David Cunliffe has said that, if he is Labour leader, he will look to buy back any assets National sells once he is PM. Under the existing Takeovers Code, that wouldn’t be too hard. But why not go a step further and make it clear to any potential investor that our energy sector won’t be their cash cow? A bit of regulatory reform would sink the assets’ share value.
Labour’s energy policy says
National created a pretend market, with monopoly profits reaped at the expense of consumers…
The four main generators – Contact, Genesis, Meridian and Mighty River Power –exercised their substantial market power to earn market rents estimated to be $4.3 billion. This averaged 18 per cent of the total wholesale market revenues received by all generators over the entire period.
The report also found that the excess profits which resulted from the exercise of market power were passed through entirely in the form of higher retail prices. Since then, prices have increased further.
Another measure of the ineffectiveness of the market is the failure of our hedge market. Even after recent attempts by the Electricity Authority to reform this it remains a mere fraction of the size targeted.
The sale of parts of the electricity SOEs will drive prices even higher. Our experience in New Zealand has clearly shown that sale of publicly owned infrastructure assets reinforces the incentive to maximise price, rather than tempers it. The willingness to invest in additional capacity is reduced, in part because tighter supply margins put upward pressure on prices and improve profitability.
This should surprise no-one and will no doubt occur if shares in the SOE companies are sold. It is undeniable that the business motive to maximise shareholder returns is reinforced and political accountability for power prices is reduced.
Market participants should be on notice that Labour believes there is ample evidence to conclude that there is insufficient competition in the retail and wholesale electricity markets.
We are not convinced that the recent changes to market rules will cure the problem. After more than 10 years at attempts to create adequate competition, we are losing patience.
Labour’s Energy spokesperson, David Parker, hasn’t got into detail publicly on how to contain the power companies’ market power but I’m guessing there are a number of regulatory options from the crude (‘all electricity generators shall be run on a not-for-profit basis’ – I support this because our energy system drives our economy, it shouldn’t be tapped as a source of profit itself) to more sophisticated ways of reducing their monopolistic prices.
If Labour goes into the next election with policies like that, the prices of any partially privatised electricity companies will plummet. Making it that much cheaper to launch a compulsory takeover. To do that, seeing as National will retain a 51% share, all Labour has to do is buy a further 5% within a 12 month period and then it can launch a takeover of the rest of the shares at the market price.
If I was looking at buying shares in the SOEs (ha, if I could afford to be looking at buying shares in the companies I already own, I mean), I would be mindful that both National and Labour-led governments would be loath to let me get decent dividends by hiking power prices, I’m not likely to have the shares for long, and when I lose them, they could be worth a lot less than when I bought them.