web analytics
The Standard
Advertising

Where did Mighty River get that spare $50m?

Written By: - Date published: 7:57 am, October 16th, 2013 - 44 comments
Categories: energy, privatisation - Tags:

So, Mighty River Power has so much spare cash at the moment that it just doesn’t know what to do with it. Rather than pay out a special dividend, they’re going to buy back some shares (it’s more ‘tax-efficient’ than dividends, because it allows investors to pocket profits without paying tax, and it will support the spare price during the Meridian float). This, naturally, has raised eyebrows because these shares were only just sold to ‘mum and dad’. But the bigger question is: where did Mighty River get a spare $50m in the first place?

From you and me, of course. By charging too much for power.

Now, seventh form economics was a while ago, but I’m pretty sure that efficient market hypothesis says that a company that is making excessive profits (thanks to the Randian heroes running the show, no doubt) will lower its prices in an attempt to garner more market share, thus eliminating the super-profits and delivering a better result for customers.

But Mighty River isn’t doing that. It’s sitting on so much spare cash it’s using inventive methods to get rid of it.

What does the majority shareholder, the Government, think of Mighty River preferring high profits over lower prices. Seems Johnny Key’s just fine with that:

3. METIRIA TUREI (Co-Leader—Green) to the Prime Minister: Does he stand by his statement that Mighty River Power’s buy back of $50 million worth of shares is “highly normal”?

Rt Hon JOHN KEY (Prime Minister) : Yes. Air New Zealand, for example, started the share buy-back programme last year and is planning to purchase up to $45 million of its shares. Infratil is planning a $65 million share buy-back. Telecom did a $200 million share buy-back last year. Comvita did a buy-back last year. This is normal business practice and the decision is made by the board in the interests of the company and its shareholders.

Metiria Turei : If Mighty River Power is charging so much for power that it has $50 million lying around and nothing better to do with it than buy back shares, what action has the Government taken, as the majority shareholder in the company, to ensure it reduces electricity prices for families and for businesses?

Rt Hon JOHN KEY : We have a very competitive electricity market in New Zealand. People are free to choose. The member is making a huge mistake in showing her complete lack of knowledge of financial markets if she wants to conflate pricing with the capital structure of the company.

Metiria Turei : When power consumption in New Zealand is falling but electricity prices are rising at four times the rate of inflation, such that electricity companies are using the surplus cash to buy back their own shares, does he honestly believe that the electricity sector is working for New Zealand families and businesses?

Rt Hon JOHN KEY : Yes. I think we have a competitive electricity sector. I say this to the member: it will be interesting to see when she goes knocking door to door to tell the least well off families in New Zealand how much they are going to enjoy paying $500 a year for her emissions trading scheme.

Metiria Turei : Can the Prime Minister confirm—[Interruption ]

Mr SPEAKER : Order! I have called Metiria Turei, if she wants to continue with her supplementary question.

Metiria Turei : Can the Prime Minister confirm that the Government, as the majority shareholder in Mighty River Power, prefers that it distributes $50 million in extra profits to shareholders in a share buy-back, rather than lowering its electricity prices by $50 million for families and for businesses?

Rt Hon JOHN KEY : Whether the company engages in a share buy-back is a matter for the board.

44 comments on “Where did Mighty River get that spare $50m?”

  1. darren 1

    It has it on its books, its merely a blip on the horizon, you worry too much about nothing.

  2. Lanthanide 2

    “But the bigger question is: where did Mighty River get a spare $50m in the first place?

    From you and me, of course. By charging too much for power.”

    Of course, had MRP still been owned by the government, it is very likely it would have the same $50m. Only it would be going to the government as a dividend, rather than used for a share buy-back. But the outcome is the same: households and businesses paying more for power than they should be.

    • Lightly 2.1

      which is why we need NZ Power. Over-priced power is a tax (and a bad tax) no matter whether its going to public or private coffers.

      • Draco T Bastard 2.1.1

        NZ Power is a waste of time. Renationalisation would be much better.

