Can’t or won’t?

On Tuesday, Steven Joyce, Minister of Economic Development and Science and Innovation, wrote about the ‘you cant’s’ of our country, in an opinion piece in the NZ Herald.

Feeling that perhaps I am one of those people he criticises as ‘people who in the one breath chant “more jobs, more jobs” and then in the next breath say “but don’t do that, or that, or that”, I thought I would ask Mr Joyce a few questions about why he and the National Government are saying ‘we won’t’ to a prosperous and sustainable Aotearoa.

Mr Joyce criticises those who say ‘you can’t explore for that there’. In actual fact, those of us who are deeply concerned about the Government’s risky ‘drill it, mine it’ agenda for our country are not saying ‘you can’t’ without providing alternatives that will both keep our valuable clean green image intact, and provide a more  sustainable economic path for Aotearoa.

As the Greens have been pointing out for a while, if we were to secure just 1 per cent of the global renewable energy market in the next five years, we’d create a $5.8 billion industry with 60,000 more green jobs. Short term risky exploration ventures will not create a long term stable economy for New Zealand. And with the Government boasting in its recent briefing to incoming Minister of Economic Development that we have one of the lowest royalty rates in the world, how can we take their claims of the economic benefits to New Zealand seriously?

So Mr Joyce, why won’t you and your Government commit to a modern and sustainably prosperous economic plan for Aotearoa, when the opportunities to do so are so viable?

Mr Joyce criticises those who say ‘you can’t build that there’. I wonder if he is referring to the vast expansion of new motorways planned which he himself presided over while Transport Minister? In the recent briefing to the incoming Minister of Transport, data revealed a transport budget blowout of $ 1 billion is expected as oil prices remain high. Is this smart economic planning? As Julie Anne Genter, fellow Green party MP and transport spokesperson said in a blog last week ‘As oil prices rise, people turn to buses, trains, walking and cycling, but this Government is planning to blow the budget on uneconomic motorways’

So Mr Joyce, why won’t you and your Government invest in sustainable transport options for Aotearoa giving Kiwis real choices which will be better for our economy and contribute to healthier lifestyles and a cleaner environment?

As it’s a large part of the Minister’s economic plan, he is also no doubt referring to those of us who criticise asset sales as the ‘you can’ts’. As my colleague Russel Norman revealed on Wednesday, the Government is planning to sell off assets which are earning four times more than the cost of capital tied up in them, some of which, according to the Prime Minister himself, have returned 18.5% shareholder profit over the last five years. Why won’t the Government implement smart economic decisions like a temporary earthquake levy for Christchurch, or a capital gains tax which would unleash capital to be invested in innovative productive Kiwi businesses?

So I ask My Joyce, rather than focusing on the ‘can’ts’ why won’t you and your Government focus on real solutions like renewable energy, green-tech, or smart transport that would deliver for Kiwis.

 

 

102 thoughts on “Can’t or won’t?

  1. Gareth,

    What reason have you to believe we can secure 1% of the global renewable energy market?

    That’s like saying if we could secure 1% of (insert desired market) then we could create many jobs and much wealth. I suggest if it were as easy to do as it is to say, we would have done it already. The notion that all that is standing in the way is that politicians aren’t directing it, or the taxpayer isn’t funding it, is laughable.

    If you really think it can be done, go out and do it. If the numbers add up, then private investors will fall over themselves to fund it.

    Like or Dislike: Thumb up 14 Thumb down 4 (+10)

  2. Joyce et al. are trying to. Simple people like Gareth complain every step of the way, because Joyce et al. wont subscribe to their blinkered, statist, interpretations.

    Like or Dislike: Thumb up 12 Thumb down 12 (0)

  3. a capital gains tax which would unleash capital to be invested in innovative productive Kiwi businesses?

    How about you put *your* house/savings on the line to fund speculative energy start-ups? Might I suggest that the reasons many Kiwis don’t already do this is because they don’t like the risk profile of such investments. They suit those who wish to speculate in high risk activity, or politicians who are effectively gambling with other people’s money in areas where returns are highly unlikely.

    Also, if you impose capital gains, you’ll introduce a cost that will do nothing to make housing more affordable. On the contrary.

    Like or Dislike: Thumb up 11 Thumb down 4 (+7)

  4. Elsie

    Given that the green tech market is still fairly immature and thus risky, the funding is far more likely to come from governments than private investors via R+D and large scale civil contracts – governments create sovereign energy policies, regulations and guidelines; corporations generally tend to seek government funding and guarantees to execute that vision when that market is immature to defer their risk.

    Furthermore, to suggest that successive NZ governments would take anything other than the most simplistic view of macro-economic management (“Grow more trees! Make more milk!”) flies in the face of reality.

    This is borne out with NZ investors obsession of property; a perfectly rational response given the regulatory, commercial and taxation framework that has existed in NZ since the 80s.

    So the notion that all that is standing in the way is that politicians aren’t directing it, or the taxpayer isn’t funding it, is almost completely accurate.

    Like or Dislike: Thumb up 7 Thumb down 3 (+4)

  5. @Elsie 3:03 PM

    Of course a capital gains tax is not going to persuade many people whose sole significant asset is their family home to take the risk of raising a big mortgage against it to start up a business or invest in an existing one.

    But those who have 2 or 5 or 10 investment properties are incentivised by the absence of a capital gains tax to take the safe option of continuing to invest in more and more property, rather than the somewhat more risky option of trying to get higher returns on their capital by investing in productive enterprise.

    So capital gets ties up in property rather than doing stuff which will create jobs.

    Like or Dislike: Thumb up 7 Thumb down 6 (+1)

  6. Gregor,

    Because an area is risky is no reason for government to waste taxpayers money speculating on it.

    Even if New Zealand did do so, there is no reason to suggest that we would have any comparative advantage in what is essentially a large scale manufacturing endevour. We won’t make alt energy products for the same reason we don’t make cars. We may well design alt energy, but again, I’m not sure we have some natural advantage on scientific inquiry, either. If we did, the private sector would gladly fund it.

    NZers would still be obsessed with property, as in the case of many countries, because property is a low risk, easily understood business model. Someone needs a house to live in, someone else provides it. Given I am one such person, I can tell you that I am very supportive of the environmental lobby support of smart growth planning, as there is nothing quite like creating artificial scarcity on a product in high demand.

    Like or Dislike: Thumb up 5 Thumb down 2 (+3)

  7. Toad,

    I have multiple properties and I would never pay capital gains tax on any of them, as I have no intention of selling them. I buy, never sell.

    Think of it as an accommodation provision company, if you like. People need a place to live.

    Like or Dislike: Thumb up 5 Thumb down 2 (+3)

  8. @Elsie 3:33 PM

    Okay, that’s your personal choice to accept a lower return in exchange for less risk, but I suspect if the playing field were leveled re tax, many more property investors would take the risk of selling some of their properties and/or increasing their mortgages on them to obtain the capital to invest in business.

    Like or Dislike: Thumb up 5 Thumb down 5 (0)

  9. I think property speculators may exit the market, but not investors. It should be noted that property speculators are already subject to capital gains tax.

    Like or Dislike: Thumb up 6 Thumb down 1 (+5)

  10. @Elsie 4:10 PM

    It should be noted that property speculators are already subject to capital gains tax.

    Yep, those who declare their business to IRD as being property development/speculation. But it is all about what they declare as their primary business activity; all about the form and not about the substance.

    Would be interesting to know how many tax audits IRD do each year on people who maintain their property speculation is ancillary to other business activities and therefore not taxable.

    Actually, that would be a good Parliamentary Question to the Eternal Minister of Revenue Peter Dunne. Gareth? Russel? You up for it?

    Like or Dislike: Thumb up 5 Thumb down 4 (+1)

  11. They should indeed pay tax on speculation. I do wonder why you didn’t push for this when you were “part” of the Labour government under whos watch speculation was running rampant and largely unchecked.

    We long term property investors would equally like to see the back of them, so go Gareth, go Russel :)

    Like or Dislike: Thumb up 7 Thumb down 1 (+6)

  12. I suspect that if their had not been a risk free return (Taxpayers bail out your loses) on gambling on US derivatives at 15% and higher, and untaxed capital gain in NZ, a lot of money may have stayed in NZ manufacturing for reasonable long term profits.

    Like or Dislike: Thumb up 4 Thumb down 1 (+3)

  13. Gareth – your claims of returns from the electricity companies are blatant lies.

    Over half the total dividends from last year came becuase Tekapo changed from Meridian to Geneisis. Genesis took a half billion dollar loan, and Meridian gave the govt half a billion as a special dividend.

