Archive
Tiwai Point – An exercise in National’s “prudent fiscal management”?
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Timeline
3 October 2007: Meridian and NZAS/Rio Tinto sign agreement for the continuous supply of 572 megawatts of power to the Tiwai Point smelter for 2013 to 2030.
30 October 2011: National government announces partial asset sales, of Genesis, Meridian, Mighty River Power, Solid Energy, and a further sell-down of Air New Zealand.
9 August 2012: Meridian Energy (electricity supplier to Rio Tinto) announces that Rio Tinto/Pacific Aluminium is demanding to renegotiate its electricity supply contract between the Tiwai Point aluminium smelter and Meridian.
We were conned.
There is no other way to describe events between October 2007 and February this year; we were conned by a multi-national mining/metals giant that exploited National’s core-policies, for their own gain.
How else to describe the above events?
Once National announced their intention to partially-privatise Meridian Energy and float it on the New Zealand (and Australian) stock exchanges – Rio Tinto realised that the price of Meridian shares would be determined by the income they derived from selling electricity.
As Green Party co-leader, Russel Norman stated,
”Rio Tinto took advantage of Mr Key’s obsession with asset sales by threatening to derail the sale of Meridian by closing the Tiwai smelter, so Mr Key gave them $30 million of public money.”
Rio Tinto was Meridian’s biggest customer, supplying Tiwai Point with approximately 15% of New Zealand’s total electricity output. As such, Rio Tinto had Meridian (and by proxy, the National Government) by the balls. And on 7 September 2012 and 7 August 2013, Rio Tinto squeezed.
By making 130 workers redundant, it sent National, and it’s compliant leader, a clear message; “Don’t f**k with us, Johnny-boy. These 130 plebes are an example of what we can do to screw you over“.
Had Rio Tinto followed through on it’s threats (and make no mistake – they were threats), it would have brought down the government. That would have ended Key’s career and his reputation would have been in tatters. No Knighthood or beersies for Johnny-boy!
Key had no choice but to capitulate. Key admitted as such when he said on 14 February,
“At the end of the day I think the Government took a modest step to ensure there was a smooth potential transition there – that we didn’t have a glut of electricity we couldn’t use or that thousands and thousands of Southland jobs are out at risk.”
The resulting loss of 700 jobs at the smelter, and a further 2,500 downstream throughout Southland, would certainly have been embarrassing for Key and damaging to National . But this is a government that has overseen the sacking of approximately 3,000 state sector workers (up to August 2012) and 29,472 few jobs in the manufacturing sector, since 2006 (2013 Census results), so unemployment per se is not a problem that overly concerns right-wing government ministers.
What really threatened this government was Key’s reference to a “glut of electricity” – note the words. A glut of electricity would have de-railed the entire asset sales programme. Result; end of National; end of asset sales programme (and the neo-liberal agenda on the whole), and the end of Key’s career.
This shabby, self-serving, politically-expedient exercise, has cost us – the tax-payer – $30 million, plus an even cheaper electricity deal than probably anyone else in this country gets. No wonder the contract price is even more uber secret than the goings-on at the GCSB – the public would erupt in fury if they came to know what our electricity was being sold for, whilst the rest of us have mounting power prices, year after year after year.
Meanwhile, the lowest paid workers in New Zealand’s rest homes are paid just barely above the minimum wage;
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To which our well-heeled Prime Minister responded thusly,
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To quote Dear Leader,
“It’s one of those things we’d love to do if we had the cash. As the country moves back to surplus it’s one of the areas we can look at but I think most people would accept this isn’t the time we have lots of extra cash.”
Interesting. Key and his Cabinet cronies found $30 million to throw at a multi-national corporation – which only six months later posted a $4.43 billion ($US3.7 billion) annual after-tax profit.
But no money for the lowest paid, hardest-working people (predominantly women) in our community. Key responded to Russell Norman’s criticism of the $30 million welfare handout,
“If Tiwai Point had closed straight away then hundreds and hundreds and hundreds of jobs would have disappeared and the Greens would have said the Government doesn’t care about those workers and is turning their back on them so they really can’t have it both ways.”
