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Electricity privatisation begins

Written By: - Date published: 1:58 pm, December 19th, 2010 - 37 comments
Categories: energy, privatisation - Tags:

What to do if you’re a government with an ideological fixation on selling assets, which is hugely unpopular? The public will catch on if you put SOEs as full entities up for auction. So, you don’t sell off the companies. Instead, you sell off the things they own or, through bond issues, their profit streams. We’ve been warning this would happen. Now, it is.

Check out this press release from SOE Genesis Energy:

“Genesis Power Limited, trading as Genesis Energy, is considering making an offer of up to $300 million unsecured, subordinated Capital Bonds to the New Zealand public. The proceeds of the offer are intended to be used as part of the funding for the acquisition of the Tekapo power stations.”

Meridian is being forced to sell these power stations to Genesis as part of Gerry Brownlee’s reforms that have already caused power prices to skyrocket. Genesis sell some power stations to Meridian in return but they’re not worth as much. To fund the difference, Genesis will have to borrow. But what will Meridian do with the extra cash it gets from the swap?

It looks like they’ll be forced to give the money to the government as a special dividend (which Treasury suggested in papers to the government earlier in the year). The net effect is the SOE’s debt is increased – effectively, the profit stream from Genesis is privatised by the bond payments – and the Government ends up with cash. It’s privatisation by stealth.

The other privatisation move is less stealthy.

The government is preparing to sell off the emergency generator at Whirinaki. This power station was installed to provide emergency back-up during dry years. Brownlee thinks that’s no longer necessary thanks to his amazing reforms (yeah, I’m laughing too). So, he’s going to sell that asset, probably to the private sector. Inevitably, because the private buyers will want maximum return on their investment, this diesel-fueled power-generator will go from being an emergency back-up to part of the baseload electricity generation in this country (perhaps as dedicated generation for a Fonterra processing plant) meaning more emissions and nothing to fall back on when the rains don’t come.

This is privatisation. And the government has no mandate for it, having promised no to sell or part-sell SOEs this term.

37 comments on “Electricity privatisation begins”

  1. “Genesis Power Limited, trading as Genesis Energy, is considering making an offer of up to $300 million unsecured

    Phew – dose that mean we will not have to borrow anything for a whole week?

    • Draco T Bastard 1.1

      Nope, it means we’ll be borrowing an extra $300m that week.

      • Armchair Critic 1.1.1

        Best of all, it’s to buy something we already own. Fuck these Nats are smart.

      • Swampy 1.1.2

        No, it means Genesis SOE is getting $300 million – not the government.

        • Draco T Bastard 1.1.2.1

          The money will be borrowed by a state owned enterprise. It will have interest charged on it and it will cost us more for absolutely no reason as, Armchair Critic points out, we already own it.

          I’d call it sheer bloody stupidity except that even the NACTs can’t be that stupid which means that they must be doing it for a reason and the only reason available is to steal more money from hard-working NZers for themselves and their rich mates.

          • Swampy 1.1.2.1.1

            It says quite clearly the offer is to the NZ public. Not to a bank or financial institution to lend it money.

            It is like selling shares. You get some money in but it isn’t borrowed.

            • Draco T Bastard 1.1.2.1.1.1

              The people who buy the bonds want their money back with interest so, yes, it really is borrowing money.

              • Colonial Viper

                Good thing the investor capitalist class in this country got those convenient tax cuts.

                Which means that they now have spare cash to lend to the SOE in order to take even more money from the good ol NZ tax payer.

                • MrSmith

                  Exactly Colonial , why else would you give tax cuts to people that don’t need them, ‘unless’ they where your mates and it was a great time to pick up bargains at the bottom of a recession.

                  Never underestimate the rich&greedy they lay awake nightly thinking how they can make more money nothing else matters to them.

  2. marsman 2

    Scheming scamming scumbags, but totally incompetent when it comes to running the country, that’s NAct.

  3. Deadly_NZ 3

    Great more bloody price rises.

    Farkin thieveing scumbags shouldn’t be allowed too run a Lemonade stand!!!!

  4. stever 4

    “The proceeds of the offer are intended to be used as part of the funding for the acquisition of the Tekapo power stations.”

    Does Genesis not feel the need to explain why they wish to acquire the Tekapo power stations. Perhaps, as a courtesy to its owners, they might deign to enlighten us? It is clear this is not thought of as a good idea by those who know something about electricity in NZ

    http://www.stuff.co.nz/business/industries/4300898/Tekapo-sale-rearranging-Titanics-deckchairs

    though perhaps a minister with, as far as I can tell, no knowledge of the area, knows best?

    • Draco T Bastard 4.1

      Does Genesis not feel the need to explain why they wish to acquire the Tekapo power stations.

