Power floats lose protection

Mighty River's Karapiro Power Station on the Waikato River. Photo / Grant Bradley

Broker says change a reminder that any business listed on the sharemarket has risks.

Potential investors in Mighty River Power, Genesis Energy and Meridian will be exposed to the financial impacts caused by any new charges linked to water or geothermal use and land resumption after the Government yesterday withdrew its indemnity protection.

The historic indemnity was being removed to ensure there was a level playing field for the electricity companies after the Mighty River Power partial float, State Owned Enterprises Minister Tony Ryall said yesterday.

"Leaving the indemnities in place could risk transferring taxpayer capital to private investors with no benefit to the Crown," he said.

The indemnities or protection against losses were put in place when ECNZ was established in 1988. When ECNZ was split in 1999, the indemnities transferred to Mighty River Power, Meridian, Genesis and Contact.

Ryall said the indemnities had not been used in 20 years.

"The indemnities were removed from Contact prior to the sale of that company and it is appropriate that the indemnities are also removed from Mighty River Power and the other mixed ownership model electricity companies before they are partially floated."

The change means any financial downside caused by the possible introduction of a tax, royalty or levy on use of water or geothermal energy will be borne by the power company and its owners.

Hamilton Hindin Greene client adviser James Smalley said the change was a reminder that Mighty River Power was a company with risks attached to it just like any other business listed on the sharemarket.

"It does point out that just like any other investment, investors do have to look at the small print or get an adviser to advise them accordingly."

Simpson Grierson partner Michael Pollard said the change was part of the Government tidying up the state-owned enterprises ahead of their partial sales.

He said if a risk to the company appeared in either of the areas where the Government had withdrawn its indemnity, it would have to be clearly disclosed by the company's directors.

Pollock said if the Government was planning to introduce a water levy or tax it would also have to be in the prospectus as it would be a breach of securities law if the Government did not make the riskclear.

"Any risk relating to this will have to be flagged in the prospectus."

Mighty River Power chairwoman Joan Withers said the scope of the compensation rights had not been tested but the removal of the indemnities meant the company did not now have the protection of those specific indemnities.

The land indemnity change meant compensation for any loss of land, which could include the land beneath its Waikato hydro system, would now be limited to statutory compensation under the Public Works Act.

The changes were shrugged off by one institutional investor.

Paul Glass, principal at Devon Funds Management, said they were expected.

"It's nothing too significant for investors. I think most people were expecting it to happen."

No longer covered

*Compensation in the event of the company becoming subject to a tax, royalty, levy or impost on its use of water or geothermal energy. The compensation applied only to the extent that any extra costs could not be recovered through electricity prices and related only to assets transferred to ECNZ when it was established in 1988.

*Extra costs arising from any resumption of land under the Treaty of Waitangi (SOE) Act 1988 that were not covered by compensation under the Public Works Act.

Infographic: Claudia Ruiz