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

When the Commerce Committee did its report on Mighty River Power, it was owned 100 percent by New Zealanders. As I stand here today, we know that only 2.5 percent of New Zealanders have bought into the shares of this company.

💬 Hon Dr Nick Smith: Rubbish.

Nick Smith says “Rubbish.” This asset sale is one of the greatest transfers of wealth away from all New Zealanders to Nick Smith and his mates. That is what this is all about—taking away from New Zealanders an asset that has been built up over generations and putting it in the hands of a small minority.

Mighty River Power is a company that can be proud of its record. It is a company that has done good things in its time as a State-owned enterprise and has returned significant dividends to New Zealanders. This National Government says: “We will take that. We will take that out of the hands of all New Zealand taxpayers and put it into the hands of 2.5 percent of New Zealanders”. Do not let anyone say that if the National Government could have got away with it, it would not have been a 100 percent sale. Of course it would have been a 100 percent sale. We know that is what the National Government wanted. It could not get away with it, so it has gone for selling off 49 percent of what all New Zealanders own and giving it to those 2.5 percent.

We have seen from the Mighty River Power chief executive officer, Doug Heffernan, some interesting behaviour both in the select committee itself, in the financial review—

💬 John Hayes: Oh, what a diatribe.

What was that? Mighty River Power actually failed to answer the questions that had been put to it by the select committee—and that is just the beginning, because we know that under the model that this Government has put through, there is no role now for the Official Information Act with these companies. There is no role for the Ombudsman. New Zealanders might think that they have still got some say in this company, but, no, this National Government has taken that away and said that there will be no transparency anymore for these companies. It is absolutely disgraceful, and we saw the beginning of that from Doug Heffernan.

Doug Heffernan is paid over $1 million a year to be the chief executive of Mighty River Power—$1.5 million a year. He came out, when Labour released its New Zealand power policy, and described it as socialism. He was running the National Party’s lines. That is not what we would expect of a chief executive. But what is more, it is so wrong, because if the National Party actually believes that, it is saying that all the states of America that have a single buyer model are socialists. That is what the National Party is saying. What the National Party does not want to acknowledge is that currently Mighty River Power has been part of an uncompetitive electricity market in New Zealand. There is no competition in the New Zealand retail market. We have the generator-retailers that dominate the market. We have the super-profits that have been taken out time and time again, and there is no competitive market.

So when the Labour Party says it is time to introduce some proper competition—and we know that that will happen; we know that there will now be competition in the retail sector and consumers will now come first—the National Party says no. The National Party says it does not want a bar of consumers having lower power prices. I will tell you that on this side of the Chamber that is our priority, to give New Zealanders a fair go when it comes to their electricity system, to be able to say that we can actually lower power prices for consumers and for small businesses—by 5 to 7 percent for small businesses. That will help generate wealth in this country. That will help generate jobs in this country. The National Party does not want a bar of it. It wants to keep power prices high. I challenge any member over there to get up and tell me whether, under the current settings for the electricity industry, power prices will come down. Because the answer is no, they will not. They will keep tracking up, and New Zealanders will keep having super-profits gouged out of them by companies.

What we want on this side of the Chamber is a fair rate of return. Companies like Mighty River Power will still be able to get—

💬 John Hayes: Communist!

—a fair rate of return. But what they will not be able to do is get the super-profits. John Hayes says it is communist. Well, I want John Hayes to go to the state of Virginia and to the state of Texas and tell those people that they are communists, because what they have is a single-buyer model for power that actually puts consumers at the centre and says that electricity is important. Electricity is something that everybody needs, and there is no choice in that. We need to make sure that consumers are getting a fair go instead of having super-profits ripped out from under them. National does not care about high power prices. Labour does, and we will be reducing them.

I have to take on the economic lunacy that we have just heard from the deputy leader of the Labour Party. Let us first nail him on the facts. He just claimed that only 2.5 percent of New Zealanders now own shares in Mighty River Power. Well, let me tell the member this: 14 of the 17 KiwiSaver managers bought shares in Mighty River Power. That is 1.7 million New Zealanders. Why is it that the Labour Party opposes hard-working New Zealanders involved in KiwiSaver being able to own shares? I will tell you why: because it wants a dependency culture. It cannot stand the idea of ordinary New Zealanders investing in their own country.

