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The decisions this month are again dominated by the sales resulting from the electricity “reforms”. Edison buys 40% of Contact Energy – with approval for 100% The Big One of the electricity “reforms”. Edison Mission Energy Taupo Ltd, a 79% subsidiary of Edison Mission Energy Company of the U.S.A. (the other 21% is owned by “unknown third party shareholders” of the U.S.A.) has approval to acquire 100% of Contact Energy Ltd from the Crown of New Zealand. Note that, though it has only been sold 40% of Contact, as the “cornerstone” shareholder, Edison has OIC approval for a full takeover. It paid $1,208,000,000 for the 40%. The remainder was sold through a public offering, of which more below. The sale is controversial for a number of reasons:
The general failure of the electricity reforms has been covered elsewhere – see for example our commentary on the October 1998 takeover of Southpower by TransAlta, “Power Frenzy: the takeover of the electricity industry”, in Foreign Control Watchdog no. 90, April 1999, and in the following commentary relating to TransAlta. It is sufficient at this point to say that it has led to widespread increases in retail prices and large-scale overseas ownership of a sector that previously stood out as remaining almost completely in New Zealand – and largely government or community – hands. It is likely that this Contact sale will add to both of these trends. But before going into that, what did Edison buy? (Unless otherwise stated, the following information comes from Contact’s Investment Statement for the public offering of its shares.) Contact was the first splinter from Electricity Corporation of New Zealand (ECNZ). It was broken off in 1996 with the intentions of creating competition, and eventual privatisation. It was given a number of generation plants, plus ECNZ’s gas purchase contracts. Since then it has bought further assets in Australia and has been a major competitor in the race to buy retail customers after the split of lines networks and electricity supply in the Electricity Reform Act. It is the largest electricity generator in Aotearoa (following the more recent split of ECNZ), and has the largest number of gas customers of any gas retailer. In the year ended 20/9/98, Contact generated approximately 26% of the country’s electricity and owned about 25% of its generation capacity. Its stations and their capacities are: Hydro:
Geothermal:
Thermal:
In Australia it owns 28% of the Southern Hydro partnership, which bought a privatised hydro generator in Victoria. It operates stations at Dartmouth (160MW), Kiewa (193MW), Rubicon (14MW), Eildon (120MW) and Cairn Curran (2MW). However, it may have to divest itself of this interest because Edison also has interests in Victoria that may give rise to “regulatory issues” – presumably lessening competition. In addition, Contact owns 17% of a 282MW distillate and gas-fired power station under construction at Oakey in Queensland. Contact is managing its construction, and when it is completed in November 1999, will operate and maintain the station. It also has bought up retail customers in a big way. These include the retail operations of (to date):
It claims 345,000 retail electricity customers, making it second largest after TransAlta. That is 19% of the retail market and equates to 48% of the power it generated in the year ended 30/9/98. Added to that is gas retailing, where it bought the retail operations and brand name of Enerco from Christchurch’s Southpower (now Orion) to give it a total of 105,000 customers in Auckland, Wellington, Hawkes Bay, Horowhenua and Manawatu. Edison paid $1.2 billion for 40% of this. That compares with the next closest bidder, TransAlta, which reportedly tendered under $1 billion – perhaps as low as $800 million – for the 40% share (New Zealand Herald, 24/3/99, “Power of difference between big bids”, by Mark Reynolds), though TransAlta puts the difference at $200 million (Press, 30/3/99, “TransAlta $200m light”, p.22). Edison’s bid works out at $5.00 a share and puts a value of $3 billion on the whole company – double the $1.5 billion the government was reportedly hoping for. However, Contact’s book value at 30/9/98 was only $883,766,000, and it expected that to rise only modestly to $895,400,000 by the same date in 1999 and $911,300,000 in 2000. In other words, Edison paid about 3.4 times book value. Earnings were 13.3 cents a share in 1998, projected to fall to 10.8 cents in 1999 and 13.0 cents in 2000. Dividends are expected to be 7.9 cents, 8.7 cents and 10.3 cents respectively per share. So Edison is looking at earning less than 2% (tax considerations aside) on its investment unless it can radically cut costs (including investment – see below), raise prices, or find some efficiencies by grabbing more of the market. It is unlikely to be satisfied with that rate of profit for long, but none of those remedies seem likely to be sufficient – particularly if the New Zealand dollar falls. An extraordinary light was put on this scenario when, less than a month after the public share issue, Contact announced that its profit had nearly trebled to $54.4 million for the six months to the end of March 1999 – well above the estimates in the prospectus. All of the increase will go to the new owners, despite them having not owned the company when the profit was earned, because the government was paid a dividend before sale based on an estimate of the half year’s profit of about $36 million. The increase was due to high wholesale market prices, and a $23 million damages payment because the new Otahuhu B plant was not ready in time (last November). One explanation of the high price that Edison paid is that it was aware that profits would be higher than the investment statement estimated. However, the higher rate may well not be sustained, being inflated by the damages payments. According to Mark Reynolds, “Edison paid about 17 times the value of Contact’s earnings before interest, tax, depreciation and amortisation (ebitda) for the holding… Internationally, a company could be expected to pay 12-13 times ebitda for a company such as Contact Energy – but that would usually be to secure full control, not just a 40 per cent holding.” There is little surprise then that Contact will plough very little of its profits back into investment: it has announced a dividend policy of paying out an avaricious 80% of its profits in dividends, putting it almost down in the Telecom league for reinvestment. A major concern here interacts with another significant long-term problem with the reforms. If electricity generators compete as the government hopes, prices may be cut to the extent that there are insufficient funds or incentive to build new generating capacity in time for when it is needed. That will continue until a supply crisis forces up prices – but that may well hit consumers very hard and suddenly, and bring insecurity of electricity supply while the market waits for new capacity to be built. Contact’s policy of minimal reinvestment of profits adds to the risk of this occurring. Edison must sit on its current shareholding for six months before either selling or (as is expected) buying more shares on the market to increase its holding past 50%. That will presumably hold the price of shares higher than they would otherwise be. On the other hand, to the extent that the prices remain considerably under the $5.00 that Edison paid, purchasing more shares gives it an opportunity to dilute the price it has paid per share, lowering the pressure for higher profits. The high price Edison paid put the government in a dilemma. It had indicated a public issue price of $2.40-$3.00 for the remaining 60% of the company. At $2.40 it would be giving away the opportunity for literally doubling the price it would receive for the 60%: that works out at $936 million less available for debt repayment. At $3.00 the loss would be “only” $720 million. In the end it offered the shares at $3.10. The issue was heavily oversubscribed, implying a higher price could easily have been obtained. Effectively the government robbed the rest of the country – those who could not buy shares – of $680 million it could have obtained by selling the whole company at Edison’s $5.00 per share. Those who did buy shares had a handy windfall – 12.9% or 40 cents a share after the first four days of trading, by which time the share price had risen to $3.50. The Press (15/5/99, “Contact holders realise 13% gain”, by Gerald Raymond, p.21) valued the paper gain at about $36 million in the first week. Though shares fell below issue price a month later, these shareholders may well have a greater windfall when Edison enters the market. According to Brian Gaynor (New Zealand Herald, 15/5/99, “Govt should encourage local investing”, p.E2), overseas institutions bought 18% of the company, and “New Zealand/Australian institutions” a further 14.4%. Assuming 25% of the latter’s allocation went to Australia, Gaynor estimates that Contact was nearly 62% overseas owned on the day after the float. He estimates that half, or 65 million, of those overseas owned shares were sold to make a quick profit in the first three days. A further 39 million were also traded. The overseas investors’ windfall would have been $21 million – and some were sold before the