PM Key downbeat on Solid Energy's future after Korda Mentha report arrives; says it probably has no equity and he expects banks will have to take haircuts on debt

In this instance we are talking about critical infrastructure assets - grow up

Who is going to rescue this outfit once those playing with it are finished?

Powerco, for example, is a highly profitable business but has paid next to no tax for the last three years. Here are the numbers.

In the nine months to March 2012, Powerco reported earnings before interest and tax of $79.6m. The previous year to June its ebit was $118m and the year before that it was $136.3m.

Nevertheless, over those three years Powerco had an interest bill totalling $465m, which converted those operating profits into huge losses and obliterated its tax bill. Indeed, Powerco reported a net tax benefit for those years of $32m.

The arrangement is beneficial to Powerco's owners - Brookfield and Queensland Investment Corporation - because more than a third of the company's debt is related party, allowing owners to extract profits from the business as interest while paying no tax.

There are tax rules designed to limit the ability of overseas owners to do this, known as thin capitalisation rules, but Chalkie reckons they have been as useful as a fart in a fishtank.

For example, Powerco's debt at the time fell well within the allowable ratio of debt to total assets of 75 per cent, but that did not seem to hinder its ability to create large tax losses.

Another overseas-owned lines company, Wellington Electricity Distribution, has an even higher proportion of related-party debt than Powerco and in Chalkie's reading of its accounts has paid no company tax at all since its sale by Auckland-based Vector in 2008.

The tax losses came despite healthy profits at ebit level of close to $50m a year.

Wellington Electricity Distribution, incidentally, is owned by Hong Kong-based Cheung Kong Infrastructure through a holding company in the Bahamas.

From last month the thin capitalisation threshold has fallen to 60 per cent.

It will also be interesting to see whether the NDRC gets in the way of future New Zealand transactions. For now, Chalkie reckons anyone who sees no difference between overseas and local buyers needs their head read.

"stand-by unused plant costs $s but it's essential"

True that it costs money.  If it's fossil fuel based it also costs carbon, since it has to be already running in order to be able to supply power at short notice in case others fail.

It's essential - that is not an absolute but a relative statement.  100% security of supply 100% of the time is not practically feasible.  So it is a matter of deciding how much we are willing to pay, and for how much security.

Thus, if there were (let us say) a 0.0005% chance that power would not be available to 100 consumers for ten minutes once every ten years, we probably wouldn't think it worth spending $10000000000000000 to reduce that probability to 0.0002%.   But if by spending $100 we could reduce the risk of a nationwide blackout from 50% to 10%, we'd probably think that was money well spent.

Those are made-up figures, obviously.   Your post implies that you know what the real figures in New Zealand's case are - what is the probability of power black outs, how often, how large and how long; and what would be the cost of reducing that probability, and by how much.   Perhaps you'd share that information with us?   Then we can have a better informed discussion about whether the level of security of supply we currently have is high enough, and whether the cost of improving it is a cost worth bearing.