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Business leaders issue plea to Labour-Greens on power

Thursday 2nd May 2013

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Ten representatives of New Zealand industry, including the lobby group for the biggest power users, are asking the Labour and Green parties to withdraw their interventionist, new electricity policy.

Describing the country's current arrangements as "one of the increasingly competitive electricity markets in the world", the Business New Zealand-led initiative asks: "With the good of all New Zealanders in mind we ask you to withdraw these damaging policies" which would "severely undermine business confidence."

The open letter signed by the leaders of 10 business lobby groups, the Major Electricity Users Group, the mining industry lobbyist Straterra, and numerous regional affiliates of Business NZ, the country's largest business lobby group.

The letter was published shortly after Greens co-leader Metiria Turei called separately for the government to halt further asset sales. He said reported approaches to major investment houses about joint lead manager roles for the partial sale of Meridian Energy and Genesis Energy was inappropriate.

It effectively means business leaders, including major power users, would rather pay more for electricity than they would under the Labour-Greens scheme, which they fear will return New Zealand to policies the letter says have failed in the past. It would also have a "chilling effect" across the economy, costing jobs, because it would destroy around $3 billion of value in the electricity industry, both private and government-owned.

The Labour-Green policy would abandon the current wholesale electricity market arrangements, developed over the last 25 years and believed by many to have produced higher than necessary power prices. Instead, it would set up a central government agency to buy all electricity and resell it to retailers and major users, regulate the industry, and decide when to build new power stations.

Such policies "have been shown to be incapable of meeting the challenges of a modern economy with a complex, real-time electricity market," the open letter says.

"Putting aside the sheer complexity of their implementation, policies that protect businesses from the full costs of the inputs they use ultimately dull the incentive to innovate and make them less, not more internationally competitive.

"Reducing retail prices below the full marginal cost of production encourages households to use more than they should."

"Business shares your concerns about constantly rising power prices and their impact on our global competitiveness", but did not believe "policies based on subsidies and greater state control are the right answers," the letter says.

That approach "causes interest rates to rise, depletes retirement savings held in KiwiSaver accounts and means that other economic opportunities ... are foregone. Individuals are less well-off as a result."

In her statement, Turei said: "National's rush to sell the three electricity SOEs before the end of the year is anti-democratic, financially unsound, and will leave retail investors exposed when NZ Power reduces electricity prices."

The Labour-Greens policy is thought likely to have dimmed investor appetite for the MightyRiverPower share float, retail investor registrations for which close tomorrow.

However, Wellington investment house Woodward Partners this week predicted an issue price of $2.60, near the middle of the $2.35 to $2.80 range nominated when the MRP prospectus was released on April 5, and placed implementation of the new policy as only the 10th most significant business risk MRP faces.

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