    So over half the dividend to govt last year is not profit, it’s not even revenue from power generated – it is money from a loan.

    You obviously think if you tell lies repeatedly you’ll be able to mislead people.

    I challenge you to prove that you and Russel are not repeatingly and blatantly lieing about the generators returning an 18% profit.

    Like or Dislike: Thumb up 12 Thumb down 7 (+5)

  14. and here’s me thinking it was spelled ‘lying’
    I got one! Succubus …. go on….the remora that feeds off the shark who swims close to an aquatic light cleft in order to draw it’s giddy attention away.
    You Greens aren’t upsetting enough people for mine – but then, if there were polling Booths in the poorer areas – you just might make a Country out of this horror

    Like or Dislike: Thumb up 4 Thumb down 2 (+2)

  15. @ photonz1

    So over half the dividend to govt last year is not profit, it’s not even revenue from power generated – it is money from a loan.

    What you are saying is not correct.

    By definition a dividend has to be paid out of profit, not revenue.

    Profits (regardless of how they are derived on the balance sheet) can be allocated in one of 2 ways; dividends disbursed or retained earnings.

    In this case, it was paid out to the shareholder.

    Like or Dislike: Thumb up 4 Thumb down 4 (0)

  16. Geregor W says “By definition a dividend has to be paid out of profit, not revenue.”

    Wrong. Meridian paid a dividned more than twice it’s after tax profit.

    Our local council owned companies pay the council a stipulated dividend every year. They haven’t made enough profit for the last few years so they take on debt (and more debt and more debt) to pay the stipulated dividend.

    Again I challenge Russel and Gareth to prove their claims of 18% profit are not completely fabricated by adding debt as profit so they can mislead people.

    Like or Dislike: Thumb up 4 Thumb down 3 (+1)

  17. @photonz1

    So you’re saying a “stipulated dividend” is a fixed amount that a company must pay each year?

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  18. terrasea says “So you’re saying a “stipulated dividend” is a fixed amount that a company must pay each year?”

    In the case of our local council owned companies, yes.

    Previously they could pay this, and reinvest the rest of their profits. Now they can’t, and are going further and further into debt to pay the annual dividend.

    In the case of the power generators, they simply swapped a dam from one SOE to another. Genesis took out a loan to pay for it, and Meridian gave the money to the govt as a special dividend.

    Russel and Gareth are trying to trick people into thinking this is regular profit from the power companies, when it’s not even one-off profit.

    It’s not profit at all, but nothing more than the money from a bank loan.

    It’s no different to me going and getting a loan for $50,000, adding it to my annual income, then pretending that I earn $50,000 more than I do, always have, and always will.

    Like or Dislike: Thumb up 6 Thumb down 2 (+4)

  19. @photonz1

    So why did the Treasury say 18.5% and the Government also say 18.5%, but this is because of out of date accounting methods or something?

    Like or Dislike: Thumb up 2 Thumb down 0 (+2)

  20. terrasea says “So why did the Treasury say 18.5% and the Government also say 18.5%, but this is because of out of date accounting methods or something?”

    Did they? If this is true, please show me where.

    Gareth won’t link to it. Russel won’t link to it.

    Because what I’ve seen is polititians adding in money that was loaned, and trying to mislead the public by saying it is all profit (when less than half was real profit).

    And I’ve seen them count the five-yearly revlauations of assets (12-15% due to inflation alone over five years) and adding that to the 5.2 % annual dividend (the average for both public and private generators in 2011) and trying to claim this as profit.

    Then trying to con people that this is an annual increase (they don’t say it’s a revaluation that only happens every five years)

    And they never say that much of the revaluation is simply keeping up with inflation

    Then they try to con people that the increase in asset valuations is profit that NZ has been using – when revaluations can never be spent – ever – UNTIL THE ASSETS ARE SOLD !!!!

    Like or Dislike: Thumb up 6 Thumb down 4 (+2)

  21. No clear leadership, no Vision, methinks Gareth.
    There is none so blind as one who refuses to see.
    For mine this Government moves from ‘can’t’ and ‘will not’
    To a position of “Done” in the wee small hours
    Between dark and dawn
    Altogether smacks of something
    More cynical and sinister than I want to believe.
    If Law became a weapon – we are locked and loaded
    I plead as if to a Brother, Please
    Those who diligently pay your path in silent hope
    Are your countrymen – remember us.

    Do not Shirk the duty of care – those Kiwi’s are leaving at @ 1,000 per week.
    Can we afford our own careless losses?
    Cannot but does anyway?
    All the while pretending to value
    That which we cannot buy back.

    Like or Dislike: Thumb up 1 Thumb down 2 (-1)

  22. Photonz

    I haven’t tried to “defend” Gareth and Russell because I don’t know what the truth is about the way that dividend was advertised and justified.

    Here is something about those dividends though, and since it is discussing 17.5% over 5 years I do have to believe that there is a lot of money being dumped down the gurgler in the service of National’s idiotology, or Key’s mates back at Merrill.

    Most people would have initially assumed it had to be paid out of profit, but if the fact that it was paid at all was a deception and a sham, but not the deception and sham of those people. Someone else was misleading them.

    http://www.scoop.co.nz/stories/HL1111/S00215/gordon-campbell-financial-analysts-jump-ship-on-asset-sales.htm

    Knowing my people I am sure that they would not lie, but they can be lied to – being insufficiently suspicious (as all non-New-Yorkers are).

    However, the statement that the revaluations do not represent profit, merely inflation, is sophistry on your part. Sorry Photonz, but if my house appreciates in value because of inflation, that IS profit to me, and it remains so whether I sell it or not. It is value I have preserved despite the inflation… or in another way of thinking… money I do NOT have to spend to capture an equivalent asset.

    All this government plans to do is spend the money on stuff it SHOULD HAVE THE INCOME TO BUY OUT OF ORDINARY REVENUES. To avoid taxing the wealthy. It is a purely unsustainable exercise and a cynical one at that.

    There isn’t any justification for this Photonz… the asset sales are an abomination and National cannot be allowed to get away with them, any more than it can be allowed to get away with selling off deep sea drilling rights. Either simple criminals or criminally incompentent, they are nothing but political hacks with an ideology and no sense.

    Like or Dislike: Thumb up 4 Thumb down 2 (+2)

  23. @photonz

    You wanted to know where these figures come from, from the ministers lips themselves. Try this youtube video of Question time in parliament and this story which also says 18.5% with the Minister saying this is an unreliable figure, bought about by one off sales, changes in accounting practices, etc. He says the real figure is 4.1% and the cost of borrowing is 4.5%. Am I to believe that? I don’t know, except 18.5% is undisputed coming from the horses mouth the Minister, which is a Treasury figure according to him.

    Like or Dislike: Thumb up 3 Thumb down 0 (+3)

  24. @photonz1

    Wrong. Meridian paid a dividned more than twice it’s after tax profit

    That because any dividend would have encompassed previous FY retained earnings post tax – cash reserves in other words.

    Tax is only paid on revenues within a given tax year. Special dividends can be paid any time for the purposes of disbursement or potentially, reorienting a company’s debt position.

    Under law, dividends have to be tax paid (again, on profit rather than revenue), though importantly in NZ you can attach imputation tax credits (but not liabilites) to dividends for income tax simplification purposes.

    If it’s a pre-tax disbursement then by definition, it’s not a dividend.

    It’s classified as a deduction or transfer – either as interest payment on debt, payment to 3rd parties for services, or straight balance transfer to a 3rd party – meaning that the derived tax is paid by another party as it forms part of their income stream (in this case, the Government as shareholder would hold the tax liability).

    So again, your previous statement is incorrect.

    Like or Dislike: Thumb up 3 Thumb down 2 (+1)

  25. BJ says “Sorry Photonz, but if my house appreciates in value because of inflation, that IS profit to me, and it remains so whether I sell it or not. ”

    Wrong.

    If you NEVER EVER sell it, you can NEVER EVER use the increase in value.

    You can never use it to pay for petrol, or food, or car repairs.

    If you never ever sell it, you will never ever be able to spend a single dollar of the gain in value.

    All that gain will have been wasted, because you won’t have a single dollar extra to spend compared to if it hadn’t gained anything at all.

    Like or Dislike: Thumb up 2 Thumb down 5 (-3)

  26. If you NEVER EVER sell it, you can NEVER EVER use the increase in value.

    You can never use it to pay for petrol, or food, or car repairs.

    If you never ever sell it, you will never ever be able to spend a single dollar of the gain in value.

    You would however, have been able to use the money that otherwise would have been spent on rents to a 3rd party party – a pure expense that is converted into equity when you own your home – on all the stuff you mentioned.

