While the energy companies are profitable for the government to own – thanks to its 3.5% cost of capital – they’re not for ‘mum and dad’ because the dividend return is going to be 4% pre-tax and ‘mum and dad’ have a mortgage, or an overdraft, or credit card debt – and putting their shares savings (if they have any, considering 50% of families have less than $1,700 in the bank) paying off any of those gives a better rate of return, tax-free.
But say you’re foolhardy, or say you believe there’s going to be big equity gain (like 4% per year, every year). Are you still so keen when the company you want to buy, Mighty River, is at risk of losing the rights to its main input, water, or paying unknown fees for its use to the true owners?
If you are, you’re mad.
Nobody is going to be stupid enough to buy shares with the Waitangi water claim hanging over them.
Which means Key will have to delay the sale until the issue is settled.
If Key had been a bit smarter, he would have seen past the opportunity for a bit of racial wedging of the opponents of asset sales. He would have seen that the water issue needs to be settled ASAP or the entire asset sales programme will either be a flop or delayed indefinitely.
Rather than play the race card, he would have played smart – like he would have back before his political instincts deserted him – and played the conciliator. He would have pulled the iwi together and given them some shares or set up a system of fee payments from the dam and geothermal plant owners.
It could all have been sorted with time to spare. But, now, this thing is going to drag on forever. There’ll be court cases, injunctions, appeals, maybe legislation. You can’t sell amongst all that and get a good price.
Oh, and here’s another couple of things prospective buyers need to factor in.
Taupo Council wants Mighty River’s consent for raising the level of Lake Taupo to be reduced or mitigated because its eroding the lakeshore – but an extra metre of lake level is, by my calculation, half a billion extra kilowatt/hours of gravitational potential energy sitting there, worth over $50 million dollars to Mighty River, and it’s ready to be sent down the dams for even greater profits when the spot price spikes. If that gets curtailed, there goes a big chunk of Mighty River’s profits.
And there’s the question of the legality of National’s prospective bonus share issue. There’s no appropriation for that give-away. National may face legal challenges if it tries to give away shares to ‘loyal’ shareholders without getting Parliamentary consent first. More costs, more delays, more risk for the investor.
I’ve got a few grand sitting in the bank right now. Given the choice between leaving it there and punting on Mighty River, I reckon I’ll leave it in the bank.