Electricity sector privatisation is destroying manufacturing industry

Opinion: Seventy-five workers at Oji’s Penrose pulp mill and a further 230 at Winstone Pulp International’s two Central North Island mills will remember August 2024: the month wholesale electricity prices quadrupled, the month their employer began consultation on likely closures and layoffs.
Googling how to apply for a Jobseeker benefit for the first time in his life, one employee has just discovered an August 2024 round of new benefit sanctions, with Social Development Minister Louise Upston proudly proclaiming the increased use of sanctions since she took office.
And sure, the Reserve Bank did finally announce a pathway of official cash rate cuts in August 2024, but their modelling still suggested another 20,000 unemployed workers by the middle of next year. Mortgage costs will come down for most of next year, but you’ll still need a job to pay it off.
In Auckland, there are currently 11 jobseekers for every vacancy. In the Manawatu-Whanganui region where Winstone Pulp ’s mills are located, that number is more like 17 jobseekers for every vacancy.
Surging winter energy prices have become the major faultline in today’s unfolding manufacturing crisis. Beyond Oji and WPI, major players in the steel industry are turning to diesel for energy, while falling demand for building materials is adding to workers’ woes across what remains of domestic manufacturing.
Affordable energy is a prerequisite for sustaining manufacturing activity, as well as our transport, logistics, information technology and entertainment industries (to name a few). Households quite like it as well.
Messaging from the coalition Government has been mixed. Associate Energy Minister Shane Jones has railed against electricity company profiteering, while Energy Minister Simeon Brown laid the blame with Labour’s 2018 offshore oil and gas ban.
Brown’s position seems fanciful, to say the least. Never mind the minimum 10-year lead time to bring offshore gas from discovery to market, NZ’s natural gas production peaked in 2001 and has declined steadily since 2014, according to the Ministry of Business, Innovation and Employment.
Profiteering is a big word. But not without precedent.
In 2022 and 2023, First Union, the NZ Council of Trade Unions, and 350 Aotearoa released a series of reports entitled Generating Scarcity, about the impact of the partial privatisation of Meridian, Mighty River Power (now Mercury) and Genesis under the previous National government.
They argued that in the decade since those privatisations, the gentailers – Meridian, Mercury, Genesis and Contact (fully privatised in 1999) – paid out $10.8 billion in dividends to shareholders, while total generating capacity increased by one measly percent.
For every dollar invested in new capacity over that period, the gentailers paid out $2.41 in dividends. From 2016 to 2020, gentailer dividends were around four times the scale of new investment, while consented capacity simply wasn’t built.
Gentailer debt levels remain strikingly low, especially in light of last year’s gentailer-funded “The Future is Electric” report, whose own preferred investment pathway would see annual generating capacity increase by 163 percent in the coming 25 or so years.
Our grid leans heavily on hydro, and therefore needs an engineered solution to the so-called “dry year problem”. Hedging the network with wind, solar and battery storage is the cheapest fix, but it still costs money.
We all pay the price for underinvestment. With high mortgage rates and rising rents, low-income households can’t always afford to keep their homes warm and dry, lumping costs onto the struggling health system.
And now, with the combined impact of restrictive mortgage rates and high energy prices hammering households’ employment prospects and incomes, the need for a thorough rethink of the costs and benefits of electricity privatisation are becoming clear.
The First Union has called for an immediate inquiry into the impacts of energy prices on employment and inequality. This spike is temporary, but the fragility in the system remains, and until we get this right it’s going to keep coming back each year, but especially in the dry ones.We’ve been here before – Labour, the Greens and NZ First led a parliamentary inquiry into the manufacturing crisis in 2012 – but manufacturing as a share of the economy has continued to decline.
Back then, unions argued that an overvalued dollar had made New Zealand an unattractive investment opportunity, as tax benefits incentivised real estate speculation over the real economy.
This problem may have been on hold for the past couple of years, but it’s likely to collide with the dry year problem in coming years, further bludgeoning the manufacturing sector and others.
A decade of investment lost to enormous shareholder dividends has put us on the back foot, but the costs of inaction are growing quickly.
In the Generating Scarcity reports, we called on the Government to use its majority shareholding of Meridian, Mercury and Genesis to move shareholder resolutions at Annual General Meetings that implemented mandatory profit-reinvestment targets.
This would require reforms to how we regulate state-owned enterprises, and how we interpret the objective “to operate as a successful business”,  including to be “as profitable and efficient as comparable businesses that are not owned by the Crown.”
In a strategic sector like energy, the financial dividend Treasury extracts from its shareholding could be far outweighed by the social dividend of lower energy prices for households and businesses.