Referendum On A Robbery

The asset sales referendum kicks off on November 22…
by Gordon Campbell

Between November 22 to December 13, New Zealanders have a chance to state their opinion of the asset sales programme, in a postal ballot. The question at stake will be : “Do you support the Government selling up to 49% of Meridian Energy, Mighty River Power, Genesis Power, Solid Energy and Air New Zealand?” It may not seem like much. Yet the referendum will be a platform for anyone left feeling enraged that the Crown energy companies they own have been packaged up and semi-privatised for the sole benefit of a small group of wealthy investors, local and foreign….and with costly sweeteners and inducements tossed in, at the public’s expense. The referendum offers the last, best chance to speak out. Sure, Russell Brand and John Key would both see it as a lost cause – and that should be all the incentive we need, to get out and vote.

As in other citizens initiated referenda (CIR), the result will not be binding on the government. It does however, give us an opportunity to tell the government (and each other) what we think of a process that has steadily eroded any sales mandate that the Key government might try to claim it got from National’s election victory in 2011. Was there truth in packaging ? Hardly. Back then, the political salesmen for the asset sales programme were promising returns of between $5-7 billion, predicting high levels of participation from ordinary “ Mum and Dad “ investors, and asserting that these partial sales made more economic sense than taking on a similar amount of debt. None of these claims have turned out to be true. Oh, and the political salesmen in 2011 never mentioned the massive transaction costs the asset sales process would entail.

In other words, it is simply not credible to claim that Election Day 2011 settled the asset sales issue once and for all -regardless of what has come to light afterwards, and despite the extra costs and subsidies that have emerged from under the rug. Besides, having 327,774 people (in a country of little over four million) sign a petition in a short space of time is pretty compelling evidence that significant opposition exists to the selldown. The reality is that hundreds of thousands of taxpayers object to the ownership rights of their assets being altered so that only a fortunate few can make a killing. The process also involves generational theft, in that future generations will be denied the full benefits of the assets they inherit from us. With that in mind, the claim that we have no right to revisit this matter between elections is pretty outrageous. ( It is exactly like being robbed, and then sworn to silence by the robber.) Besides, the number of signatures required in a tight timeframe (under the CIR rules) mean that this kind of review can’t ever be done on a whim.

Yes, the referendum will cost about $9 million. An offer was made to minimise the cost by holding the referendum at the next election in 2014, while suspending the asset sales until that could be done. The government refused. On one level, it doesn’t matter that the referendum result is not binding on the government. In a healthy democracy, the government would take heed of its outcome, or suffer the consequences at the next election of ignoring it. Bad mouthing the process – as the government has done so far – seems simply petulant. After all, the cost of this referendum is minimal when compared to the hundreds of millions in consultancy fees and other transactional costs that the government has seen fit to throw at the asset sales programme in order to get it in shape, and over the finishing line.

There are many reasons for voting against the asset sales programme, For clarity’s sake, I’ve treated them separately, but they’re interwoven.

1.The asset selldown transfers wealth, upwards. A common objection to the asset selldown is the obvious one : that relatively few people have the spare cash to buy shares. Even before the sales process began, the government knew that only a small proportion of New Zealanders ( between 10-15% at most) can afford to speculate on the stockmarket, and do so. This means that in the wake of the selldown, profits that formerly accrued to all New Zealanders have essentially been halved, and siphoned off to an affluent minority. Wealthy investors will become richer, the wealth held in common will decrease and income inequality (with all its social and physical ills) will increase. At the outset, Finance Minister Bill English did his best to hide this downside by talking up the possibility that as many as 250,000 New Zealanders would be lining up to buy shares in these assets, with most of them being ordinary” Mum and Dad” investors. In the end, only 112,000 investors bought into Mighty River Power and only 62,000 into Meridian.

The critics of this process are not limited to the have-nots. Brent Sheather – a self described “ rich capitalist” – is a senior financial advisor with Private Asset Management and a regular NZ Herald columnist on finance and investment matters. Exactly two years ago this week, Sheather wrote a devastating analysis of the economic illogic of the asset sales programme. In a subsequent interview with Scoop in late November 2011, Sheather expanded on those points.

Back then, Sheather had started with the basics :

A government can raise money by selling assets or issuing debt. The price we get for assets versus the cost of borrowing the same amount is a good place to inform a view as to whether we sell or hold.

