each SOE will be predicated on marketplace demand for shares.
They know that if there is less demand for electricity, then the price of power may (note: may) drop; those SOE’s profits will drop; and the price of shares will drop.
That leaves shareholders out of pocket and National with egg on it’s face. And a whole bunch of Very Pissed Off Voters/Shareholders.
Think: Warner Bros. Think: corporate blackmail to shift ‘The Hobbit’ overseas. Think: National not wanting to risk the wrath of Peter Jackson and a thoroughly manipulated Public Opinion. Think: National looking at the 2011 election. Think: panic amongst National ministers and back-room Party strategists.
This is precisely what is happening with Rio Tinto, Meridian, and National.
In the space of six and a half hours yesterday (28 March 2013), events came to a dramatic head. The following happened in one day:
Via a Press Release from Merdian Energy;
“Thursday, 28 March 2013, 9:15 am
Press Release: Meridian Energy
New Zealand Aluminium Smelter’s electricity contract
For immediate release: Thursday, 28 March 2013
Meridian was approached by Pacific Aluminium, a business unit of global mining giant Rio Tinto Ltd, the majority shareholder of New Zealand Aluminium Smelters Ltd (NZAS), in July 2012, to discuss potential changes to its existing electricity contract.
Since talks began, various options have been discussed and Meridian has offered a number of changes and concessions to the existing contract.
Chief Executive of Meridian Energy, Mark Binns, says that Meridian has advised Pacific Aluminium of its ‘bottom line’ position.
“Despite significant effort by both parties there remains a major gap between us on a number of issues, such that we believe that it is unlikely a new agreement can be reached with Pacific Aluminium,” says Mr Binns.
In the event no agreement can be reached, Meridian will seek to engage with Rio Tinto and Sumitomo Chemical Company Ltd, the shareholders of NZAS, who will ultimately decide on the future of the smelter.
Meridian signed a new contract with NZAS in 2007, after three years of negotiations. This current contract commenced on 1 January 2013 and remains unaltered and binding on the parties.” - Source
To which Rio Tinto replied,
In a NZ Herald story,
CEO of Pacific Aluminium (the New Zealand subsidiary of Rio Tinto), Sandeep Biswas responded with,
“We believe a commercial agreement that is in the best interests of NZAS, Meridian, the New Zealand Government, and the people of Southland can be reached. We look forward to continuing productive negotiations with a view to achieving a positive outcome for all parties.” – Source
De-coding: “This ain’t over till the Fat Chick sings, and she’s nowhere to be seen. You guys better start hearing what we’re saying or this is going to turn to sh*t real fast; we’ll close our operations at Bluff; 3,200 people employed by us directly or indirectly will be told ‘Don’t Come Monday’; your Southland economy will collapse like a Cyprus bank, and National can kiss goodbye to it’s re-election in 2014. Ya got that, sunshine?”
That got the attention of National’s ministers Real Quick,
The Government has opened discussions with Tiwai Point aluminium smelter’s ultimate owners Rio Tinto in a bid to broker a deal after talks between the smelter and Meridian Energy reportedly broke down.
“With this in mind, the Government has been in contact with Pacific Aluminium’s international parent company Rio Tinto this week to discuss helping to bridge the gap in their positions over the short to medium term, if this could be of assistance in concluding an agreement.
“In the meantime, we understand Meridian’s existing contract with Pacific Aluminium remains in place at least until 1 January 2016 with significant financial and other obligations beyond that.” – Source
Barely two hours had passed since Meridian had lobbed a live grenade into National’s state asset sale programme, and it’s fair to say that the Ninth Floor of the Beehive was in a state of panic. It was ‘battle stations’. Red Alert. National ministers were, shall we say, slightly flustered,
By noon, the markets were reacting. Though share-market analysts were attempting to down-play the so-called ‘Phoney War’ between Meridian and Rio Tinto, Devon Funds Management analyst, Phillip Anderson, remarked that,
“…the announcement had hit Contact’s share price – the company was down 3 per cent in early trading but is now down only 1.2 per cent.” - Source
If Contact’s (a fully privatised ex-SOE) share price had dropped 3% on the strength of these media stories, it is little wonder that share-market analysts were down-playing the brinkmanship being played out by Meridian and Rio Tinto. If the share-market was spooked enough, Contact’s share price would plummet, as would that of Mighty River Power – estimated to be in the $2.36 and $2.75 price-range. (see: Mighty River share tips $2.36 to $2.75).
In which case, National would be floating shares worth only a fraction of what ministers were seeking. In effect, if Rio Tinto closed down operations, Key could kiss goodbye to the partial sale of energy SOEs. They would be worthless to investors.
By 3.43pm, and six and a half hours since Meridian’s press release, National had negotiated some kind secret deal with Rio Tinto. We don’t know the terms of the deal because though it is our money, National ministers don’t think we have a right to the information,
The Government is negotiating a new taxpayer-funded subsidy with Tiwai Point aluminium smelter’s owners and has all but acknowledged its assets sales programme is being used by them to get a better deal on power prices.
State Owned Enterprises Minster Tony Ryall this morning said the Government has opened discussions with the smelter’s ultimate owners global mining giant Rio Tinto in a bid to broker a deal over a variation to the existing electricity contract.
“With this in mind, the Government has been in contact with Pacific Aluminium’s international parent company Rio Tinto this week to discuss helping to bridge the gap in their positions over the short to medium term, if this could be of assistance in concluding an agreement.”
Mr Ryall indicated the Government had offered Rio Tinto “a modest amount of money to try and help bridge that gap in the short to medium term but there’s still a very big gap in the long term… We’re not interested in subsidising this business in the long term”. – Source
“…they’re pretty tough negotiators and I’m sure they look at what else is happening in the economy when they make their various decisions…
…”they certainly haven’t got the Government over a barrel.”
Three questions stand out from Ryall’s statement,
- If State subsidies for electricity supply to Rio Tinto’s smelter are “short to medium term” – then what will happen when (if?) those subsidies are lifted? Will shareholders “take a bath” as share prices collapse in value?
- Does Ryall think we are fools when he states that Rio Tinto did not have the government “over a barrel” ?! Is that how National views the public – as morons?
- How much is the “a modest amount of money” that Ryall is referring to?
Perhaps the most asinine comment from Ryall was this, as reported by TVNZ,
“The electricity market is capable of dealing with all the issues relating to the smelter,” said Ryall.
Acknowledgement: TVNZ News – Talks break down over Tiwai smelter contract
Really?! In what way is “the electricity market … capable of dealing with all the issues relating to the smelter” when the government has to step in with what could be millions of dollars worth of subsidies? Is that how “the market” works?!
This blogger has two further questions to put to Minister Ryall. Both of which have been emailed to him,
Date: Thu, 29 March 2013, 6.43pm
From: Frank Macskasy <email@example.com>
Subject: Re: Your correspondence to Hon Tony Ryall
To: Tony Ryall <Tony.Ryall@parliament.govt.nz>
Kia ora, Mr Ryall,
I am in receipt of your emailed letter to me, dated 5 December 2012, regarding the non-funding of certain medications for sufferers of Pompe Disease. Firstly, thank you for taking the time to respond to this issue in a thorough and timely way. Several of your other ministerial colleagues seem to lack that simple etiquette.
I note that, as Minister of SOEs, you have been in direct negotiations with Rio Rinto, and have offered the company subsidised electricity for the “short to medium term”.
This will no doubt cost the taxpayer several millions (hundreds of millions?) of dollars.
If National is able to provide such largesse to a multi-national corporation, please advise me as to the following;
1. Why is the same subsidy for cheaper electricity not offered to ALL New Zealanders? Or even those on low-fixed incomes? Why provide a multi-million dollar subsidy just to a billion-dollar corporation when New Zealanders could do with a similar cut in their power bills?
2. In your letter to me, dated 5 December 2012, you point out that,“While I share your concern for people with Pompe disease, as I advised you in my letter of 22 November 2012, in the current fiscal environment, unfortunately funding is not available for all treatments.”
If National has millions of dollars available to subsidise multi-national corporations, them obviously your statement on 5 December 2012 that “in the current fiscal environment, unfortunately funding is not available for all treatments” – is simply not credible.
It is obvious that your government can find money when it wants to. This applies to Rugby World Cup funding, consultants, movie-making subsidies, etc.
As such, I hope you are able to find the necessary funding for medication for people suffering rare disorders.
You are, after all, Minister for Health as well as Minister for State Owned Enterprises.
PS: Please note that this issue will be canvassed further on the blogsite, The Daily Blog.
Minister of Health. Minister for SOEs. Minister for corporate welfare.
Which ‘hat’ will Tony Ryall be wearing today?
And will he find the necessary funding to save the lives of sick New Zealanders?
This blogpost was first published on The Daily Blog on 31 March 2013.
NZ Herald: Rio Tinto seeks power deal revision (10 Aug 2012)
Scoop.co.nz: New Zealand Aluminium Smelter’s electricity contract Press Release (9.15am, 28 March 2013)
NZ Herald: Govt steps in to sort out stalled Tiwai power deal (11.15am, 28 March 2013)
NZ Herald: Tiwai stoush may affect Mighty River price (12.00pm, 28 March 2013)
NZ Herald: Mighty River share tips $2.36 to $2.75 (20 March 2013)
Related to previous blogposts
Pharmac: The politics of playing god (16 June 2011)
$500,000 a year to keep toddler alive (5 Feb 2013)
Rare disease sufferers want pricey treatments (1 March 2013)
Rare disease takes awful toll on boy (1 March 2013)
Bill English – do you remember Colin Morrison? (4 Feb 2013)
NZ Herald – Fran O’Sullivan – Govt intervention doesn’t cut mustard (30 March 2013)
= fs =
Continued from: Blogger lays complaint with Commerce Commission
On 1 April (not an April Fools Joke) this year, this blogger laid a complaint with the NZ Commerce Commission, regarding National’s dealings with Mighty River Power and Rio Tinto’s Tiwai Pt aluminium smelter.