      Genesis can’t explain it – it wasn’t their idea to buy it but Gerry Brownlee’s and then they were forced to do so by legislation. Quite frankly, it’s just wasting our resources and costing us more in the long run just so NACTs rich mates can get some more of our money.

      • jagilby 4.1.1

        Oh yeah, I can see so many of “NACTs rich mates.. [getting] some more of our money” through a sale of hydro assets from one SOE (Meridian) to another (Genesis).

        • Eddie 4.1.1.1

          who’s lending Genesis the money, genius?

          • Swampy 4.1.1.1.1

            What lending? Issuing bonds is collecting money from “the public”.

            • Colonial Viper 4.1.1.1.1.1

              Correction: issuing bonds = going into debt to rich NZ’ers. In this case to pay the NAT Government.

              Here is the question of the day: how are these same NZ’ers going to be able to lend the SOE money from which they will be paid back by the SOE, with interest?

              From the National Government’s tax cuts of course.

              See how clever this is? Bill and John gives money to the rich via tax cuts. The rich then lend that same money back to Bill and John with interest. The rich make even more money, and Bill and John drain the public balance sheet more.

            • Eddie 4.1.1.1.1.2

              issuing bonds is borrowing money not ‘collecting money’ – if they’re borrowing, someone is lending. do you think the lenders are ‘mum and dad’ investors? don’t be naive

        • Draco T Bastard 4.1.1.2

          Bond (Finance)

          In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest (the coupon) and/or to repay the principal at a later date, termed maturity. A bond is a formal contract to repay borrowed money with interest at fixed intervals.[1]

          So, yeah, issuing bonds is borrowing money.

          • Colonial Viper 4.1.1.2.1

            It always seems strange to me that the Right Wingers are so financially illiterate its up to us Lefties to teach them 🙄

      • Lanthanide 4.1.2

        Even if we imagine this is somehow going to help us, or at best break even, there are going to be considerable costs in simply carrying out the purchase – I’m sure lots of lawyers will have to be involved for example. That ends up being a pure dead-weight loss.

    • Swampy 4.2

      Water from the two Tekapo stations goes into Lake Pukaki which feeds Meridians station
      But there is a lot more water in Pukaki that doesnt come from Tekapo
      The rest of the upper hydro scheme comes from the other lakes Ohau and Pukaki.
      So what is the problem exactly.
      “However, another industry source said even the “meanest, angriest” chief executive controlling Lake Tekapo would struggle to disrupt generation further down the Waitaki scheme.”

      That is so true because Tekapo only puts in a bit of water into the rest of the upper waitaki scheme. and there is only one outlet like most hydros the water goes thru the outlet whether the generation is working or not. if Tekapo A or B are not generating the water carries on down the river to Benmore-owned like Ohau stations by Meridian.

      If you read the article one of the big criticisms is coming from a former CEO of Meridian not exactly unbiased source.

  5. Jeremy Harris 5

    If you read the ODT report it seems to be suggesting the Whirinaki plant’s equipment may be moved overseas after three years…

    • jcuknz 5.1

      Good Oh … that will help with our balance of payment deficit … until we need it again at how much more?

  6. Swampy 6

    Selling assets is not privatisation, otherwise no SOE could ever sell anything. If a SOE buys something are they nationalising it? LOL

    “It looks like they’ll be forced to give the money to the government as a special dividend”

    Michael Cullen did a lot of this, he got $300 million out of Meridian to buy Kiwirail

    • Colonial Viper 6.1

      You’re saying that Cullen ordered Meridian to issue debt to pay the Govt monies?

      No that didn’t happen AFAIK.

      Selling assets is not privatisation, otherwise no SOE could ever sell anything.

      Under a new Labour Govt that is exactly correct: no SOE or part of an SOE will be sold

      Under NAT: expect asset sales (or as this post points out, the net value of an SOE’s assets to be plundered by the NATs).

      • Swampy 6.1.1

        Yes in 2008 Meridian borrowed money to pay that year’s dividend of $300 million.
        We do not know what Cullen might or might not have said to the board, however the government is the shareholder and appoints the board. No one in their right mind is going to believe the government would not be communicating with board members when they want a payout.

        An SOE selling part of its assets is not privatisation. They buy and sell stuff all the time. Meridian sold something they owned in Australia for $650 million in 2005 and paid out $800 million special dividend so that was when Labour was in power. That must be a privatisation.

        Also Michael Cullen sold Terralink very early in the first term of Labour.

        • Colonial Viper 6.1.1.1

          An SOE selling part of its assets is not privatisation. They buy and sell stuff all the time.

          OK I’ll accept that, if buying and selling over time keeps the value of SOE assets constant or increasing its not a strategy of privatisation, its simply carrying out normal business.

          HOWEVER If any SOE is a constant net seller of assets, it is privitisation by stealth, also known as asset stripping.

