Norman Russel: Urgent Debates — State-owned Energy Companies Sales—Delay of Mighty River Power Sale 
Text is incorporated into the Bound Volume 
Norman Russel: Urgent Debates — State-owned Energy Companies Sales—Delay of Mighty River Power Sale 
[Sitting date: 11 September 2012. Volume:683;Page:5056. Text is incorporated into the Bound Volume.] 
Dr RUSSEL NORMAN (Co-Leader—Green) 
: 
 I rise to speak on this urgent debate about the Government being forced to delay the sale of Mighty River Power and about the whole Government asset sale programme. We just had a speech from the Minister of Finance where right towards the end of the speech he got towards some of the rationale for why the Government is pursuing this. But I think what has been marked in this whole debate is that the Government has failed to make a coherent argument as to why it is going down this path. I want to go over some of the arguments it has put forward. It has kind of randomly put forward a series of arguments over time to try to explain why it is doing what it is doing. 
The first argument was the fiscal argument. The Government said that it has given away these tax cuts to upper income earners it has created a Budget deficit and somehow it has to try to fill the deficit and that is why it wants to sell these assets. Well the problem with this argument is that aside from the sheer immorality of giving large tax cuts to wealthy New Zealanders and making poor and middle New Zealand pay for it—aside from the immorality of that—in fact the Government’s asset sale programme makes the Government’s deficit worse. According to Treasury in the Budget Policy Statements of 2011 and 2012 the asset sale programme if it goes ahead would make the Government’s deficit worse by about $100 million a year. The reason for that is very simple: the assets make good returns and the cost of interest for the Government is actually much less than the returns on the assets. So if you are taking just a purely fiscal approach you would actually hang on to the assets because they make very good returns to the Government and the Government would be in a much better fiscal position to hold on to the assets. 
The second argument the Government put forward was that these companies need access to capital and that is why they need to be privatised. Of course these companies already have access to capital in the form of borrowing so the only new way they would have access to capital is being able to issue more equity or more shares. The only problem with that argument is that if the Government sells down 49 percent and if the Government is to maintain its 51 percent ownership of these companies then of all of the new shares issued by these companies the Government would have to buy half in order to maintain its position. It is very unlikely that this Government or perhaps future Governments would be willing to purchase half of all the new shares offered by these companies and hence the “access to capital” argument is not a very good argument because it does not really help these companies get access to capital. 
The third argument the Government has put forward is the argument around debt. This is a very strange argument and it is very strange because the Government can currently borrow at 3.5 percent. That is what it is currently borrowing at whereas these assets return somewhere between 8 and 18 percent depending on which numbers you look at on the capital. In fact what the Government is doing is selling assets that make very high rates of return in order to avoid debt that is very cheap. From a purely economic or fiscal point of view it is completely irrational to sell these assets in order to avoid debt that will cost you 3.5 percent when these assets are earning you 8 to 18 percent. That is the third argument which does not make any sense and is kind of irrational. 
The fourth argument is the market argument. The Government says it has to do this privatisation in order somehow to facilitate the electricity market in New Zealand. The problem with that argument is that the electricity market is an oligopoly—there is a small number of players. That will remain so whether it is privatised or not privatised. So that fundamentally does not change anything. In terms of making the market more efficient the Government has taken one step in this regard which is to move generating assets around. It moved generating assets from Meridian Energy to Genesis in order to try to make sure there is more competition in the market. That was possible only because the companies were State-owned enterprises. If the Government were to privatise the companies and they were no longer State-owned enterprises the Government would not have the ability to shift generating assets around in the way it just has purely it says in order to improve the functions of the electricity market. The one tool that it currently has because these companies are State-owned enterprises it would no longer have. So the fourth argument around market efficiency does not make any sense. 
The fifth argument the Government put forward is related to that; it is around prices. It argued that private companies have lower electricity prices than the publicly owned companies. In fact the truth is the opposite. Electricity from the privately owned companies is about 12 percent more expensive than it is from the publicly owned ones. At first the Government denied this research when the Green Party and Grey Power released it but then the Government itself was forced to acknowledge that Treasury had actually presented a paper to the Government that demonstrated that the claims made by Grey Power and the Greens—that the public companies were in fact 12 percent cheaper than the private companies—were true. So the fifth argument around prices does not hold water either. In that case as well the public companies have cheaper electricity than the private ones. That is the fifth argument that we have seen the Government manage to put forward. 