The complain was as follows,
Tony Ryall has recently announced that the NZ Government is intervening directly in negotiations between Meridian Energy and Rio Tinto (which is 80% owner of Tiwai Aluminium Smelter).
Mr Ryall has said,
“With this in mind, the Government has been in contact with Pacific Aluminium’s international parent company Rio Tinto this week to discuss helping to bridge the gap in their positions over the short to medium term, if this could be of assistance in concluding an agreement.
“In the meantime, we understand Meridian’s existing contract with Pacific Aluminium remains in place at least until 1 January 2016 with significant financial and other obligations beyond that.”
Ryall added that “all relevant information – including about the smelter electricity contract – will be reflected in the Mighty River Power offer document which is currently being finalised”.
Source: NZ Herald, Govt steps in to sort out stalled Tiwai power deal ( http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10874174)
I therefore submit the following;
(1) This appears to be a prima facie case of the NZ Government manipulating the future stock price of Mighty River Power (and other state owned powercos), by offering a subsidy to Rio Tinto.
(2) This subsidy is not available to any other company nor individual.
(3) As such, I submit that the NZ Government’s intention to subsidise electricity that is provided to Rio Tinto is done with a view to reduce competition in the market.
Specifically, I draw the Commission’s attention to the Commerce Act 1986; sections 27, 30, and related clauses.
(4) Furthermore, I submit that if any other corporation, company, institution, or individual attempted such an act, that they would be deemed to be guilty of price fixing and manipulation of the market.
I await your response and thank you for your consideration of my complaint.
Being somewhat naive, I believed that attempting to instigate events, that would keep the price of shares for a specific company at an inflated value, would constitute a form of manipulation of the share market.
What was I thinking?!
The Commerce Commission replied four weeks later,
from: Contact <firstname.lastname@example.org>
to: ”email@example.com” <firstname.lastname@example.org>
date: Mon, Apr 29, 2013 at 9:56 AM
subject: 282199 Meridian Energy Limited and the government
Thank you for the information you provided the Commission regarding the Government’s announcement that it will intervene directly in the negotiations between Meridian Energy and Rio Tinto (owners of Tiwai Aluminium Smelter). You suggest that this intervention would amount to price fixing
We assessed the information you have provided and we are satisfied that the Commerce Act is unlikely to have been breached in this instance. Although it owns one of the parties to these negotiations, Meridian Energy, the Crown appears to have tried to meditate in this dispute on an “honest broker” basis. As such, the Crown probably would not have been in trade for the purposes of this exercise.
The above is merely our view that no prima facie breach of the Commerce Act has occurred. Such a view is not a ruling of law, as only the courts can decide whether there is a breach of the Act. The Commission’s decision not to pursue this matter does not prevent an individual from initiating their own action.
We have closed the file in regard to your complaint enquiry number 282199.
Commerce Commission |Senior Contact Centre Adviser
44 The Terrace |PO Box 2351 |Wellington 6140 |New Zealand
Free phone 0800 943 600 |Fax +64 (04) 924 3700
Follow us on Twitter @NZComCom
One would have thought that by providing subsidised (cheaper) electricity to Rio Tinto’s aluminium smelter; for a short term period (as Dear Leader has stated: PM John Key says fresh Mighty River Float detail due on Friday; may include detail on risks around Tiwai Pt closure); for the purpose of maintaining a high price for Mighty River Power’s shares – would constitute a form of share-market manipulation.
After all, the point of the whole exercise was to maintain Mighty River Power’s share-value. As Key himself pointed out on 2 April,
“But obviously, for the number of people involved, the jobs, the impact on the local community and the impact in the short term on the electricity markets, the government would like to see the orderly exit of the smelter, or a long term agreement between the companies.”
Acknowledgment: Interest.co.nz – PM John Key says fresh Mighty River Float detail due on Friday; may include detail on risks around Tiwai Pt closure
In an ironic side-issue, it’s interesting to note that merchant bankers, share-brokers, Federated Farmers, etc, haven’t raised merry hell on this issue – as they did with the Labour-Green proposal for a single electricity buyer-desk, NZ Power.
I think we can see all manner of vested interests involved here.
Last point, Ms Salmond writes in her 29 April email to me,
“The Commission’s decision not to pursue this matter does not prevent an individual from initiating their own action.”
That almost comes across as a sly hint…
= fs =
On 27 June last year, on the last episode of TVNZ7′s ‘Backbenches’, Minister for Courts, Associate Minister of Justice, and Associate Minister for Social Development, Chester Borrows, admitted his intention to buy shares in partially-privatised state owned enterprises.
In an exchange between ‘Backbenches’ Host Wallace Chapman and Chester Burrows,
CHAPMAN: “Will you be buying shares in Mighty River Power?”
BORROWS: “Yes, probably.”
BORROWS: “I’m a mum and dad investor, well I’m half of a mum and investor partnership.”
CHAPMAN: “So you will be.”
On 2 July, when I blogged this issue (see: Conflicts of Interest?), I asked three questions,
- Is this a vested interest in partial-privatisation?
- Is this a conflict of interest?
- Is this verging on self-serving corruption?
It will be interesting to find (if at all possible to uncover), how many National/ACT/United Future members of Parliament will end up owning shares in Mighty River Power, and other part-privatised SOEs?
A recent Sunday Star Times story told readers that members of Parliament and government ministers would follow a self-imposed “moratorium” on not buying any shares in SOEs for 90 days,
Cabinet ministers have agreed to a voluntary “moratorium” preventing the purchase of shares by all ministers, and some of their staff, until 90 days after the initial sale.
Finance Minister Bill English’s office said: “Cabinet also agreed that ministers and the staff in those offices . . . should use their best endeavours to ensure that their partners and dependent children adhere to the same moratorium.”
Acknowledgment: Fairfax Media – Call to ban ministers from share float
That is simply not good enough. A politician could easily instruct a solicitor to buy shares on his/her behalf. Or purchase shares via a ‘shell-company‘. There are as many ways to dodge scrutiny as the human mind can imagine.
The implications of government MPs and Ministers owning shares in state assets which they themselves have decided to privatise is a serious matter.
The only three ways to avoid such a spectacular conflict of interest is,
- Pass legislation banning MPs or their spouses from ever owning shares in SOEs (not very practical)
- Make the Pecuniary Interests register a permanent feature for all politicians to fill out for the rest of their lives. (possible – though a real pain in the arse)
- Scrap the asset sales programme. (Much easier.)
If politicians such as Borrows purchase shares in SOEs, it will further lower their reputations in the eyes of the public. “They’re in it for themselves” will become a reality in the minds of people, rather than just a vague suspicion.
We’re treading on thin ice here and the prospect of real political corruption takes one step closer to reality.
Call to ban ministers from share float (24 March 2013)
Previous related blogposts
= fs =
The recent financial crisis and near-collapse of Solid Energy – one of the five, state owned enterprises planned for partial-privatisation – should serve as a warning for those investor-vultures circling to buy shares in any of the SOEs.
In fact, recent history regarding Air New Zealand, Kiwiwail, and (non-privatised) BNZ in 1991, are indicators that privatisation of state assets is not a guaranteed roadmap to wealth,
It is noteworthy that one of the cause of Air New Zealand’s collapse was it’s foolhardy buy-out of Australian airline, Ansett,
First, the decision by Air New Zealand to pay dividends and second, the decision to buy the second half of Ansett. Both moves turned out to be considerably more beneficial to the interests of Brierleys than those of Air New Zealand.
Take the Ansett purchase. In early 1999, Cushing announced that Air New Zealand was vetoing Singapore Airline’s bid to buy News Corp’s 50% of Ansett Holdings (Air New Zealand had held the other 50% of Ansett since September 1996). Instead, it decided to pay News Corp $A580 million and get 100% control.
It’s most likely true that Air New Zealand paid too much for the stake and that directors had too little information about Ansett’s financial and engineering state. These are well-aired opinions, but are secondary to the main question that should be asked: Why did Air New Zealand buy the second half of Ansett at all? It’s not just that it was hopelessly out of its depth buying an airline twice its size. It’s just hard to see any benefits – to Air New Zealand, that is.
On top of that were big dividend demands from one of Air Zealand’s major shareholders, Brierley’s,
The at times cash-strapped investment company held between 30% and 47% of shares over the period so, based on the total dividend of $765 million, Brierley reaped an estimated $250 million to $380 million from the airline. And Air New Zealand’s decision to buy the second half of Ansett, cutting Singapore Airlines out of the deal, contributed to Brierleys being able to do its own deal with Singapore.
In April last year, two months after Air New Zealand bought Ansett, Brierleys sold Singapore Airlines all its Air New Zealand “B” shares for $285 million, or $3 a share. It was arguably the last exit option for Brierleys from these shares, and, apart from a spike at the end of last year, Air New Zealand shares have largely tracked downwards ever since – they were trading around 30 cents as Unlimited went to press.
In other words, Air New Zealand had over-extended in unwise investments (as has Solid Energy), and was bled dry by rapacious demands for dividends (as did Faye Richwhite in NZ Rail in the early 1990s).
How does this relate to the upcoming partial-sale of Mighty River Power?
Recent revelations that Mighty River Power has shaky investments on Chile, should cause potential investors to pause for thought,
According to the TV3 story above, “Mighty River Power has spent $250 million at the geothermal plant in southern Chile, but has just written off $89 million as the investments struggle“.
To which Key responded casually,
“There is always risk.”
Dear Leader seems somewhat blase about investors’ risks? Of course he is. It’s not his money.
