Tax laws favour foreign investors in infrastructure, Vector says
Auckland electricity, gas and telecommunications network owner Vector says it is looking for opportunities in Australia rather than for acquisitions in New Zealand, where it says the tax laws favour foreign owners of utility assets.
In an apparent swipe at foreign-owned competitors such as Wellington Electricity, Vector chairman Michael Stiassny told shareholders at the annual meeting in Auckland that acquiring network businesses in New Zealand would "imperil" the company's prospects.
"Infrastructure assets such as Vector's are highly coveted by international investors, especially those who are able to benefit from capital structures that minimise their tax obligations," said Stiassny. "This lower tax burden allows them to pay prices for infrastructure well above the level that would make economic sense for Vector.
"Without a change to taxation rules that puts our international competitors on the same footing as Vector, acquisitions would imperil our commitments to customers and you, our investors," he said.
That meant Vector's regulated businesses, which provide some 64 percent of annual revenue and 80 percent of operating earnings, would rely for its improving returns on population growth and squeezing further efficiencies from its network.
Labour Party revenue spokesman David Clark earlier this month raised the issue of multi-national investors in New Zealand being able to make paying corporate tax "optional". He cited the Wellington network company, WE, owned by Hong Kong-based Cheung Kong Group, controlled by Asia's richest man, Li Ka-Shing, as an example.
WE has paid no corporate tax since 2008, when Vector sold it to Cheung Kong for $785 million.
Stiassny also bemoaned electricity and competition regulators' failure to draw attention to the fact that most electricity retailers had not passed on 9 percent cuts in network charges that Vector was ordered to implement.
That was the equivalent of $60 per household customer per year, but "only a small minority of energy retailers appear to have passed these savings on."
"It is disappointing regulators have been silent on this issue."
Chief executive Simon Mackenzie also criticised the regulatory overlaps between the Commerce Commission, Electricity Authority and the Gas Industry Company, the last a private sector initiative in which Vector has a shareholding.
Mackenzie and Stiassny also gave shareholders the glimpse of a future in which solar-powered electricity generation, backed up by on-site batteries, would not only continue to reduce demand for conventionally delivered electricity, but could take cost pressures off companies like Vector.
"If enough customers sign up for a long-term solution within any given area, we will not need to build as much capacity into our networks," he said. "Meanwhile, we also gain new investment opportunities."
To that end, Vector was offering solar installations in Auckland.
Mackenzie identified Australia as a possible revenue source for Vector, saying the "seamless deployment" of more than half a million smart meters was being recognised "internationally as a model deployment."
"Overseas jurisdictions, such as Australia, which have not had the same experience, are increasingly looking at the New Zealand model and Vector is investigating the opportunities that this may create," Mackenzie said.
Vector's shares were unchanged at $2.61, and have shed 4 percent this year.