The second point I want to make is this, and this is really important: everybody needs to understand that for the New Zealand economy we need to broaden the investment base, and we need to broaden it so that we do not invest just in residential property. I have heard Labour speaker after Labour speaker acknowledge that fact about our economy, and yet we see them now in an exercise of sabotage against the economic interests of this country. I have been in this Parliament for 24 years, and never have I seen an Opposition directly act against the interests of this country such as what I have seen in the last fortnight, and it is truly disgraceful.

💬 Hon David Cunliffe: I raise a point of order, Mr Chairperson. I take offence at that questioning of our integrity as an Opposition. Whatever the member may feel about the policy in question, there can be no question of disloyalty to the country.

The CHAIRPERSON (Lindsay Tisch): No, no, no. This is a robust debate, and there was nothing untoward in what the Minister was saying.

And then I heard the deputy leader of the Labour Party say that the Labour Party is very concerned about power prices. Well, how come they went up by 72 percent in the 9 years that you were the Government, Mr Robertson? Seventy-two percent—absolutely disgraceful.

Here I want to come to the true economic lunacy of Grant Robertson. He said that Labour will base the power price on a fair return on the historic investment—a fair price on the historic investment. Well, let us apply that logic to housing. Let us say that I have got a house that was built 30 years ago and cost $4,000 to build. What Labour is saying is that you base the rent on it being worth $4,000 from all those years ago. Could a housing market possibly work like that? That is what your policy is. That is what these members somehow believe is sensible. It is lunacy.

The last point I would make is this: in the 9 years that Labour was in Government there were three occasions on which it had to come to this House because of problems with security of supply. Interestingly, last year we actually had a dryer year than any of the last 20 years. What members opposite are being reckless and irresponsible about is in terms of security of supply. I say this to the Committee: there will be absolutely no investment in new generation under this economic lunacy, and if we want to compromise the future of New Zealand, you go down that track of reducing investment in power. The policy is lunacy. Labour is playing politics. It conducted an act of economic sabotage. Those members should lower their heads in shame.

You know the National Party is on the wrong side of an argument when Government members stand up and say that the only way that capital markets can succeed in New Zealand is if we let them trade what the Government created. That is the National Party’s economic plank for these 3 years—sell off what the Government has created in order that the capital markets can succeed and trade.

Dr Smith has had 24 years in politics, and 15 of those years have been since his colleague Max Bradford intervened in the electricity market. Since then electricity prices have gone up every year by twice the rate of inflation, and National is still doing it. Dr Smith sits there and still defends it as if it is correct. What the Government says is: “Oh look, Labour, you should have kept these plans to yourself. You should not have told New Zealand investors. You should have actually done that. If you wanted to do it, just do it in the future.” Because to do it now, according to Dr Smith, is economic sabotage. What that would have been doing would be underhand. We have actually been open to people and we said: “Look, enough is enough.”

What have the commentators said? New Zealand Herald, Bernard Hickey, says that robber barons in the power industries are not going to get away with it this time. What have the other commentators said? A lot of them have acknowledged that we have not got a competitive electricity market. We know that. What is this Government trying to do? It is trying to cement in these excessive profits from the old hydro stations by capitalising them into the balance sheets of the likes of Mighty River Power. That is what we are discussing right now. What does the National Business Review say in respect of Might River Power’s future profits, Dr Smith?

💬 Hon Judith Collins: Who cares?

What does it say? “Who cares?”, says the National Party. Well, I care because if Mighty River Power’s profits go up, it implies yet more increases in the price of electricity. So what did the National Business Review say last week, on 10 May: “Mighty River Power projects in its prospectus a jump in its profitability in the current year to $94 million, up from $67 million last year. In the 2014 year it’s predicting those profits go up to $160 million.” Well, there are a couple of points there. If this is so fantastic, why is it that we have got to give that to the private sector that the Government has created, and, secondly—

💬 Simon O’Connor: Labour hates profits. They hate the private sector.

