Bernard Hickey says the government is hoping households and voters won't notice the impact of some big decisions that favour Chorus and Meridian

Bernard Hickey says the government is hoping households and voters won't notice the impact of some big decisions that favour Chorus and Meridian

By Bernard Hickey

The government made two big decisions this week that will boost corporate profits and keep some jobs at the expense of not passing on lower prices to every New Zealand household.

These inflationary decisions will also pump up the pressure for higher interest rates slightly sooner than later, which would increase borrowing costs for many households and businesses.

Firstly, Communications Minister Amy Adams over-ruled the Commerce Commission's move announced in December to cut the cost of regular 'copper' broadband by as much as NZ$12/month.

Instead, prices will fall between NZ$2.48 and NZ$7.48 a month, meaning New Zealand's 1.25 million broadband households will miss out on as much as NZ$140 million a year in reduced broadband charges.

Falling phone charges, internet connection fees and mobile phone charges have been a significant factor dragging down overall inflation over the last 7 years. Statistics NZ figures show overall telecommunications costs have fallen 15% since mid 2006.

This helped offset a 40% rise in electricity costs over the same period.

Adams argued that a smaller cut in copper broadband prices would help give Chorus and others the certainty and the incentives to keep investing in and rolling out the new Ultra Fast Broadband optic fibre cable, which the government itself has pumped NZ$1.35 billion into.

The danger for Chorus was that under the Commerce Commission ruling copper broadband prices would be much lower than the optic fibre broadband prices, reducing the incentives for households to switch.

Chorus' profits would also be much lower under old plan so Adams' decision to over-rule the regulator was welcomed by shareholders.

The value of their shares has risen almost NZ$300 million over the last month in anticipation of this decision.

The second government decision this week to benefit shareholders and some workers at the expense of consumers in general was NZ$30 million payment to Rio Tinto and Sumitomo to keep the Tiwai Pt smelter open until at least 2017.

It argued this is a small price to pay to keep 3,200 Southlanders employed and pumping NZ$1.6 billion a year into that regional economy for that next three years.

The income tax and GST generated will dwarf that one-off upfront sweetener.

But at what cost to consumers?

Analysts have forecast that a Tiwai Pt closure could reduce wholesale prices by anything from 10% to 30%.

How much of that might be passed on to consumers is anyone's guess, given the variables of transmission costs and just how competitive the retail market is.

But even Meridian CEO Mark Binns said his modeling showed a significant reduction in prices for consumers.

Binns also said the government's decision would be viewed positively by investors and hinted at significant increase in Meridian's value when it releases results on Monday.

Even a 5% increase its value would be worth NZ$300 million.

Meanwhile, a 10% reduction in retail electricity prices would cut costs for New Zealand's 1.7 million households by about NZ$290 million.

Governing is always the art of balancing off competing interests to maximise the well being of all New Zealanders, or at least to get re-elected. But this week the government came down on the side of the short term interests of specific groups, rather than the longer term benefits for all consumers, essentially hoping that voters wouldn't notice.

Chorus shareholders, power company shareholders and workers in Southland have benefited from higher share prices that could be worth over NZ$600 million, while power and broadband consumers now won't see the benefits of price cuts worth over NZ$400 million a year or about NZ$4.50 per week per household.

Meanwhile, the Reserve Bank may have to increase the Official Cash Rate just that little bit earlier because it won't be able to count on the deflationary effects of a 10-20% reduction in power and broadband prices.

That will eventually cost both businesses and households that borrow.

A 25 basis point hike in interest rates costs a household with a NZ$200,000 mortgage around NZ$10 a week.

This week's decisions, therefore, may have cost each household about NZ$15 a week.

The government is no doubt hoping households and voters won't notice too much amid the distractions of the celebrations in Bluff and in the boardrooms of Chorus and Meridian.

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Yes Bernard.  New Zealanders are the last in the queue for benefits from the economy.  What mystifies me is why any Government organises that.  Mr Key clearly puts the folks at the bottom of the list, and the hapless Labourites won't do any better.

KH - define 'benefits of the economy'. Actually, go back one and define 'the economy'.
 
No, Labour won't (can't) do any better, but neither will the current crop of Greens. The problem is something you have thus-far baulked at addressing; There is an insufficient supply of resources and a growing population/consumption. When the chips are down, we self-survive first, help others second. The scarcity has seen you and I (cranial baulking doesn't alter the truth) living off China's environmental degradation, off offshore slave labour, off renewable resources elsewhere being unsustainable mined (depleted) and off repression-by-force.
Now the hoover is starting to suck from the bottom end of our own society, those at the top holding the tube. Not surprising; the sad thing for me is the lack of media investigation. Probably - and they appear not to be entirely alone in this - they personally 'baulk' at the truth bit too. Not personally capable of addressing issues head-on, and/or of accepting responsibility.
 