What Sheather (and others) found was that – given our low levels of Crown debt and enduringly low interest rates worldwide in the wake of the global financial crisis – it would have made far more economic sense to borrow the $5-7 billion (while still retaining full ownership of the companies earmarked for partial sale and of all of the dividend flows they create) than for the Crown to sell a 49% stake in them. More on that, below. This week, I contacted Sheather again to see – two years down the track – how he was feeling about the trade-off that the Key government has made between debt, and the assets selldown.

Sheather remains critical. “Well, local investors who are buying Meridian and Mighty River Power are getting dividend yields of approximately eight per cent.” Roughly double what you get in the bank. Or as he adds, is roughly double the comparable yield from government bonds. “ So, on that basis, the government’s ability to service its debt is actually being reduced through the sale of these things, rather than enhanced.” Maybe so, but isn’t it a darn good deal for the people involved ? “It is. But at a cost to the Crown and presumably to the ordinary taxpayer, which is what we suggested would happen, and happen it has.” Some people, I suggest, would still consider only part of that picture, would look at those dividend yields and conclude that New Zealanders should be encouraged to be in there, boots and all….

“That’s exactly right,” Sheather replies. “ And if New Zealanders as a whole, had lots of money they would probably be in there, boots and all. But at least half of the population doesn’t have any money left over every week, to save, anyway. As you say, its a darn good deal for everybody who does have money. But effectively, it is just re-distributing wealth from the average New Zealander, to wealthy New Zealanders.”

2 Asset sales did not revitalise the share market. Back in 2011, the Key government argued strongly that by putting some prize SOEs into an otherwise flat sharemarket, the government would be giving a real options and incentives to investors and a shot in the arm to the sharemarket as a whole. Allegedly, by offering a few Crown gems of this sort, the government would help to virtuously shift investment back towards productive enterprises, re-invigorate the stockmarket, and thereby lift everyone’s boat.

This was always a very strange argument. The centre-right Key government seemed to be suggesting that while governments can create companies worth investing in, the private sector (evidently) cannot. For his part, Sheather has seen no evidence that the asset sales programme really has motivated people to re-consider the sharemarket as an investment option. “Just from my perspective, from what I see, the only people who have bought Meridian have been people who were already into the stockmarket. As far as I can see, there has been no individuals saying oh, I’m not going to buy another house, I’m going to buy Meridian shares. The investors [in the asset sales] are people who have already acknowledged that the stockmarket is a good way of investing, and that housing isn’t the top of their priorities. I don’t believe there has been a huge shift from people buying residential properties to buying shares. In fact, we have had hardly any interest in Meridian. We would have had 10 times as many people ringing up about Mighty River as we have had with Meridian..” And to what did he attribute that ? “Just the fact that Mighty River did so badly….And if they already had Mighty River, and were overweight on Mighty River, they should give Meridian a miss.”

In reality, the sharemarket hasn’t needed an injection from asset sales. In the five years ended in October, the New Zealand stockmarket has returned 12.9 % a year. It has been booming, but not because of the asset sales programme – more like, in spite of it. Sheather’s investment firm has the figures to back that up : Mighty River shares have been down 12.2% since launch, at a time when the market is up at an annualised average of 5.5%. The market’s stellar performers – Auckland Airport up by 35%, Fletcher Building up by 48% , Fonterra up by 31% and let’s not even mention Xero – only underline how abysmally poor Mighty River’s performance has been, albeit this is still early days.

In time, if Meridian and Mighty River (and Genesis and Air New Zealand in future ) do manage to turn around the sharemarket performance of the asset sales programme, this will not be thanks to the efforts of ordinary “Mum and Dad” investors. For political reasons, ordinary investors have been hyped into taking part in the early share floats, and to date, have been burned. “ As the sales process evolves you’ll see less and less participation by Mum and Dad,” Sheather says, “because they’ll have spent their money. So we’ll see more domination of the buyers by the institutional investors.” Those institutional investors and fund managers – both here and offshore – will reap much of the benefits from here on in, as the collective wealth of the less affluent majority of New Zealanders is further reduced.

3. The Cost of The Asset Sales Process is Eating Into Any Net Gains. The asset sales process hasn’t been done on the cheap. For the last couple of years, it has diverted much of the highly paid time and talent of upper management at the companies concerned, into readying them for sale. No exact figures can put on the direct costs (let alone on the oppportunity costs) involved, but it has been extensive. Treasury alone has spent at least $41 million on the Mighty River and Meridian floats alongside over $17.8 million by the companies themselves. Some of the relevant figures are here.

This is before we get into the Rio Tinto payoff, the inducement to Meridian investors, and the foregone dividends – which in the case of Mighty River Power, are running at an estimated $49 million and mounting, since the share float.

