Where did Mighty River get that spare $50m?

Written By: - Date published: 7:57 am, October 16th, 2013 - 44 comments
Categories: energy, privatisation - Tags:

So, Mighty River Power has so much spare cash at the moment that it just doesn’t know what to do with it. Rather than pay out a special dividend, they’re going to buy back some shares (it’s more ‘tax-efficient’ than dividends, because it allows investors to pocket profits without paying tax, and it will support the spare price during the Meridian float). This, naturally, has raised eyebrows because these shares were only just sold to ‘mum and dad’. But the bigger question is: where did Mighty River get a spare $50m in the first place?

From you and me, of course. By charging too much for power.

Now, seventh form economics was a while ago, but I’m pretty sure that efficient market hypothesis says that a company that is making excessive profits (thanks to the Randian heroes running the show, no doubt) will lower its prices in an attempt to garner more market share, thus eliminating the super-profits and delivering a better result for customers.

But Mighty River isn’t doing that. It’s sitting on so much spare cash it’s using inventive methods to get rid of it.

What does the majority shareholder, the Government, think of Mighty River preferring high profits over lower prices. Seems Johnny Key’s just fine with that:

3. METIRIA TUREI (Co-Leader—Green) to the Prime Minister: Does he stand by his statement that Mighty River Power’s buy back of $50 million worth of shares is “highly normal”?

Rt Hon JOHN KEY (Prime Minister) : Yes. Air New Zealand, for example, started the share buy-back programme last year and is planning to purchase up to $45 million of its shares. Infratil is planning a $65 million share buy-back. Telecom did a $200 million share buy-back last year. Comvita did a buy-back last year. This is normal business practice and the decision is made by the board in the interests of the company and its shareholders.

Metiria Turei : If Mighty River Power is charging so much for power that it has $50 million lying around and nothing better to do with it than buy back shares, what action has the Government taken, as the majority shareholder in the company, to ensure it reduces electricity prices for families and for businesses?

Rt Hon JOHN KEY : We have a very competitive electricity market in New Zealand. People are free to choose. The member is making a huge mistake in showing her complete lack of knowledge of financial markets if she wants to conflate pricing with the capital structure of the company.

Metiria Turei : When power consumption in New Zealand is falling but electricity prices are rising at four times the rate of inflation, such that electricity companies are using the surplus cash to buy back their own shares, does he honestly believe that the electricity sector is working for New Zealand families and businesses?

Rt Hon JOHN KEY : Yes. I think we have a competitive electricity sector. I say this to the member: it will be interesting to see when she goes knocking door to door to tell the least well off families in New Zealand how much they are going to enjoy paying $500 a year for her emissions trading scheme.

Metiria Turei : Can the Prime Minister confirm—[Interruption ]

Mr SPEAKER : Order! I have called Metiria Turei, if she wants to continue with her supplementary question.

Metiria Turei : Can the Prime Minister confirm that the Government, as the majority shareholder in Mighty River Power, prefers that it distributes $50 million in extra profits to shareholders in a share buy-back, rather than lowering its electricity prices by $50 million for families and for businesses?

Rt Hon JOHN KEY : Whether the company engages in a share buy-back is a matter for the board.

44 comments on “Where did Mighty River get that spare $50m?”

  1. darren 1

    It has it on its books, its merely a blip on the horizon, you worry too much about nothing.

  2. Lanthanide 2

    “But the bigger question is: where did Mighty River get a spare $50m in the first place?

    From you and me, of course. By charging too much for power.”

    Of course, had MRP still been owned by the government, it is very likely it would have the same $50m. Only it would be going to the government as a dividend, rather than used for a share buy-back. But the outcome is the same: households and businesses paying more for power than they should be.

    • Lightly 2.1

      which is why we need NZ Power. Over-priced power is a tax (and a bad tax) no matter whether its going to public or private coffers.

      • Draco T Bastard 2.1.1

        NZ Power is a waste of time. Renationalisation would be much better.

        • Tamati 2.1.1.1

          +1

        • The upside of New Zealand power is that you don’t have to splash out as much capital on the power companies, and nobody can accuse you of being too radical and anti-capitalist. The downside is that you still have a lot of essentially free money going to overseas investors care of our private power companies.