        • Tamati 2.1.1.1

          +1

        • The upside of New Zealand power is that you don’t have to splash out as much capital on the power companies, and nobody can accuse you of being too radical and anti-capitalist. The downside is that you still have a lot of essentially free money going to overseas investors care of our private power companies.

    • felix 2.2

      Yep, as long as these entities are set up to behave as corporations for profit that’s exactly what they’ll do.

      Such important pieces of infrastructure should never have been treated this way.

      • Draco T Bastard 2.2.1

        +1

      • Lanthanide 2.2.2

        Yes, but the flip-side is that a profit motive is an effective method of ensuring finite resources are used in the most productive fashion.

        Not the only method, but a proven one.

        • Draco T Bastard 2.2.2.1

          Yes, but the flip-side is that a profit motive is an effective method of ensuring finite resources are used in the most productive fashion.

          Incorrect, the profit motive is, as a matter of fact, an effective method to ensure that finite resources are used up ASAP and not efficiently either. It’s why we have cars rather than good public transport and why National is looking to dig up all our resources and sell them.

    • Draco T Bastard 2.3

      That would depend upon if it was run as a government service or as an SOE. As a government service the government doesn’t get to demand a dividend and so the surplus can be decreased making prices lower but still maintaining enough income to maintain existing infrastructure and building new infrastructure as needed. Even the latter could be removed from the electricity price if the government paid for new infrastructure through taxes.

  3. ghostwhowalksnz 3

    Its not just a ‘share buyback’ but its also a reduction in the number of shares on issue, months after they just issued a whole swag.

    Seems like the board has advisors who say one thing and then say another- which is of course code for politicians.
    Then again, it makes it easier for a corporate takeover of MRP by one of the other power companies, which is what this whole share sale schmozzle is about

    • Lanthanide 3.1

      Yeah, I think Key saying it’s just a normal part of business is being disingenuous.

      I think you’d be hard-pressed to find any companies that had a share buyback within 5 months of an IPO.

    • bad12 3.2

      No it’s not a reduction of the number of shares on issue, that reduction only occurs if the shares bought back are cancelled,

      Mighty River have already stated that as a result of the share buyback they have no intention of cancelling the shares,

      Which then of course begs the question of where the shares are destined to be ‘onsold’ to…

      • ghostwhowalksnz 3.2.1

        Thats interesting, that contradicts one of the other reasons the market likes it.

        “Share buybacks typically reduce the number of shares on issue in a company, boosting the value of the remaining shares.”- So thats not the reason
        As well they say the amount involved is too small so they need to spend more !

        This was interesting from English before the float, when he was taunting Labour about their opposition to asset sales

        Bill English says he is still waiting for Labour to pledge to buy back the shares that National is planning to float in four state-owned companies. The Minister of Finance is waiting in vain.”
        Armstrong in The Herald -http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10814415

        Buyback the shares ? Who would have guessed.
        Seems like a good question to ask English in parliament- ?

  4. Saarbo 4

    John Key quote:

    “…The member is making a huge mistake in showing her complete lack of knowledge of financial markets if she wants to conflate pricing with the capital structure of the company.”

    I am trying to work out why Key would have made the above statement because “pricing” drives profitability, which directly affects “capital”…so of course “pricing” affects “capital structure”, he is just trying to do the classic National Party baffle with bull shit.

    Metiria has not made a “huge mistake in showing her complete lack of knowledge of financial markets…”, quite the opposite, John Key is showing his lack of knowledge.

    Ultimately they have $50m surplus cash because they have over charged customers.

    • Lanthanide 4.1

      I think the point Key is making is that decisions about capital *can* be independent of those about pricing. He hasn’t established that this is the case in this instance, however.

      • Tracey 4.1.1

        It’s also unusual for such a large majority shareholder to be so disinterested in Board decisions and the future direction of their company.

        • ghostwhowalksnz 4.1.1.1

          Not really, Solid Energy Comes to mind

          • Draco T Bastard 4.1.1.1.1

            This government had a lot to say about the direction that Solid Energy went. Most of what they said increased Solid Energy’s debt so that the government could pull out larger dividends.

    • Draco T Bastard 4.2

      John Key is showing his lack of knowledge.