The Crown Ownership Monitoring Unit (COMU) reported,
During the period, the Company recognised $91.4 million of impairments principally reflecting its investment in the GeoGlobal Partners I Fund (GGE Fund), and its greenfield explorations for potential developments in Chile and Germany.
This impairment followed higher than expected costs at the Tolhuaca project in Chile due to the worst winter in 40 years adversely affecting drilling performance and only one of the two wells having proven production capacity. The value of GGE’s investment at Weiheim in Germany, has been impacted by increased costs due to required changes in the drilling location following the 3D seismic surveys and delays from environmental court challenges which have been resolved post balance date.
The GGE Fund had not raised capital from other investors by the end of the 2012 and Mighty River Power made the decision not to invest further capital into the existing structure. Overall, the impairment charge of $88.9 million for the German and Tolhuaca assets and the management company of GGE LLC leaves a residual book value of $91.8 million.
On top of Mighty River Power’s dodgy investment in Chile, New Zealand is now experiencing what is being called the worst drought in seven decades (see: North Island’s worst drought in 70 years). As Climate scientist Jim Salinger said about New Zealand’s current weather patterns continuing, and becoming similar to the Mediterranean,
“What it means is that if it just doesn’t rain for at least four months of the year, it means you have to bring in your water from elsewhere.”
As all investors should bear in mind; most of our power generation is generated from hydro stations. Mighty River Power, especially, derives most of its electricity from eight hydro-electric stations on the Waikato River.
Mighty River Power CEO, Doug Heffernan has given a clear warning,
“Following the lower than average inflows into the Waikato catchment during the last quarter [to December 31], Mighty River ended the half year at just 69 per cent of historical average [hydro storage].”
And Equity analyst Phillip Anderson of Devon Funds stated,
“The same period last year they got really strong inflows, and this is the exact opposite . . .
In the second half of this reporting year they’re going to have to buy a lot more electricity to feed their customers, either on the spot market at a lot higher cost or use their [Southdown] gas plant.
We expect the second half of this year is going to be a lot tougher for them, they should get their margins squeezed if that all plays out.”
The equation is blindingly simple,
Less rain = less water = less electricity generation
The question that begs to be asked is; where does the risk of investing in SOEs fall – private investors, or the State?
The answer I submit to the reader is, that like Air New Zealand, it will be private investors who bear the brunt of all risk. The State will simply pick up the pieces, buying up shares at bargain basement prices, should anything go wrong.
Electricity generators like Mighty River Power will simply never be allowed to fail. Had the Labour government in 2001 allowed Air New Zealand to collapse, the fall-out to the rest of the reconomy would have been too horrendous to contemplate, and flow-on effects to other businesses (eg; exporters and tourism) and the economy would have been worse than any bail-out.
But any bailout will involve a massive loss for investors, as their share-value plummets. Again, Air New Zealand was an example to us all.
As the impact of climate change creates more uncertainly for our state power companies, investors need to think carefully before committing one single dollar toward buying shares,
“Do I really want to bear all the risk?”
Those who lost out on their investments in Air New Zealand in the 1990s will probably answer,
The Air New Zealand crash (1 November 2001)
A history of bailouts (7 April 2011)
Foreigners important for SOE sell-downs: Treasury (30 June 2011)
No law stopping foreign investors (16 Dec 2011)
Parched Waikato could hit Mighty River Power (22 Feb 2013)
Mighty River Power shares float mid-May (4 March 2013)
Taking the plunge in Mighty River (9 March 2013)
Key struggles to push Chilean investments (9 March 2013)
North Island’s worst drought in 70 years (10 March 2013)
Seemorerocks: An Appeal for a New Zealand Risk Assessment
= fs =
A part of me is mightily pissed off at Labour.
Like, really ticked off.
From 2000 to 2008, they had ample opportunity to safeguard state assets and remove them from any prospect of privatisation by ideologically-driven, rightwing elements in our political system.
But perhaps, I suspect that most folk – including the Left - had believed that privatisation had been abandoned by National as an ideological dead-end experiment, leading nowhere except eventual foreign ownership and profits remitted to offshore investors. Which, as a consequence, worsened our already shabby Balance of Payments deficit.
More importantly, we had every right to expect that National believed that asset sales would be a sure-fire way of losing an election.
However, someone – some bright, zealous, political strategist working in some back-room somewhere – must’ve come across a “cunning plan” to make asset sales palatable to at least half the voters.
That’s all the Nats needed; 50% of voters.
To pay for tax cuts in 2009 and 2010. Those tax cuts dug a $2 billion-plus hole in government revenue (see: Govt’s 2010 tax cuts costing $2 billion and counting, see: Outlook slashes tax-take by $8b). The shortfall could only be made up by borrowing more – or selling something. National opted for the latter.
Post 2011 Election, has demonstrated that National has not changed it’s free-market stripes. Given an opportunity, they would hock off as much of the country as possible. For “the good of the nation”, you understand.
At the 2011 election, National were handed that opportunity, on a gold plate*, by a voting public who seemed to be distracted by smoking magic mushrooms. Whilst voters expressed disdain at National’s privatisation – they voted National regardless.
(Call me old fashioned, but I tend not to vote for things I disagree with.)
Note that I said “they voted National” – they didn’t vote for National. It may seem as if I’m splitting hairs on a molecular level – but bear with me.
Consider the facts;
- 1. In 2011, National won 1,058,638 votes – or 47.31% of votes cast. That gave them 59 seats.
- 2. The 2011 election was the lowest voter turn-out (74.21%) since 1887.
- 3. Whilst Labour’s vote dropped from 2008 to 2011, overall the anti-asset sale bloc gained more popular votes in 2011 than the pro-sale bloc,
|National , ACT, United Future Party Votes||Labour, Greens, NZ First, Maori Party, Mana, and Conservative Party votes|
National – 1,058,636
Labour – 614,937
ACT – 23,889
Greens – 247,372
United Future – 13,443
NZ First – 147,544
Maori Party – 31,982
Mana – 24,168
Conservative Party* – 59,237
TOTAL – 1,095,968
Total – 1,125,240
* Whilst the Conservative gained no seats in Parliament (because of the 5% threshold), their numbers are included because they gained over double the electoral-support for ACT.
In effect, Key could claim an mythical “mandate” simply because the MMP rules in 2011 gave ACT a seat, but no representation for the Conservatives – even though support for the latter was double that of ACT.
- 4. Voting patterns are reflected in polls which consistantly show public opinion opposed to asset sales. Generally, the figure is around two thirds opposed and less than a third supporting. (see: Most of us oppose selling NZ)
In fact, this blogger cannot find any reputable poll favouring National’s privatisation programme.
However, the harsh reality is that, for politicians, unless faced by a populist revolt and tens of thousands taking to the streets (see: Huge protest says no to mining on conservation land) , the only numbers that really count are bums-on-seats. Parliamentary seats.
Political machinations in Epsom and Ohariu gave Key the two seat Parliamentary majority he needed, and that’s what counts as a “mandate”. For the Nats, that’s the end-of-story.
As Dear Leader has oft been quoted,
”On the mixed-ownership model debate, the Government has been very clear about its intentions since well before the 2011 election.” – John Key, 24 June 2012 (see: Most of us oppose selling NZ)
Thus far, 200,000 have pre-registered (see: Mighty River pre-registrations top 200,000) – which, whilst a sizeable number, is still only around five percent of those who voted for National in 2011. And I suspect many are pre-registering for a variety of reasons,
- self interested naked greed
- a desire to keep shares in local hands
- and a few bogus pre-registrations to subvert the process (a surreptitiously organised covert resistance? You might say that, but I couldn’t possibly comment)
The 200,000 pre-reguistrations is still dwarfed by signaturies to the petition, which is fast approaching 400,000 (see: Asset sales referendum likely)
So, did all 1,058,638 voters who voted National in 2011 also endorse asset sales, either in whole or partial?
The answer is a clear no. In a poll just over a year ago (see: Poll shows asset sales unpopular), around 32% – about one third – of National supporters disapproved of asset sales.
That’s 338,764 voters who opposed asset sales who ticked the box for National in 2011, despite knowing full well that Key was promising partial floats on Meridian, Genesis, Mighty River Power, Solid Energy (now in doubt), and a further sell-down of Air New Zealand.
338,764 people who voted for something they didn’t want.
As Marcus Lush said on Radiolive on 28 February this year (2013),
[click on image to access Radiolive link]
The answer, I think, can be distilled down into two categories of voters.
- The first group simply either didn’t taken notice of the asset sales campaign, or, more likely did not believe that Key would go ahead with the policy. They may even have thought that Key’s coalition ally(ies), United Future and/or the Maori Party, would stop the sales from proceeding. There was a kind of “in denial” mentality going on here.
- The second group is perhaps more complex. Whilst they don’t support asset sales per se, they perhaps believed National Party rhetoric that shares would remain in New Zealand hands. Considering the consequences of Contact Energy’s privatisation – where the majority of shares are now in Australian hands – this would seem to be a forlorn hope.
Having spoken with National Party voters belonging to Group 1, I believe that asset sales will impact to varying degrees on National’s support at the next election. Having woken up to the fact that Key has no intention of backing away from sales, there are 300,000 National voters who may think twice before voting National again.
Expect National to drop in the next few polls following the sale of Mighty River Power.
However, unless something totally unanticipated happens between now and May, the partial sale of Mighty River Power will probably proceed. Followed by Genesis and Meridian. Followed by hefty power price increases if past history is anything to go by.
Where (to from here?)
NZ First’s Winston Peters has promised that any government he is part of will buy back state assets. (Which, by the way, if he’s not telling lies, means that any coalition deal with the Nats is off the table. I’m not holding my breath on this. The 1996 election is still fresh in my mind.)
