Faction fighting at Vector in $3bn power war

By CHRIS DANIELS and PAUL PANCKHURST

The floor was slick with blood from the latest political knifing at the Auckland Energy Consumer Trust.

Former political allies on the trust had just rolled former National Party president John Collinge - a 25-plus-year veteran of Auckland power sector politics - from the board of power company Vector.

Vector is a publicly owned pot of gold; assets $3.1 billion.

The wily old campaigner went out in a blaze of headlines, adopting the pose of anti-privatisation martyr when, in fact, he was ejected on the governance principal of the separation of the company and the trust that owns it.

Trustees said Collinge's public discussion of possible company moves was an "outrageous" abuse of a director's privileged access to information.

He was off the board, but remained a member of the five-person trust that had knifed him.

Now, on Wednesday afternoon at his central city office, Vector chairman Michael Stiassny was laughing, teasingly asking if the Business Herald was going to ask him about the latest rumour.

He did not say what it was.

Vector communications manager Charlene White (diligently tape-recording the interview for her own records) did not explain.

They did not need to.

The gossip was that the Collinge faction was keen to roll a leading Auckland businessman named ... Michael Peter Stiassny.

Collinge would not comment.

Insiders claim Collinge - a former chairman of the Auckland Electric Power Board - has always wanted Stiassny's job.

Machiavellian intrigue is de rigueur at a trust that is largely forgotten by Auckland energy consumers, with only 21 per cent of account holders voting in the last election.

However, this latest stoush looks spectacularly poorly timed.

It comes as the energy sector faces a huge ownership shake-up, with Contact Energy, Powerco and NGC all in play.

Final bids for a bundle of American-owned international assets that include 51 per cent of Contact are due next Friday, possibly triggering a number of ownership changes.

The opportunities for Vector include joint ventures or partial mergers - NGC's transmission and distribution pipelines and electricity meters look a good fit - or trying to buy some of the country's 29 lines companies.

It is widely believed in investment banking circles that ABN Amro has been appointed to advise Vector in discussions with NGC.

Vector has also lobbied the Government for the right to retail electricity - electricity it could generate from building its own power station.

Australia beckons and so, too, do ambitious ideas to use its power networks as a base for new telecommunication systems, possibly in partnership with TelstraClear.

To outsiders, Vector looks handicapped by a politically riven owner just when it may need to act swiftly and decisively.

It was a perception underscored by the shock resignation of Vector director Wayne Boyd this month. In his resignation letter, citing still-mysterious conflicts of interest, he talked of a "somewhat fractious" relationship between management, board and trust.

It needed "a speedy resolution" before damaging morale and shareholder value, he said.

"What role does the trust have going forward?" asks one investment banker, who is focused on deals in the energy sector.

"Should the trust simply be wound up? If it airs all its grievances in public like this and can't agree on strategic options for a $4 billion company, should it have the responsibility of governing Vector?" Another said it looked "totally dysfunctional".

The trustees see it differently. Just eight months after the last election, the four Citizens & Ratepayers Now representatives on the trust are split into two factions.

It is Mike Buczkowski and Collinge versus chairman Warren Kyd and Karen Sherry.

However, the trust believes it can govern effectively.

The fifth trustee, Labour Party-affiliated Shale Chambers, will have the casting vote on split decisions. He says: "I seem to be able to work with everyone."

The trust's always been a snake pit of shifting allegiances but that did not stop, for example, Vector's $1.5 billion purchase in 2002 of the assets of United Networks.

Additionally, this week's Collinge episode - for all the heat and noise - in fact marks a sprucing-up of governance.

When Collinge went public with what Stiassny alludes to as "political scaremongering", he already knew he was about to be sacked from the Vector board.

It turns out Collinge should not have been a director and a trustee.

After the Auckland central city blackout of 1998 and a ministerial inquiry, the trust and the company - then called Mercury Energy - pledged to the Government that trustees would not serve on the board.

Three years later, the rules were fudged or ignored and Collinge became a Vector director, a move viewed by his critics as a personal power grab.

After efforts to get his ally, Buczkowski, on the board, the present Government made it clear that it was not impressed.

Energy Minister Pete Hodgson told Kyd in a letter of May 12: "There is and remains a concern that trustee directors have an inherent conflict of interest for the reasons set out in the report of the Ministerial Inquiry into the Auckland Power Supply Failure."

Kyd told the Business Herald: "The minister took a very strong view and I can understand that view.

"Just imagine if we had another energy crisis in New Zealand ... and they had another inquiry and they found out that we'd rejected the recommendations of the previous inquiry not to have directors on the trust.

"I think we'd come off in a very poor light."

To resolve the situation, Collinge was told he could become deputy chairman of Vector - if he exited the trust.

He chose to stick with the trust.

Stiassny claims the noise around Collinge's exit has muddied the discussion of Vector's future and the role of the company's management.

"If we can produce better returns for our shareholder, grow the business, without putting the lines at risk - that's our job."

It does not follow, he says, that growth translates into "privatisation" or "sale to foreigners".

"It may not involve private equity in certain parts of our business, it may involve private equity via a joint venture in others.

"It may be there is one big electricity lines company in New Zealand and the trust is the major player in that."

Collinge's disclosure of ideas for Vector included one that rivals claim originated in the C&RN camp rather than the company itself - another muddying of the waters.

This was the idea that Vector could effectively "buy" the rights that local councils have to take over the company in 70 years.

On the topic of all the possibilities that investment bankers are thinking about - acquisitions, mergers, share floats - the trustees say they will listen, but they articulate a host of restrictions.

Assuming trustees' views and allegiances remain the same - never a certainty with this crowd - any plan to float more than 24.9 per cent of the company is unlikely to succeed.

Chambers wants the trust to keep 100 per cent ownership, while Collinge and Buczkowski say they will not approve any float of more than 24.9 per cent.

They see 75.1 per cent ownership as crucial for retaining control over Vector's constitution.

Buczkowski also says any money from a float would have to be for an appropriate investment - not "pipelines in Peru".

Chambers talks about Vector as a "pot of gold" that everyone wants to get their hands on.

He sees the company as serving Auckland consumers well with the annual dividend payment that effectively gives a month or two of free power to each household.

"In terms of a potential float - the market will salivate over it. It is the biggest thing there is. But so what?"