Govt heat sparks SOE move to expand

State Owned Enterprises Minister Simon Power. Photo / Mark Mitchell

The Government says global expansion by taxpayer-owned power companies is partly due to its pressure to sharpen the focus on commercial returns.

The heat has been turned up on all state-owned enterprises by the Government wanting better returns from the businesses with equity of $25 billion.

State Owned Enterprises Minister Simon Power said the rate of return from the 17 companies was still below par but had improved, up from 1.5 per cent on equity 18 months ago to 4.4 per cent by the end of last year.

"There is still room for improvement. We have put a particular emphasis on commercial skills and we're starting to see that flow through to the performance."

The $450 million invested in projects overseas by Meridian Energy and Mighty River Power during the year was part of this new approach," he said.

"I think it's fair to say it's the consequence of higher commercial focus."

Some commentators are worried the projects are too risky and Mighty River's credit outlook had been revised down, but Power says he is satisfied their respective boards have done their homework.

"The criteria the shareholding ministers have set is that we want to make sure they don't negatively impact on domestic operations or displace domestic investment plans, or affect the payment of dividends."

Overseas investment was a fraction of the total size of the SOE portfolio, he said.

Energy consultant Bryan Leyland said the companies should be investing in New Zealand rather than overseas where the viability of renewable energy projects relies on state or federal subsidies and tax breaks.

"Subsidies can disappear. They've got some skills [but] we should be building more power stations in New Zealand. The situation is more serious than the Electricity Commission makes it out to be."

Domestic electricity users advocate Molly Mellhuish said she had reservations about the international strategy - but for different reasons.

Unlike Leyland, she does not believe there is a looming supply crisis and says companies were accumulating money on the "false pretence" they needed to build more power stations.

But when demand does not grow and "companies don't have to change their ambitions", they build stations overseas where they are effectively subsidised, she says.

"It will be profitable but those profits won't go to domestic consumers, they go to the shareholders as dividends."

The executive director of the Major Electricity Users Group, Ralph Matthes, says any foreign move by an SOE needs to have a clearly stated commercial imperative.

There were clear reasons for Mighty River's $154 million investment in a new plant in southern California, given it was a start-up project and the company could use its expertise in the geothermal field.

Of more concern was the lack of disclosure by the generator SOEs, also a source of frustration for publicly listed rivals and analysts.

Matthes said they needed to get out and "make a buck" but they also had to be upfront about their performance.

The Government now requires disclosure of material information from the nine largest SOEs through the Crown Ownership Monitoring Unit.

Since January, there have been just 16 announcements and neither Meridian nor Mighty River Power used the unit's website to announce their overseas deals, something Matthes questions, given they represented a major change in strategy.

Listed companies TrustPower and Contact Energy would have been obliged to provide details of the deals.

However, Power says he is satisfied with progress to date, particularly from the energy companies.

"We are looking to mirroring those levels of disclosure of publicly listed companies in similar industries over time. Getting that level of disclosure out there at all is a big step to where we were 18 months ago."

While there were discrepancies among them "my experience in the role is that when one SOE does something well it tends to percolate through the others over a period of time".

ENERGY SOES GO GLOBAL

Mighty River Power:
- Salton Sea geothermal, California.
- Geothermal exploration in Chile.
Meridian Energy:
- Windfarm in South Australia.
- Solar farm in California.