On 4 March this year (2013), Peters announced,
“New Zealand First will use its influence on the next coalition Government to buy back our state-owned power companies which are being flogged off by National and we are committed to buying back the shares at no greater price than paid by the first purchaser.”
This is do-able. Especially if NZ Superannuation funds are used, which would not impact or have any bearing on a new Government’s books.
By announcing that the shares would be re-purchased “at no greater price than paid by the first purchaser” – Peters is effectively putting all purchasers on notice: expect to incur a loss if you buy into National’s thieving (and let’s be clear – selling goods that don’t belong to you is theft) programme.
And a year earlier, in March 2012, Hone Harawira had promised the same in an open letter to investors,
“So today I think it only proper to send a warning to overseas investors – steer clear of any share offer in the above SOE’s. The purchase of these shares is likely to see you caught up in legal battles and direct action from citizens determined to protect their own interests, both of which will be lengthy and costly and have an adverse impact on the value of your investment.
As the leader of the MANA Movement and Member of the New Zealand House of Representatives, I wish to advise that MANA is opposed to the privatisation of state assets and will strongly argue for any shares sold to overseas investors to be returned to New Zealand hands.”
By contrast, in an attempt to appear “fiscally responsible” to Middle Class voters, Labour and the Greens were luke-warm, at best.
Green co-leader, Russel Norman said,
“We just can’t make the promise that Winston is making. We will do whatever we can, but it is two years away, the books are getting into a terrible mess because of National, and closer to the time we will make an announcement but at the moment we can’t.”
And Labour’s Clayton Cosgrove effectively went, ‘ditto’,
“… I can’t commit to an open-ended fiscal envelope. That would be fiscally irresponsible in my view.”
Which is all pretty timid stuff.
This, my fellow New Zealanders, is why the Centre-Left lost the 2011 Election: no boldness in vision; no measurable difference to the Nats; and no unshakeable courage of their/our convictions.
All that Labour and the Greens said was “no” to asset sales.
And when Cunliffe suggested that a future Labour-led government would re-nationalise these SOEs – he was firmly slapped down by his Party.
On 4 December 2011,
“I don’t stand for a paler shade of blue, and I want to look down the barrel and say this: if the Government is going to sell off precious state assets then we would not rule out re-nationalising some of them. And people need to be aware of that regulatory risk.”
When asked by host Guyon Espiner whether he would buy them back, Mr Cunliffe replied “we would look very hard [at buying them back].” - Source
On 5 December 2011,
Labour leadership aspirant David Cunliffe has moved to clarify his position on the buyback of state assets.
He believed comments he made in a weekend interview, where he didn’t rule out buying back partially privatised SOE’s, had been misinterpreted.
Mr Cunliffe said it was not an explicit promise to buy back all shareholdings National may sell. - Source
That’s not “manning the barricades” stuff – that’s an open retreat in the face of a remorseless enemy.
Which, in turn, emboldened National to openly mock and taunt the Labour Opposition, seven months later,
” Hon BILL ENGLISH (Deputy Prime Minister) : I move, That the House take note of miscellaneous business. We are still waiting, this week, for the Labour Party to commit to buying back the shares of the 49 percent of the energy companies that the Government is planning to sell, mainly to New Zealanders. New Zealand First has made that undertaking. New Zealand First has shown that the Labour Party has persuaded New Zealand First that its arguments are so strong, New Zealand First should go and buy them back if it has a role in a future Government. But the Labour Party has not been able to persuade itself. Labour members have been in the Chamber arguing, hour after hour, day after day, week after week, that these proposed share offers are fiscally irresponsible, economic nonsense, and a sell-out to foreigners, but they are not so fiscally irresponsible that they are going to buy them back. They are not such a sell-out to foreigners that they are going to buy them back. They are not such an economic nonsense that they are going to buy them back.” – Source
At a time when Labour should be tearing strips of National and setting their own counter-agenda – we’re getting precious little of that. Instead, the agenda is being set by Key and his cronies with bugger-all opposition. The Greens and NZ First have scored more ‘hits’ against the Nats than Labour.
On top of that, the Greens have become the “go to” opposition Party, for criticism of National policies. If you doubt me, check out the next 6pm TV news bulletin. Which opposition party spokesperson is interviewed? Keep tabs over a few night. You’ll quickly see what I mean.
So, what options does Labour have?
It has two options;
- Carry on with a conservative course. There is a 50/50 chance it will lead the next government, with perhaps a one or two seat majority, consisting of Labour/Greens/Mana/NZ first.
- Strike out with a strategy of aggressive and bold announcements of initiatives. Announce;
- radical policies that are a departure from neo-liberalism and declare that the Great Neo-liberal Experiment is dead; “we come to bury the bastard, not praise him”.
- focus on the message that the 30 year experiment in neo-liberalism has failed utterly, and is one reason we’re driving our young people to Australia
- a policy that all state assets will be re-purchased at cost-price (as a coalition deal with NZ First)
- a list of National policies that will be ruthlessly reviewed and dumped (eg, the Hobbit Law)
- a focus on job creation; attacking the root causes of child poverty; and a committment for decent housing for all New Zealanders
- a full review of the tax system, with a plan to reduce (or eliminate gst) and replaced with a comprehensive Capital Gains Tax; Financial Transactions Tax; and other non-income related taxes
- Comprehensive food-in-schools programmes
- looking at how our Scandinavian and Nordic cuzzies are running their economies/societies
- cheaper education for our kids
- a conversation with New Zealanders as to what kind of society we want to live in – and are we willing to pay for it and set goals to achieve it?
- etc, etc.
As part of Option 2, I have one further Bright Idea…
A Libertarian acquaintaince and I were chatting one evening at ‘Backbenches’ (prior to it catching fire – and no, our conversation wasn’t that heated) . We were talking about the three state owned power companies.
He asked me; why should there be three state owned companies; all producing the same service; at roughly the same costs and prices – have three sets of management; CEOs; offices; accounting systems; staff; etc? Wouldn’t it make more sense to combine the three and pass the savings onto consumers?
Damn it, he was right. What is the point of having three state owned electricity companies?
One could do the same job – and cheaper.
Just as we had the old ECNZ, prior to Max Bradford’s so-called “reforms” in the late 1990s. At the time, Mr Bradford promised cheaper electricity through competition. Instead, power prices have doubled sinced the start of the century. (see: The 30-year power price hike , see: Power prices over decade)
“Ministry of Economic Development (MED) statistics show average power prices rose from 13.9 cents per kilowatt-hour on average in May 2001 to 26 cents in May 2011.” - Source
The problem is not just to re-nationalise our electricity companies.
The next problem is what do we do with them?
How do we make them socially responsive to domestic consumers as well as efficient?
Do we re-combine Mighty River Power, Genesis, and Meridian back into one single unit, a new ECNZ?
Do we ensure that there are Board members elected to a new ECNZ whose constituents are domestic users? Perhaps any such Board should have directly-elected representation?
Do we entrench a new, state owned ECNZ in legislation so it’s future is protected from predatory governments seeking either maximum returns (ie, price gouging) or to privatise it?
Could a new ECNZ afford to offer each domestic household their first 300kwh per month, free, as has been suggested by Victoria University researcher, Geoff Bertram? (see: Call for free power )
These are the issues which the Opposition should be focused on.
And thus far, we’ve not heard much from them.
If Labour-Greens-NZ First are serious about being an alternative government, then by the gods, they should be serious about giving us that alternative.
When National started campaigning in the 2008 election, it began two years in advance with a series of aggressive policies. It was acting like a Government-in-Waiting.
By contrast, Labour and the other parties are an Opposition-in-Waiting. They are timidly watching and waiting for the public love affair with Key to wear off, and for National to f**k up.
Well, news flash guys. That doesn’t seem to be working too well. The Nats have been excoriated with scandal after scandal last year and this year; unemployment rising; Mainzeal and Solid Energy collapsing – and the Nats are still high in the polls?!
My message to Labour, Greens, NZ first, and Mana;
If you want the voting public to take notice of you, you have to give them something that’ll make them notice you.
Offer practical solutions.
Give the public a vision.
And at all times, work together.
If you don’t give the public an alternative, why should they look away from National?
Give the people of New Zealand an alternative, better way of living – and they will look at you.
But not until then.
(* Plate will soon be auctioned on Trademe.)
= fm =
Last year, on 19 May, Solid Energy was one of five SOEs that National announced would be partially privatised (see: Budget 2011: Govt seeks $7 billion in asset sales). Bill English announced, with a naivetee usually reserved for wildly idealistic, wide-eyed youth,
“Well targeted investment in infrastructure helps lift productivity, which over time will mean better wages and higher living standards for New Zealand families.”
To which, as the youth of today might reply,
By 29 August, this year, as demand from China lessened, and the price of coal dropped, Solid Energy announced plans to make 363 workers redundant.
CEO, Don Elder, said,
“I am very aware of the impact these decisions will have on affected staff members and our communities, but we’ve had to make these difficult decisions to cushion the impact of the market and protect as much as we can of the long-term value of the business.”
On 25 September, Key stated,
“Now that the coal price is collapsing, essentially Spring Creek is not viable.
It’s never been in the position where it was going to come on to the market today. It’s been a five-year programme, and if you ask me in three, four, five years’ time, the anwer might be different.” .
Along with Maori Treaty claims over water rights, and papers being filed in the High Court on 23 October (see: Mighty River sale paused during court action) which will see a delay in removing Mighty River Power from the SOE Act, the realisation that Solid Energy was also unsaleable under current economic conditions was another unwanted ‘hiccup’ for National.
On the same day, Solid Energy anounced that redundancies would increase from 363 to 460 and staffing levels would reduce from 1,800 at the beginning of the year, to 1,360.
