Going once, twice, power to the people

16:00, Oct 31 2014

Of all the MPs who might have asked awkward questions about National's state asset sales programme, few would have guessed it would be the leader of the party which would have happily sold the lot.

A year to the day since the NZX debut of Meridian, the largest of the partial sales, ACT leader David Seymour delivered his first question in the House on Wednesday, with the pace of a 13-year-old giving a reading he couldn't wait to be over.

But in asking about the rising share prices of the former state-owned electricity companies, he raised an issue which every other politician now seems unwilling to ask out loud.

Hundreds of millions of dollars have been accrued by investors since the sales, especially since start of September.

The issue deserves another public hearing, as since it became clearer that National would govern again, those who purchased the shares have seen their investments boom, as the market reassesses what they are worth under John Key.

Seymour meant to make an attack on just the Opposition for its attempts to undermine the sales through the threat of regulation, NZ Power. Instead he raised a wider point.


How much did the political folly - from both sides of the House - cost the taxpayers, who as Seymour pointed out, will have to make up the difference?

The answer is a lot, probably close to a billion dollars, but exactly how much is a matter of judgment.

It is only reasonable to offer investors in stockmarket listings the likely chance of a healthy short term gain, in return for the risk that the share price sinks.

A 66 per cent gain in 12 months for Meridian Energy (that excludes handsome dividend payments) is a remarkable return indeed.

Private shareholders have seen their investments grow in value by more than $800 million and trousered another $163m in dividends.

Finance Minister Bill English likes to tell a story about how the big numbers he deals with become misleading, because they are made up of parcels of income tax paid by hundreds of thousands of wage earners (who according to his story all seem to work "in the rain").

Nevertheless, the gains made by Meridian investors amount to more than the entire subsidy paid to Chorus for building the ultra-fast broadband network.

Most of the reason for the surge, whatever its merits were, falls at the feet of NZ Power, the policy Labour and the Greens released days after National launched the first sale in early 2013, to the shock of the financial markets.

In short, the scheme promised to strip profitability from power plants with low operating costs (primarily old hydroelectricity schemes) in favour of all electricity users of all types. Pitched for its benefits for struggling households, the effect would have been a greater subsidy for a spa-pool owner in Queenstown or a dairy farmer in Canterbury than a small house in Upper Hutt. Across-the-board savings do not only reward the vulnerable.

As the threat of NZ Power receded, the shares became more valuable as the profits in the electricity became more bankable.

The Opposition, in warning that the sales process would lead to huge gains for private interests, set about inadvertently ensuring those gains were much larger than they would have otherwise been.

If only the Green Party had proposed wide ranging reforms, they would have been largely overlooked by financial markets as a threat, given the realities of MMP.

The finger should be pointed at Labour, not necessarily because of any failure of principle, but because it seems unlikely NZ Power will survive as an issue for election 2017.

Leadership favourite Andrew Little has signalled it will come up for review. David Parker, the architect of the scheme, has acknowledged that while he sticks absolutely to the principle of the policy (that electricity generated from rivers, a public resource, should be as cheap as possible) that the "vehicle" to deliver this might need to be reassessed.

Assuming a review of Labour's election result sends the party towards the centre, we may never hear of the policy again.

English this week described the Labour/Greens electricity policy as "an attempt to sabotage the floats". As much as he believes it, it is unlikely he will spend much time pushing the point in the months to come.

The Government seems to hope the process slips quietly into the pages of history.

Blaming the Opposition for the funds raised simply hints at a fortune English has never really admitted he failed to reap, raising the question of whether steps should have been taken during the programme to mitigate the risks.

A government which claims that it is able to roll with the punches simply pushed ahead in an act of bravado. The solution was to race through the sales faster than Treasury said was sensible in a bid to stem any political damage.

Simply looking through annual reports raises more questions about whether other objectives of the process were met.

A fund run by Mellon Bank of New York appears to have made a profit in excess of $100m in one year, purely from a major bet on Meridian. Although the Government never pretended it could control the gains for investors, it is hardly the story of preference for Kiwi mums and dads we were promised.

Then take a look at the share register. In the case of each of Mighty River, Meridian and Genesis, the number of shareholders has shrunk by more than 10,000 since they arrived on the NZX. A stated aim of the programme was a vague pledge of "widespread local ownership".

In the case of Genesis, floated in April, 50 shareholders a day are selling out, implying many were just in it for a very quick buck.

English replied to Seymour's question on Wednesday that the biggest loser in the whole process were the "mums and days who were scared off" taking part, because of the Opposition's plans.

Those same mums and dads are also the wage-earning taxpayers who English likes to tell stories about, who will now have to work a little longer, "in the rain", to make up for the massive gain shareholders made at their expense, and the Government must shoulder some of the blame.

The Dominion Post