      No, John Key is lying.

      Ultimately they have $50m surplus cash because they have over charged customers.

      Exactly.

  5. Tracey 5

    Infratil and Air New Zealand, have they just had a huge portion sold to market by NZers?

    Is it normal for this to happen immediately AFTER a large stock exchange float and sale?

  6. geoff 6

    Electricity price increasing at four times the rate of inflation!

    Utterly criminal.

    Not that you’ll hear much from the country’s comfortable commentariat. Probably the Mora’s, Armstrongs and O’Sullivans etc have small or non-existent mortgages, well insulated houses, and secure income. What problems, they ask?

    Disconnected. Out of touch. Ruining the country one smug remark at a time.

  7. Ozymandias 7

    Seventh-form economics should have taught you that a commerical company’s first responsibility isn’t to its customers – it’s to its shareholders. Under capitalism a commercial entity needs only to ‘look after’ its customers to the extent necessary to build or maintain its market share or, in other words, charge as much as the market will bear. In the electricity sector that means the market price is just below the cost of the most expensive generation from time to time.

  8. Plan B 8

    The 50 million has to have come from borrowing if the company owes any money at all then not paying off the debt is the same as borrowing more. So they are leveraging up – each share now has more debt

  9. Bill 9

    Duly noted that JK only seems able to use ‘dead hand’ business speak in response to Metirea’s more social-centric questioning.

  10. Draco T Bastard 10

    Now, seventh form economics was a while ago, but I’m pretty sure that efficient market hypothesis says that a company that is making excessive profits (thanks to the Randian heroes running the show, no doubt) will lower its prices in an attempt to garner more market share, thus eliminating the super-profits and delivering a better result for customers.

    Not exactly.

    Theory starts it with a monopoly making super profits which encourages other companies to come in to the market with lower prices to try to capture some of the market from the existing monopoly. This will lower profits across the board. If we take the efficient market hypothesis to its logical conclusion then there are no profits (to be more correct, profits will be infinitesimal).

    Of course, Steve Keen has proved that even competitive firms use monopoly pricing to garner super-profits. This would be especially true in a demand monopoly situation such as electricity.

    Rt Hon JOHN KEY : We have a very competitive electricity market in New Zealand.

    No we don’t, we have the illusion of a competitive market with all the added costs that that brings but none of the theoretical benefits. Prices are going up, profits are increasing and people are suffering because of it.

    Time for renationalisation and the efficiencies and cost savings that that brings about.

    • Lanthanide 10.1

      “Of course, Steve Keen has proved that even competitive firms use monopoly pricing to garner super-profits. This would be especially true in a demand monopoly situation such as electricity.”

      I’m now effectively in the market for re-carpeting my house, and have noticed the plethora of carpeting companies with ads on TV and all the different places that sell carpets and floor coverings.

      I can only conclude from the massive advertising spend, that all of these companies are raking it in and there’s no true competition going on – if there was, surely we’d see fewer companies, bigger companies and less advertising?

  11. darren 11

    Of course this all became possible under Labour, where dividends were extremely high because of record high prices, 78% in 9 years..shamefull.

    • Draco T Bastard 11.1

      Ah, the old but Labour did it toooo whinge which completely ignores the facts that 1) nobody here want Labour to continue doing it and 2) that Labour has promised to change things.

  12. tricldrown 12

    During the clark years thetr were droughts and electricity shortages due to a rapidly growing economy .
    The clark govt gave these profits back to the people as working for families the cullen fund huge increases in R&D etc.

