Shortlisting Of Cornerstone Bidders For Contact Energy

The Government has shortlisted six parties to enter due diligence for the prospective sale of 40% of the Crown 's shares in Contact Energy Limited.

Treasurer Bill Birch and Enterprise and Commerce Minister Max Bradford said today the parties have made non-binding indicative bids based on an Information Memorandum on Contact Energy,released last month.

'The due diligence phase of the sales process is an opportunity for the shortlisted parties to undertake a closer examination of the company and its activities. Final bids are expected towards the end of next month,' they said.

'The sale of Contact Energy Limited is important to the on-going process of reform in the electricity sector. The Government's overall energy policy objective is to ensure the continuing availability of energy services at the lowest cost to the economy as a whole consistent with sustainable development.

'Electricity is a key input into the production and use of goods and services in both industry and households. The achievement of the Government's overall energy policy objective is therefore important to both New Zealand's international competitiveness and the quality and standard of living of consumers.'

The Ministers said that, as outlined in the Government's statement to the Commerce Commission in December 1998 concerning market power in the electricity sector, specific goals for achieving this objective are that:

Electricity prices should signal the full cost of providing each extra unit of electricity; and Electricity costs and prices should be subject to strong and sustained downward pressure.

They said the Government considers that the above objective and goals are best achieved by:

Strong competition in all sectors of the electricity industry where competition is possible (electricity generation and retailing); and Robust regulation which replicates competitive pressure in the natural monopoly sectors of the electricity industry (electricity distribution and transmission).

'Specific actions the Government has taken to enhance competition in the electricity sector include requiring the ownership separation of line and energy businesses, and splitting ECNZ into three separate companies.

'To help ensure competition objectives are achieved, all bidders for the cornerstone stake in Contact Energy with existing New Zealand operations in the energy sector are required to obtain Commerce Commission authorisation or clearance.

'The Commission must assess whether any proposed purchase breaches section 47 of the Commerce Act, which prohibits theacquisition or strengthening of a dominant position. Any party not receiving such clearance will not be eligible to pursue a bid for the cornerstone stake in Contact Energy.

Stronger Powers and Penalties for Anti-Competitive Behaviour 'To help ensure effective competition, the Government is in the process of strengthening penalties and remedies in the Commerce Act. It is also undertaking a review of sections 36 and 47 of the Act,' they said

'Section 36 prohibits the use of a dominant position for anti-competitive purposes. Section 47 prohibits mergers and takeovers that would result in a business acquiring or strengthening a dominant position in a market. 'The review aims to determinewhether these provisions require enhancing. The Government intends to complete this review and amend the Commerce Act this year.

'Throughout the electricity sector reform process, the Government's key focus has been ensuring competitive outcomes. Following the sale, the Government will continue to monitor the electricity sector very carefully.

'The Government has received some advice that there may berisks of possible anti-competitive behaviour by potential cornerstone investors in Contact Energy. It has forwarded thisadvice to the Commerce Commission. 'The Government is clear it will not allow any players to frustrate its desire for strong competition in the electricity industry,' the Ministers said.

'If there is clear evidence of behaviour or outcomes resulting from a combination of generating capacity that is inconsistent with the Government's electricity sector reform objectives, the Government will take whatever further steps are necessary to ensure its objectives are achieved,' they said.