    You could also borrow against the nominal property value minus debt owing which plenty of people do, essentially converting said equity into cash (with interest attached of course).

    Like or Dislike: Thumb up 3 Thumb down 2 (+1)

  27. Gregor says “That because any dividend would have encompassed previous FY retained earnings post tax – cash reserves in other words.”

    Wrong. Genesis took on debt to pay Meridian for Tekapo stations. Meridian gave the govt a $500 special dividend. Genesis is $500m further in debt.

    So as well as getting around $400m in dividends from the SOEs, the govt gets an additional $500m (effectively because that money has been borrowed by Genesis, given to meridain, who passed it onto the govt)

    Not a cent of the $500m is from extra power generated, not a cent is from extra profit made.

    Those who want to deceive are claiming this $500m (over half dividedn the govt received in 2011) as profit.

    See

    http://business.scoop.co.nz/2011/05/17/meridian-pays-521-mln-special-dividend/

    Like or Dislike: Thumb up 3 Thumb down 3 (0)

  28. Not a cent of the $500m is from extra power generated, not a cent is from extra profit made

    You miss my point.

    It doesn’t matter how the profit was generated – power supply, asset transfer from one party for cash to another party or some form of accounting chicanery.

    Dividends can only be paid out of profit, not revenue. Profit is surplus after expenses. Dividend can only be retained or disbursed from that surplus.

    That is the accepted legal and accounting definition of a dividend. It doesn’t matter what you think I’m afraid. These are established facts.

    Like or Dislike: Thumb up 3 Thumb down 3 (0)

  29. Gregor – your analogy with rent doesn’t work.

    Because we don’t all get free power just because the govt owns the electricity companies.

    And your analogy with loans doen’t work either, because either a full or half stake in power companies will have no bearing on the govts ability to loan money.

    Whether the govt power generators are worth $5, $5 billion dollars, or $5 trillion dollars – makes zero difference to what the govt has to spend, IF they are never ever sold.

    Even if they skyrocketed to $5 triliion, that won’t put a single dollar in anyones pocket.

    Russel and others are trying to massively inflate the value the power companies. Ironically that will be of zero benefit to New Zealanders under their plan to never sell – it will only be of benefit if they are sold..

    Like or Dislike: Thumb up 5 Thumb down 4 (+1)

  30. @photonz1

    Gregor – your analogy with rent doesn’t work.

    Just to be clear, the analogy was BJs.

    And your analogy with loans doen’t work either, because either a full or half stake in power companies will have no bearing on the govts ability to loan money.

    I’m not sure what you are getting at here. Governments don’t generally loan money. The analogy described how you can convert equity into debt in the form of cash.

    Whether the govt power generators are worth $5, $5 billion dollars, or $5 trillion dollars – makes zero difference to what the govt has to spend, IF they are never ever sold.

    Again, not sure what you are getting at. Spend for what outcome?

    Even if they skyrocketed to $5 trillion, that won’t put a single dollar in anyones pocket.

    Absolutely it would, because the valuation would have to skyrocket based on some fundamentals (i.e. profitability). You can’t make value out of this air unless you are in the derivatives business.

    Value is based on what another party is prepared to pay for something on any given day. It’s a mental estimation of perceived utility. In the case of power generators, this is fairly high as their product is effectively, non-substitutable.

    So overall I would suggest that power companies are significantly undervalued. Then again, I’m not an economist.

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  31. Gregor says “Dividends can only be paid out of profit, not revenue.”

    There is example after example that contradicts this –

    Here are just a few examples of dividends paid that are larger than profits.

    – Our council owned companies do it year after year (and get further and further into debt).

    – ther are often cases of publically listed companies paying out more in dividends than their profit – particularly property companies, who may make a loss because their property values decrease, but they still pay out good dividends from all the rent they earn.

    – SOEs regularly pay out more in dividends than they make in profits (i.e. NZ Post paid the govt $11m in dividends in 2011 but made a loss of $36m. In 2010 NZ Post made $1m profit and paid out $6m to govt. Ditto with other SOEs who have paid govt more in dividends than they have actually earned, like Airways corp, Assure Quality, Landcorp [lost $6m, paid div of $10m] etc).

    – and of course Meridian just paid out a dividend of hundreds of millions more than it made in 2011.

    Gregor says “Value is based on what another party is prepared to pay for something on any given day.”

    If it’s never sold then no one ever pays anything – and any extra value is meaningless because it’s never ever realised.

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  32. @photonz1

    Again, don’t get disbursements mixed up with dividends. If you don’t believe me check with any accountant, investment website, wiki…whatever.

    A lot of your examples in the SoE space were created with nominal book values when the assets were transferred into them. Essentially they exchanged assets for debt with the Govt. where the re payment of debt over time is designated as a pre tax expense; treated the same as any other loan from a 3rd party.

    It’s pretty simple mathematics. You can’t pay out what you don’t have. Borrowing for the purposes of paying a dividend is not that unusual but it must be booked on the revenue or ‘transfer in’ side of the ledger. Once other expenses are taken out that loan becomes effective profit. This then ties back to my earlier points re debt positioning.

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  33. BJ says “If I NEVER EVER SELL it then MY KIDS CAN USE IT!!!!”

    But unlike a house, you don’t get free power no matter who owns the power companies.

    And neither you, nor your kids, nor your grandkids, nor their kids – will never ever get a single dollar of benefit from any increase in value of power companies, under Green policy to never sell.

    Then Gareth and Russel try to trumpet how fanstatic the increased value to the power companies is for NZ – when they intend to keep every dollar of increased value locked away forever so it will never benefit a single person.

    They could at least be honest and say that the actual usable returns to NZ from the power generators under their policy is the dividend which is running at between 4-6% per annum for the last few years.

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  34. Gregor says ‘Again, don’t get disbursements mixed up with dividends.”

    How many more examples do you need.

    Air NZ is another company that has has paid out more in dividends than it’s anuual profit.

    Pretty much every year I’ll get dividends from one or two companies that are greater than their profit for the year.

    The point is Meridian made $300m profit last year, and paid over twice that in a dividends to the govt, because it sold Tekapo, which was paid for by Genesis going into debt.

    None of your arguements change any of those facts.

    If you are argueing that it’s not really a dividend – why aren’t you taking that up with Russel and Gareth – who are counting it as regular and ongoing profit>

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  35. Lets see. I don’t have to worry about someone squeezing the asset until it falls into disrepair…. like the rail after we privatised that. So I also don’t have to worry about replacing it after that happens. I don’t have to worry about someone failing to invest in upgrades. I don’t have to pay more to people who expect more income from their more-expensive investment. I don’t have to worry about money flowing overseas over the long term.

    For this lack of worry I pay, according to Sheather, pretty much nothing. It’s a wash.

    Moreover, since our power supply (work done) is the fundamental asset underlying our wealth, there are more reasons for us to retain ownership AND control over it.

    I don’t think you can defend this in any case Photonz, because the use of this money is NOT sustainable. There is NOTHING sustainable about this, and the sole reason it is needed now is the systematic, comprehensive and enduring failure of successive governments to face down the top tax bracketeers.

    Key and English are just the latest in a long line of bamboozled bozos with no stomach for biting the banks that feed them.

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  36. @photonz1

    I’m not suggesting no dividend has been paid. I’m merely trying to address your misapprehension that dividend can be sourced from anything other than profit. This is an absolute fact. Feel free to consult any financial authority you choose.

    On a final note, AirNZ is a good example. If you take a look at the prelim report filed to the ASX for June 2011 you will see on page 1 and 2 statements relating to dividend and retained earnings as a subset of profit. End of story.

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  37. BJ Chip – if you really beleived what you just said, you would have been campaigning for years to buy back Contact Energy, Trustpower, Vector etc, and the private holdings of Air NZ, and Auckland Airport etc.

    But the truth is that the govt has bought and sold tens of billions of dollars of assets in recent years, particualrly via ACC, NZ Superannuation fund etc – without it even causing a ripple, or anyuone even caring enough to notice.

    The power generators are nothing more than a bandwagon you are jumping on.

    When it comes down to it, per capita we will lose around $1 each per week in income from loss of dividend, and save about $1 per week in interest savings.

    Funny that there are people saying the extra $20 per week on the minimum wage is meaningless – but a net differenece of a no more than a few cents a week per person will somehow bring the end of the world.

    The doomsdayers say the power will fail, and prices will go up if it’s partly privatised.

    Which is EXACTLY what’s ALREADY happened in recent years under govt control.

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  38. No photonz1, that is exactly what has happened under the State-Owned Enterprises model of government non-control, where the SOEs are run like other privitised businesses.