Actually, I do not hate the private sector. I actually want to do lots of things that improve the private sector. I want to have a decent investment signal into the economy through a capital gains tax so that we have less speculative investment in Auckland housing that the Government tickles along. It really likes it, really. I want to have a neutral investment signal so that we have investment in productive enterprises, not in speculation. I want a universal KiwiSaver so that we have deeper capital markets. I want to change monetary policy so that we can actually earn our way in the world from our exports with the currency. But National does not want any of that—no, no, no.

National has got this old-fashioned merchant banker view of the world. We should not be surprised; that is what John Key is—he is a merchant banker. He is not interested in growing jobs or growing the real economy. He could not care a toss about that, because he looks at the world through his merchant banking lens that is the same as it was 20 years ago, which is what led to the global financial crisis, and yet what have we got the Government doing? Here we go: the answer to New Zealand’s woes is to sell off what already exists. It does not want to increase New Zealand’s output one iota. It is not worried that New Zealand has now got the biggest current account deficit in the developed world—bigger than Greece’s. Is that not an atrocious thing? Last year, this year, and, according to the IMF, not just next year but the year after that, and the year after that. We have the worst current account deficit in the world, and the Government’s central economic plank for these 3 years is to sell off Mighty River Power, Meridian Energy, and Genesis Energy.

What a pathetic, narrow vision this Government has. No wonder, since National took office, we have had 200,000 people going to Australia. “Wave Goodbye to Higher Taxes. Not Your Loved Ones.” is what National said, and what have we had instead? We have had 200,000 people going to Australia. We have got incomes—except for the people at the top—dropping, as shown by what has happened with the Inland Revenue Department’s PAYE figures, and all those members say is “Flog off Mighty River Power and put up power prices.”

The Commerce Committee reviewed the annual report of Mighty River Power. Mighty River Power had a total revenue of $1.5 billion in the year 2011-12, with an after-tax profit of $67 million. The Office of the Auditor-General issued an unmodified audit opinion, which was very good, and no improvement was required.

I would like to share a quote from Baroness Margaret Thatcher: “The trouble with socialism is that eventually you run out of other people’s money.” This Government does not believe that it should keep on borrowing money from overseas volatile markets and persist in adding debt to our future generations. We are doing better than other countries, but even in New Zealand over the next 3 years the Government’s net debt will be about $70 billion, up from $10 billion 4 years ago. The debt is growing, and we cannot afford for that to continue to happen. This is the formula of the Opposition parties towards growth, but not for this Government.

In 2011, when the National Party went out to campaign for the general election, it was made clear that we would sell minority shares in some of the State-owned entities. We also made it clear that the Government would hold the majority shareholding and would not lose the control of these entities. Every 3 years at the election, the public gives a mandate to the policies of the party that they think is in favour of the country, and such a mandate was given to the Prime Minister, John Key, to form a Government to govern this country and implement this policy.

What this Government is doing is rearranging its assets. It is investing the rearranged money in hospitals, schools, and infrastructure.

Let us talk about the Mighty River Power share float. One hundred and thirteen thousand investors secured the opportunity to invest in Mighty River Power, making this the largest share registry on the New Zealand Exchange. Over the weekend I met a young entrepreneur who was very excited that his family went together for their applications, which were all accepted. He told me that his family had invested about $40,000, as they felt it was safe to invest in that company, in comparison with the private finance companies.

Another interesting fact I would like to share with this House is that apparently 77,000 investors did not have a common shareholder number, which indicates that they all were first-time investors. This Government has given an opportunity to small investors who have small savings and want to invest, but do not feel it is safe to invest anywhere else. This is one of the opportunities for such small investors to invest in companies that have track records.

The Government has banked $1.7 billion, which will be invested in a Future Investment Fund, and we do not have to borrow this money. Let me reiterate: the Opposition does not have any plan for economic growth. The National Government, led by the Prime Minister, is focused on attracting new investments, and that will benefit this country, whereas Labour and the Greens have plans exactly opposite to this.