  13. darren 13

    rubbish, just as many droughts when national was in, and not the increases in power, 78%

Important links

Recent Comments

Recent Posts

  • Greens call for ring-fencing of state home proceeds
    The Government must ring-fence the proceeds of any state home sales and spend every dollar raised on more Government-built homes in order to address the housing crisis, the Green Party says.Prime Minister John Key has indicated that his first major… ...
    GreensBy Kevin Hague MP
    13 hours ago
  • English breaks his $6000 wages promise
    Just one month into the new year Bill English has already rowed back on his election promise of real wage rises for New Zealanders, says Labour’s Finance spokesperson Grant Robertson. “During the election campaign National promised Kiwis that the average… ...
    6 days ago
  • National fails to produce evidence justifying attack on RMA
    The National Government is misusing evidence provided in the Motu report on planning rules to justify gutting the environmental protections secured by the Resource Management Act (RMA), says the Green Party today. The Motu group's research into the impacts of… ...
    GreensBy Julie Anne Genter MP
    6 days ago
  • National fails to produce evidence justifying attack on RMA
    The National Government is misusing evidence provided in the Motu report on planning rules to justify gutting the environmental protections secured by the Resource Management Act (RMA), says the Green Party today. The Motu group's research into the impacts of… ...
    GreensBy Julie Anne Genter MP
    6 days ago
  • RMA changes won’t knock a dollar off the cost of a new home
    The Government’s proposed changes to the RMA won’t increase the number of affordable homes or knock a dollar off the cost of building a new house, Labour Leader Andrew Little says.  “Tinkering with the RMA will not solve National’s housing… ...
    6 days ago
  • What is the real ‘price of the club’?
    What price is too high to join a club?  According to the current the New Zealand Prime Minister, the lives of young Kiwi men and women are a part of the package. In his latest BBC interview, John Key fails… ...
    GreensBy Kennedy Graham MP
    6 days ago
  • DOC debacle means hundreds may have missed out on fishing licences
    Hundreds of families and recreational fishers may have had their holidays spoiled by missing out on their fishing licences, with Conservation Minister Maggie Barry preferring instead to focus on more high profile portfolio priorities over the summer break, Labour’s Conservation… ...
    1 week ago
  • Effective action needed against pirate fishing boats
    New Zealand’s failure to detain pirate shipping vessels poaching endangered species in our region is simply not good enough, Labour’s Defence spokesperson Phil Goff says. “We send New Zealand naval vessels to the Arabian Gulf to board pirate ships there… ...
    1 week ago
  • Housing affordability crisis gets worse under National
    News that Auckland’s housing is now among the 10 most unaffordable in the world confirms the Government’s housing policy has failed, Labour’s Housing spokesperson Phil Twyford says. “After six years in power, National’s housing policies have not fixed the housing… ...
    1 week ago
  • Rheumatic fever rates continue to soar despite millions spent on prevention...
    The Government’s $65 million spend on rheumatic fever prevention has made little impact on the alarmingly high rate of the disease among young New Zealanders, Labour’s Health spokesperson Annette King says. “Latest figures from ESR show there were 235 notified… ...
    2 weeks ago
  • Speech to the Asia Pacific Parliamentary Forum in Quito, Ecuador
    I was honoured to speak to the Asia Pacific Parliamentary Forum, calling for cooperation and action on climate change. You can read my speech below. Greetings from New Zealand in our first language – kia ora nga mihi nui… ...
    GreensBy Gareth Hughes MP
    2 weeks ago
  • Speech to the Asia Pacific Parliamentary Forum in Quito, Ecuador
    I was honoured to speak to the Asia Pacific Parliamentary Forum, calling for cooperation and action on climate change. You can read my speech below. Greetings from New Zealand in our first language – kia ora nga mihi nui… ...
    GreensBy Gareth Hughes MP
    2 weeks ago
  • Government wipes off $5 billion in tax debt
    Since coming to office, the National Government has written off $5 billion* in tax debt owed by more than a million, Labour MP Stuart Nash says. "There are two sides to the New Zealand economy under the National government: the… ...
    2 weeks ago
  • Labour adds its condemnation of Paris attack
    The Labour Party adds its voice to the international condemnation of today’s shocking attack on freedom of speech in Paris, Leader Andrew Little says. “The attack on the Charlie Hebdo newspaper is an assault on democracy and freedom of expression.… ...
    3 weeks ago
  • Petrol retailers and importers must pass on savings
    New Zealand’s petrol retailers and importers must start passing on savings to Kiwis motorists following the dramatic drop in the price of crude oil, Labour’s Energy Spokesman Stuart Nash says. “It is great news for Kiwi drivers that the price… ...
    3 weeks ago