If only we could believe Key. But considering that thousands lost their jobs since the Global Financial Crisis, and National has not bailed out any other company, the Prime Minister’s protestations ring hollow.
In fact, it’s fairly well obvious that the taxpayer-funded payout to Rio Tinto had nothing to do with jobs or the Southland economy – and everything to do with the state assets sales. As David Hargreaves wrote on Interest.co.nz,
“So, it will cost you, I and him and her a combined NZ$30 million of our hard-earned to keep the Tiwai Point aluminium smelter open just long enough so that the Government can flog off 49% of Meridian Energy.
That’s about the size of the deal struck between Meridian and the company controlled by global giant Rio Tinto, with additional sugar coating supplied by the Government, courtesy of us.
From the point the Government first stepped in earlier this year in an attempt to ‘help out’ it was always obvious tax payers were going to be forced to front up with some readies for the pleasure of keeping the always controversial smelter running for a while longer.
I have no doubt that the smelter will be closed in 2017, which is now when the owners get the first chance to pull the plug.”
The most asinine aspect to this deal (and there are many) is that Finance Minister, Bill English, told Radio New Zealand on 9 August 2013 that “ensuring the safety of those jobs was not part of the deal and no undertakings were sought on the operation of the company”.
No guarantee for preserving jobs?!
Question: So what, precisely, did $30 million buy?
Answer: Rio Tinto not rocking the boat and upsetting National’s asset-sales programme.
This was a most odious, repugnant deal.
Every New Zealander contributed some of their hard-earned cash, which ended up in Rio Tinto’s shareholder’s pockets.
All done to achieve the sale of state assets which we own.
John Key gave away our money; which ended up in shareholder’s pockets; to sell assets we own; to other share investors.
This is the crazy side of National’s economic policy. This is corporate welfare and crony capitalism rolled into one. Which begs the question to National’s supporters; is this what they see as “prudent fiscal management”?
How “prudent” is it to pay a subsidy to a multi-national corporation, that posted a multi-billion dollar after-tax profit, that will most likely close the smelter regardless in some near future date (2017?)?
And why was that $30 million not invested in other job creation industries in Southland, so that a multi-national corporation could not hold this country to ransom? After Rio Tinto and Warner Bros – who is next to hold a gun to our collective head demanding a taxpayer subsidy/payout?
This was an odious, repugnant and wasteful deal.
This should not be allowed to be forgotten this election.
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References
NZ Herald: Meridian boss hails deal with smelter
Radio NZ: Details of Meridian share offer announced
Radio NZ: National announces plans for asset sale profits
TV3: Rio Tinto seeks new Bluff smelter terms
TV3: Rio Tinto eyeing smelter closures
Australia Mining: Rio Tinto’s New Zealand smelter to axe jobs
Fairfax Media: More jobs to go in smelter revamp
Interest.co.nz: Govt pays NZ$30 mln to smelter owners in a deal that will clear the way for the float of Meridian Energy
Radio NZ: No job guarantees sought in smelter deal
Otago Daily Times: Rio Tinto profit more than $4.4b
NZ Herald: PM defends $30m payout to Rio Tinto
NZ Statistics: 2013 Census QuickStats about national highlights
Dominion Post: 555 jobs gone from public sector
Fairfax media: Resthome spy hails saint-like workers
Fairfax media: PM – No money for aged care workers
Previous related blogposts
John Key’s track record on raising wages – 4. Rest Home Workers
“It’s one of those things we’d love to do if we had the cash”
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Above image acknowledgment: Francis Owen
This blogpost was first published on The Daily Blog on 18 February 2014.
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Radio NZ: Politics with Matthew Hooton and Mike Williams – 9 December 2013
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– Politics on Nine To Noon –
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– Monday 9 December 2013 –
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– Kathryn Ryan, with Matthew Hooton & Mike Williams –
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Today on Politics on Nine To Noon,
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Click to Listen: Politics with Matthew Hooton and Mike Williams ( 25′ 53″ )
This week:
- The political ramifications of Nelson Mandela’s death and the NZ delegation travelling to South Africa,
- the Green Party’s new policy for the Meridian share float,
- and leadership changes within New Zealand’s smaller political parties.
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Meridian Power?
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Our household is with Meridian Energy.
