The obvious examples on failed past privatisation are TranzRail and Air New Zealand – vital bits of infrastructure that were run into the ground by their private owners, so they subsequently needed bailing out by the government. And they do have valuable lessons – vital infrastructure cannot be allowed to fail, so the private owners are guaranteed a bail-out, after they’ve asset-stripped to their heart’s content. There’s no risk, which in theory is what capitalism is meant to reward.
Another example would be Telecom, which is now providing huge dividends to its owners, when it could be subsiding schools and hospitals for taxpayers. Those same taxpayers who it most certainly does not act in the interests of, with its shameful customer service record and the fact that we’re now having to spend billions providing it with a fibre network which it should already have built.
But the closest example to National’s new proposals is Contact Energy, as sold by National in 1999.
If we look at what’s happened to Contact we can see a likely route for the ownership and behaviour of our other energy companies.
1/ Mum and Dad investors.
Contact was sold in 1999 to 225,000 shareholders. Those New Zealanders rich enough to buy a share quickly cashed in as the price rose and in 2002, a little over 3 years later, the number of shareholders had halved. It now stands at about 80,000.
2/ Foreign Ownership.
A 40% “cornerstone” stake was sold to Edison Mission Energy Taupō Limited, in addition to the 60% public float. EMET held onto it for 5 years before selling to Australia’s Origin Energy, who became the majority owner (51.4%), ensuring that most of the dividends contributed to our current account deficit as they headed overseas. How many foreign-owned companies are amongst the 20 that own 75% of Contact shares is not revealed – food for thought for those who believe being privately owned brings “transparency”.
3/ Directors’ Fees
Between splitting up the power companies in 1996 and selling off Contact in 1999 National had let Directors’ Fees balloon from $166,000 to $385,000. Under NZ-owned EMET’s guidance that was reduced and controlled. But as soon as Australian-owned Origin took over they nearly tripled. They tried to double them again during the height of the financial crisis in 2008 (whilst also hiking prices by 10%, and increasing their pay-out in dividends), but Bruce Sheppard and his Shareholders’ Association managed to block the increase in directors’ fees. Still, they’ve increased from $770,000 then to $993,000 in 2010. That’s nearly $1million for a few men to each put in a few hours’ work each week. $250k for a part-time job.
4/ Lost Dividends
Since 1999 Contact has paid out $1.5 billion in dividends to its shareholders. The majority of that money has gone overseas, with no benefit to our country (or even “Mum and Dad investors”), instead of paying for a few schools and hospitals. An asset sold for $2.3 billion in 1999 is now worth $3.7 billion – and that increased wealth of an asset built and paid for by our ancestors is going to Australia.
Does it make sense to sell our Energy companies? Will it make us richer? No. It’s like selling your house to pay off your mortgage – the debt may be gone, but you’re living on the street.