You pays your money & you takes your chances

• James Henderson
• 11 years ago
• Categories: capitalism, energy, privatisation

Some analysts are talking about risks of investing in Mighty River Power in the media today. Weather, electricity demand, overseas expansion. I’ll tell you what would make me think twice if I was contemplating buying shares (like most Kiwis I couldn’t afford to even if I wanted to).

Everyone acknowledges the power companies over charge because of the way National set up the system with the Bradford reforms. Right now, the government has 400m reasons a year not to do anything about it. After the sales, that will be $200m in dividends.

Any reforms to lower power prices will fall mainly* on a relatively small number of (often overseas) private shareholders and much less on the government books. That rather reduces the government’s incentive to protect the over-charging status quo, doesn’t it? Lots of votes in being the government to bring down power prices, especially when a lot of the profits are otherwise going to foreign corporates.

You would essentially be buying into an industry

• that has a history of strong government regulatory intervention,
• that is making super-profits at the moment because the government made it that way,
• that continues to do so with the government’s tacit consent because it earns the government a lot of money,
• at the same time as the incentive for the government to let that situation continue will be reduced by half,
• and at the same the political argument to do something to power prices will become much stronger.

Good luck with that.

*with 30% of the market already private, it’ll be 65% after the sales