The Mighty River Battle is on again

The Government can sell 49 percent of its shares in Might River Power – but it’s got another battle to fight before it can guarantee the river flows that spin the turbines and generate value for its power generator  share buyers, consumers, and taxpayers.

Last week, the Supreme Court rejected claims that the Government’s plan to sell shares in Mighty River Power would impair its ability to address Treaty of Waitangi breaches in respect of Maori interests in the Waikato river. The Court’s decision clears the way not only for the Mighty River Power share sale, but also similar sales planned for Meridian Energy and Genesis Energy .

The Court weighed up evidence considered by the Waitangi Tribunal, by Judge Ronald Young in the High Court and presented to it by the Crown and the appellants, spearheaded by the Maori Council. It concluded that the share sales would not materially affect the Crown’s ability to redress any Treaty of Waitangi breaches in respect of Maori interests in the rivers and lakes tapped by hydro-power stations.

Before anyone in the pro-sales camp starts celebrating, everyone should read the Supreme Court decision carefully – particularly in terms of the other mechanisms for addressing treaty breaches that were identified in the course of the case, and previous hearings by the Waitangi Tribunal and in the High Court.

The Supreme Court judges noted the Waitangi Tribunal's options for remedy went well beyond the power generator shares for water right swop (rejected by the Government) or the “shares plus” scheme (discussed by the Government). The Tribunal’s list of options also included a royalty payment to Maori for the use of water in which they had a proven interest, the allocation of water permits to Maori which could then be sold to power-generating companies, and a broader option in which Maori with interests in water could be the consenting (and charging) authority.

The Supreme Court drew attention to a passage in Judge Ronald Young’s decision . “Parliament is free to introduce such changes to the water use regime as it chooses. There would be no unfairness to investors in MOMs  (Mixed Ownership Models) or indeed any entity currently using water for free to be faced with a charge for the resource,” he said, as he cited the precedents of the Emissions Trading Scheme and the Resource Management Act.

The Supreme Court expressed no opinion on the alternative remedies for Treaty breaches, but recognized that they existed.

In particular, our most senior judges’ decision noted that Deputy Prime Minister Bill English had stated  in evidence that the Crown “acknowledges that Maori have rights and interests in water and geothermal resource” and that identifying those interests is being addressed through the “ongoing Waitangi Tribunal Inquiry” and a number of “parallel mechanisms”.

The Court concluded: “It appears from the policy initiatives and from the assurances given in the litigation that the message that there is need for action on these claims has been accepted.”

So, where does that leave the Mom and Pop investors considering their position at the head of the queue of potential Mighty River, Meridian and Genesis shareholders?

Meridian generates 88 percent of its power from water flows, Mighty River is 80% hydro-dependent, and Genesis is in a more fortunate (or unfortunate position, depending on view of  coal, gas and wind power generators) – only 25% of its capacity is hydro-based.

The prospect of a new charging regime for a resource the power generators currently tap for nothing has to increase the risk of investment and must reflect adversely on the sums that the Government will receive for shares in the state-owned energy enterprises.

It will take a change in the Resource Management Act to introduce a new freshwater management regime – but this major issue did not rate a mention in last week’s media release on the Government’s latest proposals for changes to the Act. You had to burrow into the lengthy discussion document that accompanied the release to find a brief reference that has so far escaped mainstream media attention. It says:

“The Government intends to concurrently put forward ideas to reform freshwater management while considering wider proposals to improve resource management... A government paper will shortly be released which describes the proposed freshwater reform, and will, once released, be available on the Ministry for the Environment’s website .”

The Government’s proposals are going to be presented at meetings and hui throughout the country this month – extremely short notice for a consultation on such a major issue. It looks like a very limited success in the Supreme Court has gone to a few heads around the Cabinet table.

But, rest assured, the Might River Battle is on again – and the only guaranteed victory is a win for the lawyers.