  • Devoy: Honour our Holocaust survivors, don’t be a bystander
    70 years ago in the early hours of the morning and in the middle of a bitter snowstorm, Auschwitz Concentration Camp was liberated. Today is International Holocaust Remembrance Day, this afternoon some incredible New Zealanders – our own Holocaust survivors… ...
    10 hours ago
  • Lyttelton Port workers vote to escalate dispute
    Members of the Rail and Maritime Transport Union (RMTU) at Lyttelton Port today voted to escalate their industrial action. Around 200 RMTU members have been operating an overtime ban since 17 December and today they endorsed a series of full… ...
    11 hours ago
  • Newsletter – Free Press
    Welcome to the first ever edition of Free Press , ACT’s new regular bulletin. If you’re wondering why you’ve received this, we’ve used the same mailing list as Richard Prebble’s classic The Letter , and hope we can stimulate you… ...
    12 hours ago
  • Collins Picked to Return to Cabinet Before Next Election
    Judith Collins is this week picked to make a return to Cabinet before the next election, according to the combined wisdom of the 8000+ registered traders on New Zealand’s predictions market, iPredict. John Key is expected to remain leader of… ...
    12 hours ago
  • The other housing crisis
    CCS Disability Action hopes Prime Minister John Key’s state of the nation speech will address the other housing crisis as well. With an aging population, the number of people who need accessible private homes and social housing is rapidly growing.… ...
    12 hours ago
  • Prisoners and the right to vote
    Arthur Taylor and other serving prisoners, will take their case to end a ban on prisoners voting to the High Court in Auckland today (27 Jan 2015) http://www.radionz.co.nz/news/national/264583/prisoner-voting-case-in-high-court ...
    12 hours ago
  • Public health, union, and church groups slam TPP trade deal
    As secret Trans-Pacific (TPP) trade talks resume in New York, an unusually diverse mix of 47 Australian community groups including public health, environment, union, church, development aid and other groups have written an open letter to Trade Minister ...
    16 hours ago
  • Third world fishing policies put NZ to shame
    The union representing workers in seafood processing factories has today slammed New Zealand’s fishing policies which allow our fishing resources to be exported to other countries. ...
    17 hours ago
  • Warts and all expose of Taranaki’s oil and gas
    Taranaki’s relationship with oil and gas will be examined at an Environmental and Conservation Organisations of Aotearoa New Zealand (ECO) gathering this weekend. ...
    17 hours ago
  • Time for Maggie Barry to come clean on 1080
    National's new Conservation Minister Maggie Barrie appears to have gone into hiding over the raging controversy surrounding New Zealand's continuing use of 1080, according to Democrats for Social Credit health spokesman David Tranter. ...
    17 hours ago
  • No part of a warmongers club
    Peace Action Wellington condemns the prime minister’s commitment of military support for the US war in Iraq. Peace Action also condemns the casual and cavalier way in which the prime minister discusses joining the US-UK led war as being the… ...
    17 hours ago
  • Camp Gallipoli and RSA Commemorative ANZAC Day Event
    The Camp Gallipoli Foundation is delighted to have formed a partnership with the Returned and Services' Association (RSA) as part of the Anzac Day centenary commemorations. ...
    18 hours ago
  • Turangawaewae – Human Rights Commission e-newsletter
    Please find our new newsletter here . Highlighted stories this month: Treaty of Waitangi and the UN Declaration on the Rights of Indigenous People Dame Susan Devoy – Al Jazeera interview Equal Employment Opportunities Commissioner – The Equal Pay Act… ...
    2 days ago
  • Election for New Labour President
    Two nominations have been received for the position of Labour Party President vacated with the recent resignation of Moira Coatsworth. A vote will now proceed, closing on February 26th. ...
    2 days ago
  • Flags to be lowered to half-mast – Monday 26 January 2015
    At the request of the Prime Minister, the Right Honourable John Key, the New Zealand Flag is to be half-masted on all Government and public buildings on Monday 26 January 2015 , to mark the death of King Abdullah bin… ...
    2 days ago

Public service advertisements by The Standard

Current CO2 level in the atmosphere