institutions had even paid for them. The price was defended in terms of allowing thousands of New Zealanders to buy shares in what was formerly their – and everyone else’s – company. Those who responded did so with huge enthusiasm: Contact ended up with 227,346 shareholders according to its web site. Of these 99.87% or 227,040 had less than 5,000 shares, and were therefore likely to be individuals rather than institutions. They owned just 27% of the company. Yet this 6% minority of the population is likely to come from the well-off to wealthiest sections of our community. Why should they be favoured with a handout worth about $300 – the windfall profit on most share parcels after the first week’s trading – at a time when we are told cuts in government spending – which inevitably hit the poorer parts of our community hardest – are essential to reduce debt? That does not seem a sensible or equitable reason to reduce the selling price of the shares. It is money that should be benefiting the public purse. Neither will the lower price prevent the power price rises that are heralded by the share price that Edison paid: Edison still wants a good return on its high-price investment, and is in the driving seat. The small shareholders may well benefit from its desperation to raise the return on its $5.00 shares. As Gaynor says rather obtusely, “the high price/earnings ratio and low yield will become a concern only if the company fails to outperform its prospectus forecasts”. In other words, the company has to do considerably better than it has predicted if it is to keep its shareholders happy. Trying to mix a “cornerstone” shareholder with a public offering brings the worst of both worlds: high incentives to price gouge and skimp on investment, but a lower price to the country for the company than would otherwise be obtainable. As Gaynor points out, the public issue didn’t even maximise the local shareholding, as it gave preference to overseas institutions for a large percentage of the publicly offered shares. Even what local shareholding did come about may well disappear if Edison launches a full takeover. What the success of this share offering – and others like Auckland Airport – does show is that there is plenty of local money available for sound, productive investment. It is a pity it is being wasted on takeovers of existing assets at hugely inflated prices. So what is Edison Mission Energy that controls Contact, and may well end up owning all of it? Contact’s prospectus (p.27) describes it as follows: Edsion Mission Energy was formed in 1986 and currently owns interests in 55 projects, including 48 operating projects, five projects in construction and two projects in advanced development. In total these projects represent more than 13,400MW of capacity comprising 11,273 MW thermal plant fuelled by gas, oil and coal, 2,174 MW hydroelectric consisting of limited storage, run of the river and pumped storage and 1MW geothermal plant… Edison Mission Energy is a wholly owned subsidiary of Edison International Inc., a corporation with approximately US$25 billion in assets, which is also the parent holding company of Southern California Edison, one of the largest electric utilities in the United States. As of 31 December 1998, Edison Mission Energy had consolidated assets of approximately US$5 billion, total liabilities of approximately US$4 billion, and total shareholders’ equity of approximately US$958 million.” Edison Mission is therefore highly indebted itself – creating further pressure for profit-taking. The company is very active in the growing number of privatised electricity markets around the world. It has investments in the U.K., Spain, Indonesia and Australia, with a total 3,724MW outside the U.S.A. It is involved in constructing new projects in Indonesia, Italy, Puerto Rico, Thailand and the Philippines. Its involvement in Indonesia has led to investigation and criticism even by the Wall Street Journal (23/12/98, “Wasted Energy: How US Companies And Suharto’s Circle Electrified Indonesia. Power Deals That Cut in First Family And Friends Are Now Under Attack. Mission-GE Sets The Tone”, by Peter Waldman and Jay Solomon, p. A1). The Indonesian venture was the construction of the country’s first private power station. A joint venture between Edison Mission Energy and General Electric (GE) eventually won the deal after securing crucial contacts within the then ruling Suharto family and their close associates to get the project approved. Deals with the Suharto family and associated senior government figures included commitments to purchasing excessively priced coal supplies and boilers from companies associated with them, and giving some an essentially free share in the project. The company got President Suharto to personally approve its high prices. His successor, B.J. Habibie, then Research and Technology Minister, personally intervened to rescue the deal at one stage. There was no competitive bidding, and there is evidence that Edison overruled its partner, GE, to waive a requirement that its Indonesian partners sign a “no corruption” clause in the contract. The result was that the project, Paiton One, is one of the most expensive power deals of the decade, anywhere in the world. Adjusted for local purchasing power, Indonesia’s privately supplied electricity is 20 times the price of the U.S.A., 60% higher than the Philippines, and 30% dearer than Indonesia’s only competitively bid private power project. PLN, the state-owned electricity company, says that it doesn’t want to buy any electricity at all from the Edison-GE plant in 1999. The U.S. government, whose agencies provided loans for it, has been pressuring PLN to buy the power at the high contracted price. Though many Indonesian Government advisers, both local and foreign, argued the power wasn’t needed and was too expensive, Edison applied heavy political pressure to get the deal. Current and former US politicians lobbied for it, including former Vice President Dan Quayle, Clinton’s Treasury Secretary Robert Rubin, and former Secretaries of State Warren Christopher and Henry Kissinger, the last two as Edison-GE lobbyists. The deal was consummated during the 1994 APEC Leaders’ Summit, in Indonesia, personally overseen by President Clinton. And then there is Edison’s carefully nurtured environment-friendly image. Its Chief Executive, John Bryson helped start a law firm that lobbied U.S. corporations to adopt clean air and water laws, and co-authored a book criticising the way in which U.S. nuclear power plants handled their nuclear waste. He joined Edison in 1990. But the Sierra Club describes the company’s San Onofre nuclear power plant as “the worst, most destructive marine industrial facility ever constructed… It’s killed 20% of all the fish in the Southern California Bight – more than all the commercial fishermen in southern California”. Sierra Club’s Coastal Campaign Coordinator told the New Zealand Herald, “if I was New Zealand I wouldn’t let this company anywhere near my country.” A coal-fired power plant in the Mojave Desert of Nevada has also been attacked for its pollution of the air around the Grand Canyon, and the company had to write off US$18 million in Mexico after pollution from a power plant in Chihuahua caused problems (New Zealand Herald, 6/4/99, “Image of power greenie queried”, by Peter Huck, p.A11). Huck also quotes consumer groups in the U.S. describing sister company, Southern California Edison, as being “overly aggressive in hunting market share”, and “defending their desire to milk as much money from consumers as possible”. Its “modus operandi has always been to use its resources, its size and its political influence to beat up anyone who gets in the way.” The companies have benefited to the tune of several billion U.S. dollars through handouts given by the State Government in a deregulation process in California. Finally there is the issue of the several thousand hectares of land sold as part of the privatisation. There are 8,631 hectares of freehold land handed over as part the sale. These include areas surrounding major rivers such as the Clutha, and lakes, such as Hawea, which are treasured for recreational and environmental reasons. The long term issues of access and environmental effects have not been addressed in the sale:
