The NZ Power announcement last week could be very costly to New Zealand.
Whether a Labour-Green government get the opportunity to implement the policies or not there is an obvious immediate cost – the timing of the announcement is almost certain to adversely affect the price Government gets for the Mighty River Power shares see Spooked investors off the hook:
Business Herald columnist Brian Gaynor estimates that the Government could pocket $400 million less for its 49 per cent sale of Mighty River Power because of the effect of the policy.
Gaynor’s estimate is probably on the high side, $200 million has been a more widely mentioned estimate. That is still substantial, and would be a direct cost to the taxpayers (that’s us).
Labour and Greens continue to deny any deliberate attempt to sabotage the MRP float:
Greens energy spokesman Gareth Hughes said the purpose of the planned purchasing agency, NZ Power, was not to frustrate the asset sales “but to drive down power prices and eliminate the excessive profits of the electricity companies”.
But Hughes was caught out on 3 News last night, unsure if revealing glee at disrupting the share float was appropriate. When asked about his reaction to the temporary suspension of the share float he was shown asking his media minder:
Hughes: “Hey Clint. Are we pleased?”
Clint: “That is not why we did the policy”.
Hughes: “I know, but…”
The doing of the policy is not the issue, it’s the timing of their announcement that is highly questionable.
And Labour continue to play their political games:
Labour state-owned enterprises spokesman Clayton Cosgrove said that “after five days of going troppo, National has finally calmed down and allowed those who have applied to buy shares in Mighty River Power the opportunity to reconsider”.
But in Govt gives MRP investors chance for refund…
“Investors need time to consider the changes we are proposing. National would be well advised to stop repeating its wild and silly accusations of socialism and communism and let cool heads prevail. The ridiculous allegation of economic sabotage has been demolished,” Cosgrove said.
The allegation of economic sabotage is far from demolished.
If Labour were serious about giving investors time to consider the changes they would have announced their policy well in advance of the beginning of the share float, not after it had started and people had already applied for shares – and paid for them.
Claims by Hughes, Cosgrove and others that there was no intent to sabotage the share float are either dishonestly devious or incompetently ignorant of the likely outcome of their actions.
And this is just the immediate affect of the timing of the announcement.
Should Labour and Greens form the next Government and implement a yet to be determined version of their policies (there are significant differences in what the two parties propose) there could be much greater costs to the country.
Mark Warminger, a Portfolio Manager at Milford Funds has blogged Rolling blackouts could be our future where he points out the flaws in the proposals and potential costs:
This analysis is naïve and does not take into account the full direct and indirect costs.
A 1% increase in debt servicing costs for New Zealand’s overseas borrowing, in time would add up to NZ $2.5bn a year to the debt bill.
The state owned power companies would need to write down asset bases by around 30% on an asset base of $15bn. This equates to $4.5bn of capital destroyed.
The flow on effects to New Zealand’s listed power companies is just as detrimental.
This will adversely affect many KiwiSaver schemes that have direct exposure to these companies.
It seems inevitable should the Labour/ Greens proposal be enacted that the listed power companies would take legal action, based around property rights. This is likely to be lengthy and costly with the Government footing much of the bill.
And the potential bottom line:
In conclusion, to save $700m per annum from our total electricity bill the direct and indirect costs of such a scheme would be in the order of the following;
- $2.5bn in additional debt servicing costs, $450m reduction in dividends, $4.5bn asset write-downs from State owned enterprises,
- $1bn of capital destruction of the listed power companies and a reduction of $100m of dividends per annum to New Zealand shareholders.
In addition, there will be highly skilled jobs lost as power companies reduce capital expenditure and development.
That is speculation from someone with an obvious interest in the share market, but it is representative of significant concern about potential substantial costs to the country. Another financial analyst suggests Power policy a ‘hand grenade’ for listed firms:
The Labour and Green parties’ power policy could wipe as much as $1.4 billion off the values of Contact Energy and Trustpower, says a Forsyth Barr analyst.
In a research note published today, analyst Andrew Harvey-Green described the Opposition’s policy as a “hand grenade” with far-reaching implications for the industry.
See also: Experts criticise Labour’s power plan
There are huge implications for the New Zealand economy.
At best Labour and Greens have been too focussed on trying to win political points and have not considered the wider ramifications of their proposals.
At worst they are cynically risking possibly billions of dollars to try and advance their political ambitions.
And regardless of whether they succeed politically or not they have already cost us perhaps $200 million.