The sixth argument the Government put forward was around capital markets. It said that it would deepen and improve New Zealand’s capital markets. The problem for this argument is that in fact a lot of the shares will be sold overseas and increasingly so in future. In fact the Government it seems—in one of the proposals on the table—wants to actually list these companies on the Australian Stock Exchange in order to attract Australian investors into the companies. What we have seen with the Contact Energy float is that more and more of the ownership goes into overseas ownership. Moreover from the point of view of most investors—small-scale retail investors in New Zealand—what they are looking for is a safe company to invest in. They want safe returns because they have been burnt by the finance companies. So they are looking for a safe return something they can invest in. In fact issuing bonds as these companies currently can is actually a much safer instrument for most small-scale retail investors in New Zealand. When they are looking for somewhere to invest their money they would much prefer to buy a bond issued by a State-owned enterprise than to buy shares in companies on the share market. So in terms of New Zealand’s capital markets and in terms of looking at it from the perspective of small-scale retail investors in New Zealand it does not make any sense to do what the Government is doing. 
The seventh argument the Government has mounted is around the question of mandate. It has said: “Well if there’s no kind of rational reason why you’d want to privatise these assets if you can’t make an economic case for it we have a mandate. We won the election and therefore we can do it.” In fact when you look at the votes cast at the last election the majority of votes cast were cast for parties that opposed privatisation. Even if you include United Future ACT and National together in the camp that supported privatisation they got a minority of the votes at the election. A majority of votes at the election were cast for the parties that opposed privatisation—not just the parties represented in this Parliament but also parties outside of this Parliament which did not get seats in this Parliament because they did not make the threshold. So that is the mandate argument which is the seventh argument that the Government has put up. It says it has got a mandate. In fact it does not have a mandate. When you look at the actual votes cast most New Zealanders voted for parties that opposed the privatisation plan. Moreover of course when you look at the opinion polls probably about seven out of 10 New Zealanders are opposed to the Government’s privatisation plan. So there is no support from most New Zealanders. 
Then perhaps the eighth argument which we heard a bit about from Bill English just before is that it enables more New Zealanders somehow to participate in all of this. That is the kind of vague language that he was using. One can only assume that he means more New Zealanders can buy these shares than currently own them. Of course 100 percent of New Zealanders currently own these companies. If we look at who will be able to afford to buy shares in these companies a very small minority of people will be able to afford to buy shares in these companies. Most New Zealanders will in fact lose their ownership of these companies through the privatisation process because all New Zealanders currently own these companies and what the Government wants to do is hand them over to a very small number. 
So it does not matter which way you look at it. If you look at the fiscal position it does not make any sense to sell them. If you look at the “access to capital” argument it does not make any sense to privatise them to allow them to access capital. If you look at the debt position of course the Government is borrowing much cheaper than the rate of return on the companies so it does not make any sense to sell them to avoid debt. If you look at the market argument it will not in fact help the efficiency of the electricity market. If you look at the prices argument the private electricity companies are in fact more expensive. If you look at the New Zealand capital argument this will add nothing to the ability of New Zealanders to actually invest in this sector. If you look at the mandate argument a majority of people voted for parties against it. If you look at this vague idea of New Zealanders wanting to participate most New Zealanders will not in fact be able to participate because they will not be able to afford it. 
Every one of the so-called arguments that the Government has put up has been shot down. It has no arguments left and all it has left is ideology. It simply believes in privatisation. When you look at the arguments they do not hold water. So what is left? Well we hear it from the ACT Party which understands what is really behind this whole thing. It is an ideology of privatisation even if none of the arguments hold or none of the arguments stand up to close scrutiny. In fact there was always an alternative for these companies. They should be part of New Zealand’s green energy future. These companies should be exporting green technology and renewable energy technology to the world. Some of them are already starting to do it. They have the critical mass in terms of skills experience and capital in fact to do that. That is the alternative future for these companies. Rather than privatise them keep them in New Zealand headquartered here with research and development here. That is a much more prosperous future for our country.