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

  • Project protects jobs and nature
    A Waitomo-based Jobs for Nature project will keep up to ten people employed in the village as the tourism sector recovers post Covid-19 Conservation Minister Kiri Allan says. “This $500,000 project will save ten local jobs by deploying workers from Discover Waitomo into nature-based jobs. They will be undertaking local ...
    BeehiveBy beehive.govt.nz
    3 hours ago
  • Minister of Foreign Affairs makes three diplomatic appointments
    Foreign Affairs Minister Hon Nanaia Mahuta today announced three diplomatic appointments: Alana Hudson as Ambassador to Poland John Riley as Consul-General to Hong Kong Stephen Wong as Consul-General to Shanghai   Poland “New Zealand’s relationship with Poland is built on enduring personal, economic and historical connections. Poland is also an important ...
    BeehiveBy beehive.govt.nz
    6 hours ago
  • Major redevelopment of Wainuiomata High School underway
    Work begins today at Wainuiomata High School to ensure buildings and teaching spaces are fit for purpose, Education Minister Chris Hipkins says. The Minister joined principal Janette Melrose and board chair Lynda Koia to kick off demolition for the project, which is worth close to $40 million, as the site ...
    BeehiveBy beehive.govt.nz
    8 hours ago
  • New expert group appointed to advise Government on Oranga Tamariki
    A skilled and experienced group of people have been named as the newly established Oranga Tamariki Ministerial Advisory Board by Children’s Minister Kelvin Davis today. The Board will provide independent advice and assurance to the Minister for Children across three key areas of Oranga Tamariki: relationships with families, whānau, and ...
    BeehiveBy beehive.govt.nz
    13 hours ago
  • COVID-19 vaccine slated for possible approval next week
    The green light for New Zealand’s first COVID-19 vaccine could be granted in just over a week, Prime Minister Jacinda Ardern said today. “We’re making swift progress towards vaccinating New Zealanders against the virus, but we’re also absolutely committed to ensuring the vaccines are safe and effective,” Jacinda Ardern said. ...
    BeehiveBy beehive.govt.nz
    1 day ago
  • New ACC Board members announced.
    The Minister for ACC is pleased to announce the appointment of three new members to join the Board of ACC on 1 February 2021. “All three bring diverse skills and experience to provide strong governance oversight to lead the direction of ACC” said Hon Carmel Sepuloni. Bella Takiari-Brame from Hamilton ...
    BeehiveBy beehive.govt.nz
    1 day ago
  • Economic boost for Southland marae
    The Government is investing $9 million to upgrade a significant community facility in Invercargill, creating economic stimulus and jobs, Infrastructure Minister Grant Robertson and Te Tai Tonga MP Rino Tirikatene have announced.  The grant for Waihōpai Rūnaka Inc to make improvements to Murihiku Marae comes from the $3 billion set ...
    BeehiveBy beehive.govt.nz
    2 days ago
  • Celebrating the Entry Into Force of the Treaty on the Prohibition of Nuclear Weapons
    [Opening comments, welcome and thank you to Auckland University etc] It is a great pleasure to be here this afternoon to celebrate such an historic occasion - the entry into force of the Treaty on the Prohibition of Nuclear Weapons. This is a moment many feared would never come, but ...
    BeehiveBy beehive.govt.nz
    5 days ago
  • Supporting disabled people to stay connected
    The Government is providing $3 million in one-off seed funding to help disabled people around New Zealand stay connected and access support in their communities, Minister for Disability Issues, Carmel Sepuloni announced today. The funding will allow disability service providers to develop digital and community-based solutions over the next two ...
    BeehiveBy beehive.govt.nz
    5 days ago
  • Voluntary saliva testing offered to quarantine workers from Monday
    Border workers in quarantine facilities will be offered voluntary daily COVID-19 saliva tests in addition to their regular weekly testing, COVID-19 Response Minister Chris Hipkins said today. This additional option will be rolled out at the Jet Park Quarantine facility in Auckland starting on Monday 25 January, and then to ...
    BeehiveBy beehive.govt.nz
    5 days ago
  • Next steps in firearms buy-back
    The next steps in the Government’s ambitious firearms reform programme to include a three-month buy-back have been announced by Police Minister Poto Williams today.  “The last buy-back and amnesty was unprecedented for New Zealand and was successful in collecting 60,297 firearms, modifying a further 5,630 firearms, and collecting 299,837 prohibited ...