Christchurch was to lose half of the 313 jobs at Solid Energy’s head office – another ‘hit’ against this quake ravaged city, along with planned school closures; problems with insurance companies; and Cantabrians leaving the area.
Remember that, ostensibly, redundancies were related to international coal prices and profit losses – not the deferred partial-privatisation of the SOE.
Yet, according to Solid Energy’s own Results Announcements 2012 report, the company’s income was actually better than the preceding year,
Good operating performance overtaken by asset write downs
• Trading performance was good in a deteriorating market with strong NZD. Underlying earnings were $99.7 million (2011: $86.2 million).
• Asset write downs of $110.6 million net of tax and other adjustments have resulted in a $40.2 million loss after tax (2011: $87.2 million).
In plain english (not the mumbled Prime Ministerial version), Solid Energy made an after-tax profit of $99.7 million – an increase from $86.2 million in 2011.
Employing a book-keeping, accountancy “trick”, Solid Energy reduced their own asset values by $110.6 million. (That’s like saying your house was worth $300,000 in 2011, but only $250,000 this year. You still have your house and you’re living in it – nothing else has changed. Only the theoretical valuation has ‘reduced’. Next year that valuation could rise back to $300,000 or even more or maybe less. That’s creative accountancy for you.)
The point is that Solid Energy’s profit rose from $86.2 million to $99.7 million.
In fact, Solid Energy’s revenue in 2012 was $978.4 million – almost a billion dollars – an 18% increase from the previous year.
The proposition that Solid Energy is more profitable than either Don Elder or National make out is born out by this interesting article, in Taranaki’s ‘Daily News‘, on 12 October this year. It appears that Australian coal mining giant, Bathurst, is experiencing a growth in share value as it discovers greater coal reserves at its Buller project on the West Coast,
Bathurst is proceeding with “an extensive drilling programme” – indicating that the company appears unphased by current coal prices and is investing long-term in recovering this resource.
So what to make of the planned 460 redundancies?
What to make of Bathurst’s share price rising and continuing to invest in a comprehensive drilling programme?
The only conclusion that one can arrive at is that planned redundancies are a covert operation to “maximise” Solid Energy’s value and “efficiency”. The cost of redundancies – estimated at around $10 million – will be paid by the taxpayer and not the shareholders of any future part-privatised company (see: Foreign workers lured by ‘work for life’ among sacked miners).
Reducing staff numbers – commonly referred to as “re-structuring” – is a common technique for companies to cut costs in an attempt to return to profitability, or to make it more attractive to potential investors or buyers.
It is interesting to note that National’s secret agenda of “re-structuring” Solid Energy, to make the SOE viable for privatisation, is a technique quite familiar to our Prime Minister, John Key,
” During Key’s brief spell for Merrill Lynch in Sydney in 2001, he helped fire 500 staff as part of savage worldwide retrenchment by the bank. In the past, Key has appeared proud of his ability to sack without feelings. He told Metro magazine: “They always called me the smiling assassin.”
These days he insists these were not cheerful sackings.
“In the end I had to carry out wider responsibilities, but I think I’m fundamentally a nice guy, but have to follow instructions,” he says. “
As Don Elder said,
“I am very aware of the impact these decisions will have on affected staff members and our communities, but we’ve had to make these difficult decisions to cushion the impact of the market and protect as much as we can of the long-term value of the business.”
460 workers face the sack.
No doubt John Key is simply “having to follow instructions“?
Related previous blogpost
The real cause for Solid Energy mass redundancies? (5 September 2012)
Sunday Star Times: Who is John Key? (3 February 2008)
NZ Herald: Spring Creek mine work suspended (29 August 2012)
Dominion Post: Miners march on Parliament (25 September 2012)
Radio NZ: Hundreds of jobs going at Solid Energy (25 September 2012)
Daily News: Bathurst lifts Buller coal totals (12 October 2012)
= fs =
- 20 October 2012 -
- Chris Trotter & Selwyn Manning -
Issue 1: Is a WINZ kiosk less leaky than a GCSB staff meeting? What to make of the security lapse at the Ministry of Social Development?
Issue 2: Where does the Kim Dotcom case end?
and Issue 3: Government tells Maoridom to get lost over the sale of Mighty River Power – what now for the Maori Party and asset sales?
Acknowledgement (republished with kind permission)
= fs =
Lifted from the media today,
When the Leader of the pro-capitalist National Party starts talking about “nationalising elements such as water and wind” – whilst at the same time instigating a programme to partially privatise Genesis Energy, Mighty River Power, and Meridian – the question has to be asked; has John Key flipped his lid?!?!
Regardless of whatever atmosphere they are breathing on the Ninth Floor, there must be some severe oxygen depletion at work to have affected Key’s mental processes so badly.
New Zealanders from both ends of the spectrum, Left and Right, as well as the general populace, must be wondering what is going on in the land of Planet National.
Right wing National supporters must’ve wondered if they had heard their Dear Leader correctly when he uttered the taboo “N” word (“nationalisation – not “n—-r”).
The Left would have been rolling their eyes and shaking their heads in dismay, and wondering, “How much more of this clown will the public take? Does he have to decapitate and eat a kitten before his popularity takes a nose-dive and drops lower than John Banks’ credibility?”
Nationalisation of water and air…
Whilst selling of our state assets at the same time…
The breath-taking audacity of the man.
In reality, what he is saying is that the government is toying with the idea of making a grab for certain natural resources – before selling them to private investors.
His comment is as ludicrous as his statement on TVNZ’s Q+A on 16 September when he dumbly blurted out,
“ … So if you accept that viewpoint, then I think you have to accept that elements like water and wind and the sun and air and fire and all these things, and the sea, along with natural resources like oil and gas, are there for the national interest of everyone. They’re there for the benefit of all New Zealanders, not one particular group over another. “
Yeah, right, Dear Leader. I’m sure that came as a bit of a surprise to the private oil and gas companies currently exploiting our gas and oil fields.
John Key – always a laugh a minute with his incredibly outrageous remarks. Unfortunately, his clownish behaviour is ultimately at our expense.
= fs =
Continued from: Asset Sales: two down, three to go!
As predicted, the Waitangi Tribunal has issued a report endorsing a delay to asset sales until the issue of water rights can be resolved,
Specifically, the report recommends,
- Maori have long established property rights over water bodies
- Ownership precedents date back to 1929 when Nga Puhi was granted ownership of Lake Omapere
- Maori culture and rights should not be relegated and ignored.
- The claim is not opportunistic
- Offering shares in the companies to Maori is not a remedy
- Shares in conjunction with enhanced power on the boards of these companies could provide meaningful recognition
- It is impossible for the Tribunal to recognise all Maori water rights across the whole country
- It is possible to devise an appropriate scheme for Maori affected by the sale of the assets but more time is needed
If, as Dear Leader John Key stated on 10 July, that National could decide to ignore the Tribunal’s findings (because they are non-binding), then the matter will head to the High Court.
Either way, the asset sale process has been stalled.
The Tribunal’s decision is yet another nail in the coffin of this wretched privatisation agenda.
As pointed out in a previous blogpiece ( Asset Sales: two down, three to go! ), the process has been hampered by corporate interests; low shares prices (Air New Zealand); poor international commodity prices (Solid Energy’s coal); and lower than anticipated revenue from certain electricity companies.
This blogger sez; thank god for the Treaty of Waitangi. We may yet save our state assets from being stolen from us, the people.
Who would have thought that the Treaty – designed in 1840 to protect Maori assets from ruthless activity by colonials – would 172 years later protect the assets owned by ALL New Zealanders.
National and it’s redneck supporters may object with shrill hysteria.
These assets belong to all of us. Not just those with the money to buy them.
And it’s a bit rich for National politicians and their sycophantic supporters and fellow travellers to now be insisting that “no one owns the water”.
Especially since the concept of private ownership for land, trees, fishing quota, airwaves, etc, etc, etc, was inytroduced by Pakeha to New Zealand.
Now the architects of the capitalist notion of private ownership are screaming for collective ownership over water?
Get real, you rednecks.
Vocal right wingers and anonymous commentators on various internet fora are simply livid that Maori are exercising the same rights that Pakeha themselves have used for their own benefit and wealth-accumulation for the last two hundred years.
National may well begin to comprehend that it is on a hiding to nowhere on this issue. It is time for John Key to comprehend,
- The majority of New Zealanders do not want state assets privatised
- Maori have a legitimate intrerest in water rights if states assets are privatised
- Privatisation is opening a can of worms with corporate vultures circling overhead, looking for cheaper power deals
- The State will not earn anything near the $5 to $7 billion that Bill Enlish has been anticipating
John Key, it is time to knock asset sales on the head.
= fs =
Oh dear, National seems to be in a spot of bother over it’s planned partial privatisation of five SOEs…
One state owned enterprise, Solid Energy, appears now to be off the sales list. According to Finance Minister Bill English,
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.”
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,
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,
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%.
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.
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,
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“.”
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…
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. “
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. “
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.”
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.
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.”
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?
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.
= fs =
Firstly, let’s cut to the chase and address John Key’s assumption that he has a ‘mandate’ from the country to pursue many of his Party’s unpopular policies, including state asset sales.
No, he does not.
As Bryce Edwards said on Radio NZ last year,
As reported in the NZ Herald,
” Moreover, only an estimated 93.2 per cent of the 3,276,000 people who were eligible to vote were enrolled, so the 2,254,581 people who did cast their votes (including special votes) leaves just over 1 million who stayed at home. “
So doing a bit of simple arithmetic,
- 2,254,581 people voted
- 1,058,636 voted National
- The population of New Zealand is approximated 4,430,000
- 1,058,636 is about 24.5% of the entire population.