    Trevor.

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  39. Photonz – Why would I bother ? I haven’t got even half the Greens to understand that money represents work done, or the evils of fractional-reserve banking. As for Air NZ, they aren’t infrastructure in the same sense. A case could be made for the Airport given the land requirements near the city. Not as though a competing Airport could be built – natural monopoly. I would LIKE to see the power back to being thought about as one integrated whole, including the lines, not a dozen smaller operations. It isn’t as high a priority as other things are for me.

    Did you somewhere refute Sheather’s analysis? Difference in the end is nil point zip.

    The problem Photonz, is you can only sell it off once. Those things belong to US collectively but they are to be sold to keep the wealthy among us from paying more in tax. WE don’t get that benefit Photonz… it isn’t evenly distributed at all. We just pay up… and the money continues to be sucked up… because trickle-down is something that happens to a pants-leg.

    National are all about spending our “savings” rather than improving the government books by raising tax.

    Forgive me but I am more than a little hostile to someone who is basically telling me that they are confiscating my savings so the guy on twice my income can continue to pay tax at half my rate.

    Kapisch?

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  40. The electricity market isn’t running as a true market. Most of the power is “bought” and “sold” vertically within one or another of the generator/retailers, so we get market failures. See
    http://www.google.co.nz/url?q=http://www.ea.govt.nz/document/4646/download/our-work/consultations/priority-projects/scarcity-pricing/submissions/&sa=U&ei=PrQ6T-OCJ6yciAfF0Pj2CQ&ved=0CBAQFjAA&usg=AFQjCNGkAiYKHn4wMjO00VZqpPN1CGY2wQ
    for an analysis by one of the other big players, who is on the receiving end of the market failures when they occur.

    The best solution is to abandon the market approach and reintegrate the generators into one body and improve the management or supervision of that body to ensure it meets our needs as best as possible. The NACTs are of course moving in the opposite direction.

    Trevor.

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  41. bj says “The problem Photonz, is you can only sell it off once”

    Actually the govt buys AND sells assets all the time – tens of billions of dollars of assets more than the current partial selloff.

    The govt though ACC has around $17 billion of assets (and growing), which regularly sells assets, and buys assets.

    Not a whisper from anyone about that – even when it sells assets like NZ infrastructure companies including electricity generators, airports, airlines, bus companies, etc.

    Ditto with the NZ Superannuation fund which buys and sells assets, and currently controls an additional $18 billion (and growing)
    This goes on all the time, but suddenly there’s a major panic about the sale of assets that make a difference per person of just a few cents per week.

    A $20 weekly rise in the minimum wage is called insignificant, but a five cents per week difference from electricity dividends is the end of the world to some people.

    You make a huge fuss about you losing your “savings”, when the assets being sold do not even provide half of one percent of the govt income.

    Such fear and panic, when the fact is that a 1c per litre rise in petrol would have a far greater negative effect per capita than any difference from selling assets.

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  42. Once the Government has sold our energy assets they will be able buy them back again, and sell them again and buy them again. Quack.

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  43. Photonz

    The financial instruments in which ACC or Super put our money ARE scrutinized by the Greens. They are also being used to attempt to “store” money… (work done = a process which is attended by inefficiency and losses in the real world). The entire fiscal fantasyland of fractional-reserves gets brought into play.

    So what IS the difference between the assets belonging to ACC and an asset like a power generation system.

    The obvious difference is that the assets of ACC were purchased as a means of storing the money that is received in ACC taxes, in other words, there is an income supporting the acquisition and a purpose behind the flow of money through the system… the ACC system is (supposedly) in balance. The Super fund is likewise… as ALL government accounts are supposed to be.

    … but the government has, year after year and government after government, failed to collect taxes sufficient to balance its accounts. So now we are into spending of money saved, money left to us by our parents, and that Photonz, is not something you get to do twice… and doing it for the reasons that are currently in effect, is wrong.

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  44. Once the Government has sold our energy assets they will be able buy them back again, and sell them again and buy them again

    Yes, and the only ones who profit from this abomination are the banks… and Key is a banker… funny how that works.

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  45. Solta gives us an animal noise to let us know their previous statement was a strawman that no one anywhere had actually made.

    The downward spiral begins again.

    Then grenfly joins in the attack.

    Who else is circling?

    Ah – Phil is next. He talks about vultures.

    And has obviously the irony of his comment has gone right over his head.

    BJ – I have assets, and debts, and I regularly shift the weightings depending on a wide range of factors. I’ve previously held generating assets, and sold them.

    They are not some sacred golden goose.

    Unfortunately I think this thread is about to be hyjacked by people with nothing intelligent to add to the debate.

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  46. Photonz

    If you have a revenue stream (money coming in over a time interval) and you choose to buy something with it and sell that thing later, there is no effect on the stream or on your resources except for the overheads of the transactions.

    If you exceed that stream and are incurring debt. You can increase your income or decrease expenditures to get to a sustainable economy.

    If you continue to spend too much and tax too little you never have the income to re-acquire anything. So if you sell something that produces an income stream it is gone. You cannot get it back.

    You are selling your INHERITANCE, not trading within your means. National and its fellow-travelers have complained about the unbalanced books forever… but when it is their turn at the controls the notion of actually fixing it is suddenly “too hard”, and like their ideological predecessors, they want to sell something that belongs to ALL of us to protect a FEW of us from paying… even the same rate of tax that the rest of us pay.

    Having to buy assets back at the appreciated price, and repair and refurbish them after decades of neglect, is not cheap… and selling them in the first place does not actually solve ANY problem except the one where National’s budget did and never can, work sustainably. “Back in surplus” is a joke.

    How many times can you sell the silver? Really? You have stuff-all ability to buy it BACK.

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  47. bj says “So if you sell something that produces an income stream it is gone. You cannot get it back.”

    Of course you can. The govt owns parts of a huge range of companies including many that were once govt owned – like Auckland Airport, Wellington Airport, Contact Energy, Trustpower, etc.

    bj says “You are selling your INHERITANCE, not trading within your means.”

    No. Merely swapping an asset for other assets and writing off debt. I sold my electricity asset (Contact shares), and used the money to retire some debt, buy some better performing assets, and do some house renovations (which otherwise would have requaired additional debt).

    The idea that once you have an income generating asset the money should never be used in any other way – even ways that will either be more profitable, or save more – is really head in the sand stuff.

    We need to continually be looking at the best use of the those funds, and changing the use rather than locking into something forever whether it is performing well or not.

    bj says “How many times can you sell the silver? ”

    The silver is something that cost a fortune, returns nothing, has little use, and if you tried to seel it you’d get a fraction of what you think.

    But like the power companies, silver is a mythical “golden goose” that has a great value in peoples minds, but not in reality.

    As I said previosuly, a 1 cent rise or fall in petrol prices will have a greater financial efect on your life than if we keep or sell the generators.

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  48. But like the power companies, silver is a mythical “golden goose” that has a great value in peoples minds, but not in reality.

    @photonz1

    So by your logic if power companies have no value in ‘reality’ then the market won’t pay very much for it, correct? Ergo, there is no real value go to be released in selling them.

    Alternatively, there is significant value in them as the product they provide is essentially non-substitutable.
    If enormous amounts of public wealth have been spent over generations in creating an asset where the product is non-substitutable and has ongoing value (social, not merely commercial), what possible rationale could there be in selling it off other than short term profit taking?

    Which is it? Value or no value?

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  49. Gregor asks “So by your logic if power companies have no value in ‘reality’ then the market won’t pay very much for it, correct? ”

    If you use your “logic” to make up things that were never said, you are bound to get things wrong.

    The generation SOEs on average earn around a 5% profit (similar to Contact Energy) and pay the govt on average around $400m per year over the several few years.

    Selling off half will reduce this dividend by around $200m – for 4 million Kiwis that works out at $50 per year or $1 per week.

    But the govt will tax the $200m private dividends, so will get around $56m back, so they will lose just $144m which works out at around 72c per person per from selling 49% of assets.

    However using $5 billion to pay off debt, or not incur it in the first place when building schools etc – will save taxpayers $250m per year at 5% interest, and $300m per year at 6% interest.

    If interest rates go up or the selling price is higher, this will be much more, like $7b at 7% interst will save taxpayers $490m per year.

    So the difference per person is measured in a few cents per week – likely less than the difference of a 1 cent change in petrol price, or when interest rates go up, perhaps a gain of $1-$2 per week per person.