If that’s the next “on the block” to be part-privatised, I’ll be on the phone within sixty seconds to change to Genesis.
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Blogger lays complaint with Commerce Commission
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As of today, 1 April 2013, this blogger has laid a complaint with the Commerce Commission regarding National minister’s questionable dealings with Rio Tinto and proposed subsidies for electricity prices,
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Your details
- First Name: Frank
- Last Name: Macskasy
- Email: fmacskasy@gmail.com
Your address
Your complaint
- Business you are complaining about: New Zealand Government
- Street: Molesworth St
- Suburb: Thorndon
- City/Region: Wellington
- Post code: 6160
- Business Contact Number/ Mobile number: (4) 817 9999
Description of complaint
What happened?
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.
-Frank Macskasy
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I will keep readers posted as to what, if anything results from this complaint.
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Relevant sections
Section 27: Restrictive trade practices
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Section 30: Price fixing
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What’ve you been smoking, Mr Roughan?
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Acknowledgement: NZ Herald – Perfect chance to can Tiwai
There’s nothing quite like a threat to the New Right economic theory to bring the apologists slip-sliding out of the wood-work.
Case in point: John Roughan’s column in the NZ Herald on 30 March. According to Mr Roughan, the ‘blame’ for this latest fiasco can be sheeted home to John Maynard Keynes and our post-War desire for full employment.
Because, as we (except for neo-liberals) all know, full employment is a good thing for society.
First of all, read Mr Roughan’s article. Then come back to this blogpost, and scroll down…
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Ok, read it?
Now who spotted the outrageous piece of delusional rubbish that Mr Roughan wrote in his column?
Let me quote;
“The price of most things at that time was controlled or subsidised and nobody knew or cared that prices didn’t align the item’s cost of production to its value in a competitive market. The economy was a job-creation scheme that ended with double-digit unemployment in the 1970s.”
Acknowledgement: IBID
Either Mr Roughan doesn’t know his history – or he is being wilfully mendacious to promote his rather obvious neo-liberal views.
Let’s have a look at unemployment in the 1970s though to the 1990s,
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Acknowledgement: Ministry of Business, Innovation and Employment – How bad is the Current Recession? Labour Market Downturns since the 1960s
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And to put that graph into actual stats,
| Date | Unemployment rate |
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| Mar-56 | 0.6 |
| Jun-56 | 0.6 |