- John Key’s “mandate” is roughly one quarter of the country’s population.
The Nats can dress that up any which way they like, but that’s not a mandate. That is a minority in drag, masquerading as a “majority”.
But still a minority.
Let’s cut to the next ‘chase’.
The recent National Party Conference in Skycity had nothing to do with conferencing or the Party’s internal workings. It was purely and simply a public relations exercise to raise “troop” morale and present National in a positive light to the public.
It was about appearing decisive and on-message. It was about strong leadership and confidence, reminiscent of Rob Muldoon, and Dear Leader played his part perfectly as he gave the rallying cry to his fellow MPs and Ministers.
“Our policy of partial share sales is a win-win and I stand totally behind it.”
After months of various scandals, resignations, disastrous flip-flops, and gaffes, the Party pulled out it’s “ace-in-the-hole” – John Key. “The Boss” laid down the law, and as Tracey Watkins from Fairfax said,
“No more tip-toeing around. That is the clear message from National’s annual conference, where the Government’s economic programme has been invested with a new sense of urgency.”
Ms Watkins tends to present political issues from a position favourable to National and her piece on 23 July was no exception. But she also had a valid point – National was fighting back. They were on a counter-offensive on several fronts.
But as the dust settled, and the “whizz-bang-gosh!” factor faded, the public’s momentary distraction returned to the issues and problems currently confronting us as a nation.
As much as Dear Leader might wish it, those issues and problems will not go away.
State Asset Sales
National is desperate to sell this lemon to the public as a going concern. Indeed, the issue was presented as one of several issues on a leaflet/questionnaire that the Parliamentary wing of the Party mailed out,
The Nats are sensitive to recent public protests and an ‘insider’ advises this blogger that Ministers are tracking correspondence; internal polling; and letters-to-editors on the subject.
In an effort to “sweeten” the deal and to assuage public opposition, National is offering,
- preference to “mum and dad” investors
- a three year loyalty share-bonus scheme
- a minimum of $1,000 dollar share parcels
- a guarantee of shares to New Zealand investors wanting parcels of up to $2,000
- Treasury setting up a retail syndicate of share brokers and banks to help first time share investors potential investors.
National’s “carrot” is matched by it’s “stick”. As Bill English threatened in June last year,
“We are saying that New Zealanders are at the front of the queue, but if not enough of them show up, it won’t be 49 per cent. I wouldn’t want to exactly guarantee every share but we have got to look at how to make that happen.”
So the message is crystal-clear; ‘If we don’t buy these assets (which we already own), John Key and Bill English will sell our companies to overseas interests’. It’s like watching a rather bad, cheaply-made, B-grade gangster movie from the 1940s.
But the ‘rort’ doesn’t end there. Treasury estimates that any loyalty scheme will end up costing taxpayers up to half a billion dollars. That’s because giving away free shares as a “loyalty bonus” still incurs a cost – nothing is for free,
” A “loyalty” scheme to sweeten state assets sales for investors could cost the taxpayer $500 million – more than $100 for every man, woman and child in New Zealand – according to Treasury numbers.
In a report to the Cabinet last year, the Treasury said incentives to encourage local investors to buy shares “typically range from 5 to 10 per cent of total value ($250 million to $500 million based on a $5 billion programme)”.
The Government says it expects to raise $5 billion to $7 billion via the sales programme.
Based on the Treasury’s $500 million upper estimate of the cost of a loyalty scheme, the forgone revenue works out to just under $113 for every man, woman and child here. “
Labour Leader, David Shearer summed it up thusly,
” Effectively, the taxpayer will be paying for a loyalty scheme that a small number of New Zealanders who can afford to buy shares will be able to enjoy. It’s clear there’s some real winners here, and the losers are most New Zealanders. “
Based on the Queensland experience where Queensland Rail was privatised in 2010; where a share-bonus loyalty scheme of 1:15 shares was used; the cost to Queensland taxpayers would be $360 million, according to our Parliamentary Finance & Expenditure committee. To which Key was reported as saying, that the figure was,
“… a possible number. I haven’t seen their workings so I wouldn’t want to agree with that at this point.”
Key’s comments were reported on the NZ Herald website at 5:30am, Tuesday 24 July, 2012.
By mid-day, on the 24th, he had changed his views from “ a possible number “, to,
“These numbers that the Labour Party are coming up with and the Greens are farcical.”
First point: that report on the Herald’s website was posted at 12:18pm on the same day; Tuesday 24 July, 2012. Not quite seven hours had passed before National’s spin-doctors had noticed Key’s blunder, and Dear Leader changed his stance.
Second point: the figures were not from the Labour Party, nor The Greens. They were Treasury’s figures.
Was this a deliberate attempt to undermine the credibility of those figures by shifting it’s provenance from Treasury to opposition parties?
Key then made this extraordinary comment,
“If you think about the entire float that could be in the order of $5 billion to $7 billion. Let’s argue that it’s $5 billion for a moment if you then turned around and said about 20 per cent of that could be for mum and dad, it could be more it could be less – but just for the purposes of maths that’s a billion. If you apply the Australian Queensland model that’s one in fifteen shares – that’s 6 per cent. Six per cent of a billion is $60 million for the entire programme.”
“20 per cent “?!?!
What happened to the 49% that Key and English have allocated to “mum and dad” investors,
“Counting the Government’s controlling shareholding, we’re confident 85-90 per cent of these companies will be owned by New Zealanders, who will be at the front of the queue for shares.”
Was this an unintended slip from Key that National is counting on only 20% of shares going to New Zealanders?
And did he think that no one would notice?
Acknowledgement: Cheer up Mr Key – Fairfax still love you
This is disengenuous of Dear Leader. On the one hand, National is claiming that 49% of shares will be allocated to local “mum and dad” investors – and on the other, they are calculating a bonus-share loyalty scheme on a figure of 20%. Key is shuffling figures around and quoting them to suit daily events.
This is not the first time Key and English have done this.
In January last year, when John Key announced National’s policy to part-privatise five state assets, he stated,
“If we could do that with those five entities … if we can make some savings in terms of what were looking at in the budget and maybe a little on the upside you’re talking about somewhere in the order of $7 to $10 billion less borrowing that the Government could undertake.”
The figure of $7 billion to $10 billion proceeds from a partial asset-sale then shrank,
“First, the Government gets to free up $5 billion to $7 billion – less than 3 per cent of its total assets – to invest in other public assets like modern schools and hospitals, without having to borrow in volatile overseas markets.”
And finally, English confessed all,
“If we did get $6 billion, that would be a gain of sale [of $800 million] which is just a product of the accounting. I just want to emphasise that it is not our best guess; it’s just a guess. It’s just to put some numbers in that look like they might be roughly right for forecasting purposes...”
Key did precisely the same thing over the Skycity-convention centre-pokie machine contra-deal.
He advised the country that building a new convention centre (in return for changing the law to allow up to 500 additional pokie machines for Skycity), would result in up to 1,900 new jobs in Auckland,
“It produces 1000 jobs to build a convention centre, about 900 jobs to run it, and overall the number of pokie machines will be falling although at a slightly lower rate.“
Key’s figures turned out to be rubbish. The true numbers were disclosed last month by Horwath Ltd director, Stephen Hamilton,
” Horwath director Stephen Hamilton said he was concerned over reports the convention centre would employ 800 staff – a fulltime-equivalent total of 500.
He said the feasibility study put the number of people who would be hired at between 318 and 479. “
Key had either made them them up out of thin air, or else he has some very poor advisors.
And lastly, the sheer economics of the partial asset-sales cannot be commercially sustained, as BERL reported in May of this year,
‘The interim loss of earnings resulting from reduced dividends and the period of time before the new assets reap benefits is never recouped.
”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.”
‘While the initial offering may be directed towards domestic purchasers, future private share transactions could increase the portion of shares [and earnings] in overseas investors hands.
”Such an outcome would lead to a further deterioration in the external deficit and external debt position.”
Unbelievable that a number of New Zealanders still believe that National is a sound manager of the economy. These muppets couldn’t run a corner Dairy – they simply wouldn’t have a clue how much to charge for a packet of chippies.
No wonder Labour Leader David Shearer expressed his frustration at Dodgy John’s slippery numbers, when he said,
“We absolutely have no idea how much this loyalty scheme is going to cost New Zealanders. He was happy to go out and announce the loyalty scheme at the National Party conference but he’s not prepared to come out with the numbers now.”
Either way, National is keeping information on asset sales secret – or they have no idea what’s going on. Conspiracy or cock-up – neither option is particularly reassuring.
The ground keeps shifting, and this blogger believes it is a deliberate ploy to deny information to sales-critics and the public. Without solid information, it becomes harder to mount a sound critique of National’s plans – though BERL has done a fairly reasonable job of it.
Accordingly, this blogger invites “mum and dad” investors to exercise caution as shares are made available to the public,
A Possible Solution?
As BERL stated in their report, selling state assets will eventually impact on the government’s balance sheet. Quite simply, any short-term gain through sales proceeds will eventually be whittled away by reduced dividends from half of these state assets sold into private ownership,
” The interim loss of earnings resulting from reduced dividends and the period of time before the new assets reap benefits is never recouped. “
Plain english: we will lose money on the deal.
Selling any of these State assets defies understanding.
As Treasury stated last year, the revenue stream is quite significant according to their own SOE Economic Analysis that, “…on average, the SOEs have performed favourably when compared to the averages for the quartiles computed for the benchmark companies“.
On average, Treasury show a 14.5% average shareholder (Government) return. Compare that to other investments, and it’s a fairly remarkable achievement for state enterprises which – according to free marketeers – are not supposed to operate more effectively than private enterprise.
In a further, surprising turn of events, in February 2001, Finance Minister Bill English agreed, stating,
“Generally the SOE model has been quite successful in that respect.”
