Delay To Mighty River Sale A Threat To Infrastructure Potential
The New Zealand government has announced that it will delay the partial sale of state electricity utility Mighty River Power as it needs additional time to consult with the indigenous Maori people over their claims on the water resources used by the utility. BMI believes that this delay to the sale of Mighty Power is in line with our view that additional delays could come from the New Zealand Maori Council. Furthermore, we believe this delay will have a negative impact on the government's infrastructure plans.
This decision means that the sale of a minority stake in Mighty Power, originally scheduled to take place in the third quarter of this year, will only occur sometime between March and June 2013. The sale of Mighty Power, valued at NZD1.8bn (US$1.4bn) was supposed to be the first of several state assets to be partially privatised by the government in 2012, with the other assets being the coal mining company Solid Energy, power companies Genesis Energy and Meridian Energy, and majority-owned national airline Air New Zealand. With this delay, the government is now planning to offer shares for Genesis Energy and Meridian Energy by the end of 2013 or early-2014.
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This delay to the sale of Mighty Power is in line with our view that additional delays could come from the New Zealand Maori Council, an organisation that represents the Maori tribal groups (see our online service, July 31, 'Potential For Further Delays In Mighty River Sale'). The council has long threatened to mount a legal challenge to the stake sale if the government ignores their claims and we believe this is the primary reason behind the government's decision to delay the sale. As there are deep divergent views between the government and the council over the rights to the water resources used by Mighty Power - the New Zealand government is holding to the view that no one owns the water resources and is unwilling to grant preferential rights to the Maori people in the stake sale - we believe that further delays such as a lengthy legal battle in the New Zealand High Court cannot be discounted.
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The delay to the partial sale is expected to cost the government up to NZD10mn, but more importantly, we believe that the delay will have a negative impact on the government's infrastructure plans, dampening project opportunities in New Zealand (see our online service, May 31, 'Budget Highlights Demand For Private Participation'). The government's poor fiscal position means that its ability to finance its infrastructure plans is heavily dependent on the amount of proceeds it receives from the partial stake sales, and this delay to the first of several planned divestitures could force the government to reduce or delay the scope of its infrastructure plans.
To compound the problem, we believe that the other asset sales besides Mighty Power are unlikely to raise the funds expected by the government due to deteriorating market conditions and poor investor sentiment (see our online service, August 23, 'Obstacles To Revenue Projections Likely To Increase'). Many of the state companies are facing pressures on the revenue side, making them less valuable.