| Sep-56 | 0.6 |
| Dec-56 | 0.6 |
| Mar-57 | 0.6 |
| Jun-57 | 0.6 |
| Sep-57 | 0.6 |
| Dec-57 | 0.6 |
| Mar-58 | 0.6 |
| Jun-58 | 0.6 |
| Sep-58 | 0.6 |
| Dec-58 | 0.6 |
| Mar-59 | 0.6 |
| Jun-59 | 0.6 |
| Sep-59 | 0.6 |
| Dec-59 | 0.6 |
| Mar-60 | 0.6 |
| Jun-60 | 0.5 |
| Sep-60 | 0.5 |
| Dec-60 | 0.5 |
| Mar-61 | 0.5 |
| Jun-61 | 0.5 |
| Sep-61 | 0.5 |
| Dec-61 | 0.5 |
| Mar-62 | 0.5 |
| Jun-62 | 0.5 |
| Sep-62 | 0.5 |
| Dec-62 | 0.6 |
| Mar-63 | 0.5 |
| Jun-63 | 0.5 |
| Sep-63 | 0.5 |
| Dec-63 | 0.5 |
| Mar-64 | 0.5 |
| Jun-64 | 0.5 |
| Sep-64 | 0.5 |
| Dec-64 | 0.5 |
| Mar-65 | 0.5 |
| Jun-65 | 0.5 |
| Sep-65 | 0.5 |
| Dec-65 | 0.5 |
| Mar-66 | 0.5 |
| Jun-66 | 0.5 |
| Sep-66 | 0.5 |
| Dec-66 | 0.5 |
| Mar-67 | 0.6 |
| Jun-67 | 0.7 |
| Sep-67 | 1.0 |
| Dec-67 | 1.2 |
| Mar-68 | 1.3 |
| Jun-68 | 1.2 |
| Sep-68 | 1.1 |
| Dec-68 | 1.1 |
| Mar-69 | 1.0 |
| Jun-69 | 0.9 |
| Sep-69 | 0.8 |
| Dec-69 | 0.8 |
| Mar-70 | 0.8 |
| Jun-70 | 0.8 |
| Sep-70 | 0.8 |
| Dec-70 | 0.8 |
| Mar-71 | 0.8 |
| Jun-71 | 0.9 |
| Sep-71 | 1.0 |
| Dec-71 | 1.2 |
| Mar-72 | 1.3 |
| Jun-72 | 1.3 |
| Sep-72 | 1.3 |
| Dec-72 | 1.3 |
| Mar-73 | 1.2 |
| Jun-73 | 1.1 |
| Sep-73 | 1.1 |
| Dec-73 | 1.0 |
| Mar-74 | 1.0 |
| Jun-74 | 1.0 |
| Sep-74 | 1.0 |
| Dec-74 | 1.0 |
| Mar-75 | 1.1 |
| Jun-75 | 1.2 |
| Sep-75 | 1.2 |
| Dec-75 | 1.2 |
| Mar-76 | 1.2 |
| Jun-76 | 1.1 |
| Sep-76 | 1.0 |
| Dec-76 | 0.9 |
| Mar-77 | 0.8 |
| Jun-77 | 0.8 |
| Sep-77 | 0.8 |
| Dec-77 | 1.2 |
| Mar-78 | 1.5 |
| Jun-78 | 1.7 |
| Sep-78 | 1.7 |
| Dec-78 | 1.4 |
| Mar-79 | 1.4 |
| Jun-79 | 1.5 |
| Sep-79 | 1.4 |
| Dec-79 | 1.3 |
| Mar-80 | 1.4 |
| Jun-80 | 1.6 |
| Sep-80 | 2.2 |
| Dec-80 | 2.5 |
| Mar-81 | 2.6 |
| Jun-81 | 2.6 |
| Sep-81 | 2.6 |
| Dec-81 | 2.7 |
| Mar-82 | 2.6 |
| Jun-82 | 2.7 |
| Sep-82 | 3.0 |
| Dec-82 | 3.6 |
| Mar-83 | 4.4 |
| Jun-83 | 5.0 |
| Sep-83 | 5.1 |
| Dec-83 | 4.8 |
| Mar-84 | 4.7 |
| Jun-84 | 4.4 |
| Sep-84 | 4.3 |
| Dec-84 | 3.9 |
| Mar-85 | 3.7 |
| Jun-85 | 3.6 |
| Sep-85 | 3.6 |
| Dec-85 | 3.9 |
| Mar-86 | 4.2 |
| Jun-86 | 4.1 |
| Sep-86 | 4.1 |
| Dec-86 | 4.2 |
| Mar-87 | 4.0 |
| Jun-87 | 4.2 |
| Sep-87 | 4.2 |
| Dec-87 | 4.4 |
| Mar-88 | 4.9 |
| Jun-88 | 5.4 |
| Sep-88 | 6.4 |
| Dec-88 | 6.3 |
| Mar-89 | 7.1 |
| Jun-89 | 7.5 |
| Sep-89 | 7.4 |
| Dec-89 | 7.3 |
| Mar-90 | 7.2 |
| Jun-90 | 7.7 |
| Sep-90 | 8.1 |
| Dec-90 | 8.9 |
| Mar-91 | 9.8 |
| Jun-91 | 10.5 |
| Sep-91 | 11.2 |
| Dec-91 | 11.0 |
| Mar-92 | 10.9 |
| Jun-92 | 10.4 |
| Sep-92 | 10.6 |
| Dec-92 | 10.6 |
| Mar-93 | 10.1 |
| Jun-93 | 10.1 |
| Sep-93 | 9.5 |
| Dec-93 | 9.4 |
| Mar-94 | 9.3 |
| Jun-94 | 8.5 |
| Sep-94 | 8.0 |
| Dec-94 | 7.6 |
| Mar-95 | 6.8 |
| Jun-95 | 6.4 |
| Sep-95 | 6.2 |
| Dec-95 | 6.4 |
| Mar-96 | 6.4 |
| Jun-96 | 6.2 |
| Sep-96 | 6.4 |
| Dec-96 | 6.2 |
| Mar-97 | 6.7 |
| Jun-97 | 6.8 |
| Sep-97 | 7.0 |
| Dec-97 | 7.0 |
| Mar-98 | 7.4 |
| Jun-98 | 7.9 |
| Sep-98 | 7.7 |
| Dec-98 | 7.9 |
| Mar-99 | 7.5 |
| Jun-99 | 7.3 |
| Sep-99 | 7.0 |
| Dec-99 | 6.4 |
| Mar-00 | 6.5 |
| Jun-00 | 6.3 |
| Sep-00 | 6.0 |
| Dec-00 | 5.8 |
| Mar-01 | 5.5 |
| Jun-01 | 5.4 |
