By David Hargreaves
Mighty River Power warns that regulatory uncertainty stemming from the Labour/Greens power proposal could have a material adverse effect on the value and market price of its shares.
The comment is made in a supplementary disclosure to its share offer document issued by the company and the Government. However, the potential impact is not quantified in the two-page addition to the original prospectus for its current share offer. The Government and the company say they can't quantify it.
The issuing of the supplementary disclosure statement means that would-be investors in MRP who have already applied for shares can if they wish withdraw their applications and get their money back.
The supplementary document is being issued after the release late last week of the Labour/Greens plan for a a new Pharmac-style agency called NZ Power that would act as a single buyer of wholesale electricity. Labour and the Greens have estimated household power prices would drop by 10% to 14% after the reforms, which they said would create 5,000 jobs and boost Gross Domestic Product by NZ$450 million.
But they also estimated the Crown would lose between NZ$260 million and NZ$365 million in dividends and taxes from power generation companies, while power generators -- both private and public -- would lose revenue of between NZ$500 million to NZ$700 million.
After much speculation during Monday that the Government would be forced to give potential MRP investors more information, Finance Minister Bill English and SOE Minister Tony Ryall finally confirmed that a supplementary document - giving information on the ramifications of the Labour/Green proposal had been filed.
Offer website suspended
As a consequence of the rules governing supplementary disclosure, the share offer website had been temporarily suspended until Tuesday morning when it would re-open with the new disclosure added, but with all other details of the offer remaining the same, including the closing time of 5pm on Friday 3 May.
Under the rules, also, any New Zealanders who had already applied for shares could withdraw their applications if they chose. Withdrawals would be accepted for five working days.
In the supplementary statement MRP says the announcements increase regulatory uncertainty for Mighty River Power by raising the possibility that a future government may enact legislation that materially changes the structure of the New Zealand electricity industry.
"Moreover, political or other interested parties may make further announcements or take other action that could further affect the degree of regulatory uncertainty faced by Mighty River Power. This regulatory uncertainty is likely to have a material adverse effect on the value and market price of the shares. This effect cannot be reliably quantified by the Company or the Crown."
The supplementary statement says, however, that the Labour/Green plan is not expected to have an impact on the profit forecasts - for this year and next - in the original prospectus.
"Taking into account the nature of the proposals of the Green Party of Aotearoa New Zealand or the New Zealand Labour Party and the time it would take a government to implement them, the Company does not consider that the proposals affect the prospective financial information, including the assumptions, for FY2013F and FY2014F as set out in Section 6.3 of the Offer Document," the statement said.
The statement also says the company and the Government can't quantify in a manner they believe is reliable the potential effects of the announced proposals on the company's future business and financial results as well as the value of the shares.
Unknown factors
"Factors not known include the outcome of future parliamentary elections, the composition and policies of future governments (which may differ from announced or future political party proposals), the likelihood of implementation and the timing and implications for the industry generally or for the company of any implementation of such proposals."
English said that the existing MRP offer document already outlined the principal risks associated with an investment in MRP shares.
“That covered the risk that changes in the regulatory environment, including for the wholesale or retail electricity market, may affect the company."
However, the Government had received advice that the Labour/Greens plan, if they were elected, could be "material" to decisions to invest in MRP.
“Our advice is also that if Labour/ Greens had announced this policy before the offer began, their announcement would have been referred to in the offer document submitted to the FMA.
“The supplementary disclosure sets out the additional information so that prospective investors can factor that into their decision making,” English said.
Ryall said the Government had always said that New Zealanders should consider the share offer opportunity carefully before making their own decisions and that advice had not changed.
“The MRP share offer is firmly on track. As we said at the time the offer was launched, MRP is a proud New Zealand company and the Government is confident in its future as a listed company,” he said.
35 Comments
Someone should ask some pointed questions of Labour about this
Did anyone in the Labour / Green communist alliance actually do the arithmetic ?
Do they realise their proposed nationalisation could cost more than the value of all the SOE 's combined
1) Create 5000 jobs ? WTF?
Where are the 5000 skilled people to run this new Single Parastatal agency going to come from? Not the WINZ jobsite thats for sure . It looks like 5000 more civil servant salaries with a huge number earning over $100k per annum
2) Write off current revenue income streams of $ 700, 000 ,000?" ( Seven hundred million Dollars or almost half the Social Welfare and Pensions budget ) ?
How the F()@& do they propose replacing that revenue stream when the Government is aready broke ?