Point being – no wonder there are vocal cheerleaders for the asset sales process. In readying the state energy company for sale, any number of interested parties have stood to benefit from the consultants fees, the costs of devising ad campaigns to promote the sales, the cost of print and television advertising space and time…In addition, at least three other factors have also been pushing up the promotional price tag. These are (a) the poor initial outcome of the MRP share float (b) the profusion of energy companies now crowding the New Zealand sharemarket and (c) the uncertainties hanging over the Meridian float. These factors have combined to fuel an escalating spiral of costs.

For example : mid year, Rio Tinto received a $30 million gift from the government, in exchange for keeping the fate of the Tiwai Point aluminium smelter ( a prime user of Meridian’s energy) off the front pages until the Meridian share float could be completed. As a further sweetener to enhance the Meridian deal, investors were offered an extraordinary “holiday” whereby they could pay half the entry cost now, still receive the full dividends immediately, and then decide in 18 months time to either pay the remainder or exit the deal, no questions asked, no refund required. This has simply been a welfare handout to the wealthy.

The Green Party has been keeping a running tab on the transaction costs of the asset sales programme, complete with a detail breakdown and links to the official source material, all of which is available here.

At time of writing, the total estimated cost was $244.9 million, a figure that – wrongly, in my opinion – includes the $9 million cost of the referendum. You can follow the further links and further information contained on the Costwatch site. There are major costs still coming down the pike. As in, the costs of (a) the upcoming Genesis and Air New Zealand floats, related advertising, sweetheart deals to induce participation etc and (b) the ongoing net profits/dividends losses to the Crown from MRP, Meridian and in time, Genesis and Air New Zealand. Interestingly the chart on the asset sales process that can be found at page 40 of the May 2013 Treasury Economic and Fiscal Update shows that over the course of the forecast period out until 2017, there is expected to be a $180 million impact from the sales on the OBEGAL ( ie. the operating balance before gains and losses). If anything, the analysis in that document may be somewhat rosy, given that the note on page 42 shows Treasury still assuming a $6 billion overall return from the asset sales proigramme as a whole ( it is $5 billion at most, and likely to be less) and that the forecasts of foregone profits and dividends used in the Treasury estimates were company supplied. Clearly, all these costs matter in their own right. We’re paying for them. They’re also highly relevant to any calculations that show whether it would have made more sense to borrow, than to sell. Which brings us to :

4. It Would Have Been Smarter to Borrow The Money Even supporters of the asset sales process tend to concede that the balance between the sell vs borrow options is a very close run thing, at best. Two years ago at the outset of the asset sales programme, there was ample evidence to that effect. Bear with me if I cite once again the calculations made by the NZ Herald’s Brian Fallow in late 2011. Here’s how I summarised his main points at the time:

NZ Herald business columnist Brian Fallow found the asset sales plan wanting, even after doing the sums in a way that bent over backwards to be fair to the government. Treasury has estimated that $5–7 billion can be earned from selling 49% of the government’s stake in the assets in question…. Fallow used a figure of 5% for the cost of borrowing, based on that being the average cost of government borrowing over the past five years. So 5% on that $6 billion would be $300 million. That’s one side of the ledger: the cost of borrowing.

Now for the other side – the dividends we forego by selling. Treasury forecasts of the dividends expected from the SOE energy companies up for sale. Fallow says, average out at $449 million a year over the next five years. The 49% share we intend to sell would therefore come to $220 million. Throw in $20 million for selling 23% of Air New Zealand and the dividends foregone would average $240 million a year – or 4 per cent of the $6 billion sale price.

That means we would barely come out ahead. Even if everything went absolutely as planned (which it subsequently hasn’t) we would still have been only $60 million in the black. “So we are talking about a difference of 1 percentage point between dividend yields and bond yields,” Fallow says. Margin of error stuff, in his opinion. And that’s after looking at the deals in the most generous of lights.