    • felix 2.2

      Yep, as long as these entities are set up to behave as corporations for profit that’s exactly what they’ll do.

      Such important pieces of infrastructure should never have been treated this way.

      • Draco T Bastard 2.2.1

        +1

      • Lanthanide 2.2.2

        Yes, but the flip-side is that a profit motive is an effective method of ensuring finite resources are used in the most productive fashion.

        Not the only method, but a proven one.

        • Draco T Bastard 2.2.2.1

          Yes, but the flip-side is that a profit motive is an effective method of ensuring finite resources are used in the most productive fashion.

          Incorrect, the profit motive is, as a matter of fact, an effective method to ensure that finite resources are used up ASAP and not efficiently either. It’s why we have cars rather than good public transport and why National is looking to dig up all our resources and sell them.

    • Draco T Bastard 2.3

      That would depend upon if it was run as a government service or as an SOE. As a government service the government doesn’t get to demand a dividend and so the surplus can be decreased making prices lower but still maintaining enough income to maintain existing infrastructure and building new infrastructure as needed. Even the latter could be removed from the electricity price if the government paid for new infrastructure through taxes.

  3. ghostwhowalksnz 3

    Its not just a ‘share buyback’ but its also a reduction in the number of shares on issue, months after they just issued a whole swag.

    Seems like the board has advisors who say one thing and then say another- which is of course code for politicians.
    Then again, it makes it easier for a corporate takeover of MRP by one of the other power companies, which is what this whole share sale schmozzle is about

    • Lanthanide 3.1

      Yeah, I think Key saying it’s just a normal part of business is being disingenuous.

      I think you’d be hard-pressed to find any companies that had a share buyback within 5 months of an IPO.

    • bad12 3.2

      No it’s not a reduction of the number of shares on issue, that reduction only occurs if the shares bought back are cancelled,

      Mighty River have already stated that as a result of the share buyback they have no intention of cancelling the shares,

      Which then of course begs the question of where the shares are destined to be ‘onsold’ to…

      • ghostwhowalksnz 3.2.1

        Thats interesting, that contradicts one of the other reasons the market likes it.

        “Share buybacks typically reduce the number of shares on issue in a company, boosting the value of the remaining shares.”- So thats not the reason
        As well they say the amount involved is too small so they need to spend more !

        This was interesting from English before the float, when he was taunting Labour about their opposition to asset sales

        Bill English says he is still waiting for Labour to pledge to buy back the shares that National is planning to float in four state-owned companies. The Minister of Finance is waiting in vain.”
        Armstrong in The Herald -http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10814415

        Buyback the shares ? Who would have guessed.
        Seems like a good question to ask English in parliament- ?

  4. Saarbo 4

    John Key quote:

    “…The member is making a huge mistake in showing her complete lack of knowledge of financial markets if she wants to conflate pricing with the capital structure of the company.”

    I am trying to work out why Key would have made the above statement because “pricing” drives profitability, which directly affects “capital”…so of course “pricing” affects “capital structure”, he is just trying to do the classic National Party baffle with bull shit.

    Metiria has not made a “huge mistake in showing her complete lack of knowledge of financial markets…”, quite the opposite, John Key is showing his lack of knowledge.

    Ultimately they have $50m surplus cash because they have over charged customers.

    • Lanthanide 4.1

      I think the point Key is making is that decisions about capital *can* be independent of those about pricing. He hasn’t established that this is the case in this instance, however.

      • Tracey 4.1.1

        It’s also unusual for such a large majority shareholder to be so disinterested in Board decisions and the future direction of their company.

        • ghostwhowalksnz 4.1.1.1

          Not really, Solid Energy Comes to mind

          • Draco T Bastard 4.1.1.1.1

            This government had a lot to say about the direction that Solid Energy went. Most of what they said increased Solid Energy’s debt so that the government could pull out larger dividends.

    • Draco T Bastard 4.2

      John Key is showing his lack of knowledge.

      No, John Key is lying.

      Ultimately they have $50m surplus cash because they have over charged customers.