In addition, there are 785 hectares of leasehold land – at Ohaaki Road Broadlands, Reporoa, Taupo; State Highway 1, Wairakei; and Te Rapa Dairy Factory, State Highway 1, Te Rapa, Hamilton, Waikato. Finally, 189 hectares of easements and licences at Aokautere, Manawatu are included. TransAlta buys out partners in Stratford power station TransaAlta Generation Ltd, 67% owned by TransAlta Energy Corporation of Canada through its subsidiary, TransAlta New Zealand Ltd, has approval to acquire Stratford Power Ltd from MEL Stratford/Fletcher Challenge Gas Power Ltd. Stratford Power Ltd owns the Stratford combined cycle power station at Stratford, Taranaki. The station is off East Road, State Highway 43, next to the Kahouri Stream. MEL Stratford/Fletcher Challenge Gas Power Ltd is owned equally by the Auckland Energy Consumer Trust (the owners of Mercury Energy’s lines operation, now called Vector) and Fletcher Challenge Ltd. The OIC records the prices as “to be advised”, but NZPA reported that TransAlta paid $80.3 million: $37.4 million to Fletcher Challenge and $42.9 million to Mercury (Press, 10/3/99, “TransAlta buys partners”, p.25). In our commentary on the August 1995 OIC decisions, we reported that a consortium of TransAlta Energy Corporation, Fletcher Challenge Ltd, and Mercury Energy Ltd had been given approval to build the power station. They had replaced the original approval, the previous month, which gave the station to National Power Plc, of the U.K. The gas-fired power station was the brainchild of Electricity Corporation, which put the station up for tender. It saw the sale of the project as a “major step in the creation of a competitive electricity generation market”. The station was expected to cost “approximately $380 million”. The station attracted controversy: it was the centre of protests by Greenpeace in August 1995, who objected to the annual 1.5 million tonnes of carbon dioxide emissions that would come from the station. The protests were aimed at disrupting the construction of the station. TransAlta had pre-emptive rights to the purchase of the two other partners’ shares (as with Mercury’s share of the Southdown station). It grabbed the opportunity in its bid to become a significant electricity generator: “From TransAlta Group’s perspective the proposal assists in the formation of a national base of generation assets for the TransAlta Group. The acquisition will augment TransAlta’s acquisition of Capital Power and Energy Direct’s investment in two electricity facilities as well as TransAlta’s existing generation assets.” Under the 1998 electricity industry reforms, TransAlta chose to sell its lines operations and concentrate on power generation and retailing. In doing so, it was counting on being the successful bidder for the “cornerstone” shareholding in Contact Energy, which has about 25% of the country’s generation capacity, in order to have a guaranteed electricity supply and price. It lost out to an extraordinary bid from Edison (see above), so it is trying to amass generation capacity by other means. By December 1998, it claimed it had 12% of generation capacity, including Power New Zealand’s stake in the 24MW Rotokawa power station, Stratford, and 47.5% of the 122 megawatt Southdown plant in Auckland, which is also operated by TransAlta and gas-fired. These give it 500 megawatts of generating capacity, and it also has two small generating plants at Silverstream Landfill and the Upper Hutt Leisure Centre. Since then it has purchased the small (32MW) and old (Second World War) Cobb hydro power station in Golden Bay, Nelson, for $84.1 million from Meridian Energy, the predominantly South Island split of ECNZ (TransAlta media release, 27/5/99, “TransAlta buys Cobb Power Station”). However, even with these purchases, TransAlta’s operations are still out of balance with its status as the largest electricity retailer, where it claims “approximately 555,000 electricity and gas customers. The electricity load of TransAlta’s customer base is approximately 8,000 GWh per year, equivalent to approximately 29% of energy sales and 32% of customers in the retail electricity market.” (http://www.transalta.co.nz/about/default.htm) Of these customers, 530,000 buy electricity in Auckland, Wellington and Canterbury, and 25,000 buy gas in Wellington (http://www.transalta.co.nz/industry/services.htm). The degree of imbalance is seen in the fact that while the company’s customers use 8,000 gigawatt-hours (GWh) per year, it generates only 4,200 GWh annually. It therefore must buy around half its electricity on the spot market or by contracting with competitors. This means that it will be putting the pressure onto the government for further privatisation of the electricity generating capacity present in the three splinters of the still state-owned ECNZ. Adding these factors to the enormous prices TransAlta paid for its customers outside Wellington must mean the company cannot survive in its present form without forcing up prices. And force up prices it did. In April it announced increases of 3 to 10% in Auckland, 5 to 10% in Wellington, and 13% in Christchurch (Press, 7/4/99, “Govt queries power charges”, p.1). It also introduced substantial new charges for previously free services, including reconnection, disconnection, and final reading fees. It also transpired that Southpower, under TransAlta’s ownership, had been switching off hot water cylinders over summer and autumn, not for the well-accepted reason of managing peak network loads in winter, but simply to save itself money. Particularly in Christchurch the news of the price rises received universal condemnation from all parts of the political spectrum, editorial writers, letters to newspapers, and community groups. The price rise even spawned new protest groups – though at least one in Christchurch had dubious credentials. It used its public support to join TransAlta in criticising Orion (the Council-owned lines company which was retained from the sale of Southpower), and to castigate the Council for not handing out the profits from the Southpower sale to reduce rates or power charges. It effectively wanted the Council to subsidise TransAlta’s prices. TransAlta initially blamed its price rise in Christchurch on Orion’s pricing. Spokesman Nigel Morris said the company had no choice but to increase power prices because of Orion’s “unfair and unreasonable” line charges. He did not explain why, if Orion was to blame, TransAlta had also increased its prices in Wellington and Auckland. He did promise that if Southpower changed its peak/off-peak pricing formula it would abandon its price increases. Orion had changed its formula to raise prices at times of peak electricity use and lower them at off-peak times. It insisted that its average prices had dropped by 1%, and produced Ministry of Commerce data to show its prices were below the national average, and in particular below Wellington and Auckland. It pointed out that TransAlta knew the score when it bought Southpower from it; indeed Orion’s managing director asserted that at the time of sale “Orion had consulted TransAlta over pricing to ensure prices would have no effect on residential customers”. Orion offered to abandon its peak/off-peak pricing scheme. TransAlta changed its line to blaming Orion for not dropping prices when it no longer had the cost of maintaining and reading the meters, which had been bought by TransAlta. Lines companies in other centres pointed out the same was true elsewhere. Orion responded by pointing out TransAlta knew all about the meters and Orion’s proposed charges when it bought Southpower, and launched an aggressive campaign to encourage consumers to switch from TransAlta to other, cheaper suppliers. These include the state owned Meridian, and First Electric which offered power 15% below Southpower’s pre-increase prices – and then raised prices 9%, following TransAlta’s lead. Retailer Trustpower (15.6% owned by Australian Gas Light, and 43.74% jointly owned by Infratil and Alliant International of the U.S.A. according to a company announcement on 12/4/99) also raised its prices saying: “A less fortunate feature of the purchases we made is that they were from local trust owned power companies with very low rates of return on their assets. In a number of cases this left unsustainably low energy margins which did not cover the cost of servicing the customer. TrustPower has moved quickly to correct this position in an open manner. Price rises, however even if from a low base, are not what the Government has promised …” (Company preliminary result announcement, 14/6/99. For more on TrustPower, Alliant and Infratil, see the commentary on Infratil below.) The only public figures taking pressure off TransAlta were government spokespeople. The Minister of Energy, Max Bradford, who had predicted in December that wholesale prices should fall 10% by April, remained sublimely confident that if consumers waited long enough, prices would begin to fall. He implicitly backed TransAlta by focusing his criticism on the lines companies, and particularly on Orion – happily ignoring the price rises by retailers throughout the country. He even was “prepared to wager a small bet” that prices would come down within a year. He didn’t say whether they would come down below their pre-reform levels. Confronted with responsibility for what was rapidly becoming a major re-election killer, instead of attacking TransAlta, he desperately tried to divert the debate by attacking Orion for profiteering, even though its target rate of return at 7% was lower than the government’s target for its transmission company, Transpower. He diverted further by complaining that the profits from the sale of Southpower should be used to reduce power charges or put aside for future Council debt rather than used, as the Council was proposing, for investment in new ventures. None of this was consistent with his pleas (in another context) for more investment rather than consumption. He was not helped by fellow senior cabinet member, John Luxton, Minister of foot-in-mouth diseases, blurting out that “it was not promised that householders would necessarily get cheaper power”. Luxton said “Christchurch residents should never have expected to get cheaper power bills from electricity reforms”. We modestly point out that we predicted price rises in our commentary on