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Buy it back

Written By: - Date published: 1:07 pm, April 28th, 2008 - 21 comments
Categories: assets, privatisation - Tags: ,

I see that the Wellington lines network has been sold. Given the network has been in in the hands of foreign investors before I can’t see a sustainable argument for blocking the sale as the Auckland Airport bid was blocked. I do think the government should have bought it back. Electricity is too important to be left to a competitive model and in my opinion the government should be taking every opportunity to return the electricity sector to public ownership and then move to re-regulate it to work cooperatively. Buy it back.

21 comments on “Buy it back ”

  1. I so agree with you.

  2. Draco TB 2

    Was wondering what they would do but aren’t surprised that it wasn’t blocked. This lack of action shows a complete lack of understanding of the free-market and why something as critical as power should never have been sold in the first place. Competitive markets can’t help infrastructure investment simply because there can’t be any competition without making it cost far more and be far more inefficient.

  3. Dark Watcher 3

    Yeah and crash the economy. Idiots. Communism failed in Russia what makes you think it will work here?

  4. insider 4

    SOrry are you talking about the Wellington lines network formerly owned by Vector, a 75% community owned business that has chosen to sell its assets which it bought from NGC an Australian owned company I believe, and the same Vector that got done for anti competitive pricing against Wellington customers?

    ANd you want to put it back into public ownership?

    ANy concerns about the large chunks of NI lines owned by Powerco that Australian company? Nope, didn;t think so.

  5. IrishBill 5

    Insider, I would happily have powerco lines bought back. My point is that when the opportunities arrive (in this case because Vector has taken on too much debt) the government should take them.

    The anti-competitive practices you describe happened after deregulation of the market and, I would argue, were the direct result of the environment that deregulation created.

  6. Matthew Pilott 6

    Dark Watcher – too dim for words; you can’t distinguish communism from any other type of collectivism or public ownership?

    And everyone knows that communism would have worked in post-war England, Russia was a backward aristocracy, destroyed by war and turned into a backwards communist state – worst possible candidate! Now, England, what with rationing and ‘mustn’t grumble’ – they’d have made it work.

    I hope Labour can articulate some form of policy of buying assets, that should be publicly owned, when they’re available such as in this instance – although if National will sell them off when they get the chance, NZ will be setting itself up to be suckered time and time again – this needs to be managed in a better fashion than is currently possible.

  7. insider 7

    Bill

    The anticompetitive practices were actually directly mirroring what went on before deregulation (ie prices fixed to pander to electorates) and were carried out by an arm of local government, showing how farcical the regular beat up of foreign shareholders is when you have just as evil aucklanders in control.

    What is Powerco doing wrong that makes you want to take on their business? Why not leave them to it and let shareholders wear the risks not taxpayers.

    You criticise National for diverting money from other activities to fund tax cuts. Isn’t spending $750m on the Wellington lines network taking money similarly? And to what end? to subsidise Wellington power prices? What other benefits would there realistically be?

    It seems a kneejerk ‘buy it’ response more at home in a Monopoly game than to any market failure.

  8. randal 8

    intially it was sold because the “london Market” would not give ‘someone’ a loan to erect westpac stadium way back when so I guess it is just a pawn in someone elses game now.

  9. Felix 9

    Insider asks “to what end?”.
    To my mind the correct question is “why on earth was it ever sold?”

    If it WERE a Monopoly game however, it would be a waste of money – that and the waterworks.

  10. Not blocking the sale of the Wellington electricity network is proof of the Labour led governments hypocrisy and political opportunism. Is anything a more strategic asset than the electricity network that supplies the countries political hub? Is a company linked to the Chines communist regime in some way a safer owner than a Canadian pension fund ? Laughable.

  11. Macro 11

    Electricity Networks are an important factor in assessing the national power of a country. In the WWII the allies spent thousands of lives attempting to disrupt the Electrical Networks of Germany and vice versa. When this country sold off our Electrical Networks to overseas interests we effectively gave away our controlling interest in a vital piece of public infrastructure. All an overseas company controlling our Electricity supplies is concerned about is making a quick buck – as Vector have admitted in commenting on the sale – “our stakeholders have done well out of this sale.” What happens if NZ finds itself at odds with the country from which our Electrical Providers are based? Where do does the Company sit then? And why should an overseas company be interested in capital expenditure to improve supply networks? Toll have shown NO interest in improving our rail network.

  12. Lines companies aren’t competitive. They are monopolies. That’s why a mechanism to regulate their pricing was constructed after the initial Max Bradford market-faith explosion.

    I see no reason why a foreign investor buying a monopoly in order to extract monopoly rents from Kiwis is in any way desirable. It isn’t ‘investment’ at all. “Businesses” (I use the term loosely here) like this one should be owned by the fund that pays our pensions, or the users of the service supplied…..not people from other countries.

