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It’s Official, The Sky Will Fall – Phil O’Reilly

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The sky is falling

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As the rightwing and their business foot-soldiers are continuing their mad panic (or more accurately, their mad attempts to panic the public) over the Labour-Green proposal for a single electricity buyer-desk, aka, NZ Power – the public have moved on.

Not that the right wing have noticed. Their fear-campaign is still cranking out all manner of garbage to strike the Fear Of Mammon into the hearts and minds of the Great Unwashed Masses.

Chief executive of BusinessNZ, Phil O’Reilly, had this op-ed piece published yesterday (30 April);

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NZ Power - electricity - Greens - Labour -  lower power electricity prices

Acknowledgment: Fairfax Media – More competition good for power sector

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After only the first paragraph, O’Reilly launches into a list of dire sky-is-falling list of Doomsday scenarios;

  1. Price controls harm investment.”
  2. New Zealand is dependent on overseas investment. Without it, home mortgages would become more expensive and harder to get…”
  3. New Zealand is dependent on overseas investment. Without it …  and more expensive to get investment to grow businesses and create jobs.”
  4. History shows that in places with price controls – the former Soviet Union, Venezuela, North Korea, or New Zealand under the Muldoon wage and price controls – the result is capital flight, run-down industries and poorer populations.”
  5. This threat also almost immediately destroyed millions of dollars of value built up by small investors in the NZ Superannuation Fund, KiwiSaver and private power companies.”
  6. Electricity prices must take into account the cost of building new generators – if they didn’t, we’d find the lights would go out the moment we exceeded our capacity.”

O’Reilly left out terrorist attacks, alien invasion, and God striking us down with thunderbolts.

Some of his rhetoric is so bizarre that you have to wonder if O’Reilly actually believes his own BS. Take for example this remark,

Electricity prices rise because a growing population and growing economy bring growing demand for power, and growth in demand requires investment in new generation plant, which is large-scale, long-lived and expensive to build.

Acknowledgment: IBID

O’Reilly then goes on to claim,

Much of the 64 per cent price rise under Labour resulted from interventionist policies.”

Acknowledgment: IBID

So if I have this straight; according to Mr O’Reilly, “Much of the 64 per cent price rise under Labour” is due toa growing population and growing economy bring growing demand for power”?!

Because that’s what he is implying;  growing population + economy = 64% in electricity price rises.

That’s utter bullshit.

The population of New Zealand grew from 3.8 million in January 2000 to our current 4.4 million. (See:   Trading Economics – New Zealand Population) That’s an increase of 600,000 – 15.8% (hopefully my math is correct on this calculation).  Somewhat short of the 64% that O’Reilly quotes.

As for suggesting that New Zealand’s economy grew by 64% during Labour’s term in office – as much as every left-winger  would love to acknowledge that – no. There has never been that degree of growth in New Zealand between 2000/08 or even 2000/13. Or any other decades;

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NZ GDP 2000 - 2008

Acknowledgment: Trading Economics – GDP Growth Rate

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After all the fear-mongering and name-calling, the only word left to describe O’Reilly’s piece is; laughable. His assertions are derisable; his “facts” are dubious and unsupported by evidence (ie; he’s made it up); and his fear-threat of more expensive mortages is  bogey-man stuff.

It may come as a shock to Mr O’Reilly – but whilst some of the public can be gullible, we are not that thick.

Nor do we willingly believe absurd claims like this,

Electricity prices must take into account the cost of building new generators – if they didn’t, we’d find the lights would go out the moment we exceeded our capacity.”

Acknowledgment: Fairfax Media – More competition good for power sector

Yes, we have had power cuts in the past. Usually due to low water storage in the dams; transmission line failure; or other equipment break-downs or shut-down for maintenance.

But let’s not forget the our entire past electricity generation infra-structure, such as Manapouri, Benmore,  Clyde Dam, etc,  were the  result of State  interventionist investment in energy infra-structure.