      Exactly.

  5. Tracey 5

    Infratil and Air New Zealand, have they just had a huge portion sold to market by NZers?

    Is it normal for this to happen immediately AFTER a large stock exchange float and sale?

  6. geoff 6

    Electricity price increasing at four times the rate of inflation!

    Utterly criminal.

    Not that you’ll hear much from the country’s comfortable commentariat. Probably the Mora’s, Armstrongs and O’Sullivans etc have small or non-existent mortgages, well insulated houses, and secure income. What problems, they ask?

    Disconnected. Out of touch. Ruining the country one smug remark at a time.

  7. Ozymandias 7

    Seventh-form economics should have taught you that a commerical company’s first responsibility isn’t to its customers – it’s to its shareholders. Under capitalism a commercial entity needs only to ‘look after’ its customers to the extent necessary to build or maintain its market share or, in other words, charge as much as the market will bear. In the electricity sector that means the market price is just below the cost of the most expensive generation from time to time.

  8. Plan B 8

    The 50 million has to have come from borrowing if the company owes any money at all then not paying off the debt is the same as borrowing more. So they are leveraging up – each share now has more debt

  9. Bill 9

    Duly noted that JK only seems able to use ‘dead hand’ business speak in response to Metirea’s more social-centric questioning.

  10. Draco T Bastard 10

    Now, seventh form economics was a while ago, but I’m pretty sure that efficient market hypothesis says that a company that is making excessive profits (thanks to the Randian heroes running the show, no doubt) will lower its prices in an attempt to garner more market share, thus eliminating the super-profits and delivering a better result for customers.

    Not exactly.

    Theory starts it with a monopoly making super profits which encourages other companies to come in to the market with lower prices to try to capture some of the market from the existing monopoly. This will lower profits across the board. If we take the efficient market hypothesis to its logical conclusion then there are no profits (to be more correct, profits will be infinitesimal).

    Of course, Steve Keen has proved that even competitive firms use monopoly pricing to garner super-profits. This would be especially true in a demand monopoly situation such as electricity.

    Rt Hon JOHN KEY : We have a very competitive electricity market in New Zealand.

    No we don’t, we have the illusion of a competitive market with all the added costs that that brings but none of the theoretical benefits. Prices are going up, profits are increasing and people are suffering because of it.

    Time for renationalisation and the efficiencies and cost savings that that brings about.

    • Lanthanide 10.1

      “Of course, Steve Keen has proved that even competitive firms use monopoly pricing to garner super-profits. This would be especially true in a demand monopoly situation such as electricity.”

      I’m now effectively in the market for re-carpeting my house, and have noticed the plethora of carpeting companies with ads on TV and all the different places that sell carpets and floor coverings.

      I can only conclude from the massive advertising spend, that all of these companies are raking it in and there’s no true competition going on – if there was, surely we’d see fewer companies, bigger companies and less advertising?

  11. darren 11

    Of course this all became possible under Labour, where dividends were extremely high because of record high prices, 78% in 9 years..shamefull.

    • Draco T Bastard 11.1

      Ah, the old but Labour did it toooo whinge which completely ignores the facts that 1) nobody here want Labour to continue doing it and 2) that Labour has promised to change things.

  12. tricldrown 12

    During the clark years thetr were droughts and electricity shortages due to a rapidly growing economy .
    The clark govt gave these profits back to the people as working for families the cullen fund huge increases in R&D etc.

  13. darren 13

    rubbish, just as many droughts when national was in, and not the increases in power, 78%

