Scoop Election 08: edited by Gordon Campbell

Gordon Campbell on the Mighty River Power debacle

May 9th, 2013

Abuse directed at anyone opposed to what you’re wanting to do. Repeated mis-representations of what you said, and did. Not to mention the flat denials that there is a problem, when the evidence happens to contradict your version of events. No, I’m not talking about Aaron Gilmore….but about Bill English, John Key etc over the Mighty River share float. Gilmore is no position to point this out, but his sins pale into insignificance when stacked against the government’s asset sales experiment.

So…. despite all the talk about Mum and Dad investors and revitalising the local sharemarket, only 113,000 New Zealanders have signed up. As the Greens Co-Leader Russel Norman has pointed out, that’s 3% of the population, and almost exactly half the number that signed up for the Contact Energy float. Moreover, those 113,000 amount to barely more than a third of the circa 300,000 New Zealanders who signed the petition opposing the asset sales programme. This is the outcome we get after a throwing a million dollars at marketing the MRP share float to New Zealand investors?

We can take from this debacle a number of lessons (a) the vast majority of New Zealanders simply don’t have disposable income to risk on the sharemarket and (b) they refused to be suckered into re-investing in what they already own. Keep in mind that before this asset sales programme was conceived, it was already known that only about 10% of the population invest in shares. So the 3% who have decided to buy into Mighty River Power are a small minority of a small minority. Even among this minority it is clear most of them (c) regard it as foolhardy to put four energy companies on the market at once and (d) had already soured on their flirtation with Contact Energy and (e) are spooked by what the fate of the Tiwai Point smelter might mean for the energy sector.

Yes, the NZ Power regulatory proposal put forward by the Greens and Labour would also have deterred some investors – but that after all, is only democracy at work. Surely, no one seriously expects there should be a total moratorium on political debate about a contentious issue, purely for the benefit of investors. Oh, this guy evidently did. And this guy. So did SOEs Minister Tony Ryall:

“We can’t know for sure but we can surmise that some New Zealanders were intending to take part in the IPO and were scared off by the Opposition’s interference…

And of course, all of them present the spectre of the NZ Power proposal on the outcome as being a lost opportunity for all of us, and a cost to ordinary New Zealanders. According to them, it is only by selling out (at a premium) the profitable assets that we already own that the government can continue to afford quality social services. LOL. Saner commentators, such as Carmel Fisher of Fisher Investments, have pointed out that the $2.50 share price is in the mid-range, and shows that the mooted NZ Power proposal had surprisingly little effect.

The worrying thing about the Mighty River Power flop is that the government will treat the selling down of its stake in our energy companies as a politically bad idea – it never made sense on economic grounds – and will now turn instead to Air New Zealand. Rod Oram had a good recent column on this option, and Oram later interviewed Larry Williams about the pros and cons.

As Oram says, the Air New Zealand option would makes (short term) political sense for the government. The fate of the Tiwai Point smelter makes Meridian and Genesis an uncertain bet. Solid Energy is barely in survival mode. By comparison, Air NZ could look quite attractive. As he explains:

Superficially, Air New Zealand would be an easy and attractive float. It is already partially listed; investors, analysts and the public are very familiar with it; and its profits and share price are rising.

But hang on:

But the reality is radically different. Worldwide, airlines are a nightmare for investors. Always have been, always will be. Air New Zealand is no exception. The problem is the industry itself, as IATA, the airlines’ global association, described in its extensive 2011 analysis “Vision 2050 – Shaping Aviation’s Future”. (The report is available at http://bit.ly/13LjFo5)

Aviation is profitable for all the players except airlines, IATA concluded. Aircraft and engine makers, fuel suppliers, airports, air traffic control organisations and a plethora of other providers have made money from the tenfold growth of aviation in the past 40 years. But airlines haven’t.

As Oram concludes, Air New Zealand is in a vulnerable position:

Air New Zealand is particularly exposed to these economics because it generates a very heavy proportion of its passenger revenue kilometres on very long, very thin routes, that is ones with small passenger volumes by international standards. For example, 12 extra passengers on an Air NZ 747 at the average fare yield doubles the profit from the flight.

Air New Zealand has already had a brief flirtation with private shareholding and management and that ended quite disastrously: Air New Zealand went bust in 2001, partly due, as Oram says, to the dysfunctional bickering among its private shareholders. As a result – and given the importance of this long range carrier to a trading/tourism dependent nation like ours – the government then proceeded to bail out Air New Zealand, and brought coherence to its management and stability to its financial position. The necessity for maintaining that same degree of government involvement in our national airline in the country’s wider interest, remains unchanged:

Broadening Air New Zealand’s stockmarket ownership, even with a 10 per cent cap on each investing entity, runs the risk of attracting hostile airlines with unhelpful agendas to harass Air NZ. The Clark government recapitalised Air New Zealand with $1b of equity, knowing we as a tiny nation at the very end of world routes need a very strong national carrier to ensure adequate international air service.

Regardless, the sharemarket is now reportedly expecting that Air New Zealand will be the next state asset put on the auction block. In which case, we will be playing Russian roulette with the country’s future as a trading nation and tourism destination. And doing so purely for ideological reasons, in order to benefit a tiny minority of investors – in a process that makes no economic sense whatsoever. This morning, as the scale of the government’s Mighty River Power failure sinks in, many voters will be feeling a bit like that waiter in Hamner Springs: angry, abused, and hankering for a just outcome to this whole sorry business.