And even went so far as to complain that they were making excessive profits! (There’s no satisfying the National Party!? They sell under-performing state assets, explaining that the “market will improve their performance” – and then complain when state assets are making too much money! Then the Nats will flog them off to reduce returns and make them more “competitive”.)
By contrast, Contact Energy – an electricity corporation privatised in 1999, and now mostly Australian-owned – retails it’s electricity at a higher price than it’s competing, state-owned rivals.
National has stated several reason for wanting to sell 49% of Meridian, Genesis, Might River Power, Solid Energy, and further down-sell Air New Zealand – but their main, carefully-worded, rationale has been to “reduce debt/invest in new assets/infrastructure”, according to Bill English,
“We are firmly focused on keeping the Government’s overall debt as low as possible and that is the most important consideration over the next few years.”
If National is planning on extracting $6 to $7 billion from most New Zealanders’ pockets, then they are dreaming. A small minority (the 1%, as usual) might have the resources – but even they, I suspect would have to off-load their own assets to buy into the five offered SOEs.
It is more than likely that, like Contact Energy, the majority of new shareholders will be corporate and/or offshore investors. New Zealanders simply don’t have the savings to buy their own energy comnpanies and airline.
If National wants to realise $6 to $7 billion from partial-privatisation and is serious in not wanting major foreign ownership, then it has only one other option: the NZ Superannuation Fund.
Selling half of five state assets to the NZ Super Fund would achieve several desired goals,
- Keep state assets in New Zealand ownership
- Prevent an outflow of profits to offshore investors, which would worsen our current account deficit
- Satisfy Maori that water resources were not about to be privatised, and therefore any claims before the Waitangi Tribunal could be set aside
- Fulfill a government-ordered directive that the NZ Super Fund invest more heavily in New Zealand
In May 2009, Finance Minister Bill English wrote to the NZ Super Fund, instructing that,
” The Government believes that is is in the national interest for the Fund to have significant interests in New Zealand. Consequently, persuant to section 64 of the New Zealand Superannuation and Retirement Income Act 2004 (the Act), I direct the Guardians to note that it is the Government’s expectation, in relation to the Fund’s performance, that opportunities that would enable the Guardians to increase the allocation of New Zealand assets in the Fund should be appropriately identified and considered by the Guardians. “
How much does the NZ Super Fund have invested in overseas businesses?
Answer: NZ$6,459,938,145 – Nearly $6.5 billion. Possibly more by now.
How much was National expecting to gain from it’s privatisation programme? Between $6 and $7 billion dollars.
$6.5 billion happens to lie smack in-between $6 and $7 billion!
Considering that the NZ Super Fund is actually a state owned entity, selling five SOEs, whether partially or the whole damned lot, would not matter one iota. They would still be state-owned.
National has an opportunity here; they literally can have their SOE Cake, and eat it.
- The state assets would remain state assets.
- National would gain a guaranteed NZ$6.5 billion – no mucking around with messy share floats.
- The revenue from the state assets would remain in New Zealand.
- The Super Fund would have even more profitable investments in their portfolio.
- The Super Fund will be investing in our future – not someone elses’, in another country.
- Maori may well be satisfied that their taonga, water, was not being privatised.
- Our current account would not be blown further into the red.
- New Zealanders would be happy chappies, as the great majority oppose losing ownership of state assets.
- Opposition from the Left would most likely evaporate – heck, we might even vote for you in 2014, Mr Key!!
Where is the down-side in this compromise?! Damned if I can see any.
And the strangest part in all this proposal? I may just have saved John Key’s arse from being thrown out at the next election.
= fs =
Continued from: On course for a change in government
The polls continue to look bad for Dear Leader and the Nats. The most recent, conducted by Fairfax Media/Ipsos, has National down on 44.9%,
Fairfax’s Tracy Watkins and Kate Chapman suggest that, at nearly 45%, “National has enough support for a third term“.
Nothing could be further from the truth, and the number of Undecided Voters – at 11.6% -will be the ones who will determine the next election in 2014 (if not earlier). Over one third of Undecideds leaned toward Labour, Greeens, and NZ First,
But most critically, we should not forget that National went in to the 2011 Elections riding high in polls.
For example, one year ago, a Roy Morgan Poll dated 28 July 2011, had National on 52%.
Two previous Roy Morgan Polls had National on 54% (June 13-26, 2011) and 49% (June 27 – July 10, 2011).
(Sampling 895 respondents)
Another example, using a Fairfax Media-Research International poll, conducted between July 21 and July 25 2011 – again, about a year ago – had National on 56%.
Again, Tracy Watkins wrote enthusingly,
“National continues its extraordinary run of popularity in today’s poll, recording 56 per cent support – enough to comfortably govern alone if the results were repeated on election night in November.”
(Sampling 1,004 respondents)
Averaging out the 28 July Roy Morgan poll of 52% and the July 21/July 25 Fairfax poll of 56%, gives us 54%.
National achieved nothing like that figure on election night on 26 November 2011, gaining only 47.31% of the Party Vote. Not enough to govern alone.
National’s support from Election Night has dropped from 47.31% to the current Fairfax Media/Ipsos polling of 44.9% – a drop of 2.41%.
But more critically, from July 2011 polling to Election Night voting, National’s support dropped from an averaged 54% to 47.31% – a drop of 6.69%.
The reason that this is so critical is that heading into the next election, National’s base polling has to start high, to take natural voter-support attrition into account.
Remember; in July 2011, National started high with 54% and 56% in the polls – then dropped to 47.31% on election night.
Now imagine if National’s polling stays at around current 44.9% support and heads into an election. Factor in natural voter-support attrition of (for example) 6.69% – and their election night result would be 38.21% – almost precisely the same figure National gained in the 2005 General Election.
The above figures are assumptions. But natural voter-support attrition is not, as Labour found to it’s dismay in 2002, after the ‘Corngate’ Affair.
With two years left (or earlier, as this blogger continues to predict), and many of National’s unpopular policies continuing to alienate the public, a loss of even 2% or 3% in support will mean the demise of National in power, and a new Labour-led government.
If/when Mighty River Power is partially privatised, expect National’s support to drop like a stone in a hydro-storage lake.
This is the simple reality that Fairfax neglected to mention in it’s story above.
= fs =
With the current National government on course to partially privatise Mighty River Power, Meridian Energy, Genesis, Solid Energy, and further down-sell of Air New Zealand, it may be an appropriate time to look back at our recent history and remind ourselves of a previous National Government’s blunders…
In 1999, Jane Kelsey wrote,
“The privatisatisation of local electricity supply companies and state-owned generators was also very lucrative and open to abuse to market power by transnationals. Driven by theory, governments had progressively dismantled the integrated state electricity system since 1986. This involved separating transmission from generation, splitting the state-owned generator into competing companies, and converting the elected non-profit power boards into profit-driven electricity supply companies. The Labour government began the process by corporatising the electricity department in 1986.
The local power boards were transformed into electric power companies in 1990, and into commercial electricity supply companies with diverse ownership structures in 1993.
A rash of hostile takeover bids and friendly mergers followed; during this time, supplying electricity seemed almost a sideline.
The main foreign-owned players were Alberta-based TransAlta and Utilicorp from Kansas. The companies raised their electricity prices to cover debt servicing and profit requirements. [My emphasis - FM]
The government expressed concern that electricity companies were abusing their monopoly over the power-lines and supply contracts to block the entry of competitors. The Electricity Industry Reform Act 1998, passed in July under urgency, prohibited any company from owning both electricity line businesses and retail or generation businesses from 1 May 1999.
Labour opposed the move, claiming the government had taken “an electricity industry that was working pretty well in practice and ripped it to bits, because it was not working well in theory”. The existing companies, supported by ACT, complained that the split reduced their value and amounted to expropriation. TransAlta threatened to pull out of the country if the government proceeded with the plan.
At the same time, the change created new opportunities for mergers and takeovers (at grossly inflated prices), consolidating control of electricity into fewer, and increasingly transnational, hands.
The government also split the state-owned generator into two companies, Contact Energy and ECNZ; ECNZ was later split into three companies.Contact Energy was publicly floated in March 1999. Some 175,000 local investors applied for priority registration. But the government had decided there had to be a 40 percent ‘cornerstone’ shareholder. Only two companies were in the final bidding – TransAlta and US-based Edison Mission Energy. TransAlta was already the country’s largest energy retailer, with 530,000 customers, and was returning a dividend of around 6 percent. In October 1998 the Ministry of Consumer Affairs condemned its customer contracts as ‘onerous and harsh on consumers’.
The Commerce Commission cleared TransAlta to take up to 50 percent of shares in Contact Energy. That would have given the company one million of the country’s 1.6 million electricity customers, control over two-fifths of New Zealand’s generating capacity, and rights to nearly half its gas production.
The strategic stake went instead to Edison, for $1.21 billion…
… Contact Energy ended up nearly 62 percent overseas-owned. In addition to Edison’s 40 percent, another 18 percent of shares were reserved for offshore institutions, 14.4 percent for New Zealand/Australian institutions and 27.6 percent for the New Zealand public. Investment anlyst Brian Gaynor calculated that half the shares issued to offshore institutions were sold for instant profit in the first three days. He partly attributed the priority given to offshore buyers to “broker self-interest”, estimating that they earned $7.6 million on the 109 million shares issued to northern hemisphrere institutions (much higher than the proportionate income from Australasian sales).