Recent Comments

Recent Posts

  • Ports of Auckland decision a win for workers and the environment
    Ports of Auckland’s decision to no longer release the toxic fumigant methyl bromide into the atmosphere is a win for their workers and for the environment, says Labour’s Spokesperson for Biosecurity Damien O’Connor.   “The intention to move to a ...
    58 mins ago
  • Single Child Tax hidden in Budget
    Buried in National’s so-called family Budget is a Single Child Tax that will hit medium to low income families, says Labour Leader Andrew Little. ...
    4 hours ago
  • Commerce Commission investigates Ron Hoy Fong
    The decision by the Commerce Commission to investigate Ron Hoy Fong and his questionable advice to property investors to use fake names and target ‘dummies’ is good news, Labour’s spokesperson on Consumer Affairs Michael Wood says.  “I am pleased that ...
    2 days ago
  • National running out of excuses on Pike
    The latest Pike River revelations further erode National's position of blocking a manned re-entry of the Pike River Mine drift, says Leader of the Opposition Andrew Little. ...
    2 days ago
  • Nats’ Budget locks in housing crisis
    National’s ninth Budget forecasts house prices will rise at three times the rate of wages, locking in the housing crisis for years to come, says Leader of the Opposition Andrew Little. “After nine years, all National can offer is a ...
    3 days ago
  • Small change that is sorely needed
    The big headline of the Government’s Budget yesterday was its Family Incomes Package – a range of measures including changes to income tax thresholds and the Family Tax Credit. Overall the Budget is a huge disappointment and a missed opportunity ...
    GreensBy Marama Davidson
    3 days ago
  • Kids bear the brunt of Budget
    Future generations are the ones bearing the brunt of National’s failure to provide education services the funding they need to make ends meet, Labour’s Education spokesperson Chris Hipkins says. “For nine years in a row the Government has told our ...
    3 days ago
  • The real costs of National’s election bribe
    The cost of National’s poorly-targeted election year budget bribe is that there’s nothing to fix the housing crisis, health funding is cut, and funding for schools is cut, says Labour’s Finance spokesperson Grant Robertson. “As the dust begins to settle ...
    3 days ago
  • Health running on empty
    Get ready for more cuts to health at a local level, affecting all New Zealanders, after a Budget that failed to deliver even enough for health services to stand still, says Labour’s Health spokesperson David Clark. “District Health Boards this ...
    3 days ago
  • Nats’ budget a double-crewed ambulance parked at the bottom of the cliff
    National’s election year Budget shows that there’s no coincidence Finance Minister Steven Joyce doubles as National’s campaign manager, says Labour’s Finance Spokesperson Grant Robertson. “The 2017 Budget reveals a lack of vision, and is simply an election year budget with ...
    4 days ago
  • After nine years, it’s the One Dollar Bill Budget
    National’s Budget 2017 is an irresponsible election bribe which after nine years exposes a government that’s run out of energy and ideas to tackle the big issues facing New Zealand,” says Labour Leader Andrew Little. “This is simply cynical electioneering ...
    4 days ago
  • Alfred Ngaro might be sorry – but to whom?
    The fact that the number of people classified as homeless on the Social Housing Register has doubled over the past year alone should be the real reason for Alfred Ngaro’s recent apologies, says Labour’s Social Development spokesperson Carmel Sepuloni. “As ...
    5 days ago
  • Government’s data-for-funding backdown embarrassing
    The Government’s U-turn on their shambolic attempt to collect private client data from social services is an embarrassment for a senior Minister, says Labour’s Social Development spokesperson Carmel Sepuloni. “After months of criticism and mismanagement, the Government has finally cut ...
    5 days ago
  • Overloaded hospitals reach crisis point
      The country’s hospitals have reached breaking point with some hospitals discharging patients to free up bed space and patients with serious injuries having to wait hours to be seen by a doctor, says Labour’s Health spokesperson David Clark.   ...
    5 days ago
  • National fails on critical school building needs
    Students are paying the price of the Government’s failure to invest fast enough in school buildings to keep pace with Auckland’s increasing population, says Labour Leader Andrew Little. “Parents should lay the blame for their children having to put up ...
    5 days ago
  • Tipping culture is not welcome in NZ
    Deputy Prime Minister Paula Bennett’s comments about tipping have been in the news and have sparked off a series of furious discussions about tipping in Aotearoa. From our point of view, tipping every time you’re provided a service is a ...