Nothing in the logic – or the outcome – of this exercise has been altered by Solid Energy’s collapse and virtual exit from the process. Or by the downturn in expected returns from an asset selldown that will now struggle – as the government has publicly conceded – to reach the $5 billion that was touted in 2011 as the worst case outcome. Crucially, this calculation omits the circa $250 million (and counting) cited just above in the transaction costs of executing the sales process, an unpleasant reality that pushes the exercise solidly into the red. In case that seems unduly speculative, note that Sheather himself did a similar debt vs selldown calculation (using lending criteria based on the cost of ten year government bonds) and came out with very similar indications that the selldown is basically…..economically illogical. Which brings us to –

5.The Energy Companies Will Suffer, Not Benefit From Greater Private Sector Involvement. One of the myths of the asset sales process is that the energy companies on the auction block (and Air New Zealand) will benefit from a bracing dose of private sector discipline and transparency. Historically speaking, this is absurd – given that private sector expertise drove Air New Zealand into a bankruptcy that required a government bailout, and created the Global Financial Crisis. Nor has the electricity market been exactly a boon to the New Zealand electricity consumer, in the period since then-Energy Minister Max Bradford introduced the first modern round of private sector disciplines.

No doubt, the glories of the market may sound inspiring at the Chicago Business School, or coming from the mouth of Rand Paul. They make little sense – and promote wasteful duplication and inefficiency – in a country as small as New Zealand, where markets rarely reach the critical mass required to enable competition to operate in the textbook fashion. More commonly, cosy duopolies and quasi-cartels emerge to prey on captive pools of consumers. At least, that’s what we saw here in the 1990s. Any deadening evils of government bureaucracy were more than matched by the sins of private sector management practices – as expressed in excessive CEO salaries, golden handshakes, generous share packages that rewarded short term measures to pump up the share price, consultancy fees, dubious labour practices etc etc

More to the point, the three state energy companies now in the firing line have been in no need of additional private sector disciplines. In the three years prior to 2011, these SOEs easily outstripped private sector performance. And their $1.7 billion return would have been even higher, as Greens Co-Leader Russel Norman pointed out at the time, if the SOEs in question hadn’t chosen to double their investment in new plant and machinery, in order to deliver even higher returns in future.

Now that the earning potential of our SOEs has been enhanced through this capital investment, the Crown can expect to see considerable growth in dividend streams from this point on. Treasury makes this point explicit in their last 2010 Annual Portfolio Report. They say the Crown should now expect to receive higher returns.

We have seen this before. Like our energy SOEs, Telecom had invested significant amounts of capital in building a modern telecommunications network in the years before privatisation. In the years following Telecom’s privatisation, dividend streams for its new private owners doubled, then tripled within six years. History now seems to be repeating itself with our energy SOEs. National has allowed the taxpayer to build up the asset, only to then on-sell it to the benefit of others.

“Those returns suggest the SOEs [were being] managed as well or better than stock exchange companies,” Sheather said in 2011, “because stock exchange companies {hadn’t] returned anything like that rate of return.” On average in the last five years ended in October 2011, the New Zealand stock market had returned minus 2 per cent per annum.” They’d lost money? “Yes, they’ve lost money. The world stock market in the same period was down minus 4.3% . So a 17.5 % rate of return [by the energy companies in question] was pretty good work.”

To be fair, those sky high rates of returns also reflected the SOEs ability to hike electricity prices on a captive pool of consumers. In recent years, energy prices have still been running at three times the rate of inflation, even while demand has been falling. That situation now bids to get worse. With the private sector now on board ( literally) in the wake of these semi-privatisations, the pressure to maximise the return to investors is only likely to increase. Since power prices are already at a level intolerable for many, the much-touted “private sector disciplines” may have to rig the game in other ways. In our 2011 interview, Sheather explained one possible method : “What they can do is use the famous venture capital saying – that there’s lazy capital there, the balance sheet isn’t being optimised. What we’ve got to do is pay out a special dividend to shareholders and take on more debt…”

Yikes. So rather than run the alleged risk of the government taking on more debt up front, we’re going to sell these things – and then satisfy the new private investors’ thirst for dividends later, by taking on more debt, half of which would then be owned by every taxpayer in New Zealand? “I would say that is inevitable,” Sheather replied.” The share market, he adds, usually responds to such special dividends by ramping up the share price even further. Managers then get rewarded, and – ultimately – the taxpayer is left to pay for the bailout, if and when the bubble finally bursts.

Not that you should expect to hear any tsunami warning on such a bubble : not from the politicians, stockbrokers, stockbroker clients, consultants. SOEs top management etc mentioned earlier, who all stand to clip the ticket on the asset sales process now, and for years hence. Blessedly for them, there will be stockbroker fees to be extracted on every occasion in future when Mum and Dad sell their shares. That’s because when it comes to the asset sales programme, as Bret and Jermaine would say, its always….business time !