    After selling 49%, the NZ govt still receives
    – half the dividends ($200m)
    – ALL the gst on electricity (worth over twice what they get from profit – $850m))
    – ALL paye on all the staff salaries
    – AND tax on the dividends it doesn’t get ($56m)

    So whether the govt owns 100% or 51%, it still receives nearly all the benefits – around 90% or more – of combined value of tax and profit.

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  50. photonz1, I quoted you.

    Read your own comment.
    I took your statement as you wrote it.

    If I took it out of context, fine, educate me.
    If you’re taking umbrage that I extended “great value in peoples minds, but not in reality” to read ‘no value in reality’ rather than ‘limited value in reality’ then fair enough.

    But don’t make a fool of yourself by suggesting your were ‘misquoted’.

    Not to get into too much detail around your figures (the math seem OK at first pass) but here’s another question for you.

    Using your figures, if the profit generated is $400m for 100% ownership and the expected revenue is $5Bn for a 49% asset realisation – equating to a nominal total value of $10Bn – what kind of financial wizard would you expect to buy stocks at an effective ongoing Rate of Return circa 0.04% per annum per dollar invested?

    Nobody.

    I wouldn’t even want to work out what effective P2E valuation would drive the share price.

    So somewhere, someone is talking rubbish. Either the returns are higher or the potential value is nowhere near estimated.
    Either that or the people doing the sums are conveniently omitting the vast price jack-up and gouging which tends to follow privatisation when no adequate regulation is put in place.

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  51. I like the proposition that photonz1 is Peter Dunne, bored out of his wig in his Beehive office, smirking over his Brethren-shirted paunch into his laptop as he fires off another devastatingly banal opinion to Frog’s blog.
    It’s the odour of righteousness that accompanies his every comment, his obsessive need to counter every perceived slight and his towering hypocrisy that convinces me that it’s Ol’ Petey Dunhill, smelling of tobacco and booze, who’s behind the photonz1 monniker. If I’m wrong, I don’t care – Pious Pete he is!

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  52. i agree..read out loud his 12.42…in a dunne-voice…it’s spooky..!

    ..(now..why would he choose photonz1..?..is photography a particular interest of his..?)

    ..if it is him..it is so satisfying to have handed him his arse so many times..eh fly..?

    phil@whoar.

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  53. It’s much more likely that he’s Dunne’s bouffant… exhilarated at flying close to the wind, the contemplative little quiff soon becomes enraged at those pesky greens. Instructing the slave to type his fingers to the bone in ever tortuous and contrived sentences, Dunne’s bouffant AKA photonz1 quietly mutters his mantra; “Argument Ad Nauseam, Ad Hominem, Mei Capillus Ave Domini Inferni”.

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  54. Gregor asks “what kind of financial wizard would you expect to buy stocks at an effective ongoing Rate of Return circa 0.04% per annum per dollar invested?

    Nobody.”

    Wrong.

    Here’s some highly regarded companies and their dividends
    Auckland Airport 5%
    Fisher & Paykel Appliances 3.3%
    Mainfreight 3.6%
    Ryman Healthcare 3%
    Port of Tauranga 4.5%
    Tourism Holdings 0%
    Woolworths 4.8%

    One reason people pay top-dollar for low returns is low risk. The likes of a power generator or a monoploy like Auckland Airport, supermarkets etc are considered defensive low risk stocks, so many people are prepared to pay more money for a lower, but safer, return.

    There is also some profit that goes into building new generation so there should be capital appreciation slightly ahead of inflation.

    On average the whole country only needs 2.5% more power every year so it’s unlikely that any power generator will have major growth, unless it’s at the expense of another power generator.

    So as well as a small return, the investor would hope that their capital at least keeps up with inflation – something that doesn’t happen with money in the bank at 3%.

    Superannuation funds, Kiwisaver funds, IWI, ACC, sharefunds and individual investors will be all be keen to buy equities with low but reliable low risk returns to balance and diversify their portfolios.

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  55. phils asks “photonz..are you man-with-possum-on-head..?”

    No – I’m not Daniel Boon

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  56. Apologies photonz1.

    I forgot to qualify my 0.04 statement with the following (or rather, I tacked it onto the end of the comment).

    I meant to say who would accept a 1/25th return per $ per annum (again, assuming that it is straightline) in an industry that could be subject to significant regulation at the whim of parliament (a la Telecom) when the inevitable price gouging occurs?

    I should have been clearer, but your examples actually kind of demonstrate this in terms of relative attrativeness, given that the returns shown are not from particularly heavily regulated industries in terms of price controls.

    I guess my final comment is, if the return is so attractive to investors who want a safe haven for money, why shouldn’t it remain attractive to the govt who should be, you know, looking for safe investment opportunities when they are using our tax dollars?

    So if it’s now a good safe return , why would the govt sell it?

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  57. why do you talk/write like him..?

    ..why do you pimp the same things he does…

    ..are you claiming him as yr evil-twin..?

    phil@whoar.

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  58. No. Merely swapping an asset for other assets and writing off debt.

    Which has accumulated year after year and which will quite quickly recover to unsustainable levels because this government is not, as no government since ( what… the late 70’s? ) since a long time ago has been, willing to actually tax as well as spend.

    Cart is before horse Photonz.

    Budget has to balance FIRST, then I might entertain/accept the notion that selling this can be managed as other things are. But this isn’t a sustainable “paydown of debt”. It is an irresponsible flogging off of things that do not really belong to this government to flog.

    Government wants to sell this? Government should have a referendum. If that isn’t done there isn’t any mandate to do it. It isn’t really theirs to sell. Oh it is ideologically desirable for them, but it isn’t really something they have a moral right to.

    No Photonz… what you describe as an ideal and revenue neutral sort of arrangement, is not. Nor, as near as the Herald’s tame accountant can explain, is there anything like a significant advantage to actually be gained. The whole thing is ideology driven and opposed by most New Zealanders.

    I would be pressing to buy it all back, or simply nationalize these things, as soon as National is jettisoned. Which is an event that cannot come too soon. Consider the degree to which THAT offer undermines the notion that National has a right to sell the assets in the first place.

    This is an idea that would have to be revised and improved a hell of a lot just to be merely wrong.

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  59. Gregor asks “So if it’s now a good safe return , why would the govt sell it?”

    Lots of reasons.

    1/ Because whether they own 100% or half, they still get 90% of the return. (the govt has received more off Contact in the last few years (in tax), than it has from Genesis, and it doesn’t even own Contact).

    2/ Provide the generators with several new avenues to get additional investment without the govt having to go further into debt.

    3/ Provide solid low risk investments for Kiwisaver funds, ACC, NZ Super fund, Iwi etc.

    4/ Provide much needed mass to the NZ sharemarket.

    5/ Provide low risk investment opportunities for investors, as an alternative to rental properties.

    6/ To reduce their debt at a time when high debt has serious negative consequences

    7/ To be able to build new infrastructure like schools without going further into debt.

    8/ Because they can get a better return for our money elsewhere.

    9/ Because it opens avenues for partnerships with shareholding companies who may share expertise, technology etc – something that happens all the time with listed companies but is difficult with SOEs (as other companies can’t buy into them).

    10/ Provides much more transparency and openness in the running of the companies, who will now have to conform to NZX rules on regualr and accurate reporting.

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  60. they still get 90% of the return. Methinks thou dost o’erstate thy point.

    Going by the illustration you offered earlier it would be more like 75% no? Or are you saying something else here.

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  61. Provide the generators with several new avenues to get additional investment without the govt having to go further into debt.

    Someone is in debt… doesn’t matter if government or not.

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  62. bj says “I would be pressing to buy it all back, or simply nationalize these things, as soon as National is jettisoned.”

    Which would of course bankrupt NZ, turn our countries name into dirt, and take decades to recover from.

    All you’d do with forced nationalisation is send all foreign investment fleeing out of the country, thereby crashing company prices, house prices, businesses, massively reducing the size of our economy, and massively reducing our workforce by putting hundreds of thousands out of work.

    You want to do what Zimbabwe did, but expect the opposite outcome.

    You are prepared to take desperate measures because in your head you think it will be catastrophic to lose an income, which in reality is no more than a few cents per week.

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  63. @photonz

    You make a lot of assumptions there.

    How do you know we will go bankrupt?

    Will foreign investment really flee this country? And even if they did would that really cause this crashing effect your talking about? You can’t possible know the future that well.

    And what has Zimbabwe got to do with anything? You can’t compare what went on there with what @bjchip may or may not be proposing.

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  64. Photonz1

    So given the profitability of all power co’s is a result of deregulation, corporatistion, mandated dividend extraction overall resulting in fairly ruthless price gouging, isn’t the chimera of profitability on a non-substitutable product merely robbing Peter (me) to pay Paul (me as a shareholder via Kiwisaver)?