Bernards piece is from the point of view of someone on rung number 237, complaining about the actions of someone on rung number 253. Rung number 34 is a Bangladeshi shirt factory. Perspective is everything.
 
http://www.albartlett.org/articles/art_reflections_part_1.html

Rung # 35 accommodates an increasing number of destitute NZer's.

Thanks for the reference PDK.  He is such a good read.  I have his DVD on Arithmetic, population and Energy and always enjoy seeing it again

At some point the issue of human overpopulation of the planet must be addressed. We now have it in our hands to do it in an orderly and humane fashion - education and birth control, but guess what, we will probably resort to our old tried and true methods of population control and blow each other to bits. Yay go the human race, top of the evolutionary ladder!

There is a constant stream of wind that blows from Antarctica up the coast of Otago, hangs a sharp left at Taiaroa Head and, masquerading as a nor'easter, smashes into the exact spot where that benighted hotel would be built. Only if it is a front for cronut pushing would this hotel ever make a single sou.

Shock, horror, probe: National government transfers more money from labour to capital. Who would have predicted that?
 
There are starting to be eery echoes of the Muldoon era as this government lurches from one ad-hoc policy disaster to another. Given that we still patching up the damage from that time this does not bode well for our future.
 
And these are pointless decisions. I think you made the point on Nat Rad, Bernard that it would take years to wind-down Tiwai Point anyway so there is no hard landing that the $30m avoids. But the hand-out goes a long way to paying for the "reorganisation" that is already underway. The taxpayer is effectively subsidising Pacific Aluminium's orderly withdrawal.
 
Plain Old Telephone Services is on life-support anyway. Why cross subsidise from POTS to fibre? The most effective and competitive model for communications infrastructure would be a publically-owned fibre network offerred as "dark fibre" to telecoms companies - i.e. they would rent access to capacity from this public entity. Not dissimilar to the theoretical model of rail in NZ. So get fibre out of Chorus then let copper die a natural death. There are years of rents to still be extracted from copper to keep the Chorus shareholders happy.

Crusher offers some thoughtful insight from within the National Party encampment at the bottom of any government endeavour cliff one can think of:
 
Crisis is something National has had plenty of practice at, says Justice Minister Judith Collins. And it has learned from each one.
 
"We've learnt to be very upfront and straight out fronting issues. Not leaving a vacuum that gets filled by people that might not necessarily have the information, or secondly, don't have necessarily the same agenda which obviously is for the country to do well."
 
Governments like crises for two reasons. It is what voters judge them on - being a safe pair of hands. And they starve the Opposition of oxygen.
 
If crisis management was all it took maybe we should welcome the entrance of the civil defence party. My tastes lie elsewhere, as do those looking in from the outside. Read more

Kumbel says: "Publically-owned fibre network offerred as "dark fibre" to telecoms companies"
 
First you need a "big-picture" vision of what you want, and then "how" you want to achieve it.

By way of comparison, consider the following and then relate that to what is happening in NZ
 
In 2000 the Australian Government floated AU Telecom (later branded Telstra) to the public in an IPO for $40 billion in stages over 3 years. The full proceeds of the IPO were paid into the dedicated "Future Fund" which was set up similar to the Cullen Fund to future-proof the govt against the future ravages of the unfunded liability of (only) government employees future superannuation costs

In 2007 Kaptain Kourageous Kevin Rudd went to his first election with a vision of fiberising and futurising the entire country with a 100 mbps fibre "National Broadband Network" (NBN) at a cost of $30 billion because the future of the country will be in communications and connectivity. The NBN will be FTTH (fibre to the home). Kaptain Krudd won that election with that vision.
 
In 2009 the NBN roll-out began. Pilot location of Tasmania has been completed. Along the way it was realised the Government had to own and run the NBN and not sold off to the fragmented players in the field. To that end the NBN bought back the existing national copper network off Telstra for $12 billion. So, now, the entire Australian communications network is owned by the NBN with a total cost exceeding $40 billion at present day costs.
 
Compare the government investment in the two countries
NZ $1.3 billion for 4.4 million people ($300k per 1 million people)
AU $40 billion for 22 million people ($2 billion per 1 million people)
The roll-out continues apace, although somewhat behind schedule.

Now compare that to just one example
The Auckland - Whangarei fibre cable
A UFB fibre cable has been installed. It is operational now. Mainly hanging on existing telephone and power poles. Trouble is anyone located in Orewa, or Warkworth, or Wellsford, or Kaiwaka cannot connect to that Broadband Network. Oops .. correction .. yes they can .. special connection required plus $10,000 per month - and here it is
http://www.computerworld.co.nz/article/491472/auckland-northland_fibre_optic_link_complete/
 
Why does everything the government touches either turns to custard or benefits a vested interest?

