web analytics

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

  • NZ announces a third P-3 deployment in support of UN sanctions
    The Government has deployed a Royal New Zealand Air Force P-3K2 Orion (P-3) maritime patrol aircraft to support the implementation of United Nations Security Council (UNSC) resolutions imposing sanctions against North Korea, announced Minister of Foreign Affairs Winston Peters and Minister of Defence Ron Mark. “New Zealand has long supported ...
    BeehiveBy beehive.govt.nz
    3 days ago
  • Pacific trade and development agreement a reality
    Pacific regional trade and development agreement PACER Plus will enter into force in 60 days now that the required eight countries have ratified it. Trade and Export Growth Minister David Parker welcomed the announcement that the Cook Islands is the eighth nation to ratify this landmark agreement. “The agreement represents ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Securing a pipeline of teachers
    The Government is changing its approach to teacher recruitment as COVID-19 travel restrictions continue, by boosting a range of initiatives to get more Kiwis into teaching. “When we came into Government, we were faced with a teacher supply crisis,” Education Minister Chris Hipkins said. “Over the past three years, we ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Border exceptions for a small number of international students with visas
    The Government has established a new category that will allow 250 international PhD and postgraduate students to enter New Zealand and continue their studies, in the latest set of border exceptions. “The health, safety and wellbeing of people in New Zealand remains the Government’s top priority. Tight border restrictions remain ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • First COVID-19 vaccine purchase agreement signed
    The Government has signed an agreement to purchase 1.5 million COVID-19 vaccines – enough for 750,000 people – from Pfizer and BioNTech, subject to the vaccine successfully completing all clinical trials and passing regulatory approvals in New Zealand, say Research, Science and Innovation Minister Megan Woods and Health Minister Chris Hipkins. ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • International statement – End-to-end encryption and public safety
    We, the undersigned, support strong encryption, which plays a crucial role in protecting personal data, privacy, intellectual property, trade secrets and cyber security.  It also serves a vital purpose in repressive states to protect journalists, human rights defenders and other vulnerable people, as stated in the 2017 resolution of the ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Ministry of Defence Biodefence Assessment released
    The Ministry of Defence has today released a Defence Assessment examining Defence’s role across the spectrum of biological hazards and threats facing New Zealand. Biodefence: Preparing for a New Era of Biological Hazards and Threats looks at how the NZDF supports other agencies’ biodefence activities, and considers the context of ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • New Approaches to Economic Challenges: Confronting Planetary Emergencies: OECD 9 October 2020
    New Approaches to Economic Challenges: Confronting Planetary Emergencies: OECD 9 October 2020 Hon David Parker’s response following Thomas Piketty and Esther Duflo. Good morning, good afternoon, and good evening, wherever in the world you might be. I first acknowledge the excellent thought provoking speeches of Thomas Piketty and Esther ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Kaipara Moana restoration takes next step
    A Memorandum of Understanding has been signed today at Waihāua Marae between the Crown, local iwi and councils to protect, restore and enhance the mauri of Kaipara Moana in Northland. Environment Minister David Parker signed the document on behalf of the Crown along with representatives from Ngā Maunga Whakahī, Ngāti ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • New Zealand and Uruguay unite on reducing livestock production emissions
    Agriculture Minister Damien O’Connor and Uruguayan Minister of Livestock, Agriculture and Fisheries Carlos María Uriarte have welcomed the launch of a three-year project that will underpin sustainable livestock production in Uruguay, Argentina, and Costa Rica.  The project called ‘Innovation for pasture management’ is led by Uruguay’s National Institute of Agricultural ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • 3100 jobs created through marae upgrades
    Hundreds of marae throughout the country will be upgraded through investments from the Provincial Growth Fund’s refocused post COVID-19 funding to create jobs and put money into the pockets of local tradespeople and businesses, Regional Economic Development Minister Shane Jones and Māori Development Minister Nanaia Mahuta have announced. “A total ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Health volunteers recognised in annual awards
    Health Minister Chris Hipkins has announced 9 teams and 14 individuals are the recipients of this year’s Minister of Health Volunteer Awards.  “The health volunteer awards celebrate and recognise the thousands of dedicated health sector volunteers who give many hours of their time to help other New Zealanders,” Mr Hipkins ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Community COVID-19 Fund supports Pacific recovery
    The Minister for Pacific Peoples, Aupito William Sio says a total of 264 groups and individuals have successfully applied for the Pacific Aotearoa Community COVID-19 Recovery Fund, that will support Pacific communities drive their own COVID-19 recovery strategies, initiatives, and actions. “I am keen to see this Fund support Pacific ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Community benefits from Māori apprenticeships