    GreensBy Denise Roche
    6 days ago
  • Mental Health a huge cost for Police
      The cost of dealing with mental health incidents for our police was a staggering $36.7 million which shows just why we need Labour’s fresh approach on Mental Health, says the Leader of the Opposition Andrew Little.   “Police now ...
    6 days ago
  • Grant Robertson: Speech to Otago-Southland Employers Association
    Thanks to the Otago Southland Employers Association and Virginia for hosting me this evening.  It is always a pleasure to come back to the city and region that shaped who I am as a person. I believe that growing up ...
    7 days ago
  • Renting a home in the Wild West
    It can be tough renting a place to live, and it could be about to get tougher. Radio NZ is reporting that the American Rentberry app wants to start operating in New Zealand. Rentberry allows landlords to play perspective tenants ...
    GreensBy Metiria Turei
    7 days ago
  • Free West Papua leader in Aotearoa
    Last week I hosted Free West Papua leader Benny Wenda at Parliament and travelled with him to a number of important events. Benny is spokesperson for the United Liberation Movement for West Papua and lives in exile in England. 14 ...
    GreensBy Catherine Delahunty
    1 week ago
  • Nats unprepared for record immigration
    National’s under-investment in housing, public services, and infrastructure means New Zealand is literally running out of beds for the record number of new migrants, says Labour’s Immigration spokesperson Iain Lees-Galloway. ...
    1 week ago
  • Labour opposes Ports of Auckland sale
    Labour would strongly oppose the sell-off of the Ports of Auckland to fix a short term cash crisis caused by the Government blocking the city’s requests for new ways to fund infrastructure, says Labour’s Auckland Issues spokesperson Phil Twyford. “National ...
    2 weeks ago
  • Workers pay the price of Silver Fern’s Fairton closure
    The threatened closure of Silver Fern Farms’ Fairton Plant in Ashburton raises serious questions about the Government’s support of the sale of half of the company to a foreign company, when it appears this outcome may have been inevitable, says ...
    2 weeks ago
  • National’s answer to the housing crisis: One new affordable house per 100 new Aucklanders
    National’s fudge of a housing plan will make Auckland even more of a speculators’ paradise, says Leader of the Opposition Andrew Little. ...
    2 weeks ago
  • Government can’t be trusted with private data
    The independent review of the Ministry of Social Development’s data breach in April has shown, once again, that the Ministry cannot be trusted with private client information, says Labour’s Social Development spokesperson Carmel Sepuloni. “The investigation by former Deloitte chairman ...
    2 weeks ago
  • Another crisis, another half-baked National plan
    The National Party may have finally woken up to the teacher supply crisis facing our schools but their latest half-baked, rushed announcement falls well short of the mark in terms of what’s required, says Labour’s Education spokesperson Chris Hipkins. ...
    2 weeks ago
  • Nats: Don’t bite the hand that feeds you
    Alfred Ngaro’s recent comments have exposed the Government’s ‘don’t bite the hand that feeds you’ approach, says Labour’s Social Development spokesperson Carmel Sepuloni. ...
    2 weeks ago
  • Breaking news – National admits there’s a housing crisis
    National finally admits there’s a housing crisis, but today’s belated announcement is simply not a credible response to the problem it’s been in denial about for so long, says Leader of the Opposition Andrew Little. “National can’t now credibly claim ...
    2 weeks ago
  • Nats lay the ground for housing bust
    Goldman Sachs’ warning that New Zealand has the developed world’s most over-priced housing market, with a 40 per cent chance of a bust within two years, shows the consequences of National’s nine years of housing neglect, says Labour Housing spokesperson ...
    2 weeks ago
  • Well they would say that, wouldn’t they?
    Property investors’ lobby groups have been up in arms this week about Labour and Green parties’ plans to close tax loopholes and fix the housing market. That’s probably a good thing. Like an investor in any other sector, they expect ...
    GreensBy James Shaw
    2 weeks ago
  • Alfred Ngaro reflects National’s culture of silencing debate
    Image from Getty Images Community groups must be free to advocate for the people they serve. It’s these people who see first-hand if ideas dreamt up in Wellington actually work on the ground. It’s essential that they can speak freely ...
    GreensBy Jan Logie
    2 weeks ago
  • Bill English must reassure community organisations