I do want to respond to some of the extraordinary comments made by the Minister in the chair in his very animated contribution to the Committee. I think you know you have really touched a nerve and you are on the right track when you get those kinds of speeches from the Hon Dr Nick Smith. It is kind of like our canary in the coalmine. If the Hon Dr Nick Smith looks like he is going to blow, we are on the right path. Certainly, that was the tenor of the response we got from the Minister. Well, the Hon Dr Nick Smith and the National Government can continue to drink the Kool-Aid if they want and try to convince themselves that we have a competitive electricity market, but they know that that simply is not true. It simply is not true.

I want to concur with the comments made by my colleague David Parker in terms of the announcement of our policy. I assure you that the screaming and the hysteria would have been far worse if we had held off announcing this policy until after the float than it was announcing it beforehand so that investors could know exactly what they were going to get at the change of Government next year.

Let us be clear: 2.5 percent of New Zealanders bought shares in Mighty River Power—2.5 percent. One hundred percent of New Zealanders owned that company in the year that we are discussing—100 percent. That is not going to be the case in the future, and that is a tragedy.

Mighty River Power owns nine hydro stations on the Waikato River. It has five geothermal stations in the central North Island and a gas-fired station in Auckland. If you look at those hydro stations, these are assets that were built by the taxpayers of New Zealand—built by the taxpayers of New Zealand. They have been paid off in full, so why is it that New Zealanders are not getting the benefit of cheap hydroelectricity generation? We have one of the highest levels of hydro generation in the world. Why is that not reflected in our power prices to consumers and to small and medium sized businesses? Why? In a time of flattening demand, a surplus of generation, and a collapsed carbon price, why are power prices continuing to go up? If there was ever a time that you would consider—

💬 Paul Goldsmith: Transmission.

It is not transmission. Paul Goldsmith says it is transmission. That is the go-to response. It is completely untrue—completely untrue—that transmission and line charges have been responsible for the driving up of electricity prices. It is the wholesale electricity market. You only have to look at the report in 2007 that confirms that. All the evidence confirms that it is not transmission and line charges that have driven up electricity prices; it is the wholesale electricity market, and that continues to be the case to this day. I am very pleased that Paul Goldsmith raised that, so that I could—[Interruption]; do not tell people that—absolutely refute the single biggest fallacy in this debate, which is that it is transmission charges that have driven up electricity prices. It is not.

So when it comes to Mighty River Power, I pose the question again. Electricity prices for consumers and households went up on 1 April. Within weeks of that, the chief executive of Contact Energy was saying that they were going to go up again. If power prices do not go down when we have flattening demand, a surplus of generation, and a collapsed carbon price, when are they ever going to go down? Silence. The answer is that we do not have a competitive market. It is interesting that the chief executive of Mighty River Power, Doug Heffernan, came out and said that it is socialist. Apparently, he thinks that a mechanism that will deliver an actual competitive retail market is socialism, and he defends the status quo—

💬 Simon O’Connor: No, he said it’s communism.

Communism—no, he actually said socialism. To be fair to him, he said it was socialism. So this is defending an uncompetitive market, which is what National is doing and what the chief executive of Mighty River Power decided to do. Well, Labour’s policy will deliver real competition and choice in the retail market. We will still have competition in generation. We will still have competition in the retail market. That is what the mechanism will deliver. This is not regulating right across the board. This is a system that is used all around the world, like in the United States of America. Does the National Party think that the United States of America is communist? Because that is what National is out there telling the people of New Zealand. The United States of America, Mr Hayes, is where this model is also used, and I do not think any of us would claim that it is—

💬 Hon Dr Nick Smith: No, it’s not true.

Well, the fact that Dr Nick Smith says “No, it is not.”—this is the wonderful thing about Nick Smith. He just shakes his head and says no to things that are absolutely factually correct, hoping that people will believe him.

The reality is power prices are too high. Yes, they went up when Labour was in Government. That shows that the model does not work. The Bradford reforms have not provided the decrease in power prices that were promised at the time. It has failed. As I said, the National Party can continue to drink the Kool-Aid if it wants and pretend that it has not failed—

Report noted.

New Zealand Railways Corporation