3) Wrtie off $ 365, 000, 000 ( three hundred and sixty five million dollars) in Dividends and Taxes ?
Just how are they going to replace this without serious budget cuts elsewhere ? Dont they know the IRD is already battling to meet revenue targets ?
4) Do they understand or have they thought through the implications?
If the propsal is to fund the shortfall with Borrowings in the Bond market , we could face a credit downgrade .
5) How do they propose to de-list and pay out Contact Energy shareholders if the Nationalise the entire industry ?
Given that Contact is a huge listed entity on the NZX the costs could bankrupt the Government completely
6) Do they realise that if they remove the incentive to generate electricity from small generators ....its a case of " yer on your own mate " in terms of all future investment and Capital raising ?
I hear 5000 Albanian and North Korean shock troops are about to board a fleet of Chinese and Russian warships led by Admiral Chavez, who only pretended to die so he could lead the communist takeover of New Zealand. John Key released a joint statement with Goldman Sach: "we cannot guarantee the sun will rise tomorrow"
Boatman,
Responses to your points:
1) Labour/Greens could have made it clearer that the 5000 jobs is their estimate of new jobs created by the stimulus to the economy of lower power prices; not the number of people to run the new intermediary company. I reckon you could comfortably manage that with 20-30 people.
2) The Nats havs started this ball rolling, by writing off 49% of the dividends from any company they partially sell. It is that widely unpopular, and frankly stupid, action that has started this mess. By the by, sadly the pensions and social welfare budget is $25.5 billion, so am not sure where you got that 700 mill is half of it. http://www.treasury.govt.nz/government/expenditure
3) See answer to 2.
4) Borrowings are massive already, and English's blnkered view of monetary policy means it is virtually all foreign sourced. The stimulus to the economy may well lift taxes in other areas to offset the dividend shortfall.
5) They are not nationalising the industry. I expect Contact to remain relatively profitable.
6) Small generators will have much more incentive under the Labour/Greens plan; there is a risk in fact there could be too much- see California and a similar process, such that there may need to be some limits to what the new powerco will buy and when. At present a small generator has no market to sell into; so won't establish.
1) lower power prices create job - how about reduced tax, dividend and comapny revenue could lose jobs? Who is paying for the 5000 jobs?
2) Nats didn't write off 49% of the dividends. They chose to sell 49% of the ducks and buy a shed without borrwing for the shed. While the figures is stilld debatable whether they should keep the ducks and borrow for the shed, solid energy shows it's a risky business and tax payers should not be taking all the risks.
Labour already has a budget hole of $16 billion ish before last election. This one is going to bring it closer to $20 billion.
While I'm not happy with some othe Nats' policies or ministers, the Labour and Green are far worse, not a single of them is capable of running a country. If you throw in NZF and Mana it'd be a huge disaster.
I wonder if Green/ Labour realise, that their plans could cause more of MRP to go offshore, as less NZers will buy shares in them due to these uncertainties and bad press. It could also mean that NZ will get less money from selling them, as the company is likely to be worth less, which in the end affects NZs economy.
They also don't have a great track record in buying back shares. eg NZ Rail.
I can see why they are coming out and doing this, to partly warn NZers before buying them of what could possibly happened. eg see what happened to telecoms share price once there was government action to regulate
At the moment many financial advisors are not giving any recommendations either way on this offer, so I can't see how people can really buy them after seeking financial advice. I am still not sure if it is a good share to buy myself, after so many mixed reviews.
You seem keen to blame the now seemingly inevitable sale of MRP offshore on Labour and the Greens, as though we had no choice but to sell it at all. The sale could still be called off (although I accept it seems it won't be), and there is only one party to blame for its sale.
It's a good joke.
The Green/Labour approach disadvantages nobody - given that the Government is us, collectively. Even if the Govt 'gets less', it's a zero-sum game, left pocket pays right pocket.
Whereas all the sad wee folk who think in terms of 'profiting' on the backs of someone else, aren't going to get what they were anticipating.
Tough.
It does disadvantage NZ
As the MRP shares will be sold too cheaply.
To overseas investors.
(As Labour /Green have ruthlessly put the wind up nervous little Kiwis for political gain at the wrong time and at the taxpayers, Kiwisavers and other shareholder's expense, so NZers are less likely to buy.)
Who in the long term will win.
At our expense, as dividends will go offshore.
It would have been a zero sum game if the MRP/Contact etc hadn't been sold off at all.