    Or worse, another shareholder in another country with no stake in NZ infrastructure and long term prosperity, merely looking for short term dividend via cost out and capital gain?

    I mean, it ‘s not though I really have a choice wrt to the retail cost of power. I pay what the market charges. There are no feasible options for alternatives.

    As a matter of interest, do you have any figures relating to how much money the SOEs have asked from the govt to expand operations? That aren’t paid for directly out of revenue or company borrowing/bond issue?

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  65. terrasea asks “Will foreign investment really flee this country? And even if they did would that really cause this crashing effect your talking about?”

    Of course it would. If you owned shares in say an Australian company, and the Aussie govt started forcably nationalising private companies – you would risk leaving your hard earned investment in that country?

    Because even if you did, many other people wouldn’t. They’d sell their Aussie investments, so the value of your investment would plummet anyway.

    Effectively you’d create the situation we had here with finance companies. Of the 60 or so companies who went bust, many were good companies but were forced to sell their investments at firesale prices because everyone wanted out.

    By nationalising private companies you create a situation where everyone will want out (and not just foreign investors – local ones too).

    It’s a good way to destroy an economy.

    Gregor asks “….merely robbing Peter (me) to pay Paul (me as a shareholder via Kiwisaver)?”

    Yes. Which is why the difference per capita of whether we keep or sell the generators is a few cents per week. (actually it’s more like robbing your bank account, to pay your debt off)

    Gregor says “I mean, it ‘s not though I really have a choice wrt to the retail cost of power. I pay what the market charges. There are no feasible options for alternatives.”

    Wrong. I’ve just saved over $300 per year by changing companies. The company I was with, had been the cheapest company when I changed to them about a year earlier, but prices change (both up and down) regularly. There is competition, because I was offered $250 if I swapped back

    As for your last question, I don’t think the govt have provided any money for expansion. The generators either use profits or debt. i.e. Genesis borrowed an additional $700m in 10/11 (total debt up to $1.3billion), which compared to a total dividend adding to $70m to govt over the last three years.

    Genesis now have a debt level of 35% which is about as high as you’d want to go before it starts to get into high risk territory. I think the debt levels for Meridian and Mighty River are 25-30%.

    So if Meridians Project Hayes had gone ahead (at a cost of $2b) it could not build it with borrowings as it’s debt would rise to dangerous levels. It would have to get a massive capital injection from somewhere – and the govt doesn’t have the money to do that.

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  66. photonz1 “they still get 90% of the return”

    bj asks “Methinks thou dost o’erstate thy point.

    Going by the illustration you offered earlier it would be more like 75% no? Or are you saying something else here.”

    With 100% govt ownership
    -$400m average dividends to govt
    -$850m gst on $5b of electricity sales + around $0.8b solid energy sales
    $????m in paye from salaries

    Govt gets at least $1250m (not counting paye)

    With 51% ownership
    Govt gets $204m in dividends
    Govt still gets all the gst – $850m
    Govt gets at least $55m in tax on private dividends

    With 51% ownership, govt receives $1109m

    That’s 89% of what they previously received. The unknown amount of PAYE from thousands of workers would lift this higher by a few percent.

    So the vast majority of benefits come to the govt anyway, whether the companies are 100% govt owned, 50%, or 100% private.

    For example privately owned Contact Energy contributes significantly more to the govt in tax than state owned Genesis does in tax and dividend.

    So the govt can sell 49%, but keep 90% of the benefit.

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  67. photonz1 “Provide the generators with several new avenues to get additional investment without the govt having to go further into debt.”

    bj says “Someone is in debt… doesn’t matter if government or not.”

    Wrong.

    Kiwisaver, other super funds, Iwi, ACC, mum and dad investors, private companies, share funds etc – ALL have savings to invest

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  68. @photonz1

    You’ve really got to avoid the word ‘wrong’, especially when you’re offering an opinion. :)

    You havn’t really addressed my central point re substitution. I’m already using the cheapest retailer but what I can’t get away from is paying retail energy prices.

    Furthermore, the idea that you ‘save’ in an aggregate sense by swapping retailers within the same market is dumb. That cost of winning a customer is merely passed onto the consumer. It actually creates inefficiencies as money that could be spent on plant becomes an above the line (advertising) or below the line (rebate) cost of sale. As I keep noting, it’s not like I reallyhave a choice about electricity consumption.

    Also, if the companies have not had to go to the govt for capital works money, then doesn’t that negate your point 2 from your Comment @ 8:26pm above? It sounds like they are already doing what any other company does in going to the markets for more capital. The difference is that they just have one shareholder. One who can borrow at similar or better rates generally than a private entity. One that can also, in the last resort, directly inject funding without resorting to the capital markets.

    Risk is another thing you havn’t addressed. Given that electricity supply is critical infrastructure, what is in place to stop gouging an/or short term, cost out extractive behaviour to maximize profit at the expense of the asset base? We’ve seen it happen before in NZ with infrastructure leaving the taxpayer to once again, pick up the tab after the profit is taken. Why would the markets behave differently this time?

    The point is in selling the companies, there is no net benefit to me as the (already massively diluted) owner. I’m either paying to service private debt or public debt. Either way it’s an expense.

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  69. Trevor asks “Another market failure heading our way?”

    You mean because the last few govts have failed to invest in enough new generataion?

    The problem is, what to you have as backup for when it’s very dry every decade or two?

    You have to increase power bills to pay the huge expense of building new renewable generation that is almost never used.

    Unless you build thermal peaking stations.

    Luckily Contact built a new gas fired thermal peaking plant last year for this very situation.

    And they built a deisel powered peaking station in Hawkes Bay 2004 for the same reason (built by Contact, paid for by govt, bought in December by Contact).

    Funny that the world didn’t end (no one even took any notice of the news) when the govt sold this generation asset just two months ago.

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  70. Ps – your 850m GST will be way off due to the bulk of it being claimed back by all commercial users (tiwai point for example?) as an deduction. Also, I wouldn’t count any tax in dividends. It entirely depends who has bought them (I.e. could potentially be offset by income losses within holding entities). Just saying, don’t count you chickens etc.

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  71. @photonz

    Again what has Zimbabwe got to do with anything?

    We should not sacrifice our sovereignty just to gain a few dollars, leaving us even more at the mercy of foreign investors. And yes we will be. Also where was the money for the building of the generators sourced? Privately owned companies, whether that be overseas investors or local? No, it was from government investment. Why did the government feel it needed to finance this investment? Because no one else would, as no one else had the money or inclination to build these assets. Now our government wants to sell these investments of our hard earned tax payers money. You can dazzle us with numbers as much as you want, but that fact will not change. Our governments felt the need to invest this money as we need power generation. Private interests were not going to do it. Now that the expensive investment to build these assets has taken place are you are now implying we should sell them I don’t care if the return on these assets is 5 cents or 500 million dollars. Our money was poured into these assets and I’ll be damned if I will voluntarily see them sold off. I want to be able to reap the benefit of these assets, and if they are sold to someone else, especially foreign owners, our money, will most probably flow overseas to benefit someone else. I don’t see private interests having much incentive to develop these assets further, and without the control we gain from owning it, we probably never will. Unless we’re really lucky, and that rarely happens.

    So I will have to agree to disagree with you @photonz.

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  72. “You have to increase power bills to pay the huge expense of building new renewable generation that is almost never used.”

    What total nonsense. Existing thermal would be turned down first if new renewable generation delivered more than expected.

    However the point is that thermal stations can be run to keep the lakes relatively full, but the power companies tend not to as it costs them more, prefering to take the chance of a shortage or leaving it up to the others to manage the situation. The result is that spot prices peak, the power companies make more money and those that pay spot prices to the power companies lose – and we may face power outages.

    If we had more generation, we could delay running the thermal plants while still avoiding the risks, irrespective of what type of generation we were to add. However the generating companies are holding back on new generation because it isn’t worth it to them.

    Trevor.

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  73. Photonz

    There are several issues you are mistaking in my position here…. We can start by the notion of “bankruptcy” ?

    I have a rather more complete notion of what we need to do, and it doesn’t involve us “going bankrupt” except in terms of not accepting debt as being legitimate currency. Which affects every “investment” in the country and the way we pay off those debts in “real” NZ $ rather than the debt-backed rubbish we are using. The discounted rate of exchange is simply not going to make foreigners happy. Tough.

    Learning to live within our means. Building our economy in a sustainable form. Kicking out foreign banks and vastly reducing the influence OF banks.

    The notion of attracting “foreign” investment does not appeal to me as much as it does you. Nor does the purchase of a lot of foreign goods.