| Sep-01 | 5.4 |
| Dec-01 | 5.6 |
| Mar-02 | 5.3 |
| Jun-02 | 5.3 |
| Sep-02 | 5.5 |
| Dec-02 | 5.1 |
| Mar-03 | 5.0 |
| Jun-03 | 4.8 |
| Sep-03 | 4.5 |
| Dec-03 | 4.7 |
| Mar-04 | 4.3 |
| Jun-04 | 4.2 |
| Sep-04 | 3.9 |
| Dec-04 | 3.8 |
| Mar-05 | 3.9 |
| Jun-05 | 3.8 |
| Sep-05 | 3.8 |
| Dec-05 | 3.8 |
| Mar-06 | 4.0 |
| Jun-06 | 3.7 |
| Sep-06 | 3.9 |
| Dec-06 | 3.8 |
| Mar-07 | 3.8 |
| Jun-07 | 3.7 |
| Sep-07 | 3.6 |
| Dec-07 | 3.5 |
| Mar-08 | 3.8 |
| Jun-08 | 4.0 |
| Sep-08 | 4.3 |
| Dec-08 | 4.7 |
| Mar-09 | 5.0 |
Source: NZIER, Statistics NZ.
At no point in the 1970s did unemployment ever rise above 1.7%. Hardly the “double-digit unemployment in the 1970s” that Mr Roughan presented as the unvarnished truth.
In fact, if we look at the actual stats, the only time unemployment rose into double-digit figures was from Jun-91 to Jun-93, when National implemented it’s infamous “Mother of all Budgets”. That Budget, written by arch-neo liberal Ruth Richardson, sent businesses to the wall as well as unemployment skyrocketing,
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John Roughan then attempts to use his bogus “facts” to push the typical New Right line,
“Pacific Aluminium asked Meridian to renegotiate a price that was set just before the world economy went sour in 2007 and demand for aluminium dropped. Meridian agreed to a lower price until 2016 but would not commit to a lower price beyond that.
Last week the Government intervened. Some of your taxes and mine are going to be promised to a global mining conglomerate that wants to sell its New Zealand smelter but cannot find a buyer.
The Government could not have better demonstrated the pitfalls of public ownership if it had tried.”
Acknowledgement: NZ Herald – Perfect chance to can Tiwai
“The Government could not have better demonstrated the pitfalls of public ownership if it had tried”, wrote Roughan.
Based on – – – ?
Falsities?
Ideology?
Whimsy?
Or just plain bullshit.
The stoush between Rio Tinto and Meridian Energy does not “demonstrate[d] the pitfalls of public ownership” at all.
What it demonstrates is that Rio Tinto has seized the main chance to re-negotiate it’s contract. Does anyone who is not on hallucinogenic drugs not believe even for a moment that Rio Tinto wouldf not try it on with Meridian even if that powerco was 100% privately owned?
Does Mr Roughan honestly believe, with hand-on-heart, that Rio Tinto would behave differently if Meridian was a private company, like Contact Energy?
How f*****g naive can some commentators get, for gods-sakes?
John Roughan’s column is nothing less than neo-liberal propaganda. It is a blatant attempt to twist the current situation, and mis-represent the facts. It is a deflection. It is an acolyte of neo-liberalism trying to white-wash his failed dogma and blame everyone else except his own failed system for this total screw-up.
As if the 2007/08 Global Financial Crisis wasn’t enough to show us that neo-liberal capitalism is a failed ideology. (Who would Mr Roughan blame for that collapse, I wonder? Solo-mums in South Auckland?)