    The Prime Minister must do more to reassure community organisations after Cabinet Minister Alfred Ngaro's apparent threats to their funding if they criticise government policy which has left a born-to-rule perception amongst many, says Labour Leader Andrew Little. “Alfred Ngaro ...
    2 weeks ago
  • Extremism and its discontents
    Another scar on global democracy appeared recently, this time in Germany.It seems that the number of soldiers on duty with extremist political leanings has become a concern to the military leadership in that country. Soldiers were found openly possessing ...
    GreensBy Kennedy Graham
    2 weeks ago
  • Government’s suicide approach disappoints
    Mike King’s sudden departure from the Government’s suicide prevention panel, amid claims the Government’s approach is ‘deeply flawed’, is further evidence National is failing on mental health, says Labour’s Deputy Leader Jacinda Ardern. “Mental health is reaching crisis point in ...
    2 weeks ago
  • National backs speculators, fails first home buyers
    National is showing its true colours and backing speculators who are driving first home buyers out of the market, says Labour Leader Andrew Little. “By defending a $150m a year hand-out to property speculators, Bill English is turning his back ...
    2 weeks ago
  • More oversight by Children’s Commissioner needed
    More funding and more independence is required for the Children’s Commissioner to function more effectively in the best interests of Kiwi kids in State care, says Labour’s spokesperson for children Jacinda Ardern. ...
    2 weeks ago
  • Labour to end tax breaks for speculators; invest in warm, healthy homes
    Labour will shut down tax breaks for speculators and use the savings to help make 600,000 homes warmer and healthier over the next ten years, says Leader of the Opposition Andrew Little. “It’s time for fresh thinking to tackle the ...
    2 weeks ago
  • Health of young people a priority for Labour
    Labour will ensure all young people have access to a range of health care services on-site at their local secondary school, says Labour’s deputy leader Jacinda Ardern. “Our policy will see School Based Health Services extended to all public secondary ...
    2 weeks ago
  • Ratifying the TPPA makes no sense
    The recent high-fiving between the government and agricultural exporters over ratification of the TPPA (Trans-Pacific Partnership Agreement) is empty gesture politics in an election year. Ratification by New Zealand means nothing. New Zealand law changes are not implemented unless the ...
    GreensBy Barry Coates
    2 weeks ago
  • NIWA report proves National’s trickery re swimmable rivers
    National have a slacker standard for swimmable rivers than was the case prior to their recent so-called Clean Water amendment to the National Policy Statement (NPS), says Labour’s Water spokesperson David Parker. “The table 11 on page 25 of the ...
    2 weeks ago
  • MPS shows new approach needed on housing
    The Reserve Bank’s latest Monetary Policy Statement provides further evidence that only a change in government will start to fix the housing crisis, says Labour Finance spokesperson Grant Robertson. “It is more evident than ever that only a Labour-led government ...
    3 weeks ago
  • Fresh approach on mental health
    Labour will introduce a pilot scheme of specialist mental health teams across the country in government to ensure swifter and more effective treatment for those who need urgent help, says Labour’s Leader Andrew Little. “Mental health is in crisis. It ...
    3 weeks ago
  • Sallies back Labour’s plan for affordable homes
    The country’s most respected social agency has endorsed Labour’s KiwiBuild plan to build homes that families can afford to buy, and delivered a withering assessment of the National Government’s housing record, says Labour’s housing spokesperson Phil Twyford. ...
    3 weeks ago
  • Education is for everyone, not just the elite
    Proposals by the National Party to ration access to higher education will once again make it a privilege only available to the elite, Labour’s Education spokesperson Chris Hipkins says. “Speaking at the Education Select Committee, Maurice Williamson let the National ...
    3 weeks ago
  • Cancer support changes far too little, certainly late
    Anne Tolley’s belated backtrack to finally allow Jobseeker clients suffering from cancer to submit only one medical certificate to prove their illness fails to adequately provide temporary support for people too sick to work, says Labour’s Social Development spokesperson Carmel ...
    3 weeks ago
  • Kids must come first in enrolment debate
    The best interests of children should be the major driver of any change to policies around initial school enrolments, not cost cutting or administrative simplicity, Labour’s Education spokesperson Chris Hipkins says.   “The introduction of school cohort entry is ...
    3 weeks ago