Winston Marsh: Power to people in North Island grid plan

Michael Cullen, as Minister of Finance, has given his approval to the cross-border lease-back of the South Island power grid between Transpower and unnamed American investors.

The result is that the state-owned enterprise has obtained a one-off fee of $34.6 million while handing the investors a tax advantage in the United States.

The transaction is viewed by Dr Cullen as part and parcel of Transpower operating a successful business as a Government-owned entity. But its ethics, in helping people in another country to avoid tax, have been questioned by accounting academics, and the transaction itself described as "shonky".

What is also apparent is that the deal has clear implications for Waikato property owners affected by Transpower's planned transmission line upgrade. Their compensation must surely now include the potential value to the grid operator of a similar lease-back arrangement covering the North Island.

Dr Cullen's acceptance of the South Island transaction appears to have been viewed only from the shadowy morality of taxation rules. But hold on, as Attorney-General is not he also the Government's senior law officer, as well as a shareholding minister in Transpower?

The South Island power grid has its lines running in part through private properties. The right to convey through these properties in some places would have been obtained under the compulsory provisions of the Public Works Act. One could lay long odds against landowners ever having been informed of, or being requested to agree to, a lease-in, lease-out arrangement affecting the lines running through their property.

The secrecy of the transaction suggests that neither Transpower nor its shareholder, the Government, intended to tell the property owners what the lease terms might have entailed. Indeed, the silence of Transpower and the Attorney-General might imply that under the original instrument of acquisition, they were not entitled to be informed of the terms of the deal.

But, morally, shouldn't they be told anyway? Clearly, state powers of compulsory acquisition from private individuals helped create the now leased southern grid. And these property owners will not see a cent of the $34.6 million pocketed by Transpower.

Without further information from Transpower or the Government on the terms - including Transpower's right to convey electricity over private property in the South Island - it cannot be assessed whether the lease-in, lease-out transactions are legally "shonky" or not.

However, it is one thing for a state entity, in fulfilling obligations of electricity supply, to acquire rights by compulsion over private property in the public interest. It is another to, even temporarily, assign or lease to an investor (foreign, to boot), rights that were expected to be a solely dedicated state asset.

In many instances, Transpower's right to convey electricity and maintain the lines will be by way of easement over privately owned land. Leasing of the national grid suggests some dealing in those easement rights. Affected owners simply do not know what has been done with the rights that they have either been obliged to grant or had taken over their properties.

One message does stand out. Property owners affected by Transpower's planned North Island upgrade will not allow secret transactions over power lines passing through their land to be quite so simple.

They can reasonably expect to know to what extent a non-government entity has claim, even short-term, to the rights of conveyance of electricity and line maintenance that have been taken, compulsorily or not, for the benefit of a state undertaking.

Even where these rights have been acquired by agreement with the landowner, a reasonable requirement would be that the nature of any change to those rights and the identity of an intended assignee, to be notified to, and in some instances possibly approved by, the property owner.

With the northern national grid upgrade affecting so many property owners, there is some confidence that Transpower, as a state enterprise, can be relied upon. But lease-in, lease-out transactions on undisclosed terms through a Cayman Islands intermediary are hardly reassuring.

If all participants in such transactions were solely in the private sphere, rigorous safeguards would be called for. Protection for the owners would inevitably be written into the granting of the rights to convey.

The oblique words of comfort from Dr Cullen that Transpower will continue to retain title to the national grid in the event of the private American investor becoming financially distressed will not suffice when it comes to Transpower seeking conveyance rights in the north.

The prospect of a similar leasing deal there looks like an attractive commercial option for Transpower, given the minister's approval. But for property owners, the creation of rights to convey electricity now confers another factor of value to Transpower in fixing compensation.

Any landowner contemplating conferring such rights should address any potential change, whether by leasing or otherwise, to non-government parties and the terms on which this should occur.

Transpower has threatened to use its compulsory powers under the Public Works Act to acquire the right to convey its transmission lines through private land. Now, however, lease-in, lease-out deals, whether ethically correct or not, will be brought into the contest.

Property owners, in claiming compensation, can point to a hitherto unrecognised item of value for transmission lines, which has been approved by the Deputy Prime Minister.

* Winston Marsh is a legal adviser to landowners affected by the proposed North Island power grid upgrade.