Chauvel Charles: Budget Debate 
Chauvel Charles: Budget Debate 
[Volume:673;Page:19241] 
CHARLES CHAUVEL (Labour) 
: 
 When the bell rang last night interrupting the debate I was talking about the proposal in the Budget to privatise the power companies Meridian Energy Genesis Power and Mighty River Power and also to sell the stake in Air New Zealand. I was setting out why Labour thought this was such a short-sighted policy. I listened very carefully and with interest to the interchange during question time between the finance spokesperson on this side of the House and the Minister of Finance. The Minister was trying to make some sort of case that the special dividends from Meridian Energy paid as a result of selling assets that Meridian had acquired in Australia should be excluded from the valuation and that somehow this made it sensible to sell off strategic stakes in the power companies. But I want to say to the Minister of Finance that it is ordinary business practice as he should know as a shareholding Minister for those energy companies to be buying and selling assets overseas all the time. 
If the Minister knew the portfolio well he would know that Mighty River Power for example at the moment has significant geothermal assets that it is working on overseas. There is a joint venture in Chile and some work is being done in the United States. Nobody expects Mighty River Power to hold on to those assets overseas long term. Everybody knows that Mighty River Power’s core business is developing renewable energy in New Zealand as we saw with its announcement yesterday of a very significant geothermal plant in the North Island which will take its geothermal production up to significant levels and also make that manner of renewable production a very significant part of the energy mix in New Zealand. So it is wrong to say that somehow we should take a company’s overseas activities out of the mix when calculating its rate of return to the Crown. That is simply misguided and it shows a further flaw in the thinking that selling a majority stake in our important and profitable power companies and selling the stake of about 80 percent in Air New Zealand is somehow good for the country. 
Just on the case of Meridian I tell the House that the Australian business the Minister referred to was one the company purchased when I was on the board and sold when I was on the board. That resulted in nearly $1 billion worth of value for New Zealand taxpayers and accrued no risk to New Zealand taxpayers. While the business was being held in Australia it meant that we got scale when we were trying to build wind power in both New Zealand and Australia and that we could sell that activity at a profit in an overseas market with no effect on New Zealand taxpayers at all except to make sure they got nearly $1 billion worth of extra revenue in the kitty. That not only was a good deal and a good example of a business doing something successful in Australia which unfortunately for New Zealand businesses is not always the case but also shows the lie inherent in the Minister’s thinking that somehow we should exclude special dividends from the equation when we are looking at the rate of return from State-owned enterprises. The fact is that under Labour there were frequent special dividends. Special dividends are still paid by State-owned enterprises under this Government. The Minister knows that and trying to cook the books to avoid the half a billion dollars this Government got in special dividends only this year from State-owned enterprises in respect of which he would sell a stake that once gone is gone for ever is just absolute folly. 
I will talk about what selling the rest of our power companies would mean in practice. I remember when I was on the board at Meridian and I have to say that it was a very very good board; I learnt a lot from the businessmen and women who sat on that board and who exercised excellent governance skills in the company when I was there. I think the directors’ fees were $50000 a year. At Contact Energy which ran a business of a similar size and with a broadly similarly balanced portfolio of hydro and other generation activities—because they all inherited the old ECNZ set up—the directors’ fees in total in 2010 were $993000 for doing the same job that State-owned enterprise directors do for a fraction of the cost. That is another thing that will happen if these power companies are sold off. The reality is that it will cost a lot more to run them because the private sector which will have a significant stake in them will demand a lot more to participate in governance and probably in management. 
We see this repeated all the way through in overheads executive pay and the general approach to the way in which the business is run. No one should presume that we would have the amount of renewable energy that we now have in New Zealand or indeed that we would have acquired the additional generation capacity and the efficiencies in generation that we have acquired over the last 10 years if most of the system had not been State-owned. Most of those directors sit there every day. They know that the Government thinks it is in the general national interest that there should be more and better generation capacity and that it should generally be renewable. They know that is what the people want they know it is generally what the Government wants and they sometimes take what I will say is more than a commercial approach to make that happen. That is a good thing. We should be pleased that our power companies do that and that they try their best to keep a lid on power price rises. 
If this proposal goes through and if majority stakes are sold or even if significant minority stakes are sold in Mighty River Power in Genesis and in Meridian then we will undoubtedly see attempts to put power prices up significantly. Indeed if we look at the Budget documents we can see that the Government has calculated a higher rate of return on that very assumption once the sale has occurred. The experience with energy privatisation overseas particularly in the United Kingdom is that a country does just get higher prices and greater extravagance and of course it loses for ever the dividend flow that it currently benefits from. The policy is a foolish policy. It is what this Budget absolutely relies upon in order to make the figures work but it is something we should not follow at any cost.