Debate on Crown Entities, Public Organisations, and State Enterprises — Meridian Energy

Meridian Energy is, of course, one of the three Government-owned electricity generation companies that the Government says it will, if re-elected, sell half of.

💬 Katrina Shanks: No, that’s not true.

I beg the member’s pardon—

💬 Hon Member: 49.

Forty-nine percent of—half. If the debate was between 49 percent and 50 percent, we probably would not be having it. The real debate here is about why the Government is proposing to do this and, in the context of this debate, what is wrong with the performance of this company in its current ownership structure. The answer to those questions is that there is nothing wrong with the company’s performance and its current structure. Indeed, Treasury, in its papers released with the Budget, said that it is unlikely there will be a material improvement in the way in which this company operates as a consequence of half of it being privatised.

The financial review report from the Commerce Committee shows that in the year under review the net profit of Meridian was $184 million. It paid two dividends: one of $89 million followed by a final dividend of $68 million—a total of about $150 million in dividends in one year alone. It makes no sense to sell these companies, and Meridian is a good example of why that does not need to occur. Why, then, is the Government doing it? It is doing it because it has got New Zealand into a situation of a $16.7 billion deficit and its members have given themselves the excuse that, as a consequence of their own conduct in putting forward unaffordable tax cuts in earlier Budgets, they need to do this and that they are justified in doing it.

I want to deal with one of the other issues. Government members say this is going to improve capital markets in New Zealand to give ma and pa investors and KiwiSavers more choices of what to invest in. The point is, firstly, that these assets are already owned by New Zealanders through the Government. Every New Zealander owns them, not just the top 10 percent who so profited under the National Government’s tax cuts that they received 42 percent of those income tax cuts and therefore are disproportionately likely to be the people who can buy these assets if they are flogged off. But the underlying principle that the Government has to sell well-run Government-owned assets in order to help the private sector is wrong. Are we really so depressed about the ability of New Zealand’s private sector to generate good investment opportunities that we have to sell to the private sector what already exists on the Government’s balance sheet? What a narrow vision of New Zealand’s economic development in the future!

Changing who owns these companies will not change the productive output of New Zealand’s economy one iota. The companies will still be producing electricity. The only thing that could change, to the detriment of our productive sector, is that electricity prices will go up. Why do we know that? We hear the Government saying, for a start, that the private sector is always better at running businesses, and it quite rightly points to the fact that there is an increased private sector discipline to maximise shareholder returns. Well, we agree with that.

We agree that private ownership of assets does increase private sector disciplines to maximise shareholder returns. That is why, on average, Contact Energy and TrustPower charge more for electricity than the State-owned enterprises. That is why, if these companies are privatised, we will see maximisation of shareholder returns in two ways. Yes, we will see further trimming of costs to a minor extent, although I have to say salaries and those sorts of overheads are a minor proportion of total costs in these sorts of companies. But the other side of that same coin is that if we accept that private sector disciplines minimise costs, so as to maximise shareholder returns, they also maximise prices. It is two sides of the same coin—minimising costs and maximising prices.

That is particularly problematic in this area, because we know from reports of the Commerce Commission that the market is not competitive. A report produced under the auspices of the Commerce Commission that came out in May 2009 found that in the period under review New Zealanders on average had been overcharged—

On reading the financial review of Meridian Energy, it is most interesting to note the focus of the report. The Commerce Committee noted Meridian Energy’s growing wind portfolio and the number of options it had in the pipeline in this area. There were a number of questions on a West Coast project and its impact on the environment—apparently Meridian Energy stood by this project—and it also talked about Meridian Energy’s offshore renewable projects being supported by the committee.

Of course, the other strong feature of any review of Meridian Energy would be the impact of the Christchurch earthquakes. I think, in light of the events of yesterday, we can all appreciate the sense of frustration, anger, disappointment, or whatever we want to call it, in Christchurch. So many people have lived on the edge for so long, and to have yet another earthquake is obviously very destabilising and worrying for a lot of families down there, but strong leadership is being provided by the authorities, I am absolutely sure. An important part of Meridian Energy, a company with strong links to Christchurch, is the work it is doing to assist the electricity authorities in the whole of the Canterbury area in what they are doing.

The member opposite, David Parker, spoke previously about some of the Government’s thinking around the mixed-ownership model. We would not think that Labour members would even acknowledge that electricity prices went up 72 percent in 9 years under the Labour Party opposite, when in Government. Over those 9 long years, power prices went up 72 percent. Those members can stand up now and wring their hands about the effect of electricity prices on consumers, but they just ignore what happened during those Clark years, when prices went up 72 percent. Ownership is not a feature of price rises and that is not an argument to be accepted.

There are a number of reasons why the Government is looking at a mixed-ownership model, much like we have with Air New Zealand—a model that was supported by the previous Government—in respect of Meridian Energy and a number of other companies. The first is recognition that the New Zealand economy, and the New Zealand Government, is facing huge demands on capital. Over the next 4 or 5 years, we will need about $32 billion of capital to invest in vital public infrastructure like roads, hospitals, and schools. We can face the reality that we might have to borrow that money, or we can say that some of our current capital is invested in areas that we could free up and move into higher-priority areas. I think hospitals, schools, and roads, and building that infrastructure, are vital for the future of New Zealand.

Secondly, a mixed-ownership model provides an opportunity for New Zealanders to invest directly in assets that are important to the New Zealand economy. You know, I can recall going to a public meeting in Mount Maunganui in my electorate last year. It was a fascinating meeting. We talked about the fact that the Government was trying to move the incentives to encourage people to invest not in residential property but in productive investments. One of the older guys got up and said: “Well, if we’re not to invest in residential property, what do you want us to invest in?”. They had spent years investing in Blue Chip and years investing in risky finance companies, and had not had the opportunity to invest in blue-chip companies that help build the infrastructure of New Zealand. The mixed-ownership model will give those people an opportunity to have a high-class investment in the future of New Zealand. It will allow them to have a secure investment and a better investment than other options they would have to invest in.

It also gives our superannuation funds an opportunity to invest back into New Zealand. People’s KiwiSaver, people’s savings, can be invested in a good quality New Zealand company, and there will be improved opportunities for that. There will also be opportunities for improved performance by the companies, because we know there is much more scrutiny on the performance of the publicly listed energy companies, their capital intentions, and their behaviour in the market, than there is on Government-owned businesses. There are real opportunities in using the mixed-ownership model to benefit Kiwi mums and dads in the next few years.

Report noted.

Mighty River Power