ENDS

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    1. 10 Responses to “Gordon Campbell on the Mighty River Power debacle”

    2. By Ken Sparks on May 9, 2013 | Reply

      Well said Gordon – you nailed it yet again. These National politicians keep treating us Mums and Dads like uninformed children…

    3. By T.J Hearn on May 9, 2013 | Reply

      Excellent, Gordon. So now we wait and see as to who gets to beggar whom in the share-trading that will follow. IThe float amounts to little more than a massive transfer of wealth from the taxpayers to a wealthy minority – while the government will no doubt begin to transfer the proceeds into as few hands as possible – irrigation schemes for starters. Was it not ever thus, I wonder.

    4. By D J Hannah on May 9, 2013 | Reply

      Greens Co-Leader Russel Norman points out ony 3% of Kiwis bought shares. Does he not think most investors backed out because the Greens and Labour scuttle things by threatening to intervene in the wholesale price if they get into power. What faud he is.

    5. By clairbear on May 9, 2013 | Reply

      I thought your were talking about yourself and the Labgrens in the first para.

      You cannot compare numbers of people willing to sign a non binding petition, with people who stump up actual money. It is a meaningless assertion. A kind of bacon and eggs scenario the signers being the chickens – not really committed.

      As to your other assertions –
      no you cannot assume (a) unscientific assumption. – further is is an area we all want to foster rather than simply put the money into property;
      can’t assume (b) unscientific assumption cannot quantify impact of severe political pressure on unseasoned investors;
      (c) I didn’t see any other new energy company IPO’s yet
      (d) I am not sure about this one – don’t have enough personal experience – but shares done well are a long term game.
      (e) well I guess this simply means we don’t need NZ Power as the price will come down due to the market if the worst case scenario happens. I think both Labour and national were on board with that position. (except for the transmission costs as the biggest issue in NZ that impacts cost is the abundant power is not where the bulk of the population live.)

    6. By clarebear on May 9, 2013 | Reply

      I love Russel Norman’s saying that less than 3% of Kiwis actually purchased shares.

      Well using the same numerical records only a little over 5% of Kiwis voted for them at the last election – and a vote costs you nothing i.e. don’t like the two real choices so what to do?

      The fact that a good number of Kiwis are not old enough to vote or are too young to have started earning money didn’t count for him.

      further you can say nearly 5% of the voting public bought shares and if a good number of them were mum and dad investors that percentage would go up significantly i.e. moving closer to 10% of voters. i.e. closer to the number of voters that voted for the Green party – and he says that is not significant???

    7. By John Monro on May 9, 2013 | Reply

      I’m sure Russel Norman might be interested to know he’s a faud, presumably that’s a cross between a faun and a laud, or something.

      So the Greeens and Labour have crashed National’s smug little party – the ones that only their rich little friends were supposed to attend to share out the goodies they’d pilfered from everyone else – boo-hoo, boo-boo, our smug little rich friends sob, it would all be so wonderful if it wasn’t for those other oafish 97% – how mean, how despicable, how frightful, just who do they think they are? Now, where’s the cake gone?

    8. By stuart park on May 10, 2013 | Reply

      as an outsider from new zealand, born and still living in the uk, can i just say that floating energy companies on the stock market is not a good thing. ours where floated back in the 80′s and are now nearly all owned by foreign companies. on average these foreign companies increase our gas/ electric prices by 8 -10% a year.. increasing there profits

    9. By dan on May 10, 2013 | Reply

      I really don’t get the people whining about the Greens acting like an opposition party and, er, opposing things. That’s their job.

      clairbear I think the point is that, prior to the share float, 100% of kiwis owned, (or at least derived value from) MRP in the form of a revenue stream. Now it’s 3%. So, 97% lose out.

      Besides, comparing people who are against asset sales with people who are pro asset sales does not require arcane calculations of who’s a “voter” or a “mum and dad”. There have been polls, and they are pretty clear.

      http://www.3news.co.nz/Poll-shows-asset-sales-unpopular/tabid/1607/articleID/243681/Default.aspx

    10. By Joe Blow on May 11, 2013 | Reply

      And then we’ll end up having to buy Air NZ back again under Labour and the Greens…

      I have to say it. The government has successfully turned the low NZ investor turnout around and pinned it on the opposition whether or not this is entirely correct.

      Still is there the foreign investment waiting to fill the gap? If there isn’t they can pin this on the opposition too. If there is, the opposition can say, “Look it didn’t work on the foreigners so it can’t have been us that turned off local investors”. The opposition needs that share price to go up, up, up!

      Will wonders never cease. Political survival has become subject to the rise and fall of the share market!

    11. By Plan B on May 12, 2013 | Reply

      in order to benefit a tiny minority of investors

      The only thing I would say is that I wonder if the benefits of modern capitalism do not actually accrue to investors, regular investors- actual people but rather to insiders. MRP is all about “feeding the backs” The real gains are not be made by the 100,000 plus owners of a couple of thousand dollars worth of shares but rather to the insiders, the brokers, bankers, Big 4 Accounting Cos etc etc. This lot make off like bandits. It would have been cheaper to just hand them the piles of cash and keep the Power Co’s but that is not how the game is played.
      I really think it is as simple as a guy stealing a car stereo and selling it in the pub – it does not mater how much damage they do to the car- when they sell the stereo they get $20.00 that is it. Really simple.

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