National Library of New Zealand
Harvested by the National Library of New Zealand on: Aug 27 2009 at 11:00:24 GMT
Search boxes and external links may not function. Having trouble viewing this page? Click here
Close Minimize Help
Wayback Machine

The Performance of SOEs during the Electricity Crisis - a commentary

Posted on 19 Aug 2001

Since the Government's expectation of extra money from higher taxes have not eventuated and the economy is being kept on life support by the lower dollar, the Government has been looking towards its state owned assets to pay for its social programs.

We have seen what has happened to New Zealand Post and TVNZ to subsidise the Charter and the People's Bank. What has largely gone unnoticed has been the Government's handling of its electricity assets. Meridian has been very useful to the Government this winter. Not only has it paid the Government a special dividend in June of $100 million when the coffers were empty, but it has amplified the electricity shortage that the Government says it will solve with new legislation and an energy savings campaign.

The water shortage has pushed electricity prices to their highest ever levels but the industry has been silent to the fact that Meridian and Genesis, the dominant players in the market, have pushed prices higher than they should due to their low gearing. Add to this Transpower, a monopoly, who last year recorded a return on equity significantly higher than other lines companies.

This picture is more disturbing if you take in to account the actions of Tim Barnett and his involvement with Meridian to discount electricity prices to beneficiaries in his electorate and the recent $2 million advertising campaign fronted by Pete Hodgson asking New Zealanders to save 10% electricity. While engaging a PR exercise, the Government has creamed of an extra $600-800 million from consumers.

The electricity SOEs have more goodies for the Government. An election year is coming up and there is little or no money to lure voters as Cullen has already spent the surpluses. It is likely that the Government will plunder Meridian and Genesis before the next election by taking more than $800 million of cash from their equity reserves to achieve industry average gearing.

The problem for the Government is that even $800 million won't make any discernable difference to voters. The problem for Meridian and Genesis is that the reduction in their equity reserves may delay new generation projects such as Meridian's $970 million Project Aqua and Genesis' $400 million new Huntly gas fired plant. The Government may have taken into account opposition and stalling tactics from the Greens to these projects to raid the cash.

Without a war chest, the Government will have to rely on PR to boost support. The Government will have to deliver something for Maori in election year, which raises an intriguing question. Could we start to see State Owned Enterprises dished out as Treaty settlements? Nothing sounds better for the Government than giving away $1.3 billion in the way of assets (in the case of Mighty River) that only really costs $600 million due to the amount of equity funding. This type of spin could create a big carrot for Taranaki iwi who may seek a share of Genesis, who own over a quarter of the Kupe gas fields off the coast of Taranaki.

In the meantime, the Minister for State Owned Enterprises will continue his low profile while filling the Government's coffers.