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BusinessDesk: MightyRiver wasted $100mln looking for gas, CEO says; 'Would have stopped sooner if private'

BusinessDesk: MightyRiver wasted $100mln looking for gas, CEO says; 'Would have stopped sooner if private'

By Pattrick Smellie

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.

'We expect higher price rises sooner than the rest'

Meanwhile, 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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" 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."


Explains a very great deal about L, eh, folks???


Maaarket Baaad, Spreading the Weaaaalth Gooood...


My reading between the lines.

"If we're listed we can focus our time on manipulating the short term share price and make our decisions accordingly rather than base them on sound prudent management/business fundamentals/risk and return etc.  We can fatten our pockets more."


Public Company

- NZX Fees

- Management Consultant Fees

- Accounting/Audit Firm Fees

- Professional Board Fees

- Investor Relations (Share Price Spin) Department

- Share Registry Fees

- Spending an Annual Report to everybody with 1,000 share fees

- AGM Expenses

- Executive & Board issuing thousands of shares to themselves

That aside with 51% the SOE is still the play toy of politicians. The tail is not going to wag the dog!! When whomever gets to vote the shares for Directors in and out and Directors Fees in the Beehive, it will come down to a political cycle, have you opened a call centre in my electorate...

Also the Gov't is committed to sucking the Dividends out of these companies so what happens if they want to issue more shares for major acquisitions? These are zero growth yawn companies...


A few examples of great corporate governance once they are public companies:

Fay Richwhite and Tranzrail- asset stripped until the government had to buy back in; with the infrastructure massively impaired. (and Messrs Fay and Richwhite off in Switzerland with the profits, thank you very much.)

Brierleys and Air NZ- failed Heffernan's test of pulling out early of a bad investment; along with pretty much every other investment they made.

Fletchers and everything- but certainly Petrocorp- which the government gave to them for free when tax losses were taken into account.

Telecom and the Americans.

No doubt many more examples.

Heffernan should actually be apologising for overseeing the very large derivatives loss just made, and which he's overseen. Its hard not to suspect that he's looking for some sort of share package upside in a float, over and above his current $1.5 million pakage, so he is massively compromised in offering any opinions on the matter. If he commits to no such package, then I take it back.

Given the above examples its mind boggling that we are heading down the same path.

If we insist on doing so, MRP should be at least a 20 -30 times multiple of EBITDAF, given it's in a cosy oligopoly, with a guarnteed market, and price increases forever for no particularly good reason. MRP should therefore give more than Bill English's guess of the $6 billion for all the asset sales all on its own.

Would make you laugh if you didn't want to cry.




Heffernen should be sacked based on his comments. If he was not in charge at the time, who was? Either it was a good idea or it wasn't . To sit there and distance himself from dicisions that he was party to in such a manner should require his removal from the job now.

So if it was a waste- why did he spend the money. Why didn't he stop it. Does he have proof of any of this- board minutes ec.

It all sounds pretty bad to me.