6. Meridian is promising to pay out more in dividends than it makes in profits. To an outsider, this is about when things get really weird. As indicated above, discipline has already been in short supply during the asset sales process to date. As the Meridian prospectus notes ( page 17) the dividend payout is structured as follows:

The forecast dividend in respect of earnings in FY2014F of 10.5 cents per Share is based on forecast Free Cash Flow in FY2014F and represents a forecast dividend pay-out ratio of 80% of Free Cash Flow. The forecast dividend in respect of earnings in FY2015F of 11.5 cents per Share is based on forecast Free Cash Flow in FY2015F and represents a forecast dividend pay-out ratio of 80% of Free Cash Flow.

Talk about a sweetener. This does sound like an incredibly generous inducement. Sheather agrees. In fact, he adds, the prospectus indicates that in 2014 Meridian would earn 7.3 cents a share and would pay out 10.5 ! “The common practice around the world is for companies to retain 50 % of their profit. So really, if common practice in America was adopted, Meridian would earn 7.3 and payout maybe four.” All up, the dividend yield (on the $1.50 price) is around 9.0%. Pretty damn good, when you compare that with the circa 4% that the banks are offering.

Professional investors tend to assess the relative attractiveness of companies by comparing the price of a company to its earnings per share. This is known as the PE ratio. On this basis, Meridian does appear to be fully priced. (For the year ended June 2014 remember, the Meridian prospectus expects the company will earn 7.3 cents per share after tax. At $1.50 that is a PE ratio of 20.6 times (ie, price $1.50 : earning 7.3 cents per share). It is worth stressing the point about that 7.3 cents per share earnings forecast for 2014, given that during the same period Meridian plans on paying out 10.5 cents per share in dividends. This looks quite unusual. It will be paying out in dividends more than it earns.

Why would it be acting in this highly investor-friendly fashion ? As Sheather says, most US companies routinely pay out only around 50 % of their profits – and keep the rest for r&d and caputal improvments and the like. They don’t pay out 80-100%. Presumably, Meridian is doing so to to try and lure in investors. “ There’s only one reason,” Sheather says, in agreement. “ It is far easier to sell to Mum and Dad when an investment its yielding eight or nine [per cent] than when its something yielding four [per cent].” Evidence from two US economists called Franco Mogdiliani and Merton Miller, he adds, indicates that the amount of money a company pays out in dividends doesn’t affect its value. “You can either retain all your profits or pay it all out in dividends, the value of the company isn’t affected. But behavioural economics says that people will buy something yielding eight as opposed to something yielding four. And the way the government has been able to affect this, is by paying out more in dividends than the company earns in profit.”

In sum, the politicians and executives, the fund managers and stockbrokers – and everyone else with a vested interest in clipping the ticket has been working the asset sales programme in every way conceivable, in order to attract as many players as possible. All’s fair, some would say. Another example has been that – mere weeks before the Meridian sale – Mighty River Power chose to launch a buyback of its shares.

From the outside, it did look more than accidental that – one month before the Meridian sale – the leadership of MRP should conclude that its best use of corporate cash and debt would be to buy back its own company’s stock, rather than spend it on say, research and development, or on the efforts of its sales team. “ Well if the stock is earning 10% in cash flow then maybe it is a reasonable option,” Sheather says. “ It is very common overseas. It has also been highly criticised overseas. Because it is a non-productive way of boosting your earnings per share. You can either boost earnings per share by boosting your earnings – or you can do it by reducing your shares…”

Exactly. To say the least, it doesn’t look a virtuous or energetic way of maximising your entrepreneurial efforts. “No, that’s right. It maximises earnings per share but not earnings as a whole.” So what would the political dimension of that buyback decision be, coming as it did barely a month before the Meridian sale ? “You can draw your own conclusions,” Sheather says, laughing. “But since listing, Mighty River is down by 12.2 % that’s including the dividend – whereas the stock market as a whole is up by 5.5%. And the price of Meridian was derived from looking at the prices of Mighty River and Contact and other things. So anything that boosted the price of Mighty River would be received very well by the government, I would think.” Yep, that private sector discipline certainly has been hard at work.

7. If This Is Risky, Air New Zealand could be even worse. As John Key has already told a recent post-Cabinet press conference. the selldown of Air New Zealand will be a far simpler thing to organise. As mentioned, most New Zealanders can’t afford to buy shares – partly because their power bills are soaking up so much of their household budget – but should even the affluent be risking their money on this kind of enterprise ? At least Air New Zealand is different. Thanks to the illogic of the aset sales programme, a sharemarket already full of energy company options ( Contact Eneregy, Vector etc) is now chockablock with them, as Mighty River, Meridian, and soon, Genesis, elbow their way into consideration. Buy into them all ? That would seem unwieldly and unwise, in a portfolio spread sense. Because Air New Zealand uses energy rather thsa consumes it, you coukld ake a case for investing, to restore some sort of balance.