the OIC’s October 1998 decision to allow TransAlta to buy Southpower – though hadn’t expected support from John Luxton. Our only surprise is how quickly retail electricity prices have risen. We expected a decent interval to elapse to allow the government to claim success and allow TransAlta to consolidate its position before it raised its prices. It is interesting to speculate why it has happened so quickly. While TransAlta was in a bad position managerially, it was not in immediate trouble financially. Organisationally it was in strife: from the start of 1999, seven of its eight top managers resigned, and given another left had earlier in 1998, it had a completely new senior management team (Press, 26/5/99, “High turnover among TransAlta managers”, p.26). However, in cash terms the dealing due to the electricity reforms actually enabled it to pay off debt. It received considerably more from the sale of its electricity lines and gas network assets in Wellington (see below) than it paid out for Southpower and Power New Zealand’s retail operations, its increased generating capacity, and the costs of restructuring. It was able to repay debt of $237 million. Nonetheless, while it maintained its dividend, its return on total assets fell a third to 8.3% in the year to 31/3/99 compared to 12.8% the previous year, and the adjusted return on shareholders’ funds fell a quarter to 12.1% from 15.4%. The falls were primarily due the company’s increased shareholders’ funds and asset base according to its chairman, Derek Johnston (TransAlta media release, 27/5/1999, “TransAlta reports adjusted net earnings of $33.3 million for the year to 31 March 1999”). A more machiavellian explanation is that TransAlta wanted to force the government to regulate the lines companies, leaving the retailers and generators a freer hand to take profits. This is consistent with TransAlta’s unbelievable public explanation for its price increases: that it was the fault of the lines companies for not lowering their prices. It was in the knowledge that the government had already announced that it recognised the monopoly position of the lines companies and stood ready to regulate. And TransAlta explicitly challenged the government to regulate when defending its price rises. If that was TransAlta’s tactic, then it certainly has succeeded. Max Bradford introduced legislation into Parliament on 25 May, giving such powers to the Commerce Commission. He immediately ran into further trouble with his erstwhile brethren in pursuing privatisation and free markets, ACT, showing all the flexibility of their usual doctrinaire stance, in opposing the legislation on principle. But TransAlta would have been doubly happy: the legislation is unlikely to have any affect on retail prices (most line companies have declared price freezes anyway), and it leaves TransAlta with its price rises intact and other retailers following its lead. (References: Press, 5/4/99, “Power prices to rise 13%”; 7/5/99, “Caution on power fund urged”; 6/4/99, “Storm over power”, p.1; 9/4/99, “Heat put on TransAlta to cut price”, p.1; 10/4/99, “Orion plans price war”, p.1; 14/4/99, “Southpower switches off hot water”, p.1; 17/4/99, “Power price plea spurned”, p.4; 20/4/99, “Chch in for power bill rise”, p.3; 21/4/99, “Power gaffe upsets Nats”, p.1; 1/5/99, “More hit by SI power price rises”, p.4; 4/5/99, “Orion consults lawyers over claims”, p.6; 15/5/99, “First Electric raises prices”, p.1.) Australian Gas Light Company buys TransAlta’s Wellington gas network The Australian Gas Light Company of Australia has approval to acquire TransAlta New Zealand Ltd’s gas network assets and delivery point gas meter/regulator assets in the Hutt Valley, Tawa and Porirua for $112,000,000. Australian Gas Light owns one third of Natural Gas Corporation Holdings Ltd. The Natural Gas Corporation is doing to itself something similar to what the government has done to the electricity industry: it is splitting itself into generation, transmission, and distribution/marketing operations. They are gas processing and co-generation (tentatively called Taranaki Production Services), gas transmission (TransGas), and energy marketing and distribution (NZ Gas Light). The latter operator will be “approximately 67%” owned by Australian Gas Light, and wants to add TransAlta’s gas network to that of the Natural Gas Corporation. The Corporation has been working quickly to accumulate more of the gas retail market, including those operations of Powerco (New Plymouth), and BP’s share of Liquigas (see the OIC’s December 1998 decisions). In our commentary in OIC’s December 1998 decisions, we reported that the Natural Gas Corporation had received approval to acquire the WEL Energy Group Ltd’s electricity retailing business in Waikato. The Corporation has not been a large contender in the scramble to control electricity assets. In a sense it was forced to enter the market by Contact Energy, which purchased the Enerco gas retail operation from Southpower shortly before Southpower’s electricity retail operation was itself sold to TransAlta. Contact is therefore competing head-on with Natural Gas Corporation, but with a much larger number of customers. (Natural Gas Corporation had 42,000 customers in 1996; Contact 450,000, of which 105,000 bought gas, as of April 1999.) Paradoxically, Enerco is Natural Gas Corporation’s largest wholesale customer. The Corporation is the biggest wholesale gas supplier in the North Island. (Press, 20/8/98, “Lower interest charges key to sharp profit increase by NGC”, p.21; 16/10/98, “NGC seeks business”, p.31; 12/11/98, “Electricity attracts interest from NGC”, p.32; 7/12/98, “AGL looking for efficiency”, p.13; 30/1/99, “TrustPower issue to AGL”, p.23; New Zealand Investment Yearbook 1998, Datex, p.75; The New Zealand Company Register, Vol 35, 1996-97, p.74). TransAlta and Australian Gas Light have cohabitation arrangements in Australia: in November 1998, TransAlta became the second-biggest generator in Western Australia when it formed a partnership with Australian Gas Light called Southern Cross Energy. The company, in which TransAlta has 85%, bought four gas-fired power stations, nearly 5,000 km of transmission lines and 15 diesel generators from WMC Resources Ltd, a mining company, which will continue to buy the plants’ output. The natural gas will be supplied by the Goldfields Gas Transmission Pipeline, in which TransAlta has also owned a share since October 1998 (Globe and Mail, 28/11/98, “TransAlta takes No. 2 spot in Western Australian market”). Pacific Hydro, Todd Energy buy B of Plenty Electricity’s generators, retail Pacific Hydro Ltd of Australia and the U.S.A., and Todd Energy of Aotearoa have approval to acquire the electricity retail business and generating assets of Bay of Plenty Electricity Ltd for $100,000,000. This price is less than the book value of the assets. This is extraordinary: most electricity assets have been changing hands at several times book value. The remaining lines company, which remains with Bay of Plenty Electricity’s holding company, Horizon Energy Distribution Ltd, reported a loss of $5.93 million following the sale. This was because the assets were sold at $11.59 million below book value – though the chairman, Colin Holmes, described the price as a “very good result in the current market” (Pacific Hydro announcement, 18/12/98; Press, 12/6/99, “Horizon waits for $100m payout OK”, p.24). The OIC says that Bay of Plenty Electricity is owned 32.28% by Utilicorp United Inc of the U.S.A., 25% by the Bay of Plenty Electricity Consumer Trust of Aotearoa, and 42.72% in other shareholdings. However, the Press (ibid.) puts Utilicorp’s holding at 52%. Effectively, the transfer is from one overseas owner to another – but out of the hands of the local consumer trust. The purchase includes 420 hectares at Galatea Road, Black Road, Kopuriki Road and Pokairoa Road, Bay of Plenty. Once again, this sale is a result of the Electricity Reform Act 1998. Utilicorp – now calling itself United Networks – keeps control of the network assets, but has had to sell the generation and retailing operations, and did so by tender. According to Pacific Hydro, its new acquisition, which kept the name of Bay of Plenty Electricity, has a total generating capacity of 41 MW, plus a 50% interest in the 25MW Kapuni co-generation joint venture. These include the 25MW Aniwhenua hydro electric station, the 9.8MW Edgecumbe co-generation plant, and 6.5MW in two geothermal plants. It also has approximately 22,400 retail customers in the Bay of Plenty region (company announcements 18/12/98, and 31/3/99). Pacific Hydro is a relatively young company, listing on the Australian Stock Exchange in 1993. Its assets include the Ord River Dam hydro in Australia (completed in November 1997), which has a capacity of 40 MW. It also has built three small hydro schemes in Victoria, under incentives provided by the Victorian Government. It is involved in two hydro projects in the Philippines: the 70MW Bakun A/C, and the 68MW Tagoloan II. In each case, Pacific Hydro is in a consortium with Aboitiz of the Philippines and Pacific Corp of the U.S.A. (in the case of Bakun the consortium is the Luzon Hydro Corporation). Both schemes are still under construction, Bakun due for completion in 2000, and Tangaloan II in 2004. They are “Build, Operate, Transfer” projects, in