Hard News: Done like a dinner
289 Responses
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mccx,
Apologies for that RB. In the time that I was downloading academic journal articles and typing up my post the "debate" 'sploded.
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David Haywood, in reply to
Didn’t PAS used to have a blogger who was more expert in this stuff … name something like Davey …
Unfortunately, I'm still working to fix the gigantic fuck-up that one of the National Party's other big swinging dicks has created in Canterbury (and, more particularly, to my life).
I only get about six hours off per month at the moment, which I like to spend in the company of my family -- but, for a short version of my energy engineer's opinion, Paul Campbell is right (incidentally, great work, Russell, on writing such an elegant post on a complicated subject).
If anyone's interested, we had some good news in our household last week, including the granting of a Code Compliance Certificate for the work I've done on repairing the house -- so I probably have only another six months or so of work to finish up the cosmetic details.
This won't be done in a single stretch, I hope to take an extended break this June and make a bunch of contributions to Public Address.
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Sacha, in reply to
Onya
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We will wait patiently. No rush just know that we do miss your contributions
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Islander, in reply to
We will wait patiently. No rush just know that we do miss your contributions
seconded....
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ChrisW, in reply to
If anyone's interested, we had some good news in our household last week, including the granting of a Code Compliance Certificate for the work I've done on repairing the house -- so I probably have only another six months or so of work to finish up the cosmetic details.
Definitely interested, impressed and pleased to hear of your progress, and happy at the implication your eyesight is restored one way or another.
Cheers. -
Lilith __, in reply to
We will wait patiently. No rush just know that we do miss your contributions
thirded.
And so pleased to hear you house is progressing well, David.
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Russell Brown, in reply to
(incidentally, great work, Russell, on writing such an elegant post on a complicated subject).
I am gratified that a post containing the phrases "No shit, Sherlock" and "ass on a plate" can be considered elegant.
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JacksonP, in reply to
This won't be done in a single stretch, I hope to take an extended break this June and make a bunch of contributions to Public Address.
Look forward to more when you have time David. Along with many other Christchurch people who have to triumph over adversity on a daily basis, your continuing saga is both heart-wrenching and inspirational.
All the best.
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Some climate change considerations in play.
A - To produce aluminium from bauxite the most climate friendly way is a modern plant powered by nearby non-emitting generation - for example: Tiwai Point.
B - Lowering the cost of power to a western consumer society has in a climate change context been proven the worst possible thing that can be done to the planet ever.
In this choice between A (good for the planet) & B (insanely bad for the planet) congratulations to the government for making the right choice, for all the wrong reasons.
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Rich of Observationz, in reply to
In general, but:
- without Tiwai Point and with transmission upgrades, NZ would be free from coal fired generation and within reach of 100% renewable electricity (through more wind and a bit more hydro/pumped storage allowing the gas-fired generators to be decomissioned)
- the dominant consumer use of power in NZ is heating, and currently direct gas (for those that can afford it) is quite a lot cheaper than electricity for this. Making electricity prices competitive with gas in combination with making electricity 100% renewable would substantially decrease carbon emissions
- it's all very well for the affluent to argue for expensive electricity from homes with $100k plus of insulation and efficient heating. For the rest, there is a real and existing fuel poverty issue -
I understand this may not be popular, but what exactly has the Government done wrong here? What should they have done as the alternative?
As far as I've seen, Meridian have independently held a commercial negotiation with their client which has, at this stage, failed. The Government have then, in their correct and proper economic role entered negotiation with a regionally significant employer/GDP source as to how they may keep them operating given they are indicating they will not. As the original post states, this would be in the form of a direct subsidy, completely independent of Meridian and hardly a precedent in NZ's economic history (indeed, hardly a precedent in NZ's 2013 economic history). That negotiation should be, as with all direct subsidy/winner-picking/economic-incentivising, conservatively weighed against the national cost of losing said economic activity...
