Fran O'Sullivan: Bold moves, or brownouts

COMMENT

The Cabinet's infrastructure committee faces a knotty time dealing with the major energy issues that confront New Zealand.

Finance Minister Michael Cullen has so far been reluctant to take an openly interventionist approach on this score. But he will now face calls for bold moves to avert a Californian-type outcome - brownouts and energy shortages.

The abandonment of Project Aqua - Meridian Energy's proposal to shunt 70 per cent of the Waitaki river into a canal for electricity generation - gives Cullen the opportunity to go back to the drawing board.

Electricity generation is a much more difficult beast than transport - which has also fallen within Cullen's ambit and is now getting some traction following the Government's $1.62 billion funding boost to Auckland .

A major sticking point is that the Government perceives that it is unable to use its shareholder status to force the major electricity generators that it owns to work together to avert future calamities.

Three major electricity generators - Meridian Energy, Mighty River Power and Genesis - are Government-owned and have made buckets of cash for the taxpayers in recent years.

But now the same taxpayers who have benefited via the injection to Government coffers as the generators burned through fuel to feed their demands are more concerned at the inability of the market (so far) to deliver a solution to upcoming fuel shortages.

Government advisers admit it would be a simple thing to call the chief executives of the major generators in for a talking to.

But the problem is the Government does not control the entire electricity generation market.

The other major electricity generator, Contact Energy, is a publicly listed company.

It is too late now to force on Contact Energy a Kiwi shareholder type structure with which the Government could require the generator to work with the three state-owned generators to ensure development of future generating capacity takes place in time to underpin economic growth.

Thus it falls outside the ambit of indirect Cabinet pressure to force a solution. Or does it? This "bare-knuckle" approach to the operation of free markets has been used elsewhere.

In Ireland, for instance, the major banks were called in for a top-level briefing with Cabinet ministers when the market model failed to deliver sufficient branches throughout the less-populated parts of the country - a "charm first, then the gun" option, as one senior Dublin-based civil servant related.

Cullen has adopted that age-old approach through his decision to retain a reserve power for the Government to appoint directors to the proposed Auckland Regional Transport Authority if the region's seven city and district councils fail to agree on nominations.

The new agency will be in charge of planning and procuring all public transport services and local roads and will also advise the Government funding agency Transfund on priorities for new state highways in the region.

Cullen concedes that a significant amount of the momentum for the transport solution has been driven at central Government level. It was Cullen, for instance, who balked at Singapore Airlines' bid for Air New Zealand and ultimately forced through a Government bailout when the airline hit the wall.

It was also Cullen who bought back the national rail track and installed it under Government control.

But he is so far reluctant to expand the centrally driven approach he has used for transport to other vital infrastructure needs that are hindering the development of the New Zealand economy at both national and local (read Auckland) levels.

Could or would the prospect of state ownership be waved at Contact?

Recent speculation has centred on a desire by Contact's major shareholder, California-based Edison Mission, to quit its holding. Would the Government be a buyer if this eventuates? Time will tell, but this is an increasingly interventionist Government.

The other major issue facing the sector is Transpower's proposed $10 billion upgrade of the national grid. Transpower must negotiate planning consents with a raft of local agencies before the grid upgrade can proceed.

But Transpower is in Government ownership, which makes it a simple matter for legislation to be passed to ensure the upgrade takes place as soon as possible.

It would be a simple matter also to dump the ideological garbage which has stopped New Zealand generators proceeding with the development of the huge Southland coal reserves without being slapped with extra taxes.

It is early days yet, but the Government will come under increasing pressure to intervene to ensure growth is not hindered.