Tremain Chris: Debate on Crown Entities Public Organisations  and State Enterprises — In Committee 
Tremain Chris: Debate on Crown Entities Public Organisations  and State Enterprises — In Committee 
[Volume:631;Page:3065] 
CHRIS TREMAIN (National—Napier) 
:  
I rise to speak on the review of State-owned enterprises and particularly about the Genesis Energy review. State-owned enterprises exist to return a dividend to the Government—a dividend to the people of New Zealand—so they are a very important part of the composition of the New Zealand economy. It is very important that they operate effectively in the New Zealand economy because they in turn add to the growth of the economy. 
I was fortunate to be involved with the review of Genesis Energy this year. It was one of the first reviews I have been involved with. I compliment Brian Corban the chairman and Murray Jackson the chief executive of Genesis Energy on their honesty and on the way they presented their review to the Commerce Committee particularly given how difficult it can be when one is before a select committee and has to be a little controversial. Both the chairman and the chief executive officer were prepared to stand up and be counted on the minzone and to criticise the Electricity Commission about where that minzone sat. It is a difficult thing to do. As it turned out they were correct; the minzone was some 15 percent under where they believed it should have been. It was a gutsy call and it was good they were prepared to be heard. 
Energy is a key component a key input to this economy and is critical to the short to medium term outlook of this Government. Genesis Energy is indeed a key player in this. I just want to reflect on where real growth in GDP is. It is forecast at 2.8 percent per annum to 2010. Real growth in GDP per capita is now averaging only about 1.9 percent per annum. These rates of growth right now are well below the averages we have had since 1993. In fact in September as members well know and December we have had rates of growth bordering on a recession so we need to see some upside some going forward. The warning signs are there so it is critical that when we see Dr Cullen’s Budget on Thursday we see key indications about supporting the energy market and where we will go with that. Energy is a key input to our overall economy. 
Just looking specifically at Genesis and its energy review it is New Zealand’s largest retailer with 690000 customers. It is not the largest but is one of the largest generators of electricity with 1640 megawatts of energy multiple generation facilities thermal power in Huntly hydro power in Tongariro and Waikaremoana and a significant ongoing investment now in wind farms in the Wairarapa and Waiuku at Awhitu. Genesis had an operating revenue in the 2004-05 year of $1.495 billion with earnings before tax depreciation and amortisation of $178 million. It is interesting that its net profit after taxation has fallen back from $80.1 million to $70.2 million over that year. 
If we look at that as a straight analysis from an accounting point of view we see that it is a return of only 5.9 percent on average shareholders’ funds. It is a big decision on whether as a Government we take that huge investment some $1.8 billion into this particular company when we are not even getting the return we would get out of a bank at the moment. From a Government point of view while they are a major investor the return on shareholders’ value is not that fantastic. In terms of the Office of the Controller and Auditor-General it has a pretty good report—the rating is “good”. 
I also want to talk about the key inputs of economic growth being energy and two key factors. First is the surety of energy supply and second is the surety of the spot price. As I said previously Genesis expressed concern at the select committee over the operation of the minzone level. It was subsequently proven right which I said earlier. It was proven that the minzone level was 15 percent under where it should be. At that point in time—and members will remember this—everyone was sitting around praying for water to come out of the sky because back in February-March the lake levels were as low as they have been since 1993. We were all sitting there wondering and waiting for the water to come down. But I guess the key point is we did not have the generation capacity to take over from hydro if hydro was not there. That is where the likes of Genesis have come in with some significant investments that it is now making in Huntly. 
The key thing was where the energy spot price got to. It had a major impact on some of the industries in my own area of Hawke’s Bay. I can talk specifically about Pan Pac Forest Products which is Hawke’s Bay’s largest consumer of energy. It consumes 35 percent of Hawke’s Bay energy.