which the private companies operate them for 25 years under preferential conditions and then return them to the Philippines Government’s National Power Corporation. The preferential conditions are “take or pay”: the National Power Corporation has to pay for all the electricity generated, even if it cannot use it (from Pacific Hydro’s web site, http://www.pacifichydro.com.au). Pacific Hydro’s largest shareholders are AMP Nominees (34.08%) and American Electric Power (AEP) of the U.S.A. (19.79%) (ref: Pacific Hydro web site: 20 largest shareholders as at 26/3/99, http://www.pacifichydro.com.au/shareholders.htm; and company overview, http://www.pacifichydro.com.au/overview.htm). It describes AEP as “a major US power utility with total annual operating revenues of more than $US1.7 billion from a total generating capacity of approximately 24,000MW at 38 power plants, that produce more than 120 billion kWh per annum providing energy to 2.9 million customers. Of these 16 are hydro electric plants with a combined capacity of 834 MW including 552MW of pumped storage….AEP has investments in the United States, the United Kingdom and China. Wholly owned subsidiaries provide engineering, consulting and management services around the world with offices in Columbus; Ohio; Beijing; China; Toronto; Canada; London; England; Singapore and Sydney, Australia.” (Company announcement, 6/2/98.) Lend Lease of Australia takes 25% of Morrison & Co, manager of Infratil Lend Lease Corporation Ltd has approval to acquire 100% of H.R.L. Morrison and Co. Group Ltd for a suppressed amount. H.R.L Morrison is the holding company for a group that manages – and hence substantially controls – the Infratil group, including Infrastructure and Utilities NZ Ltd. In fact, according to an announcement to the Stock Exchange, Lend Lease is buying only 25%, but has a right to increase its shareholding to 100% over a 5-year period (4/3/99, “Lend Lease invests in Infratil manager”). The purchase is not simply a passive investment for Lend Lease. The announcement says that “As a result of the purchase, Morrison & Co and the Infratil companies will become the focus of Lend Lease’s Australasian infrastructure activities. The Infratil companies will have preferred investment rights to any infrastructure development to be undertaken by Lend Lease in Australasia.” The Infratil group of companies consists of
Through its focus on utilities, Infratil, through Morrison, has, in effect, specialised in privatisations. Though Morrison claims expertise in a wide range of utilities, the skills it details are largely in takeover advice and financial management of these companies: valuations, pricing, and the like. It describes itself on Infratil’s web site (http://www.infratil.co.nz/index.html) as follows: Morrison & Co is a specialist infrastructure advisory house established in August 1988. The firm operates from key offices in Brisbane, London and Wellington with additional staff based in Melbourne and Sydney. Morrison & Co is a specialist advisor to major infrastructure industries including electricity, airports, ports, gas, railroads, water and wastewater. The firm has developed substantial technical expertise in the areas of restructuring and industry reform, utility-based corporatisation and privatisation, utility regulation and competition pricing policy, wholesale electricity market design and electricity contracting, utility pricing theory and project structuring and finance. For example, the company boasts of advising unsuccessful companies in the privatisations of Papakura’s water supply and New Zealand Rail, negotiating an agreement between Infratil NZ and the Rodney District Council to jointly investigate and assess the viability of a toll bridge/road project at Weiti River, north of Auckland (“if completed the project would be the first privately owned and operated road project in New Zealand”); and working with New Zealand Post on a tender for managing the privatised Argentine postal service. Infratil is a growing power in the transport and utilities sector in Aotearoa: Datex lists the following holdings for Infrastructure & Utilities NZ (April 1999):
The company recently sold shareholdings in Auckland International Airport, Ports of Auckland, Lyttelton Port Company and Enerco (company announcement 17/5/99, “Infrastructure & Utilities Preliminary Result”). In TrustPower, Infratil is playing a “trojan horse” role. It and Alliant of the U.S. (which owns 10.1% of Infratil, according to an Infratil announcement on 17/5/99) have formed an alliance. Between them they now have 43.74% of TrustPower, effectively giving Alliant control of the fourth largest electricity retailer after TransAlta of Canada, Contact of the U.S.A., and ECNZ fragment, Mighty River. TrustPower has 210,000 customers (as at April 1999), and 409MW of capacity, generating 1,750GWh of electricity (according to Datex and Infratil). Infratil and Alliant are continuing to increase their shareholding in TrustPower: in early June Infratil announced it was increasing its shareholding to give the two companies about half of TrustPower, and Alliant was trying to buy 14.98 million convertible notes from the Tauranga District Council. Infratil was willing to pay up to $6.00 a share, compared to the price at the time of $4.03 (Press, 9/6/99, “Infratil seeks TrustPower”, p.29). The statement announcing the joint venture with Alliant described the U.S. company as follows: “Alliant Energy Corporation was formed last year through the merger of three neighbouring US energy companies – IES Utilities serving Iowa, Interstate Power Company serving northern Iowa, southern Minnesota and Illinois, and Wisconsin Power & Light Company, serving Wisconsin and parts of Illinois. Alliant Corporation manufactures and markets electric energy from 18 generating facilities with a total output of nearly 5,000 megawatts, enough to light 1.5 million homes. It has more than 850,000 electricity customers and 360,000 natural gas customers and approximately 6,000 employees. Assets to year-end 1997 exceed $US5 billion.” (18/2/99, “Infratil signs JV agreement with Alliant”.) We described IES, when it first received OIC approval to enter Aotearoa in April 1996, as “probably looking at being another TransAlta or UtiliCorp, planning to buy some electricity generation or supply assets in Aotearoa. It could even be planning to build its third nuclear power station.” We weren’t too far wrong. Infratil’s stake in Wellington International Airport is through the holding company, NZ Airports Ltd, which owns 66% of Wellington International Airport. NZ Airports was originally owned 40% by Alliance Life Common Fund Ltd of the U.K., 20% by Foreign and Colonial Special Utilities Investment Trust Plc of the U.K., and 40% by Infrastructure and Utilities NZ Ltd. The NZ Airports consortium was put together to satisfy New Zealand First demands that the airport be majority New Zealand owned. With the Wellington City Council owning the other 33%, that was briefly achieved, assuming Infratil remained a New Zealand company. Infratil has now bought out its two partners in NZ Airports, exchanging their consortium interests for convertible bonds and warrants in Infratil (statement by Infratil Chairman to Special Meeting, 19/3/99). Infratil is now controlled by an overseas company, and has entered commitments making it likely the overseas ownership and influence will increase. So even New Zealand First’s modest gains – over which it broke up the coalition government and, in short order, itself – have been reversed. Infratil Australia’s main assets according to its web site are
Infratil International has been less successful. The company’s web site lists Infratil International’s holdings as
However, both of these are in trouble. In May it announced that it would have to sell out of the Airport Group – thwarting its aim of having investments in airports world-wide – because the Los Angeles-based company had agreed to sell its assets to British property and airports company, TBI. It would make a small loss on the sale. In addition, its Sea-Land project in Brisbane “was continuing to incur start up losses” (Press, 24/5/99, “Infratil Int rethinks future after AGI sale “, p.35). Lend Lease is described on Infratil’s web site as “an Australian based international real estate and financial services group operating in Australia, New Zealand, North America, Europe, Asia and South America. Established in 1958, Lend Lease Corporation is listed on the Australian and New Zealand Stock Exchanges and is one of Australia’s top twenty listed companies. It has a current market capitalisation of approximately A$11.1 billion… Funds under management total A$71.3 billion, with A$46.2 billion in property assets under management on five continents (as at 31 December 1998). Lend Lease’s global real estate investment management ranks as one of the largest in the world.” Lloyd Morrison, Executive Chairman of Morrison & Co, described the advantages Lend Lease would bring as “Lend Lease will enable Morrison & Co and the Infratil companies to become involved in the water and waste water sector, in rail and in greenfield infrastructure developments. Lend Lease was a successful co-developer of the Ord River Hydro scheme and the Tower & Appin coal seam methane power project. It is currently