    There is far too much to go through it all now. The Mother-In-Law is here this evening for a week’s visit. No time to do the usual dissertation

    I can hear the sighs of relief from here :-)

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  74. I can think of only one form of renewable generation that would be run for only short periods – generation powered by biomass, such as burning wood. We don’t need to build new biomass powered generation if we can keep Huntly going and modify it to burn wood rather than coal to assist with dry years.

    During wet years when we may have to spill water at our hydro dams, we could use some of that surplus electricity to save fossil fuels, e.g. for heating. There are at least two plants in New Zealand converting natural gas to hydrogen for use on-site, and these could generate hydrogen by electrolysis to use surplus electricity if we invested in the suitable hardware, thus preserving the natural gas.

    Trevor.

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  75. Gregor says “Ps – your 850m GST will be way off due to the bulk of it being claimed back by all commercial users (tiwai point for example?) as an deduction.”

    Wrong way round. Full gst will be paid on electricity produced, MINUS any gst claimable in producing the electricity. In other words not much.

    And producers add gst to the portion of their product that they have increased value on. i.e. Total gst, minus what’s already been paid for electricity etc.

    However as electricity is essentially generated out of wind, water flows, etc, there’s not much they can claim back gst on.

    Gregor says “Also, I wouldn’t count any tax in dividends. It entirely depends who has bought them (I.e. could potentially be offset by income losses within holding entities). Just saying, don’t count you chickens etc.”

    Dividends are taxed by the company BEFORE they are distributed. Contact has been paying twice in tax than Genesis has been making in profit.

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  76. Wrong way round. Full gst will be paid on electricity produced, MINUS any gst claimable in producing the electricity. In other words not much.

    You’ve lost me.
    GST is not paid at point of production. It’s paid @ point of consumption.
    I’m not taking about any GST incurred by the producer (generator) wrt their inputs. I assumed you were talking about the power consumed given that the figure you presented is about 15% of $5Bn revenues ($750m?)

    Dividends are taxed by the company BEFORE they are distributed.

    Agreed dividends are tax paid, same as every other disbursement from profit – I even mentioned this earlier – but taxes are also imputed to the stockholder, which then creates a (potentially neutral) tax rebate scenario.

    My view is that the easiest way to count financial benefit is direct, not indirect (i.e bottom line) for the company and stockholders as a discrete entity. In other words, generic benefits gained by the the government as a stockholder should not be included in benefit calculations generic (i.e. PAYE is not specific the the power industry as a levy. The government would get that PAYE and GST irrespective of the sector whether their role was as an active investor or otherwise.

    The only special benefit that could be reasonably claimed would be advantage granted specifically to the government WITHIN the power generation sector such as the mandatory dividends you described earlier.

    So in terms of net benefit in one scenario the govt as a SHAREHOLDER gets $200m vs $400m. As the SOVEREIGN POWER things don’t really change.

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  77. terasea says ” I don’t see private interests having much incentive to develop these assets further, and without the control we gain from owning it, we probably never will. Unless we’re really lucky, and that rarely happens.”

    That’s completely wrong

    – Massive new wind farm planned for Waikato (Contact).
    – New gas peaking plant built 2011 for dry years (Contact)
    – Mahinerangi Wind Farm built 2011 (Trustpower)
    – new geothermal plant proposed near Taupo (Contact)
    – replacement of Te Mihi power station proposed (Contact)
    – New hydro proposed at Hawea Dam (Contact)
    – New hydro proposed at Wairau (Trustpower)
    – New hydro proposed at Nevis (Pioneer)
    – New hydro proposed at Arnold River (Trustpower)
    – New Waverly wind farm proposed (Trustpower)
    – New Kaiwera Downs Wind Farm proposed (Trustpower)
    – New hydro proposed at Lake Colleridge (Trustpower)
    – New Waitahora wind farm proposed (Contact)
    – New wind farm built at Mt Stuart (Pioneer)
    – New tidal power proposed for Kaipara (Crest Energy)
    – New tidal power proposed for Cook Strait (Neptune)
    – New tidal power proposed for Marlborough Sounds(Energy Pacifica)
    – New turbines at Te Rere Hau 2011 (NZ Windfarms)
    – 2x New small wind farms in Marlborough 2010,2011 (Energy 3)
    – New wind farm built at Gebbies Pass (Windflow Technology)
    – New McKee gas Plant proposed (Todd)
    – New Matiri Hydro Project proposed (NZ Energy)
    – New wind farm proposed Mt Cass (Mainpower)
    – New Mokau Hydro proposed (King Country Energy)
    – New Rotoma Geothermal proposed (Rotoma No 1 Corporation)
    – New Titiokura Wind Farm proposed (Unison / Roaring 40s)
    – New Puketiro Wind farm proposed (RES)

    There are many more, which like the majority of those above, have been built, are being built, or have already been consented.

    All of which contradict your claim that only the SOEs are likley to develpop generation further.

    In fact the opposite is happening. The private sector has more new proposals consented or being built than the cash straped SOEs.

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  78. Trevor claims “However the generating companies are holding back on new generation because it isn’t worth it to them”

    Yeah right – See above.

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  79. Gregor says “You’ve lost me.
    GST is not paid at point of production. It’s paid @ point of consumption.”

    No – it’s paid at each stage. The generators make electricity and sell it, charge gst, and pay that to the govt, minus any gst they incured to produce it.

    I make a product, and sell it and charge gst on it, and pay that to the govt minus any gst I’ve already paid to make it (like on power, phone fuel etc).

    So effectively at each stage you pay gst not on the total value, but just on the portion of value that you’ve added to a product.

    Gregor says “The government would get that PAYE and GST irrespective of the sector whether their role was as an active investor or otherwise.”

    That’s my point. Unlike any other person or investor, the govt is in a position that it benefits hugely from the power comapnies almost as much if they are privately owned as if it owns them itself.

    Gregor says “So in terms of net benefit in one scenario the govt as a SHAREHOLDER gets $200m vs $400m.”

    Except that although the govt gets half the profits, it still takes a big chunck of tax on the other half, so still retains around 65% (leaving off the fact that it will always still get 100% of it’s gst).

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  80. So effectively at each stage you pay gst not on the total value, but just on the portion of value that you’ve added to a product.

    I get that, because each stage terminates @ consumption somewhere along the line.

    What I mean is, that won’t end up being 15% flat on the aggregated inputs converted to outputs (treating ‘power’ as the finished good/service) unless ALL of your consumers are residential being that they can’t claim GST rebated as a cost of input being the last consumer in the value chain. For business, it’s just a money-go-round. And business makes up the vast proportion of power consumption in NZ as they use power as an input into their finished goods/services (i.e the GST will be gathered, but elsewhere).

    Ergo, it will be heaps lower that $750m within the power sector once rebates are taken into account.

    Anyway, we’re quibbling on financials here.

    What I’m really after is your response re;
    (i) the lack of substitutability and therefore, natural monopoly
    (ii) supply/infrastructure risk and how to avoid the taxpayer footing the bill for a private enterprise, and
    (iii) regulatory safeguards to prevent the inevitable price gouging

    and something I havn’t asked previously

    (iv) why debt raising in NZ (and internationally) via bonds – something that the co’s do today pretty successfully – is less effective than offering stock.

    I’m interested in your position on this last one given your assumption that most of the money will come from local funds (ACC etc.) which also tend to be big bondholders at a decent return (better than 4%), particularly that given the composition of these funds and their governance rules, they may be only allowed to hold a certain proportion of stocks in their asset mix.

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  81. Photonz1 – “Yeah right” suits perfectly when you provide a list of 21 proposed or planned projects. How many projects are actually being built at the moment? Any?

    And why are you saying Contact’s second-hand gas peaking plant was built for dry years? Contact only expect it to run occassionally for short periods to cover demand peaks, which is why it is called a peaking plant.

    When was the wind farm at Gebbies Pass constructed? Last time I looked, there was just one (1) Windflow turbine rated at 500kW and no sign of anything else under construction.

    Trevor.

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  82. Trevor says “Photonz1 – “Yeah right” suits perfectly when you provide a list of 21 proposed or planned projects. How many projects are actually being built at the moment? Any?”

    Yes

    At least seven on the list are ALREADY FINISHED and are producing electricity.

    And several more are under construction.

    There is currently nearly 6000Mw of new generation proposed (compared to 9400Mw that we currently use).

    That’s a 63% increase on what we currently have, but we only need an increase of 2.5% above our current generation per year.

    So I’m sure you can work out why the whole list of new generation projects are not all going ahead at the same time.