As when you pay your power bill mostly you are/were paying yourself, as a taxpayer/owner of these companies
Labour and the Greens have succeeded only in one thing. Reducing the value of the share float, which will still go ahead but at a bigger discount than it would have. Meaning there will be less money to pay down the national debt.
The assets were only being sold for one reason - to pay down debt. Now that the country will receive a lower value for these assets what else are we going to have to sell now. Air NZ, Kiwibank.?
I have yet to hear any ideas from Labour or the Greens as to how they plan to reduce the national debt.
No they weren't being sold to pay down debt;
http://www.nbr.co.nz/article/national-plans-infrastructure-fund-asset-sale-proceeds-ne-103438
There was no tax "cut " in 2008 , it was a shift in tax target
Income tax reduced and GST went up 2,5%
It brought us more into line with Australia and the UK because our taxes werea lot higher
The change was a shift in taxing or penalising people who earn their money to taxing people spending it
Income tax is unfair, it taxes your ability or willingness to get up and do some productive work , its far better and fairer ( and efficient) to raise tax on spending...... through GST
its far better and fairer ( and efficient) to raise tax on spending...... through GST
yah. My mate who has just been to switzerland for two weeks skiing agrees with you. He is happy that his income was taxed less so he could spend more overseas and, not only have a lower income tax, but by being able to go to Switzerland, avoid NZs GST
same way it was done in the past .. back when they were building new hospitals and new schools .. and the proletariat were paying $0.66 ordinary income tax plus $0.10c in Social Security tax for the privilege .. give us an itemised list of all the new major hospitals built since 2000
As a shareholder in both Contact and Infratil, you might think that I'm a bit upset at the Labour/Greens plan. Not a bit. I have a slightly wider view than my own selfish needs. What is surprising is that it has taken so long for this piece of brilliance to be delivered by Labour. That the big end of town are pouring out the vitriol and behaving like spoiled children is a strong indicator that they can see where this is likely to end up should Labour/Greens decide to put their foot down and deliver.
A centralised buyer at wholesale is more than offset by the increased competition at the Retail end. Sacre bleu, surely a Labour/Greens government wouldn't deliver a more competitive market place than our current boys in blue Well let's be fair, that wouldn't be very difficult when the current model allows the highest bidder to set the price for the rest of the market. The so called marginal cost of electricity production should read cost plus.
When considering the competitiveness of the NZ Electricity Market, the following link is a start. The market has changed little since Wolak's report in 2009.
http://www.comcom.govt.nz/media-releases/detail/2009/commercecommissionfindsthatelectri
Can't point you to any authorities, but I have read somewhere the largest "cost" component of retail electricity prices is in the transmission network .. the cost of the poles and wires .. ie the network .. and with Transgrid the single operator of the National Grid plus 24 minor local area network operators, show me where the contestability is .. and probably never will be .. the biggest cost component isn't contestable .. monopoly?
See the infratil op report here: http://www.infratil.com/assets/Uploads/PDF/ift_monthly_op_report_mar201…
Within the industry greater attention has been focussed on the Electricity Authority’sproposal to rewrite the way grid charges are set. The importance of this exercisereflects the scale of Transpower (the grid owner) in the New Zealand industry. It has annual income of $785 million and a $3,500 million 5 year grid upgrade programmecurrently underway. If the wholesale price of energy was defined as the sum paid togenerators and grid-owner, the grid’s share would be almost 20% to the total or justless than 2 cents/kwh ($300 plus GST for an average household). A change in the allocation of these costs can have major ramifications for generatorsand consumers. As noted, a power station may last over 100 years and for all that timeit relies on transmission. Almost as important as the actual prices levied is that industry participants understandhow they are set. xity.A great advantage of the existing regime is that many peopleunderstand and accept it and the costs are reflected in asset values. A key aspect ofthe Electricity Authority’s proposal which has attracted criticism is that it representsboth substantial change and additional complexity.54 parties are known to have lodged submissions on the proposal and the majority seem to share the views of TrustPower. Even amongst the small number of favourable submissions there are requests for major simplifications. The opponents includegenerators, retailers, consumer groups, major energy users, network companies and the grid-owner Transpower.
IUconoclasts - Breakdown of typical bill here http://www.ea.govt.nz/consumer/factsheets/ Try factsheet 2.
Transmission and distribution pricing is regulated under the Commerce Act.