Gaynor questioned why government officials put so much effort into selling the country’s assets to foreign interests , thus worsening the balance of payments , instead of working to stimulate export growth. [My emphasis - FM]
The government insisted that the changes would lower electricity prices to consumers (although Commerce Minister John Luxton said ‘it was not promised that householders would necessarily get cheaper power’). But they failed to do so, as the companies sought to recoup their excessive spending. [My emphasis - FM]
In anticipation of winning the Contact Energy bid, TransAlta had paid $171 million for the retail business of Orion, owned by the Christchurch City Council; the operation was independently valued in 1997 at around $13 million. In March 1999 TransAlta announced price rises of between 5 and 15 percent for it’s 530,000 customers. Energy Minister Max Bradford blamed the line companies for abusing their monopoly and not passing on savings from the transfer of metering costs to the retail companies.Orion backed off its suggested price increase. TransAlta did not. Bradford insisted that competition among the supply companies would eventually force prices down, so only the monopoly line businesses needed regulation.
Back in 1998, Bradford had proposed only light-handed regulation: ‘to enhance the credibility of the threat of price control’, the Commerce Commissionwould be given powerto limit prices, where it was efficient to do so, and after a lengthy period of review. By May 1999 he had been forced to introduce legislation that could regulate monopolies generally, with specific provisions for line companies. The Commerce Commission would be required to authorise a price for line company charges by 31 December 1999 for the largest companies, and dates in 2000 for the rest.” – “Reclaiming the Future“, August 1999
There are many lessons to be learnt from the de-regulation and privatisation of the electricity industry in this country…
- In buying up companies, the new owners raised electricity prices for consumers so as to re-coup the costs of their multi-million dollar investments.
- Many of the electricity companies wound up in overseas investors’ control. As Brian Gaynor said, this made our Balance of Payments much, much worse – for no discerible, logical gain.
- Competition did not bring “cheaper power prices”. There simply was no competition.
It probably occurs to many people that, thirteen years later, another National Government is on-course to repeat the same mistakes.
“Those who cannot remember the past are condemned to repeat it”
As well as trying to “quietly” drop all references to Treaty obligations, under Section 9 of the SOE Act 1986 – something guaranteed to buy a fight with their coalition partner, the Maori Party - there are other revelatory aspects of the draft Treasury document that should also be a matter of considerable concern.
“ The Government’s mixed ownership model
Intitial public offerings (IPOs)
An initial public offering, or share float as they are often called, is a way of selling some or all of a company to a large number of investors. Shares in the company are offered for sale to retail investors (individuals, sometimes referred to as “mums and dads”) through an advertising campaign to the public and through shareholders.” Source
“Intitial public offerings (IPOs)
Once a minority shareholding in each company is sold, the government proposes that the company will be governed in the same way as other listed companies and that they will be subject to the Companies Act 1993 and other relevant legislation, the NZX listing rules and the companies’ constitutions. The crown will not reserve any special rights to itself, except that it is still to decide whether it will a have any special power to approve the chairman of the Board, as it has for Air New Zealand.” Source
With regards to Paragraph 1, above, it is interesting that the Treasury report refers to “retail investors (individuals, sometimes referred to as “mums and dads”)“. In effect, it is a ‘slip’ on Treasury’s part, acknowledging the reality that “mum and dad investors” is simply propaganda “code” (newspeak) for common, garden-variety, investors.
There is nothing “mum and dad-ish” about corporate share-brokers working on behalf of investment companies.
Government uses the term “mum and dad investors” to hide the reality that shares in part-privatised SOEs will be purchased by individuals in dapper suits and silk ties, operating out of very nice offices, on behalf of Very Big Corporate Clients.
Government myth: busted.
Paragraph 2, above, is even more insidious and refers to, “Once a minority shareholding in each company is sold, the government proposes that the company will be governed in the same way as other listed companies and that they will be subject to the Companies Act 1993 and other relevant legislation…” and furthermoremore, “The crown will not reserve any special rights to itself…”.
In effect, once partially-privatised, the Government intends that none of the entire State Owned Enterprise will be governed by the State Owned Enterprises Act 1986. (Not just the privatised 49% part.)
Specifically, Section 4 of the Act,
Principal objective to be successful business
(1) The principal objective of every State enterprise shall be to operate as a successful business and, to this end, to be—
(a) as profitable and efficient as comparable businesses that are not owned by the Crown; and
(b) a good employer; and
(c) an organisation that exhibits a sense of social responsibility by having regard to the interests of the community in which it operates and by endeavouring to accommodate or encourage these when able to do so.
(2) For the purposes of this section, a good employer is an employer who operates a personnel policy containing provisions generally accepted as necessary for the fair and proper treatment of employees in all aspects of their employment, including provisions requiring—
(a) good and safe working conditions; and
(b) an equal opportunities employment programme; and
(c) the impartial selection of suitably qualified persons for appointment; and
(d) opportunities for the enhancement of the abilities of individual employees.
And most specifically, this part of it’s Principal Objectives,
“…an organisation that exhibits a sense of social responsibility by having regard to the interests of the community in which it operates and by endeavouring to accommodate or encourage these when able to do so.”
Any committment to promoting clean, sustainable energy; considering the needs of the community in it’s activities; and other social responsibilities will all vanish if the SOEs concerned are “ governed in the same way as other listed companies and that they will be subject to the Companies Act 1993 and other relevant legislation… [and] …the crown will not reserve any special rights to itself…”
In the case of Genesis Energy, Mighty River Power, and Meridian Energy – their sole objective will be to make greater profits for government and private share-holders.
Those profits will be generated by raising power prices.
Guess who pays those higher power prices? (Clue: look in the mirror.)
Right about now, any person reading this who voted for National last year must be entertaining serious regrets at ticking “National” for the Party Vote. Those folk who voted for National – and conversely, those who failed to go out and vote for an alternative Party opposed to asset sales – must be wondering if they will end up paying for their voting choices.
Of course they will pay for voting National.
Every month. When their power bill comes in.
In a somewhat weak attempt to allay fears over National’s stated intention to partially-privatise several state assets, Bill English has stated that he “believes only 10 to 15 per cent will initially go to overseas buyers”.
However, tellingly, National refuses to actually pass any legislation to prevent this from happening;
National says it will “cap” single investor’s holding to 10%.
But National refuses to explain how it will engineer this “cap”.
It doesn’t take a rocket scientist to figure out that a corporation could easily employ five “shelf companies“, each buying a block of 10% of the shares. These “dummy” companies would each own a block of shares – in name only. The parent company – owning each dummy company – would be the real owner.
Result: a foreign corporation owning a sizeable chunk of each SOE.
Case in point: Contact Energy.
In 1996, Contact Energy was split of from it’s parent SOE, Electricity Corporation of New Zealand and fully privatised in 1999 as part of the then-National Government’s plan to “reform” the energy sector and make it more “competitive”. Energy Minister, Max Bradford,. assured New Zealand that the splitting up of ECNZ, and privatisation of Contact Energy, would introduce competition and drive prices down.
The opposite actually occurred and power prices doubled during the following decade.
When Contact Energy was privatised in 1999, 40% of the publicly offered shares were purchased by Edison Mission Energy. That 40% was subsequently increased to 51%. Edison Mission started with a minority shareholding – which was soon increased to a majority sharehold. (Starting to sound familiar?)
In 2004, Edison Mission sold it’s 51% stake to Australian company, Origin Energy.
“The terms of this float were such that sharebrokers earned a greater commission from issuing shares to overseas shareholders than they did from issuing them to local shareholders. Many of the shares went to shareholders overseas (Gaynor, 1999). After the float, Gaynor assessed Contact as about 62% overseas owned.” Source
In reality, despite “assuring noises” made by Bill English and John Key, there is no way to prevent much of the proposed 49% sell-off of the SOEs, from falling into foreign ownership. This will not help New Zealand’s balance of payments, as profits are repatriated overseas, to offshore investors. It will mean that our most critically strategic assets will have owners who have no interest in New Zealand, except as a source of profits.
And importantly, we will lose approximately half of the profits made by these SOEs.
In 1999, Max Bradford promised New Zealanders that power prices would be “driven down” by competition.
That promise failed to materialise.
This year, English and Key promise that “only 10% to 15%” of shares will go to overseas investors.
Do we believe them sufficiently to “tick National” at this year’s general election?
I certainly will not.
John Key today announced that the proceeds from state asset sales could be used for roading…
Now hang on a mo’…
I thought National was intending to part-privatise Meridian Energy, Genesis Energy, Mighty River Power, coal miner Solid Energy, and Air New Zealand to pay off some of the $71 billion debt that National has racked up since it came to office in 2008?!
Now Key is suggesting that National may use the proceeds to pay for roading? Strangely enough, Key makes no mention of selling state assets to fund infra-structure here.
The questions that spring to my mind are;
1. Where is the income from Road User charges, gst on fuel, and other roading-related taxes that we are paying every time we fill up our vehicles at the pumps???
2. Wouldn’t it make more sense to use the profits from Meridian Energy, Genesis Energy, Mighty River Power, coal miner Solid Energy, and Air New Zealand, for infra-structure spending – rather han the actual generators of those profits???
3. If National has to rely on asset sales for infra-structure spending – what will they be relying on once all state assets are privatised and we’ve lost the entire income-stream???
This is like a heroin addict selling his car to pay for his next ‘fix’. What will he sell next? And what will he do once all his possessions are gone?
It’s not exactly a “good look” when a government behaves like a drug addict.
As for the good people of Kapiti – they got the government they voted for. It’s hard for me to feel any sympathy on this issue. My thoughts are with the 140 people who lost their jobs at MAF today. Or the thousands of others who’ve been made redundant these last three years.
My anger is directed at those individuals who blame welfare beneficiaries for the predicament they are in. The finger-pointers who blame the poorest and most vulnerable for daring to be poor and vulnerable.
To the people of Kapiti; you helped elect this government to office. You now have a wee taste of what it feels like to be steam-rolled and to be victimised.
Remember this on 26 November.