Debate on Crown Entities, Public Organisations, and State Enterprises — Mighty River Power

Mighty River Power is the next of the companies that the Government proposes to privatise half of. I want to respond to some of the comments made by the Minister for State Owned Enterprises. He said that we have to do this in order for the Government to afford to build roads, hospitals, and schools. Here is a little lesson in history for Mr Ryall. Governments have to do that every year. They have done that every year since New Zealand was settled—every year. In fact, Labour did that when it was in Government. We did that. We bought back Air New Zealand; we did not sell it. We did not run the books of this country so poorly that New Zealand was in the position of having to sell the family silver. Make no mistake—selling the family silver is what the Government is about. It is selling assets that are currently owned by all New Zealanders to the very, very small subset of New Zealand that this Government so plainly governs for. It is not for the majority; it is for the small minority that has profited handsomely under this Government—that is, 42 percent of the Government’s income tax cuts went to the top 10 percent, and they are the people who will be buying shares initially. Then they will take a profit as they sell the shares, like that which occurred in respect of Contact Energy, and eventually most of those shares will end up in overseas ownership.

Treasury was express in its advice to this Parliament that came out with the Budget documents. Treasury said that for the Government to achieve its objectives—and I am essentially quoting what Treasury said—significant proportions of overseas ownership in electricity State-owned enterprises would have to occur. Any pretence to the contrary really is just pretence.

The profit this year of Mighty River Power was $84.6 million. In addition, it had dividends. Its dividend of $80 million was paid in 2009-10, after a special dividend of $150 million in the 2008-09 financial year. The performance of these companies, managed as part of the Crown portfolio of State-owned enterprises, has been very good. It need not be better; the only way profits can go materially higher is if electricity prices go up further. As I said in an earlier contribution, there is no doubt that if these companies are sold into private ownership of 49 percent or 50 percent, the price of electricity will go up.

The last contribution from the Minister criticised Labour for the increase in electricity prices during our term in Government. We did two things in response to price increases. Firstly, we brought lines increases under control by regulating them, which was necessary. The rate of increase dropped dramatically to, essentially, the rate of inflation. Then, under our watch, the Commerce Commission tried to get a handle on whether there was overcharging in the electricity wholesale and retail markets. That report did not come out until May 2009, after we had left office. It found an overcharge of 18 percent, on average, totalling $4.3 billion worth of excessive charges to New Zealand consumers under the period in review. As a consequence, the Government should have done something to bring those excessive charges under control. But, no, Government members have washed their hands of it, and, in fact, since then electricity prices have gone up, according to the Minister today, by 14 percent.

💬 Su’a William Sio: How much?

They have not decreased; they have gone up by a further 14 percent. If people want to keep those assets in New Zealand ownership, if they want to keep control of their power prices, and if they want to keep our industries and jobs that are reliant upon large electricity usage and prices being kept under control, they can use their choice at the forthcoming election; they have a choice, because we are just not going to sell those assets. Most New Zealanders know that those assets have been built up over generations. They are well run, and they are profitable. The system works better in a long, stringy country such as ours if we have integration of those companies, rather than competition in theory but market gouging of consumers in practice.

The review of Mighty River Power takes us to the same conclusion as the conclusion we got from Meridian Energy: it is a nonsense if we sell off these companies. They are well run, and they are profitable at the moment. The Government will not make any more money as a consequence of this sale than it would get out of dividends, because its interest bill savings would be lower if it kept the assets and took the dividends.

It is a privilege to speak on the financial review of Mighty River Power. I start by saying what a great company—what a great company—Mighty River Power is in the types of businesses that it runs throughout this country and also around the world. Part of its headquarters is in my electorate of Maungakiekie, and people of my electorate are certainly thankful for the employment opportunities it provides locally. It runs a very efficient and effective enterprise, and it is certainly welcome in my electorate, if not in Mr Parker’s electorate.

💬 Todd McClay: He hasn’t got an electorate.

Of course; that is right. He lost his electorate some years ago.

This debate has turned to the mixed-ownership model of our energy companies. It must be said that this mixed-ownership model has worked in the past. The honourable Minister for State Owned Enterprises referred to the current state of Air New Zealand, but also Telstra and numerous companies around the world have used the mixed-ownership model effectively. They have used it, firstly, to raise capital, and, secondly, to provide investment opportunities for investors—both private and family investors, and also for superannuation funds. The mixed-ownership model will provide investment opportunities for our superannuation funds, our KiwiSaver investment funds, and our capital markets, which are in dire need of expansion.

The Minister also referred to the fact that the partial sale of these companies would result in assets being purchased—other infrastructure assets. Currently, as we all know from Budget 2011, there is a $16.7 billion deficit for this financial year. One of the ways of addressing this deficit is through our infrastructure and investment strategy, which requires funding. We do not want to go to Japanese financial institutions or Chinese lenders for that capital. Capital is available in this country through the mixed-ownership model, and it will provide the roads, schools, and broadband investment we spoke about earlier this afternoon. But also it is about providing for those high-priority infrastructure projects that this country needs in order to lift our economic growth, and to lift productivity for our businesses across this country.

Private investment will bring with it financial discipline. It brings with it the discipline of being in a financial market where analysts and equity specialists can break down a company’s assets and liabilities, can break down the balance sheet and its profitability, and can break down its long-term sustainability as an enterprise. That is certainly one of the advantages of this ownership model.

Mr Parker in the previous speech referred to the fact that such companies maximise prices and minimise costs, and that the two are actually interchangeable. I beg to differ, because minimising costs and running corporations or businesses effectively is a far cry from maximising prices. They are two distinct things. Mr Parker also failed to mention that the other way of increasing an organisation’s capability is to increase volume. That is exactly what Mighty River Power is doing—that is exactly what it is doing. It is investing overseas. We heard from Doug Heffernan in his testimony that Mighty River Power committed US$250 million for investment in geothermal developments overseas, and it is in partnership with overseas organisations such as GeoGlobal Energy. These organisations are stable, they are market leaders, and, in collaboration with Mighty River Power, they are leading the world in geothermal technology.

Report noted.

New Zealand Railways Corporation