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MightyRiver wasted $100mln looking for gas, says CEO

Thursday 5th April 2012

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State-owned MightyRiverPower wasted around $100 million on an unnecessary hunt for natural gas in the last decade, its chief executive Doug Heffernan told the commerce select committee.

He was answering questions from Labour MP David Cunliffe for examples of decisions the company might not have made, had it been partially privatised. The government is planning to sell a minority stake of up to 49 percent of MRP later this year in a sharemarket float.

Cunliffe and colleague Clayton Cosgrove peppered Heffernan and MRP chair Joan Withers with questions designed to demonstrate the company has operated no differently than it would have as a private listed owned company, despite its government ownership.

Withers, who also chairs NZX-listed Auckkland International Airport, said the main difference was the day to day scrutiny of financial market analysts, and the ability to see a market valuation immediately passed on major decisions, rather than working to a theoretical valuation – a difference dismissed as minor by the Labour MPs.

Asked to nominate decisions that would have been made differently, Heffernan volunteered the company should not have spent around $100 million searching for natural gas in the mid-2000’s, when its subsequent strategy has seen the company concentrate instead on geothermal generation.

“We should have stopped earlier, or not started at all,” said Heffernan. “Under private sector disciplines, we would have corrected much faster. From my experience, in a listed company environment, that would not have happened.” MRP should also have exited its involvement in small-scale landfill gas plants, which were at too small a scale to fit with the rest of the company’s operations.

Cunliffe suggested such decisions were “at the margin”, prompting Heffernan to suggest he was “sure there are other skeletons.”

Withers described partial privatisation as “a natural evolution for a high-performing” company, assuring Cosgrove that “we continue to strive, Clayton”, when he questioned whether MRP would really perform better with private shareholders.

Genesis Energy’s chair, Dame Jenny Shipley, took a different approach in the select committee’s next hearing on the performance of energy SOEs due for partial privatisation.

Since Genesis already had listed corporate bonds, it was performing to the disclosure requirements of the NZX, although chief executive Albert Brantley noted the company received little investment house research coverage.

Shipley refused to be drawn to make comment on the decision whether or not to partially privatise, saying “there are material arguments, one could argue, but it’s not appropriate that I do so.”

Cunliffe then pressed on the most appropriate timing of a Genesis float, given the relatively poor financial performance in the year to June 30 last year, which she also dodged, but to observe that half year earnings to Dec. 31 were considerably improved.

Brantley revealed also that Genesis expects higher average electricity prices in the short term than many of its competitors, which he said were expecting soft prices in the short term, and an “aggressive” increase over the longer term.

Heffernan also told the select committee that its competitor, Meridian Energy, has chosen MRP’s award-winning prepayment service, Glo-Bug, service for customers in Christchurch.

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