But hang on. Airline stocks are commonly regarded as a risky proposition at the best of times, especially for retail investors. In the jargon, airlione stocks have a “very high operating leverage.” Put simply that means if the plane is 3/4 full, the airline breaks even, but when it is full the airline make heaps of money. Investors are always gambling on the thin ice of that margin – which is susceptible to fuel price variations, to hedging decisions and other factors at work in the global economy – that cumulatively, can make a casino out of any airline. Especially one that is vulnerable to the carriage levels on its long haul flights. As an unfortunate consequence, the level of perceived risk will determine whether the seller – ie the ordinary public – gets a proper price for their stake in a valuable asset they own, and have never wanted to sell.

8.Investors Have Already Bought More Shares In These Assets Than They Should. Again, this is a Buyer Beware note of concern for the investor, rather than something dirtectly to do with the ownership rights of the public. In any rational world, Meridian and Mighty River should only be a small part of anyone’s portfolio holdings. At political prompting however – and in order to maximise their own commissions – stockbrokers appear to have been inducing individual investors to take higher weightings in both those stocks than the market capitalisation would indicate was appropriate.

Sheather spells that out. “Meridian and Mighty River Power aren’t huge, because they’re free float adjusted capitalisation – which means the fact the government owns half, therefore their weighting in the stock market is half their value. So we’re only talking about 2 – 3 % of the index that these things should represent. But you can imagine, stockbrokers have been twisting the arms of Mums and Dads – particularly with Meridian – and saying you should put 30 grand into this. And 30 grand might be 10% of their New Zealand share portfolio. That introduces what’s called tracking error, whereby you radically overweight one stock, relative to its market cap. That’s a portfolio management issue that Mum and Dad should be aware of.”

To which many would say… well, boo hoo for those Mum and Dad investors. Still, it does go to show that there will be some pain, even among investors – and far more pain among the ordinary public – as this process unspools in the following months and years.

Some final thoughts. Given the concerns he voiced at the outset of the sales process two years ago, does Sheather feel these concerns have been validated by the performance to date? “ You mean – my prior concerns about ripping off of Mum and Dad and the ripping off the public and the selling out cheaply ? Well… pretty much so. Yep.” OK, but leaving aside for a moment whether such assets should be sold at all – have MRP and Meridian have been sold at a price that reflects their true value ? Looking at it in the long run, Sheather thinks so. “I think it does reflect their true value today and people who buy them will do very well. And by extension, the people who sold them – ie. the public – will do badly. I think they’re fairly valued, they’re going to do well long term and the price of electricity in future will be adjusted to deliver them a reasonable return. So there’s not too much [investment] risk at all with them. Because what happens in practice is that if the electricity price isn‘t high enough, they’ll just say well, we’re not going to build any more power stations and the government will say ‘Omigod that ain’t good, we’ll allow the electricity price to increase.’ “

In other words, the private investors have the government over a barrel. Not to mention the SOE executives who will be required to placate their new investors, and who – thanks to their generous share packages – will stand to benefit in future from gaming the share price. Along the way, any need for new capital – for expansion purposes or for replacing the existing generating capacity – can be paid for from the “huge” depreciation charges. In any case, Sheather concludes, “I don’t think that too much new capital will be required – and if it is required, they will demand a return on the project that covers their cost of capital. They just say ‘We won’t invest unless we get a return on the investment.’ That’s just how it works.”

Indeed. That is how the system works alright. As the black writer/activist George Jackson once put it : ‘To those that have shall more be given – and to those who have not, what little they have shall be taken away, as if it is the natural order of things.’ The referendum on asset sales may provide scant comfort. Yet as Sheather concludes, it is better late than never. “And if the referendum confirms that New Zealanders as a whole were against [the asset sales] the government should buy back all the shares in both companies, and pay no more the current market price, or the price that they sold them at. Whichever is the lower. That would make it certain that next time, that there would be no next time. Because of the political risk.”

Even rich capitalists, it would seems, can see the asset sales programme to be the height of folly. Sheather has shares in Air New Zealand, Meridian and Mighty River – but he is still sounding like a definite “no” vote against the asset sales on the referendum ballot. “Oh, I’ll vote against it,” he says. “ Absolutely. No question.”