IF the Govt influences the commercial negotiations of Meridian, or IF they offer a subsidy greater than the opportunity cost for political asset-sale management THEN they should be vilified. Personally my faith in them is rather slim so I suspect this will be become necessary - but AFAIK there is zero evidence either of those things have yet occurred.
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Bart Janssen, in reply to
but what exactly has the Government done wrong here?
The govt is the shareholder of record for Meridian. Said shareholder then created a subsidy to a major client of Meridian in order to increase the book value (or share value) of Meridian (which they plan to sell).
If this was a "real" company, with "real" shareholders such behaviour would almost certainly result in the company being delisted and a fraud investigation of the shareholder concerned.
Most investors would be thinking "well these plonkers are really bad at covering up this sort of shonky deal and hence I wouldn't want to invest in them", even if it turned out to not be illegal.
As it is, at the very least it is piss poor management. What is amusing (in the train wreak kind of way) is that the National government purports to believe in market forces being the best possible form of management, this is about as far from pure market forces as you can get.
IMO that is what the govt did wrong here.
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Gareth Ward, in reply to
Said shareholder then created a subsidy to a major client of Meridian in order to increase the book value (or share value) of Meridian (which they plan to sell).
I'd need to see proof of the "in order to..." bit. Because the alternative view is they entered negotations for a Govt subsidy to an industry they considered of national economic importance. Or did they specifically announce that they were negotiating the electricity price with them on behalf of Meridian?
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BenWilson, in reply to
this is about as far from pure market forces as you can get.
If the government were a big business that owned Meridian, a very viable option here would simply be shrugging at Tiwai Point, hoping they do decide to leave, and then buying the place on the cheap, thus controlling the ability to turn electricity into aluminium ingots to sell on the world market, giving the perfect synergy with their excess capacity. Since the government does, in fact, intend to make a bunch of capital by selling off Mighty River, they have the money to do this right there. I would probably even approve of the sale if this were the purpose, bringing back under Kiwi ownership a very significant industry.
The mere existence of this as a negotiating card would mean Rio wouldn't bother trying to hardball, and would sit on their already sweet deal and keep quiet. You'd think our PM would have the nous to drive the bargain like this. But, as Bart says, this isn't pure market forces, this is corporate welfare we're subsidizing here, and our PM is a big fan of that.
It amazes me that he's such a weak negotiator, given his history. It's like he is deliberately running the country to lose every deal. I'm not cynical enough to think this is deliberate. I see it as more likely that he is blinded by ideology into self-hamstrung stupidity.
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I'll put it this way - if Rio Tinto was threatening to leave for some other reason (or if the power supplier was privately owned) I would expect the Govt to assess implications and possibly open negotiations if they could see a deal that would make net sense to the national economy. They would be negligent if they didn't...
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BenWilson, in reply to
They would be negligent if they didn’t…
Of course. But the Government is not powerless before such threats. They have a huge power and resources at the negotiating table. It would be equally negligent for them not to use those. It's not like the smelter becomes a vacant lot if Rio Tinto pulls the pin. The infrastructure and the people are all still there, and Rio would most likely not shut the whole thing down out of spite and refuse to sell any of it, taking a huge loss just to fuck the NZ government over. Not least because it is within the power of a government to compel a sale, given sufficient justification.
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I don't follow sorry Ben - are we saying the negotiation is valid but they haven't done a good job of it? How do we know? All I've seen is a loose statement from Key that the Govt would have provided short-term subsidies to the smelter to keep it open but no more, Rio have refused that and are now back to a commercial discussion with their power supplier? Sounds like we've played a fairly decent negotiating line there...
And personally I have zero interest in my Government entering the aluminium smelting industry.Again though, if pressure then goes on Meridian to commercially subsidise wider economic benefits then that's terrible governance (and would of course dilute the value in the sale as well). Or if the Govt ups it's subsidy offer beyond what it normally would consider prudent... And while I have a dread feeling that could very well happen with this crowd, there is no evidence of it occuring.