    I still haven’t forgiven Max Bradford for cutting my community-owned Kapiti power dividends in half in the 1990s and handing the balance to (then) foreign-owned Contact Energy. That was theft right out of my pocket.

  13. insider 13

    The vast majority of the electricity industry is either owned by the state or community owned trusts.

    macro

    Vector have arguably been underinvesting and have been ripping of Wellington customers to favour Aucklanders. I don’t recall Powerco facing similar accusations. Which one is locally owned and which one foreign?

    And I’m not sure if your WW2 analogies are that relevant, unless you think the Chinese are up to something…

  14. milo 14

    Canada bad, China good. Eh? … Wot? Garn … get out of here.

    The argument that Auckland Airport and Vector Lines are not comparable would only be persuasive to somebody who’d had a political lobotomy.

  15. Jum 15

    who is siobahn?

    She just called me a liar on Colin Espiner’s blog.

  16. IrishBill 16

    “The vast majority of the electricity industry is either owned by the state or community owned trusts.”

    Yes insider, but they work as separate entities and often in competition with each other. My argument is that they need to be brought back together into one publicly owned system that works cooperatively and not for profit.

  17. insider 17

    IB

    What you want is central planning and a socialist model for power – why that would work when it has been an enduring economic failure wherever it has been tried? Profit and markets are really important to send signals regarding need and efficiency, as much in electricity as in any other essential such as food, petrol, water.

    Central planning has been tried and not necessarily been that successful with high levels of over investment, some significant inefficiencies in our system as well as political interference. Both of which mean someone pays more than they should do. Not all of it was bad either. But what’s good for an engineer is not necessarily good for consumers.

    YOu’d be better selling off portions of the SOEs to get more financial discipline into their operations, and remove some of the sometimes overt political pressure exerted on them.

  18. IrishBill 18

    Insider, it didn’t fail as a model for electricity prior to deregulation. I wouldn’t say the same model was needed for food or petrol because they are not natural monopolies (or in the case of generation and the grid a series of geographic monopolies). I would say that water should be owned by the public because it too relies on a series of local monopolies. As does telecommunications (but don’t get me started on that!)

    In short it takes a lot more capital investment to reproduce the infrastructure needed for water and electricity than it does to do so for food or petrol. The other thing about power is that efficient generation relies on proper communication between generators and balancing the type of generation according to peaks and troughs. With more and more wind coming on-line this will become even more important (wind generation having no reserve capacity). Efficient transportation of power also relies on balancing generation with line-capacity. I figure the best way to do this is to have the whole lot under one roof and working as one integrated system. The problem with that is if it’s privately owned it becomes the mother of all monopolies.

  19. insider 19

    I understand your point and it is superficially attractive but it doesn’t recognise that such an approach has led to major over investment in capacity because they were elegant engineering solutions or because the planners got the numbers seriously wrong. There are lines in New Zealand that are nowhere near capacity 30 years after they were built.

    Central planning meant Whirinaki was built about as far away from where it is needed and arguably it was not a great investment anyway.

    Central planning is also undermining plans for a $400m Rodney plant which would prevent the need for Transpower’s $1 billion line upgrade through the Waikato. That’s an issue for everyone in New Zealand because we will all pay part of the cost of those pylons, no matter where you live, because the costs are socialised, whereas Genesis would wear the costs of Rodney and have to recover it in a competitive market.

    The system is operated centrally by Transpower, and they do a great job. But they have not been so great as an asset owner and planner see the Auckland 06 power cut which appears to me to have been a failure of design and risk management, let alone maintenance.

    This then raises another risk. Centralising the system means you could sacrifice the benefits of specialisation and have trade offs made due to management preference and knowledge rather than customer need.

  20. IrishBill 20

    Insider, you seem to have mistaken cooperative planning for “think big” style single-point generation and distance transmission. There is nothing inherent in a single entity, publicly owned electricity system that discounts more localised generation and shorter transmission. There is however a systematic flaw in a profit-driven competitive model that leads to underinvestment.

    On the matter of your Rodney example you know very well that the Rodney generation proposal was for gas powered generation and is not based on renewable energy. If anything that particular push for non-renewable generation represents the short-term thinking of the competitive model.

  21. Draco TB 21

    There are lines in New Zealand that are nowhere near capacity 30 years after they were built.

    And why is this a problem?

    see the Auckland 06 power cut which appears to me to have been a failure of design and risk management, let alone maintenance.

    No, that was a consequence of them having to turn a profit for their shareholders rather implementing needed infrastructure at a reasonable cost as a benefit to the community.

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