National Party and vision are not words normally found together. Now that the Nats are led by a forex trader whose definition of long-term is the end of next week it's even worse.

I had to laugh  - from personal experience it is just a couple or more of currency pair pips over 5 mins.

At what cost and to whom? Read more
 
Disappointed and frustrated West Coast environmentalists are considering appealing what they label a "blow to New Zealand" - the Environment Court's signalled go-ahead for the huge Escarpment coalmine on conservation land.
 
However, they may appeal the decision only on points of law.
 
The court has indicated it will consent Australian coalminer Bathurst Resources' opencast coalmine on the Denniston Plateau which is Department of Conservation land.
 
The mine project is expected to be over 145 hectares and produce about 5.8 million tonnes of coal over about six years.
 
Forest & Bird is "extremely disappointed".
 
"This is not just bad news for us, but for New Zealand and the future of our important wildlife and places," said Forest & Bird top of the South field officer Debs Martin.

Jobs for whom? Modern mining techniques employ state of the art robotic retrieval machinery and require highly educated technical staff to operate an maintain them - school dropouts need not apply. Furthermore, who reaps the rewards of coal exports, them or us? Australia hardly built up a money buffer to avoid excessive government borrowing once the mining slowed. We give the gains away for small gifts of little value and access to foreign borrowings.

Yep, the financial geniuses running Australia did over pay those Kiwis in terms of return on investment and look how it turned out - it is an increasingly broke and unlucky country - they squandered their natural wealth to add to the wellbeing of foreigners.

I am not delusional and fully comprehend that when interest rates were closer to 5.0% AUD 1,000,000 capital financed an employee income of  AUD 50,000. Now that interest rate has fallen to 2.5%, AUD 2,000,000 capital is required to make the same payment to retain that employee.
 
As an habitual trader of capital I am aware that bond trading activities stole that AUD 25,000 from the business that needs to replace it with the additional and probably now unattainable capital. That's what I mean by going broke - bond speculators benefitted hugely at the expense of those commiting capital and providing a much needed community service.

ZZeds .. if your AU measurement of "lucky" is based on GDP you might want to do some further research.
 
Like it or not, GDP includes capital expenditure. Up until 2010 the mining majors BHP, RIO, Xstrata were in expansionary phase or what is known as "Establishment Phase" bringing in and investing up to $100 billion a year of overseas capital into developing and expanding their mining operations, which of course poured into GDP.
 
The establishment phase has come to an end. Now we move to the "Extractive Phase" which means new capital pouring in to the country has ceased, and the domestic Mining Services Industries which are dependent on the "establishement phase" for their livelihoods are on their knees and going broke, downsizing or mothballing themselves after 15 years of good times.
 
The investment or establishment phase included things like driverless trains and giant driverless Caterpiller Trucks and conveyor systems and shipping and port facilities. That's completed. All over now.
 
As for the extractive-operational phase. Digging stuff out of the ground. The profits of that are owned by the 3 majors and go straight offshore. Not too many people employed in doing that. Most of the employment was in the development phase and the transition to mechanisation.
 
Meanwhile, the govt, thinking the good times would never end while commodity prices continued high has spent up large and run up a debt from zero to $300 billion in just 3 years. Domestically, things are coming to a grinding halt.
 
There is a lesson in that for New Zealand. Check out the GDP.

The financial system is a giant wealth redistribution scheme and with your parrot like mantra it seems you have fallen for it. Mining simply exports wealth, we will never be the beneficiary of that.
    But I do agree our top financial minds are not much cop.

Key Joyce &Co would make a Great Americans list
'Privateise and concede tax on the gains while socialising the losses (or potential losses)'

Who has heard of 'micro' grid tied inverters? Key word here is 'micro'

 

These inverters differ from the ones they currently retail here in NZ in one particular way. They are 'plug & play' items that allow the householder to create a PV solar system with 90% conversion effciency and gradually build that system in size as they can afford.

They come with the exact same internal protection ( island cut out, fused between panels and inverter, surge overload etc as other GT inverters. These inverter MUST have a grid connection to work, and if the grid is ever cut off due to maintenence work the inverter shuts down in micro seconds. Same exact effect if you pull them from a switched socket. 

 

For around a $1000 NZ you could with say 4 *100 watt PV panels plus one of these inverters half your average power bill straight off the bat.  A 600 watt MGT inverter retails for around $100 US.  They are 'stackable', meaning you can purchase a MGT inverter for each panel or add panels up to the wattage max of one unit alone. 

 

Now, here's the interesting part. They were made ILLEGAL via  a 'government prohibition'  on Jan 12 2012 to import, own, sell or use in NZ without ANYONE in the NZ media even knowing about it! Yet they are legal in countries like the UK where you can simply get a electrician to install them after which you are provided a 'micro generation certificate' . Here's a UK link:

 

http://www.energysavingtrust.org.uk/Generating-energy/Choosing-a-renewab...