Financial Services people are extremely overpaid if their statements in this mornings news items are anything to go by. Read it through. And again. Nothing whatsoever quoted in there to support their view. Aaah. I remember now. There is no financial skill neccessary in the financial services industry. It's all marketing sales and lobbying politicians.http://www.stuff.co.nz/business/industries/8584367/Power-profits-not-un…
The timing of this labour /Green electricty proposal could not have been done at a worse possible time. The Government will probably loose between $350 - $550 million in lost revenue of the sale of Mightly River Power which the country desperately needs as a consequency of bringing this proposal to light. Labour and Greens should have waited until after the floatation to bring this to the publics attention. Overseas institutions purchasing stock in Mighty River Power will be significantly reduced. The share price will be reduced as a consequence of these actions and now the sale of Mightly River Power is going to be much lower and bring in less revenue. Politics has cost New Zealand significant wasted revenue which is not in the interest of New Zealanders.
Many would argue that selling high quality public assets is not in the interest of New Zealanders....
These sales were always going to be political- how did JK & English think the Opposition were going to react? Roll over & play dead?
Not sure I agree with the tactics, but it's a masterstroke by Norman & Shearer. If it results in the retention of the asset.... mission accomplished, as far as they're concerned.
Exactly how is Labour going to reduce the price of electricity for me ?
My electricity account is $110 for March and $90 for 1 cylinder of gas and I dont see how this can come down.
I spend more than $110 on having a meal at a reasonable restaurant with my wife
AND
Why cant labour do this with Petrol , my wife and I spend $600 -$750 a month on petrol .
Labour could set up a central buying agency for petrol and diesel , and sell it at under $1 a litre as is the price in the USA ?
Its entirely feasible to sell petrol for a $1 a litre , but it cannot work without unintended consequences .
Their proposal is akin to forcing a dairy farmer to sell his milk to a single purchaser for 10 cents a litre , or forcing a baker to sell his bread for 50cents , its not practical , and will fial in the long run
Nowhere do Labour or the Greens talk about selling electricity below cost. They want to remove what most regard as excessive profit from the provision of what is a natural monopoly. They will still allow generators to make a profit albeit smaller than it is currently.
Would not the Greens proposal of progressive pricing ie a small initial block of power each month at close to cost price with a big jump in the marginal price benefit low usage households like yourself as well as low income families and pensioners, and encourage conservation by households trying to keep their consumption as close to the low cost units as possible?
Didn't the Greens say that this block of cheap power would allow low income earners to heat their house more, ie use more power than they do now. Sounds like the existing low user tarrif on steroids. This will be at the peak load time of the year/ day. So this will be at the time that no sun is shining, often with very little wind with Huntly and other thermal peakers are hard at work.
Do you think high earners would turn their heat pumps off at this time? I doubt it.
It may make the construction of additional thermal plants more likely. But by whom?
Agree, and yes I think the low cost block would tend to achieve conservation, yet help the least well off, at least I'd hope so. The good thing of course is then if this is catually done we can see if that works in a real world test.
This for me is just whats needed, willingness to try something and see if it works or not as opposed to pointless left or right extreme wing rhetoric of dire consequences if anything is done.
regards
You are ranting well....
If you lived in saudi where the petrol is pumped out you would indeed see it extremely cheap.
or Iran where the cost is subsidized I think...(India?)
I spend $75 a month on petrol because I could see where petrol was going to go a while back. I bought where my petrol use could be 0 if need be and I'd still be OK. And that is what is going to hurt you IMHO...it wont be the $700 a month, or even the $1000 a month but when you cant get it or that its rationed......then I'll be lsitening to the screasm from the right whingers on how its the nasty Govn doing it...
NB Petrol could be $1 a litre (or at least a lot cheaper) because it has a big tax compenent in it, milk or bread does not have such a big tax %.
So really, try engaging brain.
Interesting that you think $110 is a reasonable price for a reasonable meal, yet $700 for petrol too much, yet the former is a luxury, the latter a necessity.
I wouldnt want to be in anything retail myself...but thats another thread.
regards
Er, there is a difference between average reduction for all households and the result for a particular household. I pay about $120 a month in electricity (no gas) so would expect the outcome of this to be negligible for me. But then, Labour haven't made any personal prepresentations to me about the amount that I would save.
As a general rule society wide actions do not benefit or harm people in exactly the same way for each individual, which is why benefit is measured in aggregate. That is something I really dislike about the anti-vaxination advocates- Yes you may gain benefits opting out providing everyone else opts in, but as the benefits are gained on the aggregate level too many freeloaders crashes the system (as is happening in Wales at the moment).
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