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Bart Janssen, in reply to
proof of the “in order to…” bit
Yup and that would keep lawyers busy for a while - meanwhile if Meridian was a "real" company it would either reside at the bottom of the shharemarket or be suspended fro the duration. It simply is a very dodgy piece of business and executed really badly.
The problem here is the govt is playing both sides of the game. Pretending it can't interfere because SOEs are real businesses then doingprecisely that when it suits them.
From an investor perspective I'd be very nervous if my 51% shareholding partner in the SOE demonstrated such woeful business behaviour.
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BenWilson, in reply to
I don’t follow sorry Ben – are we saying the negotiation is valid but they haven’t done a good job of it? How do we know?
Well, you do have a point. Most of the deals Key does are secret, so it's too early to say if it's been done poorly yet. I'm not hopeful, though.
And personally I have zero interest in my Government entering the aluminium smelting industry.
That very much depends on the price. Any company threatening to mothball its operations is depressing the value of those operations. It could be a very sharp deal. Being so, and Rio being a sharp operator, the threat is not that real. Any negotiator worth a small ingot of aluminium should know that.
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But Bart my point is the Govt has to get involved REGARDLESS of their ownership of Meridian. Even if Meridian had already been sold off the Govt should be assessing short term subsidies for such a large part of our national economy. The loss of Tiwai is more about foreign exchange earnings and regional employment than it is about propping up power generator valuations - all things the Govt absolutely should be keeping an eye on.
I guess I'm still unclear on what people think the Govt should have done differently? -
Gareth Ward, in reply to
I'm not hopeful, though.
Yes I'm having to fight my own pessimism here!
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Bart Janssen, in reply to
such a large part of our national economy
Um really? Yes it's a big industry and it does employ a number of folk in southland which is very important. But Rio Tinto get very very cheap electricity as it is. And we don't get many export dollars for aluminium, note the same company sells the bauxite to the smelter, unsuprising they don't make much of their profit in NZ where it can be taxed by us. New Zealand doesn't profit much at all from the aluminium. Where we do get value is from the employment of local labour.
What I think (and this is just me) that this government (particularly a National govt) should have done, is allow the market negotiation to proceed without interference. By involving itself the govt has effectively cut the Meridian management out of the negotiation. It is hard to argue that the govt knows the business better than Meridian.
Alternatively the govt could say to hell with pretending Meridian is an actual business lets just make it a govt department again and manage it for the overall benefit of the country instead of playing at being a business.
Now you could argue that a govt should protect those jobs for the good of the country and I might agree with you. But then I would be asking you to argue in favour of de-privatising Telecom and saving the 1300 jobs about to be lost there as well, because frankly if you think a bit of aluminium is important then how important is the internet?
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BenWilson, in reply to
Yes, I don't quite follow Bart's argument about a conflict of interest - is it a reductio ad absurdum to show that Meridian is not, in fact, a "real" company? Or that the government is not a "real" shareholder?
I think that's probably true, but what's really odd is to act like that makes the government's position weaker. The opposite is true. The government is far, far more powerful than shareholders, and Meridian can be used to drive a hard bargain. It should be used like that, in fact, when the other side of the table is full of flinty-eyed experienced deal-makers backed by massive capital. Anything less is just weakness.
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Bart Janssen, in reply to
Bart’s argument about a conflict of interest
Essentially one shareholder is inflating the value of the company shortly before planning to sell it.
My point is simply that if the govt were say one of the many finance companies we've seen in recent times and said finance company was doing what the govt just did then various parties including the fraud office would become very interested. It is more than shonky, it is very close to illegal. And the reason that sort of thing is illegal is that it is unfair to other shareholders and there are laws to protect shareholder from that sort of thing.
It might be possible to do it legally with very good lawyers and especially if most of the negotiations were secret. It would still be unfair on other shareholders but legally so.
Because it is the govt doing this, it is legal. But it is still a very dodgy deal on so many levels that it beggers belief.
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