  7. Fisiani 7

    Do you reckon if this goes through that National support will go up from 55% to 57%?

    • Craig Glen Eden 7.1

      Probably because the people they phone poll are rich and they will have got tax cuts and maybe depending on their job a bottle of wine from that nice John Key.

      When investers invested with Mark Hotchin and Eric Watson do you think they also thought they were good blokes who had the investors interests at heart? Or do you think they thought these guys are theives yeeah lets give them our hard earned savings to run off with to the Gold Coast.

  8. The SOE model needs to be questioned.

    This is rather revealing:

    ‘The company is still state-owned. But, says Elder, managing Solid Energy is no different to managing a private sector business. “I don’t think of it as a government company. We have a very clear mandate that our responsibility is to be a good business. As successful as any comparable private sector company.” And the Government, he says, does not influence decision-making “in any shape or form”.

    Don Elder – The Management Interview
    New Zealand Management, Nov 4, 2003

  9. and wikipedia says:

    The function of SOEs is to operate successfully as a business, as profitable as those not owned by the Crown. The section of the Act defining this is usually interpreted as meaning that SOEs are expected to ready themselves for privatisation…
    though this is not always the case.

    ———–
    The Crown is assisted in the running of SOEs and other Crown-owned companies by the Crown Company Monitoring Advisory Unit (CCMAU – pronounced “see-see-maow”) in The Treasury.
    [edit] List of current state-owned enterprises

    Current state-owned enterprises include:

    * New Zealand Post Limited
    o Kiwibank
    * Meteorological Service of New Zealand Limited (MetService)
    * Airways New Zealand (air traffic control and air navigation providers)
    * Transpower New Zealand Limited
    * Kordia (formerly Broadcast Communications Limited or BCL)
    o Orcon Internet Limited
    * Mighty River Power Limited
    * Meridian Energy Limited
    o Powershop
    * Genesis Power Limited
    * Landcorp
    * Learning Media Limited
    * New Zealand Railways Corporation
    o ONTRACK
    o KiwiRail
    * Solid Energy
    * Crown Fibre Holdings

    Former state-owned enterprises

    Former state-owned enterprises come in three forms – those removed from the Schedules of the Act and made Crown entities, those removed and not privatised, and those removed and privatised. Well-known SOEs that became Crown entity companies include broadcasting companies Television New Zealand Limited (TVNZ) and Radio New Zealand Limited (RNZ).
    [edit] Privatised state-owned enterprises

    Privatised state-owned enterprises include:

    * Telecom Corporation of New Zealand Limited – later unbundled between 2006-2008
    * Petrocorp – sold to Fletcher Energy (now part of Royal Dutch Shell)
    * State Insurance Office
    * Health Computing Service
    * Contact Energy – sold to cornerstone shareholder and sharemarket float in 1999
    * DFC New Zealand Limited – went bankrupt in 1989 and later liquidated
    * Post Office Bank Limited (Postbank) – sold to ANZ
    * New Zealand Shipping Corporation – sold to P&O
    * New Zealand Steel Limited – purchased by BHP
    * Air New Zealand Limited (although the government later bought a controlling share in the company in 2001)
    * Rural Banking and Finance Corporation – purchased by the National Bank of New Zealand)
    * Government Printing Office – now GP Print
    * National Film Unit – purchased by Peter Jackson and renamed Park Road Post
    * Tourist Hotel Corporation of New Zealand Limited
    * Export Guarantee Office
    * Government Supply Brokerage Corporation (NZ) Limited
    * Bank of New Zealand (BNZ)
    * New Zealand Rail Limited (The rail operations of the Railways Corporation) – later renationalised as KiwiRail.
    * GCS Limited – formerly Government Computing Services, purchased by EDS New Zealand
    * Terralink International

  10. Inevitably, because the private buyers will want maximum return on their investment, this diesel-fueled power-generator will go from being an emergency back-up to part of the baseload electricity generation in this country

    Only if the buyer converts it to gas. On diesel, its too expensive to run to ever be profitable. On gas, it has the same economics as any other gas-fired station (and possibly cheaper, as the unprofitability in diesel mode will mean a cheaper sale price). So the government is basically allowing reserve, dry year generation to be converted to baseload – in the process crowding out cleaner, non-emitting options.

  11. john 11

    We all know what ACT-nat* are, Yet kiwis keep buying John’s grooming and suits and his “don’t worry, she’ll be right,be happy” front.They have to accept the blame for voting this mob in. (Like the American Sheeple keep voting for the financial mob which keeps on shearing them!) It makes you want to cry! Or could drive you to self harm?Where’s the nearest Gas Oven? I see the noxious gnome from Epsom got married the other day,John can’t do without him. Key is just a cardboard figue front for the rich b.ggers behind him!

    *Definition of nat very small insects that clusters together ,can be seen on Summer evenings,If only they were harmless.

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