Axed jobs shows privatisation danger - MP

JAMES WEIR AND HAMISH RUTHERFORD
Last updated 05:00 14/02/2013

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Contact Energy's plan to lay off 100 staff showed it was "completely the wrong time and worst possible environment to privatise state-owned generating companies," according to Labour MP Clayton Cosgrove.

The Wellington-based company is reported to have told staff it aimed to cut 10 per cent of its 1100 work force across the board by the middle of the year.

The layoffs come just days ahead of Contact's half-year financial results which are expected to be good, with operating profits up 8 per cent.

Contact has made no formal announcement to the stock exchange about the planned job cuts.

Contact shares closed at $5.17 yesterday, down 1c.

Contact is one of the biggest power generators and retailers in New Zealand and is coming to the end of a series of recent big investment projects.

But demand for electricity was flat, and Cosgrove said as a former state-owned enterprise there were only two ways out for Contact Energy - raise prices or cut costs, or both.

“Lift the price for shareholders (returns) or cut staff and there's 100 going," Cosgrove said.

Controlled by Australia energy giant Origin Energy, the majority of Contact was foreign-owned and they wanted a higher return, even when things flattened out, Cosgrove said.

Pending a court decision about water rights, the Government is expected to partially sell Mighty River Power by the middle of the year. Under the mixed-ownership model, the Government will sell a 49 per cent stake in Mighty River, the country's fourth-biggest power producer, at some point between March and June.

The IPO is subject to a challenge in the Supreme Court, with the Maori Council looking to overturn a High Court ruling that dismissed its bid to halt the sale of state assets.

Should the Maori challenge fail, the Government is expected also to try to float either Meridian Energy or Genesis Energy before the end of the year.

Contact is due to report its half-year result to the end of December next Tuesday.

Analsysts were expecting a "good result" with operating profit expected to be up 8 per cent to almost $250 million for the half year.

The result was expected to be especially good, given a planned outage at the company's Auckland power station at Otahuhu and an unplanned outage at a Stratford power station at the same time, according to a Forsyth Barr preview.

About half of Contact's generation is thermal, with the balance from hydro power and growing geothermal generation.

Its big new 166 megawatt Te Mihi geothermal station near Taupo is due to be running by the middle of the year.

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Late last year, Contact chief executive Dennis Barnes signalled returns to shareholders were likely to be ramped up once the company's big investment programme ended in the current financial year.

Contact has spent at least $350m a year on capital investment recently but that would drop to $100m from 2014. The policy of paying 80 per cent of underlying earnings would be reviewed in light of the higher cashflow, Barnes said.

Contact's new Ahuroa gas storage facility and the Stratford "peaker" power plant, as well as Te Mihi, should have a positive impact on cashflow, which should allow Contact to increase dividend payments.

Contact James Weir
Business editor
Email: james.weir@dompost.co.nz

- The Dominion Post

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