None of it was built by private enterprise in response to “consumer demand”. Private investment has been a relatively recent advent, such as Contact Energy’s Te Mihi development – a project, by the way that was under-taken during  Labour’s administration. (See: Te Mihi Power Station)

New Zealand has built up it’s energy infra-structure. We can do it again, when required. We most certainly did not rely on private enterprise.

But these are all “inconvenient facts” that the Right refuse to deal with – or even acknowledge. Right wingers like O’Reilly tend to re-write history in an Orwellian fashion, to suit their neo-liberal agenda.

Well, you can fool some of the people some of the time…

The associated poll with O’Reilly’s op-ed piece is hardly scientific, but as an indicator, it shows that people are waking up to the biggest con of the last thirty years of New Right “reforms”,

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More competition good for power sector  (2)

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Nearly two-thirds think that cheaper electricity is “about time”.

Just over a third want to “stick to what we’ve got”. Bloody National supporters – thick as two planks.

Well, I have a perfect solution to the demands for both groups;

  • Those 60.6% who want cheaper power can sign up to NZ Power, and recieve cheaper electricity through a single-desk buyer.
  • The remainder, 34.8%, can keep buying their electricity at “market” rates; paying whatever their powerco demands from them.

Both groups are catered for.

Those who want it, will get cheaper power.

National supporters (and we know who you are, you very thilly, thilly people) can keep getting gouged.

Choice is good, eh?

I’m happy.

This blogpost was first published on The Daily Blog on 3 May 2013.

Choice for everyone, eh?

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Additional

NZ Herald:  Lid blown on power price rort (3 Feb 2013)

NZ Herald:  The 30-year power price hike (3 Feb 2013)

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Asset Sales: two down, three to go!

22 August 2012 21 comments

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

Earth, Air…

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

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Full story

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

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

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

See: ibid

Fyfe is correct.

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

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

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Source: Google Finance – Air New Zealand Ltd

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

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Source: Google Finance – Air New Zealand Ltd

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

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

Not a good environment to be a seller.

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

See: Air New Zealand – Shares on Issue

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

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

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

See: English admits his SOE figures just a guess

Helluva way to run an economy…

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

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

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

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

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

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

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

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

See: Asset sales will leave Govt worse off – BERL

Madness.

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

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

Water…

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

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

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

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

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

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

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

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

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

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

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

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

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

See: Govt less bullish about partial asset sales

Fire…

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

Norske Skog Tasman

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

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

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

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

See: Paper mill cuts threat for power industry

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

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

Tiwai Aluminium Smelter

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

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

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

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

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

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

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

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

The Herald report goes on to say,

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

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

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

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

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

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

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

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

Capitalism. Ya gotta laugh.

Weather

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

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

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

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

See:  Dry year helps knock 28%  off Meridian profit

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

What next?

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

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

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

Watch this space.

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Additional

Tiwai Pt threat could delay Mighty River sale

Energy float may turn into a s(t)inker

Other blogs

No where to go on Maori water rights

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That was Then, This is Now #14

20 June 2012 1 comment

Thank you, now p*** off!

13 February 2012 3 comments

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When New Zealanders erupted in anger and  disgust at the sale of sixteen farms to a Chinese consortium, Maurice Williamson and his right wing groupies labelled critics of farm sales as “racists”.

When people opposed the sale of ‘Young Nick’s Head” to New York millionaire, John Griffin, and South Island high-country farms to Shania Twain – their cries to stop land sales were ignored.

We have privatised and sold dozens of former state-owned-assets to offshore investors. Australians now own half of Contact Energy and the BNZ, as well as other profitable businesses, and we lose billions annually by way of dividends remitted to overseas investors.

In the latest news, Australian-owned banks,  ANZ National, BNZ, ASB and Westpac, made a staggering $3 billion dollars in profit – most of it remitted to Australia,

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Full Story

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However, our elected representatives; our Honourable Members of Parliament; those most learned men and women; assure us that privatisation of state assets and farms is a good thing.

Privatisation, they say, creates jobs.

Yes, of course it does,

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BullshitFull Story

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No pain, no gain.

Except – we seem to be getting the pain and others are creaming the gain. How does that work?!?!

I know! Let’s ask the politicians!