co-developing the BP co-generation project in Brisbane and is the preferred co-developer of the extension of Sydney’s Eastern Suburbs rail link to Bondi beach.” “Lend Lease also has several joint ventures with Suez Lyonnaise des Eaux in the water and waste water sectors. These include the development, ownership and operation of the Prospect Water Filtration Plant – one of the largest plants in the world – which supplies 80% of Sydney’s drinking water. Lend Lease is also co-constructor and will be co-operator of the Manukau waste water plant in Auckland.” What Morrison does not mention is the controversy surrounding the Prospect Water Filtration Plant in Sydney. In August and September 1998, Sydney was hit by giardia and cryptosporidium infestations in its water supply. For several weeks, all Sydney residents were advised by public health authorities to boil their water before use. The situation unsurprisingly caused a public uproar, with views expressed not unlike those during the blackouts in Auckland earlier that year. The commercialisation of Sydney’s water supply, creating the Sydney Water Corporation (with subsequent profit-grabs by the State Government), and privatisation of the operation of the filtration plants, were important elements of the controversy. The Sydney Morning Herald, for example commented (7/8/98, “The cash has already been spent”, by Murray Hogarth, Environment Editor, http://www.smh.com.au/news/9808/07/text/pageone5.html): “The story behind the crisis presently surrounding the biggest treatment plant of all, the $200 million Prospect facility owned and operated by Australian Water Services (AWS), is a cautionary tale. The old Water Board signed a secret contract late in 1993 for AWS to build the plant, which is being paid off over 25 years at a cost of more than $2 billion to water consumers. Despite expectations that the plant would stop 99.9% of giardia cysts and cryptosporidium oocysts, any duty to target the bugs was specifically excluded from the contract. Confidential papers reveal that early in 1993 the old board was being warned that it faced rising costs, legal action for damages and severe embarrassment for itself and the Fahey Government if the controversial private water deals were delayed. At that time the board held the powerful position of being both the proponent for the plants and the determining authority for its own environmental impact statements. There also was obsessive secrecy based on claims of commercial confidentiality. The board later refused to give a parliamentary inquiry access to all information about the contracts and top-secret government guarantees to the private bidders. The latest inquiry is likely to be told that AWS, a joint venture between the multinational private water company Suez Lyonnaise and the powerful Australian group Lend Lease, originally wanted to build a bigger and better plant. But that would have cost more, and insiders say Treasury was already upset. ‘Treasury kept saying “we do not want to build the treatment plants”,’ says Bob Wilson, the board’s managing director from December 1987 to April 1993. ‘Treasury thought that being a shareholder only meant dividends. It did not understand that you have to grow the company.’ As a compromise, Wilson says, Prospect and the other plants were designed to be easily upgraded. However, despite dramatically increased knowledge of the threats from cryptosporidium, in particular since 1993, there has been no upgrading. Now a microscopic pre-millennium bug in the city’s water has plunged the Carr Government, its Coalition predecessors, Sydney Water, Suez Lyonnaise and Lend Lease into bitter conflict, deep embarrassment and real losses. At stake are political and corporate reputations, the jobs of highly paid executives and a long-running marketing campaign that hyped Sydney’s tapwater as among the world’s best – good enough to bottle, too good to waste. So how could one of the biggest and newest water filtration plants in the world, built for one of the biggest water utilities in the world, by one of the biggest private water companies in the world fail to insure against a water scare of the size Sydney has just experienced?” Hogarth shows that the risks of contamination were well known, and that evidence for the problems had been around since at least 1993. He reports: “The old board’s project manager for Prospect, Bill Johnson, recalls that giardia and cryptosporidium were always on the agenda with the water treatment plant design team. They even designed a simple, inexpensive particle-size monitoring system to give an early warning if filtration was failing. ‘This stuff was thoroughly researched,’ Johnson says. But he says that when it became a commercial deal ‘it all became very secret after that’. So secret that the early-warning system disappeared altogether and has resurfaced only this week as one of the possible urgent improvements to make Prospect safe in the future.” While a subsequent Royal Commission of Inquiry into the Sydney water debacle found that the selection of AWS as the successful tenderer for Prospect “was done with honesty and without influence from any inappropriate source”, it made clear that cost-cutting led to low water standards: “As it happened, AWS offered the lowest price for the Prospect plant. When analysed appropriately, it offered a price which, over the 25-year term of the contract, had a net present value that was $40 million less than the nearest tender price, which was offered by the Wyuna consortium. At the time AWS was selected as the preferred tenderer, it had not proved its treatment process to the satisfaction of the Board’s technical assessment team. This problem was dealt with by AWS offering a guarantee to provide an alternative filter medium if its proposed sand medium could not meet the Board’s specified filter run times. In adopting this approach, the Board took a significant risk but, as it happens, no problems emerged. AWS was ultimately able to prove its technology. However, the process of selection was concerned more with obtaining the lowest price rather than ensuring the highest quality technology.” AWS insisted that, in terms of its contract, it did not have to treat for giardia and cryptosporidium to the intended standards of removing 99.9% of pathogens. The inquiry found that “there are indications that on occasions the plant will not achieve this level.” (From fourth report of the Commission of Inquiry, http://www.premiers.nsw.gov.au/publications/pubs_dload/sydwater/rep4/chap1.htm). Clearly, while Lend Lease’s partner, Suez Lyonnaise des Eaux of France (one of the two largest water transnationals in the world, and owner of Waste Care in Aotearoa – see our commentary on the OIC’s March 1998 decisions), claims its expertise as the reason that central and local governments should privatise their water supplies, it is unable or unwilling to apply that expertise if costs get in the way. And Lend Lease is happy to play along. Lend Lease Corporation is owned 74.72% in public shareholdings in Australia, 13% by LL (Lend Lease) Employee Holdings Custodian Pty Ltd, 7.56% by The Capital Group, Inc, of the U.S.A., and 4.72% by Merrill Lynch Asset Management of the U.S.A. H.R.L. Morrison and Company Group Ltd is owned 73.3% by the H.R.L. Morrison Family Trust (whose beneficiaries are members of Lloyd Morrison’s family) and 26.7% by J.M.L. Trust (whose beneficiaries are members of Liberato Patanga’s family). Sandhurst of Australia buys Eastgate Shopping Centre, Christchurch Sandhurst Trustees Ltd of Australia has approval to acquire the Eastgate Shopping Centre (formerly Linwood Mall) in Christchurch, including the six hectares of land on which it is built and will be expanded on to. The land includes some bought from the Christchurch City Council that is part of Cuba and Cranley Streets, which will be closed as roads. The remainder, on the corner of Linwood Avenue, Buckleys Road and Breezes Road, is from Southway Properties Ltd of Aotearoa. The price has been suppressed. Sandhurst “currently owns approximately A$386.7 million of syndicated property, where MCS Property Ltd is the manager. These properties are principally shopping centres located throughout Australia.” MCS will manage Eastgate. This approval “includes acquisition of the land and all fittings and fixtures, plant and equipment and chattels” on the land. It includes the existing shopping centre, but also “a mixture of residential properties and vacant land” for future development. Sandhurst is buying the property “for the purposes of creating an investment opportunity for investors in both Australia and New Zealand”. A float of Sandhurst is proposed in both Australia and Aotearoa. Argent of the U.K. buys remaining 18% of New Zealand Light Leathers Argent Group New Zealand Ltd, a subsidiary of Argent Group Europe Ltd of the U.K. has approval to acquire the 17.95% of New Zealand Light Leathers Ltd it does not already own. The Timaru-based company manufactures leathers for jackets and coats at the top of the market. Over half its output goes to the U.S.A. It employs 150 staff in the busy season. The OIC puts the price for the shareholding at $2,747,880. However, this was based on the original offer price of 255 cents a share (compared with trading at 230 cents). An independent report on the offer led to