    BeehiveBy beehive.govt.nz
    5 days ago
  • Jobs for Nature projects target iconic ecosystems
    Upscaling work already underway to restore two iconic ecosystems will deliver jobs and a lasting legacy, Conservation Minister Kiri Allan says.  “The Jobs for Nature programme provides $1.25 billion over four years to offer employment opportunities for people whose livelihoods have been impacted by the COVID-19 recession. “Two new projects ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • New Public Housing Plan announced
    The Government has released its Public Housing Plan 2021-2024 which outlines the intention of where 8,000 additional public and transitional housing places announced in Budget 2020, will go. “The Government is committed to continuing its public house build programme at pace and scale. The extra 8,000 homes – 6000 public ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Prime Minister congratulates President Joe Biden on his inauguration
    Prime Minister Jacinda Ardern has congratulated President Joe Biden on his inauguration as the 46th President of the United States of America. “I look forward to building a close relationship with President Biden and working with him on issues that matter to both our countries,” Jacinda Ardern said. “New Zealand ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Jobs for Nature funding will create training and employment opportunities
    A major investment to tackle wilding pines in Mt Richmond will create jobs and help protect the area’s unique ecosystems, Biosecurity Minister Damien O’Connor says. The Mt Richmond Forest Park has unique ecosystems developed on mineral-rich geology, including taonga plant species found nowhere else in the country. “These special plant ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Pre-departure testing extended to all passengers to New Zealand
    To further protect New Zealand from COVID-19, the Government is extending pre-departure testing to all passengers to New Zealand except from Australia, Antarctica and most Pacific Islands, COVID-19 Response Minister Chris Hipkins said today. “The change will come into force for all flights arriving in New Zealand after 11:59pm (NZT) on Monday ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Bay Cadets learn skills to protect environment
    Bay Conservation Cadets launched with first intake Supported with $3.5 million grant Part of $1.245b Jobs for Nature programme to accelerate recover from Covid Cadets will learn skills to protect and enhance environment Environment Minister David Parker today welcomed the first intake of cadets at the launch of the Bay ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Cook Islanders to resume travel to New Zealand
    The Prime Minister of New Zealand Jacinda Ardern and the Prime Minister of the Cook Islands Mark Brown have announced passengers from the Cook Islands can resume quarantine-free travel into New Zealand from 21 January, enabling access to essential services such as health. “Following confirmation of the Cook Islands’ COVID ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Supporting communities and landowners to grow employment opportunities
    Jobs for Nature funding is being made available to conservation groups and landowners to employ staff and contractors in a move aimed at boosting local biodiversity-focused projects, Conservation Minister Kiritapu Allan has announced. It is estimated some 400-plus jobs will be created with employment opportunities in ecology, restoration, trapping, ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Border exception for some returning international tertiary students
    The Government has approved an exception class for 1000 international tertiary students, degree level and above, who began their study in New Zealand but were caught offshore when border restrictions began. The exception will allow students to return to New Zealand in stages from April 2021. “Our top priority continues ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Tiwai deal gives time for managed transition
    Today’s deal between Meridian and Rio Tinto for the Tiwai smelter to remain open another four years provides time for a managed transition for Southland. “The deal provides welcome certainty to the Southland community by protecting jobs and incomes as the region plans for the future. The Government is committed ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • New member for APEC Business Advisory Council
    Prime Minister Jacinda Ardern has appointed Anna Curzon to the APEC Business Advisory Council (ABAC). The leader of each APEC economy appoints three private sector representatives to ABAC. ABAC provides advice to leaders annually on business priorities. “ABAC helps ensure that APEC’s work programme is informed by business community perspectives ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Govt’s careful economic management recognised
    The Government’s prudent fiscal management and strong policy programme in the face of the COVID-19 global pandemic have been acknowledged by the credit rating agency Fitch. Fitch has today affirmed New Zealand’s local currency rating at AA+ with a stable outlook and foreign currency rating at AA with a positive ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Additional actions to keep COVID-19 out of NZ
    The Government is putting in place a suite of additional actions to protect New Zealand from COVID-19, including new emerging variants, COVID-19 Response Minister Chris Hipkins said today. “Given the high rates of infection in many countries and evidence of the global spread of more transmissible variants, it’s clear that ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • 19 projects will clean up and protect waterways
    $36 million of Government funding alongside councils and others for 19 projects Investment will clean up and protect waterways and create local jobs Boots on the ground expected in Q2 of 2021 Funding part of the Jobs for Nature policy package A package of 19 projects will help clean up ...
    BeehiveBy beehive.govt.nz
    3 weeks ago
  • New Zealand Government acknowledges 175th anniversary of Battle of Ruapekapeka
    The commemoration of the 175th anniversary of the Battle of Ruapekapeka represents an opportunity for all New Zealanders to reflect on the role these conflicts have had in creating our modern nation, says Associate Minister for Arts, Culture and Heritage Kiri Allan. “The Battle at Te Ruapekapeka Pā, which took ...
    BeehiveBy beehive.govt.nz
    3 weeks ago