The question Nicola Willis needed to ask: Why keep the power companies?
Levi Gibbs is a senior researcher at the New Zealand Taxpayers’ Union.
OPINION: Spend five minutes with a four-year-old and the endless “why?” begins. The relentless probing into why something is or isn’t. Sometimes we have answers. Other times, it exposes what we’ve long ignored: pointless rules, outdated ways, or unquestioned assumptions.
Asking why drives change, even when change might be unpopular.
A week after the Government unveiled reforms to New Zealand’s troubled energy sector, debate still rages over whether it went far enough. Yet amid the turmoil in her colleague Simon Watts’ portfolio, Nicola Willis missed the chance to ask a long-ignored question: why does the Crown still own a $16 billion stake in electricity companies?
The Government accepts it shouldn’t own fuel or telecommunication businesses, so why electricity companies?
Frontier Economics, an advisory firm the Government had review the sector, asked the same question. It found that government ownership acts as a handbrake, holding the sector back. Companies can borrow and reinvest profits, but it has been a barrier to securing the equity injections needed for larger projects. Free from the Crown, they could raise more private capital, pursue larger initiatives, and respond more effectively to demand.
Instead of fierce competition by generators to punch for a competitive edge, government ownership has resulted in more of a pillow fight. As a result, consumers pay more.
There’s also a glaring conflict of interest: as both market regulator and majority shareholder, the government has weak incentives to enforce consumer protections, since higher dividends flow straight to the Crown’s books.
The Government ignored Frontier’s recommendation to divest, even though between 2012 and 2014 the partial sale of state-owned electricity companies under the mixed ownership model was a huge success. Efficiency, governance and financial discipline all improved. Management focused on core operations, earnings grew annually, and returns on assets rose. Politically motivated, high-risk projects were avoided.
New Zealand is drowning in government debt, currently more than $140,000 per household with interest costs alone costing just shy of the total budgets for Corrections, primary schools, and secondary schools combined. Without decisive action, deficits will spiral and debt will top 100% of GDP by the 2040s. Throw in another natural disaster or economic shock, and the country is in serious trouble.
Selling $16b of electricity shares wouldn’t just cut debt. It could fund hospitals, schools and infrastructure, choices the public want far more than saying they own a slice of some electricity companies.
Meanwhile, the energy sector itself faces problems that Crown ownership cannot fix: there simply isn’t enough gas to meet demand, and uncertainty over peaking generation remains. Holding shares does nothing to solve supply constraints.
Ownership for the sake of ownership is costly. The Crown sits on $570b in assets, yet taxpayers are worse off for it. Interest bills are higher than the dividends we earn. That’s not investment, that’s mismanagement.
Asking why and acting decisively is the essence of leadership. Nicola Willis had that moment to lead. She didn’t take it. When will our leaders finally grow the courage of a four-year-old and ask why?
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