it being raised to 275 cents a share, making the price for the takeover $2.96 million. Independent directors and the chairman recommended accepting the offer saying prospects were not rosy. “It was difficult at the moment to secure a good supply of quality leather, the market was volatile and forecasts were hard to make”, according to the chairman, Spencer Hagen. The company was “one of the few listed tannery operations in the world”, according to the company’s managing director, and publishing its trading reports gave commercially sensitive information to competitors. Argent has seven other subsidiaries in the U.K., Europe, Turkey and the U.S.A. Argent Europe was formed in 1997 as a management buyout of a listed U.K. group, Hillsdown Holdings. A large U.K. venture capital company, CinVen, also has a major shareholding. Argent Group New Zealand Ltd is part of Argent’s Strong and Fisher Holdings, through which it holds its leather, hides and skins interests. (Press, 20/3/99, “British group moves to mop up NZLL”, p.21; 14/4/99, “Light Leathers bid raised”, p.29; 23/4/99, “NZLL shareholders told to accept”, p.31.) Weatherford of the U.S.A. buys business of Austoil Technology Weatherford US L.P., owned 94.7% by Weatherford International Inc and 5.3% by Franklin Resources Ltd, both of the U.S.A., has approval to acquire the business and assets of Austoil Technology Ltd, owned by Austoil Technology Unit Trust of Australia. The price is $15,755,770 and the assets are in the Taranaki/Wanganui region, involved in machinery and equipment manufacturing. “The acquisition reflects Weatherford’s intention to expand its current product line and business in the Pacific Rim regions, including New Zealand. The acquisition will benefit Weatherford’s existing New Zealand operations through the introduction of further technology and technical skills to the oil and gas industry.” Westech Energy buys Wairoa land for gas discovery appraisal Westech Energy New Zealand Ltd of the U.S.A. has approval to acquire nineteen hectares of land at Tiniroto Road, Maramaru, Wairoa, Hawkes Bay for $202,500 from Glyn Allan and Della Francis Waite. Westech, in a joint venture with Qest New Zealand Ltd (previously called Enerco New Zealand Ltd and owned by the Christchurch City Council’s energy company, Orion), has “over the last three years … conducted an extensive petroleum exploration programme in the northern Wairoa area. High quality gas deposits were found at the Kauhauroa-1 well. This well site lies immediately to the north of the Waite property. A number of appraisal wells are now planned, including on the Waite property.” The gas discovery was seen as a breakthrough for the area, and has attracted interest from other exploration companies. Chris Uruski of the New Zealand Institute of Geological and Nuclear Sciences Limited was “excited” at the find and stated in a news release (15/5/98, “Geologists excited about East Coast oil and gas prospects”, http://www.gns.cri.nz/news/release/may15excited.html) that “… the recent land-based gas find 10km north of Wairoa by Enerco and American-based Westech Energy was likely to be the start of exploration companies showing increased interest in the East Coast. He said offshore structures were generally bigger than those on land. Geologists had always suspected the East Coast had big potential, but it remained unexplored because there is less risk for oil companies to drill in proven regions such as the North Sea and the Middle East. The East Coast region is about 700km long and about 150km wide, with about half of it offshore. It extends out to ocean depths of 1500m to 2000m.” The Waites have a vineyard on the property, which will be continued under contract to Montana Wines. Westech is owned 44.58% by John and Julie Mork, 12.6% by Frank McCullough, and 11.04% by Ken Brill, all of the U.S.A. The remainder is held by the U.S. public. The parent company, Westech Energy Corporation, is based in Denver, Colorado. Davidson buys out two shareholders in Wharekauhau Station James Davidson of the U.S.A. has approval to acquire up to 50% of Wharekauhau Holdings Ltd, the owner of the 867 hectare Wharekauhau Station at Western Lake and Wharekauhau Roads, South Wairarapa. He previously owned 21.69% of the company, but is buying a further 28.31%, including 21.68% from Andrew Miller and John Sevo of the U.S.A. It appears the 28.31% will be purchased as follows: Andrew Miller (U.S.A.) – 38.5% Davidson is paying $984,894 for the shares. For further details on these characters, see our commentaries to previous decisions in November 1995, June 1996, August 1996, and January 1999, and “The Intriguing story of Roger Douglas and his unpleasant friends at Wharekauhau Lodge”, Foreign Control Watchdog, no. 84, May 1997, p.6-14. These associations provide evidence of Douglas’s links with the far right (including Davidson) in the U.S.A. and U.K. Inghams of Australia extends Waikato poultry farm Inghams Enterprises (NZ) Pty Ltd of Australia has approval to acquire eight hectares of land at 7481 State Highway 27, Matamata, Waikato for $1,200,000. The land, which neighbours Ingham’s existing poultry hatchery, will be used to expand its hatcheries. In March 1990, we reported “an Australian takeover of the poultry group Harvey Farms. Inghams Enterprises Pty Ltd is taking over all the assets of Harvey Farms Consolidated Ltd, Mount Grain Driers Ltd and J. M. Thomas Ltd. These were being sold off by Equiticorp as part of its liquidation. According to the OIC application, the Inghams Group is ‘the largest producers of meat and layer chickens, turkeys and ducks in Australia, with excess of 50% of the market. Inghams is not currently in the business of poultry production, processing, marketing and distribution in New Zealand and sees this acquisition of assets as an opportunity to expand its core business.’” In December 1995, we reported that Inghams had approval to acquire 59 hectares of land for manufacturing at Waitoa, Waikato, “to extend their present processing plant at Waitoa. Inghams view the expansion as a necessary part of its investment in the poultry industry in New Zealand in which they have expertise. Inghams estimate that the expansion of the plant will provide for employment of a further 30 people.” In July 1997, Inghams gained approval to acquire 67 hectares of land at Leslies Road, Putaruru, Hamilton, Waikato, for $580,000. Inghams intended to “utilise the property as an extension of their existing poultry operations”. In September 1998, Inghams received approval to acquire 234 hectares at Whakamaru, near Taupo, Waikato for poultry farming. At that stage, Inghams owned approximately 184 hectares of land throughout New Zealand. GMO, Rayonier buy 5,537 ha forestry rights, Te Awahohonu Forest, Napier An unincorporated joint venture between GMO Renewable Resources LLC and Rayonier Inc, both of the U.S.A., has approval to acquire 5,537 hectares of forestry right at Te Awahohonu Forest, approximately 70 km north west of Napier, Hawkes Bay from the Te Awahohonu Forest Trust which “represents the interests of approximately 800 Maori shareholders”. The price has been suppressed. The forest, which was planted in pinus radiata between 1972 and 1984, is “currently subject to a lease agreement with the Crown, whereby the Te Awahohonu Forest Trust owns the land and is also the beneficial owner of a 25% interests in the pinus radiate plantation… the Trust will use part of the proceeds from the sale of the interest in the trees to buy out the Crown’s interest under the lease.” “It is proposed that the Trust will sell to the GMORR/Rayonier Joint venture an undivided 50% share of its interest in Te Awahohonu Forest’s pinus radiata plantation and grant to the GMORR/Rayonier Joint Venture a forestry right in respect of that 50% share in the trees. The GMORR/Rayonier Joint Venture will then form an unincorporated joint venture with the Trust for the purpose of harvesting and marketing the trees. The GMORR/Rayonier/Trust Joint Venture will appoint Rayonier to manage the harvesting and marketing of forest products and associated administration activities on its behalf. All other management, forest re-establishment activities and future harvesting and marketing will be performed by the Trust.” GMO Renewable Resources bought the historic 5,899 hectare Glenburn Station in Wairarapa in May 1998, amid considerable controversy. In that decision, GMO was described as “an investment fund which is currently being organised to make investments in timberland and related businesses and assets. The limited partners of ‘the Fund’ are expected to be large United States based institutional investors, including corporate pension funds, charitable foundations and university endowment funds along with certain natural persons who possess a high net worth.” It is a subsidiary of Grantham, Mayo, Van Otterloo and Co., LLC, which is a major shareholder in Tasman Properties Ltd (Rural News, 20/7/98, “New Zealand for sale!”, by Ross Annabell). Rayonier is the third largest plantation forest owner in Aotearoa, according to the New Zealand Forest Owners Association, with 98,000 hectares in June 1998 (“NZ Forest Industry Facts & Figures ‘98”, p.5). Waihi Gold buys further land to “buffer” extended Martha Mine Waihi Gold Company Nominees Ltd, which is 67.06% owned by Normandy Mining Ltd of