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“They are not here for lands but bring the investment in, which can create jobs for us. We should not be hostile to foreign investment, whether the money is from China, Australia or America.” – Prime Minister John Key

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“Beneficial foreign investment makes a positive contribution to New Zealand through increased jobs, capital and access to export markets.” – Bill English, Finance Minister, Deputy PM, and sheep farmer

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“Not enough New Zealanders appreciate the benefits of foreign investment and economic growth. The reaction of too many people was “you can’t do this, you can’t do that, you can’t do the other thing with little thought to the impact it had on potential jobs.” – Development Minister Steven Joyce

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Are we convinced?

Ok, New Zealanders… Time to wake up to the fact we are being rorted – with the connivance of most of our elected representatives.

Wake up!

Really.

Now is good.

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Evidently, we Voters are stupid – John Key

28 October 2011 3 comments

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According to John Key, we voters “don’t fully understand what we’re [National] doing“, when it comes to National’s stated intention to sell  half of certain state assets,

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Source

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They don’t fully understand what we’re doing. My experience is when I take audiences through it, like I did just before, no-one actually put up their hand and asked a question.”

Excuse me?! Am I wrong in thinking that has to be one of the most arrogant statements ever uttered by a New Zealand politician?

They don’t fully understand what we’re doing…”

Au contraire, Dear Leader.  We understand fully what your Party is attempting to con us with; to sell us state-owned assets that we, The People, already own; to sell us shares that many of us will be able to ill-afford, as we meet the daily necessities of life; and that, like Contact Energy, will mostly end up in foreign ownership.

My experience is when I take audiences through it, like I did just before, no-one actually put up their hand and asked a question.”

Again, au contraire, Mr Prime Minister, Sir.

When I attended two public meetings in the Hutt Valley (24 May at Marsden St Church, Lower Hutt, and 2 August at  “Expressions” Centre, Upper Hutt), members of the public were invited to ask questions. Several people, in both audiences, asked you critical questions regarding asset sales.

One man in particular, stood up and challenged you on your assertion that Kiwi “mums and dads” would be given preference to buy shares, and was vocal in his criticisms of your plans. He stated matter-of-factly that once sold, those shares could easily be re-sold, and there could be no control over their final ownership.

Even National Party members are uneasy about asset sales,

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State asset sales are proving to be a bone of contention even within National’s own ranks as its grassroots members question whether crucial assets will be flogged off overseas.

The government has struggled to reassure Kiwis that its plan to sell a 49 per cent stake in the remaining state owned power companies won’t see them end up in foreign ownership.

But it also appears to have done a poor selling job among its own members with Finance Minister Bill English facing questions from party members during a public session of the National Party conference in Wellington today.

Mr English said the government was working on ways to ensure Kiwi investors were at the front of the queue but acknowledged there was no way to stop them selling shares to overseas buyers.Source

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So, Mr Key, you are being disingenuous when you claim that “ no-one actually put up their hand and asked a question.” People do put their hands up, and they are generally quite annoyed.

I would also suggest, Mr Key, that it is hardly reassuring if people do not ask you questions.

It generally takes at least two terms for a Prime Minister to believe his own spin doctors and be carried away with his artificially-created “public image”.  For John Key  to make such arrogant utterances in only his first term is not a good sign. It implies that he views us Voters as children who “don’t fully understand” and must be treated with paternalistic patience.

Have a care, Mr Key. Such politicians often end up out of a job after Election Day.

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Additional reading

Deutsche Bank, Craigs win mandate for advice on $7 bln of NZ state asset sales

‘Buy state-asset shares or foreigners will’ – Bill English

National Party members question state asset sales

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Politics through a crystal ball, palmistry, or chicken entrails?

2 September 2011 2 comments

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.

Furthermore,

“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.

 

Garrick Tremain cartoon, Otago Daily Times, circa 1998/99

 

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.

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Further Reading:

Molly Melhuish

New Zealand Electricity Authority

Energy and Resources (New Zealand Government, portfolio website)

Max Bradford

Contact Energy

Electricity sector in New Zealand