But then, we all know how well Right Wingers take responsibility, don’t we?
Not very well.
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Hat-tip
References
NZ Herald: NZ Herald – Perfect chance to can Tiwai (30 March 2013)
The Daily Blog: Chris Trotter, Lying For The Revolution: John Roughan Defends Neoliberalism (1 April 2013)
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A Clear Warning to Investors in SOEs…
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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,
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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.
Source: IBID
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.
Source: IBID
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,
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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,
Impairments
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.
Source: Mighty River Power LtdResults for Announcement to the Market
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.”
Source: IBID
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.”
Source: Parched Waikato could hit Mighty River Power
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,
“No.”
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References
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)
Other blogs
Seemorerocks: An Appeal for a New Zealand Risk Assessment
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319 million reasons not to part-privatise our power companies
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There are at least 319 million reason why it is sheer madness for National to be considering part-privatisation of state-owned power companies,
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Acknowledgement for above media reports: Radio New Zealand
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The half year (not even a fullyear!) profit for the above three power SOEs is: $319.5 million.
Combined dividends paid the the government will be: $224 million.
If 49% of all three SOEs is sold to private investors, the State (ie, You and Me) will lose out on approximatelt $110 million.
That will be $110 going into bank accounts of institutional investors, or the pockets of wealthy New Zealanders with sufficient income to buy shares.
It will mean a drop in government income.
Worse still, going by historic events in the late 1990s when the ECNZ (Electricity Corporatrion of NZ) was split up, and the newly formed Contact Energy was split off and fully privatised, power prices will continue to skyrocket,
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National-led government – NZPA – 12 May 1999
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Privatisation will not mean competition resulting in cheaper power prices any more than competing fuel companies are giving us cheaper petrol prices.
In fact, as Economics Professor, Geoff Bertram said on 13 February 2013, at an anti-asset sales rally in Wellington,
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“… It’s my view that probably the most important political consequence of the part-privatisation of SOEs is to place private investors in those enterprises and thereby immunise them against possible future policy that might reduce their value.
And since I think an important part of an improved government policy would indeed reduce their value, I am opposed to the asset sales…
…The companies have a very high valuation. The reason why they have a very high valuation is that they have successfully participated in a long-running rort to extract cash from residential electricity consumers by the inexorable driving up of prices of electricity.
That rort, has been possible, because government policy has allowed and has indeed supported the emergeance of a cartel of five, large, vertically-integrated, generator-retailers – three of whom are SOEs – which have been able to operate without any effective regulation, at the expense of consumers who were too vulnerable to protect their interests against price hikes.
And if you looked at the tracks of electricity prices over the last 20, 30 years you will have noticed that large industry has protected itself very successfully; commercial electricity buyers have done fine; residential who are the dis-organised, unrepresented, undefended, captive group of customers have seen their prices go up in real terms 100% since 1986.
And the main consequence of the electricity reforms has indeed been that doubling of the cost of electricity to ordinary households.
That’s a major cause of energy poverty; it’s been an important part in the growing inequality of income and wealth in this country; and it’s something that a socially responsible government would, in my view, be taking serious action to reverse.”
Geoff Bertram continued,
“Just to put that doubling of the residential price in context. New Zealand’s pretty much on it’s own in the OECD and if you look at the figures for other countries around the OECD, from 1986 to the present, the price of electricity to residential consumers in OECD Europe, in Australia, and in the United Kingdom, is still the same as it was in 1986. In the United States, Japan, and France, prices are down 25% , compared to where they were in 1986, in real terms. In South Korea they’re down 50%, compared to where they were in 1986.
New Zealand is the only only OECD country that has gone out there and driven up electricity prices 50%. We’re also pretty much the only country that doesn’t have a regulator in place, and where government doesn’t have any particular social policy relating to the pricing of essential services to the public.”
Prof Bertram explained,
“And here’s how it works.
You take a bunch of assets with a given value, and you look at the existing price, to consumers of the product, and you say “well look, we can get the price up”; so you project that higher price; you capitalise that; and then if you can get the price up the asset will be worth more; so then you re-value the asset; and then you go and use the higher value of the asset to justify raising the prices, and then you repeat.