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  83. Photonz1 – that list of 21 proposed generation projects emphasises my point that the electricity companies aren’t going ahead with most of the projects because there is no return for them – in the current economic climate (read “National’s ETS”). Projects that are already completed are irrelevant to my point, and some of them were completed long ago so you are just trying to pad your list.

    So what are those projects that are currently being built, and how big are they? I believe the Hawea gates project is just 17MW with a very low capacity factor, and similar for a project on the Waitaki canals. Anything significant?

    Around 25-30% of our current electricity needs are generated by 3.5GW of thermal plant, mostly using irreplacable fossil fuels and which contribute to our CO2 emissions – which according to the Kyoto agreement which New Zealand signed we have to pay for. And thanks to the NACTs, it is you and I that have to pay for those emissions, not Contact, Genesis, etc. There is plenty of opportunity to replace thermal generation with renewables but it is only progressing very slowly.

    And there is also plenty of opportunity to replace direct use of fossil fuels for space heating, water heating etc with electricity generated from renewables to cut down our emissions further and to provide us with a civilised life after the fossil fuels run out – as they will.

    Trevor.

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  84. I took some time to look at the size and current status of each of the projects in Photonz’s list (my additions are between the **):
    – Massive new wind farm planned for Waikato (Contact).
    ** 504MW Consented May 2011 – Construction yet to be confirmed **
    – New gas peaking plant built 2011 for dry years (Contact)
    ** 200MW Stratford Operational May 2011 **
    – Mahinerangi Wind Farm built 2011 (Trustpower)
    ** 36MW Operational March 2011, Stage 2 164MW Consented **
    – new geothermal plant proposed near Taupo (Contact)
    ** Taheke 8C? Early stages – exploration wells drilled **
    – replacement of Te Mihi power station proposed (Contact)
    ** 114MW of New Capacity, Under Construction due for completion 2013
    **
    – New hydro proposed at Hawea Dam (Contact)
    ** 17MW Control Gate Retrofit Consented , Design work underway**
    – New hydro proposed at Wairau (Trustpower)
    ** 72MW Consented Nov 2010, Further two years of geotech studies and tech design **
    – New hydro proposed at Nevis (Pioneer)
    ** Not on Electricity Authority list of proposed projects, Pioneer yet to apply for resource consents, Env. Court inquiry to be held re. water conservation order **
    – New hydro proposed at Arnold River (Trustpower)
    ** 2.6MW residual flow project Consented, Chairman Feb 2012 “final investment decision on this project is expected to be made within the next few months” **
    – New Waverly wind farm proposed (Trustpower)
    ** In development and yet to apply for consent, Not on Electricity Authority list of proposed projects **
    – New Kaiwera Downs Wind Farm proposed (Trustpower)
    ** 240MW Consented 2008, Trustpower website says “currently awaiting favourable economic and other conditions before proceeding with development” **
    – New hydro proposed at Lake Colleridge (Trustpower)
    ** Not on Electricity Authority list of proposed projects **
    – New Waitahora wind farm proposed (Contact)
    ** 156MW Consented Nov 2010 – No Construction Date Confirmed **
    – New wind farm built at Mt Stuart (Pioneer)
    *7.65MW Operational Dec 2011 **
    – New tidal power proposed for Kaipara (Crest Energy)
    ** Consented March 2011 but 2 year monitoring programme first before installation of 3 pilot turbines **
    – New tidal power proposed for Cook Strait (Neptune)
    ** 1MW Pilot turbine consented **
    – New tidal power proposed for Marlborough Sounds(Energy Pacifica)
    ** 100MW, Not on Electricity Authority list of proposed projects so presumably yet to apply for consent **
    – New turbines at Te Rere Hau 2011 (NZ Windfarms)
    ** 48.5MW Operational July 2011 **
    – 2x New small wind farms in Marlborough 2010,2011 (Energy 3)
    ** Lake Grassmere/Dominion Salt 5 turbines enough to supply between 500 and 750 households, Not on Electricity Authority list of proposed projects **
    – New wind farm built at Gebbies Pass (Windflow Technology)
    ** Not on Electricity Authority list of proposed projects, There is a single prototype turbine at Gebbies Pass **
    – New McKee gas Plant proposed (Todd)
    ** 100MW Announced Dec 2010 Don’t appear to have applied for Resource Consent, Not on Electricity Authority list of proposed projects **
    – New Matiri Hydro Project proposed (NZ Energy)
    ** 4.56MW Consented **
    – New wind farm proposed Mt Cass (Mainpower)
    ** 33.5 – 78MW Consented Dec 2011 **
    – New Mokau Hydro proposed (King Country Energy)
    ** 9.6MW Company ditched project June 2011 **
    – New Rotoma Geothermal proposed (Rotoma No 1 Corporation)
    ** 35MW Declined Consent but has been Appealed **
    – New Titiokura Wind Farm proposed (Unison / Roaring 40s)
    ** 45MW Meridian Purchased Resource Consents from Unison 2010, No ref. to Titiokura on Meridian website **
    – New Puketiro Wind farm proposed (RES)
    ** 90MW Don’t appear to have applied for Resource Consent, Not on Electricity Authority list of proposed projects **

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  85. Trevor says “Photonz1 – that list of 21 proposed generation projects emphasises my point that the electricity companies aren’t going ahead with most of the projects because there is no return for them –”

    Of course there’s no return for all those proposals.

    The list represents a 60% increase on our current generating capacity, but we only need a 2.5% increase each year.

    So if they were all built this year, 57.5% out of the 60% increase would be redundant.

    Trevor says “There is plenty of opportunity to replace thermal generation with renewables but it is only progressing very slowly.”

    Yes – but are you prepared to pay for skyrocketing electricity prices to double up on power stations so that thermal generators like Huntly can be made redundant?

    If you campaign for 100% renewable, you are also campaigning for massive power price increases.

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  86. It is only a matter of time before natural gas prices skyrocket. If we are relying on natural gas for electricity, water heating and space heating, then electricity prices will skyrocket – along with our Kyoto bill and global temperatures. If we have enough renewable generation to meet our needs, then the price of electricity will be pulled up by the price of gas (as gas users switch to cheaper electricity), not pushed up (by the cost of the gas burned to make electricity).

    You are just thinking very short term.

    Trevor.

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  87. Trevor – if your doomsday scenario of skyrocketing gas prices happens, then we can simply replace gas generation with renewables.

    That will reduce power prices.

    However to do that while gas is still cheap, will do the opposite.

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  88. I assume the Contact geothermal project near Taupo would be “Tauhara Phase Two:
    http://www.contactenergy.co.nz/web/ourprojects/tauhara-phase-two?vert=au

    Contact’s web site says:
    “Since gaining resource consents we have been developing the project in readiness for construction when market conditions allow. A financial investment decision is yet to be made.”

    So that is at least two projects on hold waiting better market conditions.

    Meanwhile the lake levels keep falling…

    Trevor.

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  89. Photonz1 says:
    “if your doomsday scenario of skyrocketing gas prices happens, then we can simply replace gas generation with renewables.”

    We may be heading for a gas shortage as early as 2015 as existing fields run out and new fields aren’t coming on stream early enough. Of the 3.5GW of thermal plant, 1GW is coal and there is a bit of oil (also likely to be very expensive) so the remaining 2GW or so is gas. You don’t replace 2GW of generation (around 20% of our total generation) with renewables overnight.

    Part of the problem is that many renewables are only available on a ‘use it or lose it’ basis including wind, run of river hydro and solar photovoltaic. Most of our geothermal plants are also constructed to allow them to run flat out nearly 100% of the time, to maximise the return on investment, rather than to maximise the return from the resource. This means that it is the hydro and thermal plants that have to adjust their output so supply meets demand, and gas powers much of that thermal. There are solutions, all of which add costs. They include pumped storage systems, other electricity storage systems, simply building excess renewable generation, demand management, etc.

    One solution that I like is to add a bit of overcapacity to geothermal plants so they need to run at less than 100% of capacity some of the time (so they don’t deplete their resource faster than it recharges), which would allow the geothermal plant output to be ramped up and down to meet some of the variations in demand while still making maximum use of the available resource. Contact’s Poihipi Road plant is already run in this manner, although not by design. (The resource did not recharge as fast as expected.)

    We need to conserve some of the gas now by building renewables now so we will be able to avoid the sudden major shortages.

    Trevor.

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  90. Lake levels have recovered with the recent rains and are now hovering around 77% of the avergae level for this time of year.

    There is still some danger of a shortage but it is looking less uncomfortable.

    Trevor.

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  91. Recent rains have brought the lakes up to 86% of average for this time of year so things are close to normal.

    Trevor.

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