 

The across the board prohibition on them here was made based on a 'theoretical' danger of potential to cause fire  and electrocution WITHOUT ANY accredited testing ever being done to prove their claims  

 

Here's the prohibition notice: 

http://www.med.govt.nz/energysafety/legislation-policy/electricity-acts-...

 

This simple, affordable technology had the potential to open up the Renewable Energy generation market to everyone at low cost . As a collective such technology would of had a major impact of electricity prices, thus ..........the ban.

Every little helps is very true when generating electricity. hence they quite happily promote energy saver lightbulbs.............but self generation? that's a no no...

 

 

I am sure Tiwai Point has discarded solar panels as an energy option along with many other high capacity users including electric rail.

SH - whether they've discounted them or not, isn't the problem.
 
We will - sooner rather than later - be running on renewables alone. (We've used 50% of all the oil ever used, in the last 20 years; plot the graph).
 
Both are 'renewable', so the grid will be in more demand, even as solar panels are in demand. The petajoule replacement of fossil energy is so huge, that they both will continue. ZZ is not scoping enough rungs......
 
Whether aluminium smelters continue, whether profit continues, whether fiat finance continues, whether globalisation continues - them be the questions.

Meanwhile, my son, who faces a treadmill financial existence, still has to catch an electric commuter train to attend his workplace and sole source of income - he will do so until armageddon arrives. We have been down this tortuous route before - name a date and he might make preparations to remove himself from the drudgery of making a living for apparently no other purpose than to consume that which you pick to run out in some undefined time in the future.

Americans are waking up to this, so it won't be long before consumerism is not king any more, I see it more and more in my kids generation and hope it continues into the next.

I guess Apple's catastrophic share price collapse could be a signifier of things to come or is it just a reflection of a monopoly producer facing some competition untll POTUS says otherwise? The land of the free knows no bounds.

I am really worried about the kids too SH.  We don't seem any more to be running the place any in the interests of any of those who live here.  Especially the kids.

You have a lousy ability to hear     :)
 
It won't be an armageddon, but the longer it goes on from here, the more likely a Seneca event, that's for sure.
 
I've also pointed out that the process is happening - climate change and the fed at zero, are but two manifestations of the encroach.
 
But what to tell the young? Well, the smart young are telling themselves
 
http://generationzero.org.nz
 
But you have a point; while the powers that be, extend and pretend, it's hard to get off the train.
 

Your are abusive again PDK.  But better than yesterday where in one post you shot two messengers, managed to sneer at Rachel Elders article, and then damm her with faint praise.  All with no explained opinion.  But we did work out you were against something.   

I think you issues you need  to deal with.....there report me as well.
regards

Really interesting Justice.  I think this goes back to Bernards original point above that management of the economy is not in the interest of people who live here.
I think I have a right wing viewpoint but I also think that Marx had some interesting observations about how things worked.  One of his concepts was that the 'owners' etc did give out some crumbs.  Enough for us to squabble over and keep us from instant revolt.   So.  They, encourage LED lightbulbs, but will fight to the last against an innovation such as micro generation and a distributed grid.

Yeap I just hope the media at some point pick up on this. There is a smelly rat here.
I intend going through the Freedom of Information Act to find out exactly who was behind the pushing of this MGTI prohibition. Was there a current industry push or influence etc combined with government? 
Seriously, Toasters are more dangerous!
Once I know more I will post it up here and everywhere I can. 
BTW, there IS currently a NZ Industry Draft being proposed on Inverter technology , as NZ does not have one of it's own. We use Australian Standards AS 4777.1, 4777.2, 4777.3 here at present. 
Unfortunately, that draft looks to further exclude the MGTI's 
 
 

 

Good on ya

Yes, its been a poor week all round....
 

Only to be capped off by a parsimonious offer from the PM. Read more
 
Mr Key anticipated that the changes would fund $64 million extra in first-home buyer subsidies over the next four years.
 
He made his announcements in his speech to the National Party conference in Nelson.
 
He said National valued homeownership because it provided stability for families, strength for communities and security for retirement.
 
"But we also share the concern of many New Zealanders about some young people being locked out of the housing market or having to commit far too much of their incomes to housing."
 
Yeah right!!! - is total house related debt not in the region $181 billion?

The problem with raising the interest rate is it wont mean spending less on areas that a consumer has little control over, such as power, council rates. What it will mean is that some areas already suffering will suffer more, eg retail hence making the  economy more un-balanced.  So more un-employment, more stress, more risk of a recession the RB wont be able to control, not good IMHO.
I guess we are doomed to do this....unless teh RB finally gets it...
regards