And this is the circular process which has been going on in New Zealand now, in electricity, for more than a decade. It is completely legal under New Zealand law.
It is not illegal to profiteer or to gauge captive customers in this country. [In] very few countries is that true.
And it’s consistant with New Zealand’s generally accepted accounting practice which basically tells you that there’s a rotteness at the core of accounting practices in this country.”
And added this shocking insight,
“Here’s the problem. Electricity was once an essential service provided to households at the lowest price, consistent with covering the industry’s costs.
Since 1986 the sector has been corporatised and part-privatised, and it’s pricing has been driven by the quest for profit by giant companies that have the market power to gouge their consumers.
As the owner of three of those companies, the New Zealand government has therefore become a predator. And now the Treasury wants to cash in on that rort by selling out half the government’s stake.
What that means in terms of the options for the future for government to turn around and come back from the predator model and return to a social service approach for energy supply, is being closed off.”
Concluding with,
“But if you want to deal with energy poverty and get kids out of hospitals with asthma and other respiratory diseases and so on, one of the really good things that you can do is get cheap energy into New Zealand households and that would be sustainable on the basis of the current government owned assets.
About 300 kwh free. [But if] you sell Mighty River and what’s feasible comes down to 200 [kwh]. You sell Genesis and what’s feasible comes down to 100 [kwh]. You sell Meridian and it’s gone…
What I’m saying is the contract that supplies the Rio Tinto smelter down at Bluff, the old Comalco contract, is the contract New Zealand households should have had from the start.
And it still could be done.”
See previous blogpost: Wellingtonians rally to send a message to the Beehive! (part rua)
As Radio NZ reported on 21 February,
“Electricity prices paid by Mighty River customers rose 2% over the period while costs fell 22%.”
See: Mighty River Power profit quadruples
Which leads us to these points to consider,
- Despite a glut of electricity, prices continue to rise. There is price-gouging going on by all power companies, whether State Owned or by privately-owned Contact Energy. There is no competitive force driving prices down. There is no indication that part-privatisation will create any competition.
- At least state ownership means that most electricity profits stay in New Zealand and contribute to the State, to pay for health, education, roading, etc. However, one wonders if this sort of punitive, indirect-taxation, on low income families is fair, whilst more affluent households can afford insulaion, solar power, and other energy-saving strategies.
- As Prof Bertram maintains, partial privation will most likely close off future progessive governments’ abilities to reform the electricity industry and return to a social service approach.
See also previous related blogpost – with Max Bradford’s response on this issue: History Lesson – Tahi – Electricity Sector “reforms”
Meanwhile, some of our past political leaders are waking up to the realities of historical state asset privatisations,
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See: Bolger – Telecom sale a mistake
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Better late than never?
Nah. Better now than later.
These mistakes are too expensive and we all end up paying.
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Asset Sales: all down?
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Continued from: Asset Sales: two down, three to go!
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As predicted, the Waitangi Tribunal has issued a report endorsing a delay to asset sales until the issue of water rights can be resolved,
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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.
Tough.
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.
You’ve lost.
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Additional
Asset sales in Air New Zealand also doubful this term
Solid Energy revenue slump could delay sale by years
Tribunal finds SOE share sales a breach, but offers solution
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
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References
Splitting up ECNZ expected tp cut wholesale power price 10%
Upcoming floats will require raising $3b
Lower power prices coming, says Bradford
Power prices to rise by up to 15.1%
Additional
NZ Asset Sales Policy Began On Wall Street
Asset sales bill down to the wire
Previous Blog post
That was Then, this is Now #13
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History Lesson – Tahi – Electricity Sector “reforms”
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"Those who cannot remember the past are condemned to repeat it" - George Santayana, 1863 - 1952
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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…
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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…
[abridged]
… 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
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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”
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Government sprung on SOE sale plan!!
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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.
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[1]
“ 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
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[2]
“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
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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,
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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.
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And most specifically, this part of it’s Principal Objectives,
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“…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.”
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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…”
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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.
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Additional
NZ Herald: Asset sale draft plan internet blunder
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National – as fiscally prudent as a heroin addict?
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.
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