    Up to 50 Māori apprentices in Wellington will receive paid training to build houses for their local communities, thanks to a $2.75 million investment from the Māori Trades and Training Fund, announced Employment Minister Willie Jackson today. “This funding will enable Ngāti Toa Rangatira Incorporated to provide its Ngā Kaimahi ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Training fund supports Māori jobseekers
    Rapidly growing sectors will benefit from a $990,000 Māori Trades and Training Fund investment which will see Wellington jobseekers supported into work, announced Employment Minister Willie Jackson today. “This funding will enable Sapphire Consultants Ltd. to help up to 45 Māori jobseekers into paid training initiatives over two years through ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Ruakura Inland Port development vital infrastructure for Waikato
    The Government is investing $40 million to develop an inland port at Ruakura which will become a freight super-hub and a future business, research and residential development for the Waikato, Urban Development and Transport Minister Phil Twyford, and Māori Development Minister Nanaia Mahuta announced today. The funding has been has ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Appointments made to Defence Expert Review Group
    Defence Minister Ron Mark announced today the establishment of an Expert Review Group to review a number of aspects of the New Zealand Defence Force’s (NZDF) structure, information management and record-keeping processes.  The Expert Review Group’s work arises out of the first recommendation from the Report of the Government’s Inquiry ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • No active community cases of COVID-19
    There are no active community cases of COVID-19 remaining in the country after the last people from the recent outbreak have recovered from the virus, Health Minister Chris Hipkins said today. “This is a big milestone. New Zealanders have once again through their collective actions squashed the virus. The systems ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Clean energy upgrade for more public buildings
    More public buildings will be supported by the Government to upgrade to run on clean energy, the Minister for Climate Change James Shaw announced today. Minister Shaw announced that Lincoln and Auckland universities will receive support through the Clean-Powered Public Service Fund to replace fossil fuel boilers. Southern, Taranaki, and ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Schools back donations scheme for the second year
    More schools have opted in to the donations scheme for 2021, compared to 2020 when the scheme was introduced. “The families of more than 447,000 students will be better off next year, with 94% of eligible schools and kura opting into the scheme,” Education Minister Chris Hipkins said. “This is ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Ruapehu cycle trails gets PGF boost
    The spectacular Mountains to Sea cycle trail in Ruapehu District will receive $4.6 million in funding from the Provincial Growth Fund for two additional trails, Regional Economic Development Minister Shane Jones announced today. “This is an exciting development for the local community, and one that will provide significant economic opportunities ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Update to air border order strengthens crew requirements
    Additional measures coming into effect on Monday will boost our defence against COVID-19 entering New Zealand through the air border, Health Minister Chris Hipkins said today. “As part of our precautionary approach and strategy of constant review, we’re tightening the requirements around international aircrew,” Chris Hipkins said. The COVID-19 Public ...
    BeehiveBy beehive.govt.nz
    3 weeks ago
  • A true picture of Māori business activity
    A better picture of the contribution Māori businesses make to the economy will be possible with changes to the way information is collected about companies and trading enterprises. Māori Development Minister Nanaia Mahuta and Small Business Minister Stuart Nash have announced a new option for Māori enterprises who are part ...
    BeehiveBy beehive.govt.nz
    3 weeks ago
  • PGF funding for Taranaki projects
    The South Taranaki museum, a New Plymouth distillery and a Pasifika building firm will benefit from a Government investment totalling more than $1 million, Regional Economic Development Minister Shane Jones says. The $1.05m in grants and loans from the Provincial Growth Fund (PGF) will help the recipients expand and create ...
    BeehiveBy beehive.govt.nz
    3 weeks ago
  • Fijian Language Week 2020 inspires courage and strength during COVID-19 pandemic
    The Minister for Pacific Peoples, Aupito William Sio says the theme for the 2020 Fijian Language Week reflects the strong belief by Fijians that their language and culture inspires courage and strength that is strongly needed in times of emergencies, or through a significant challenge like the global COVID-19 pandemic ...
    BeehiveBy beehive.govt.nz
    3 weeks ago
  • Trades training builds on iwi aspirations
    An investment of $2.025 million from the Māori Trades and Training Fund will support Māori to learn new skills while making a positive difference for their communities, announced Employment Minister Willie Jackson today. “K3 Development Limited Partnership will receive $2,025,000 for its Takitimu Tuanui apprenticeship programme, which will support the ...
    BeehiveBy beehive.govt.nz
    3 weeks ago