August 23, 2018 7:00am by David Farrar

Partial privatisations a huge success

The Government may be getting more in dividends from its 51 per cent holding in three major power companies than when it owned the companies outright, a new report claims.

This is no surprise. The discipline of being a listed company with shareholders is significant.

Throughout the sales process, National claimed the partial privatisation would improve the performance of the listed companies, and the report shows the returns to shareholders since the sales have been extremely strong.

TDB estimated that total annual shareholder returns for the companies from the day the companies’ respective shares began trading on the NZX was 26 per cent for Meridian, 22 per cent for Genesis and 12 per cent for Mercury, well ahead of the 7 per cent seen by Contact and Trustpower, two private electricity companies.

Excellent.

However, TDB acknowledged that part of the exceptional returns for Meridian and Genesis was not due to improved performance, but instead the risk of New Zealand Power, an electricity policy announced by Labour and the Green Party days before Mercury was due to go to market.

The policy, which amounted to a major overhaul of New Zealand’s wholesale power market designed to cut prices for consumers, depressed the sales prices of both Meridian and Genesis, largely because shares in Mercury sank after listing, as investors fretted about the risk of the policy.

Labour tried to sabotage the policy. They tried to scare off investors. To some degree it worked. Taxpayers got less for the shares than would have been the case. But people like me who still invested have done really well. So thanks Labour and Greens for the attempted sabotage.

And in case anyone claims the partial privatisations in 2011 led to higher power prices, here is the annual level of electricity inflation since 2007:

2007: 6.5%
2008: 7.6%
2009: 2.1%
2010: 5.8% (GST increase)
2011: 2.5%
2012: 5.3%
2013: 3.0%
2014: 3.7%
2015: 0.3%
2016: 2.3%
2017: 2.0%

So electricity prices have gone up only 11.7% in the last five years. In the five years before the partial privatisations they went up 26.9%.

So overall:

Consumers have faced smaller power prices increases
Taxpayers are getting the same level of dividends
Taxpayers are paying less interest on the $5 billion of proceeds from the partial sales
Investors are benefiting from their investments

It’s been a win-win-win.