Australia and 32.94% by AUAG Resources Limited (equally owned in Australia and Aotearoa) has approval to acquire a further 0.7 hectares of land at Baxter Road, Waihi, Coromandel for a swap with “another property of the same area” plus $3,712. The land is being purchased from Arthur Farms Ltd of Aotearoa. “The company is proceeding with an extension to the Martha Mine that will have the effect of extending the life of the mine for about an additional seven years beyond the current estimated life of the mine of 1999. This extension involves enabling access to be obtained to ore below the level of the currently licensed pit. To reach this ore it is necessary to bench back (or extend) the perimeter of the existing pit, and the additional land is required for this, and to provide a sufficient buffer between the extended mine and surrounding residential uses. Previous consents have been granted by the Commission for the acquisition of such land. The land the subject of this application is currently used for dairying. It is directly adjacent to the extended Martha Hill mine licence area, and will be required as a buffer for the extended project.” The last such purchase of land for the mine was in February 1999. Trevone of the U.S.A. buys Takanini land from Carter Holt In a decision unusual for the material that has been suppressed in it, Trevone Holdings Ltd, which is owned in the U.S.A., including 80% by the Craig Corporation, has approval to acquire six hectares of land on the corner of Great North Road and Walters Road, Takanini, South Auckland. The land is being purchased from Carter Holt Harvey Ltd, 51% owned by International Paper Company of the U.S.A., for $6,000,000. The business activity involved, some details of Trevone, and the rationale for the approval have been suppressed. Reorganisation of ownership of Queenstown residential development Quail Point Syndicate, which is owned 40% by David Salman of Indonesia and 20% each by C.J. Clough and family of Hong Kong, and David Benjamin Broomfield and B.E. Washer of Aotearoa, has approval to acquire Quail Point Ltd which owns 17 hectares of land at Tucker Beach Road, near Queenstown, Otago. The price is “to be advised”. They have approval for a residential subdivision of the property. The transaction is largely a rearrangement of ownership, the vendor being David Broomfield (80%) and the Broadhaven Trust (20% – the Broomfield family). In the August 1996 decisions we reported that the syndicate had received approval to buy the land for residential subdivision, for $480,000 from D.B. and E.H. Broomfield. The Syndicate was then comprised of B. E. Washer of Aotearoa, The Broomfield Trust, a family trust of Aotearoa, The Kwan Trust, the beneficiaries of which are Mr Clough a New Zealand citizen, Mrs Clough of Hong Kong and her immediate family who are all overseas persons, Mr D. Salman of Indonesia and Mr W. J. Frost a citizen of the U.S.A. residing in Indonesia. In November 1997, says the OIC, the Syndicate sold the land to Quail Point Ltd “as part of an agreed rearrangement while the proposed development was subject to development and planning hearings”. It is not clear why such a sale was required. They now wish to return the land by selling the company back to the original syndicate, except that W.J. Frost has sold his interest to Salman. The Quail Rise subdivision is at Frankton near the Lower Shotover Bridge. It is divided into 31 sections from 1,200 sq. m. to around 6,000 sq. m., priced at around $89,000 each. A number are selling to Asian investors seeking to place their money in a safe haven (National Business Review, 20/11/98, “Southern sections sell like hot cakes”, by Chris Hutching, p.73). Several of the parties are involved in Woodlot Farm Ltd, which is a Singapore/Indonesia owned company involved in a golf course and housing development near Queenstown. It is owned by Shotover Golf Estate Ltd which is owned 35% by P. Fong of Singapore, 35% by D. Salman of Indonesia, 15% by D. and E. Broomfield of Aotearoa, and 15% by B. Washer of Aotearoa. Shotover owns approximately 81 hectares of land near Queenstown (see for example our commentary on the September 1993 decisions). Salman also is involved in developing and selling off part of the Closeburn Station near Queenstown (for the latest such sale, see December 1998).
U.S. resident with “fetish” for new breeds buys third block of Taihape land Willow Bay Company Ltd, owned by David Dean Smith of Oregon, U.S.A., has approval to acquire a 315 hectare farm at Kaweka Road, Taihape, King Country for $400,000. Smith obtained consent to buy his first farm in Aotearoa in April 1998 for $375,000. He said then that he intended to run the 86 hectare property “as a sheep/cattle farming unit running approximately 850 stock units” and to develop it to carry at least 900 stock units. “Mr Smith has extensive knowledge and expertise of the Simmental pedigree, Arubrc Stud and Brahman Cross cattle breeds” which he intended to develop. He would employ a farm manager for the day-to-day management and operation of the property. In July 1998, Smith gained approval to acquire a nearby property in order to keep mating bulls apart and thereby enhance their mating “efficiency and productivity”. He bought 11 hectares of land at the corner of Paengaroa and State Highway One, Taihape, for $128,000. It included a house “which is able to be utilised in conjunction with the 86 hectare cattle farming unit” about 1.1 km away. The present acquisition is because “the carrying capacity of those existing properties is only 1,000 stock units and even with a nil debt it is impossible to make those holdings an economic venture”. The new property, which is a sheep farm, adds up to 2,600 stock units, and “facilitates the diversification” of Smith’s farming business. While “recognising that sheep farming is probably at its lowest economic return ever, but having a fetish for introducing new strains and breeds of animal, the applicant is enthusiastic to become fully involved in the breeding of existing breeds and also exotic sheep”. He wants to “introduce East Friesian Rams with the Romney ewes on the property”. He “also wishes to introduce an exotic breed known as Romanov ram, which emanates from Russia and will come out to New Zealand via the U.S.A. The breed is of super high production, but on account of New Zealand’s quarantine requirements, will take at least five years to be able to be properly introduced to New Zealand. The proposed acquisition will enable the applicant to develop his expertise in sheep farming during the intervening period.” Australian owners of Waikato duck farm restructure Guiseppi Bonaccordo of Australia, through his company Bonenzio Pty Ltd, has approval to acquire another 12.5% of a Cambridge, Waikato duck breeding and processing facility he owns with two other Australians, Mark Keith Forster (through Ilenzio Pty Ltd) and Lloyd Richard Ilett (Forsenzio Pty Ltd). The ownership was formerly 75%, 12.5%, 12.5%; it will now be 87.5%, 6.25%, 6.25%. The joint venture owns eight hectares of land at 346 Orepunga Road, Horahora, RD2, Cambridge, Waikato. In July 1998 we reported the acquisition of the land. It was the result of the falling out of a 50/50 joint venture approved by the OIC in September 1997 between Australian and New Zealand partners. “Rather than embarking upon protracted litigation” after “substantial disputes”, they agreed that the Australian syndicate or its nominee would purchase the remaining 50% interest in the business. Netherlands company buys land to grow capsicum for export A joint venture equally owned by Alexander Cropping Ltd of Aotearoa and J.M. Levarht and Sons (which is owned by the Levarht family of the Netherlands), has approval to acquire 21 hectares of land at Woodcocks Road, Streamlands, Warkworth, Northland for $618,750. Initially a 2.5 hectare greenhouse will be built on the land, which is ten minutes drive away from Alexander Cropping’s current one hectare greenhouse. The greenhouse will be used to grow capsicum, mainly for export. “These markets are very large on the world scale and New Zealand has the opportunity to use its advantages of southern hemisphere location to slot into Levarht’s world wide distribution chain. It is claimed that this type of development is the future for New Zealand horticulture by combining New Zealand’s ability to grow product and using an international company to market our products.” Which is exactly what our dairy industry has successfully avoided to ensure the producers don’t lose their returns to marketers and traders. “Currently the export season for Levarht ceases as soon as the Dutch growers stop their yearly production. By having production facilities in New Zealand, Levarht can continue their exports during the Dutch winter.”
E.C. and H.D. Sims of the U.S.A. have approval to acquire ten hectares of land at State Highway 8, Gibbston, approximately 25 kilometres east of Queenstown, Otago, for $183,375. They intend to develop the land (currently fallow) into vineyard and eventually live permanently on the property. H.D. Sims has permanent residency status, and “has been involved in the operation of vineyards, orchards and farm management in the U.S.A.”. E.C. Sims “is in the process of applying for permanent residency”. |
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