More concerns raised over Contact's $1.9b bid for Manawa

Tuesday, 12 November 2024

The Major Electricity Users Group suggests “binding undertakings” may be needed if the Commerce Commission cleared Manawa’s takeover.

Opposition to Contact Energy’s proposed $1.9 billion takeover of Manawa Energy appears to be building, with three more parties writing to the Commerce Commission to voice concerns, or caveats to their support.

The Major Electricity Users Group (MEUG), which represents big industrial users of power, told the competition watchdog in a guarded submission it strongly believed there was limited competition in the electricity market.

Contact chief executive Mike Fuge has said the acquisition is about “two independent energy companies coming together” and would enable Contact to sell more electricity to wholesale customers under fixed-price contracts.

MEUG chief executive Karen Boyes acknowledged that argument but said what would matter most to consumers was the “actual, not forecast or theoretical, benefits that are delivered”.

She suggested some sort of guarantee might be needed.

“The MEUG questions what binding undertakings or obligations could be attached to the clearance application or what recourse is available if Contact does not deliver on the promised benefits,” she said.

Japanese-owned packaging giant Oji Fibre Solutions, which is a member of the MEUG, wrote independently to the commission to directly voice its opposition to the merger.

So far, Contact Energy chief executive Mike Fuge doesn’t appear to have convinced big power users that the merger would be in their interests.

Energy manager Darren Gilchrist said the company employed 1500 people in New Zealand but was “increasingly concerned about the competitiveness of the electricity market”.

High power prices were making it increasingly difficult to operate an energy-intensive business, evidenced by the recent closure of Winstone Pulp and impending closure of the Penrose recycled paper mill, and a reduction in participants in any part of the energy industry could only result in “a reduction in market competitiveness”, he said.

Contact was willing to pay a premium to acquire Manawa and it should be assumed it would seek to recover that by increasing profits, he said.

“Allowing the acquisition to proceed as proposed seems likely to further consolidate market power, reduce competition, and ultimately be detrimental to the interests of consumers and the broader market.

“Our view is that the proposed acquisition could well result in a substantial lessening of competition,” he said.

Retailer Electric Kiwi also lodged an objection on Monday.

Chief executive Huia Burt said the acquisition would remove “the largest independent, non-vertically-integrated generator”, Manawa, from the market.

“The commission cannot be satisfied that the proposed acquisition of Manawa Energy by Contact Energy will not have, or would not be likely to have, the effect of substantially lessening competition in a market,” she said.

Another independent retailer, Octopus Energy, had previously come out swinging against the deal.

In a potential set-back to Contact and Manawa’s hopes of having the merger cleared, the Commerce Commission indicated in a statement of preliminary issues last month that it could hone in on narrower definitions of the markets that could be affected when it conducted its competition assessment.

Contact and Manawa suggested the commission just look at the electricity generation market as a whole, but the commission indicated it might not assess all forms of generation as being the same and could examine the impact on a narrow market, such as for the supply of hydro electricity.

Despite that, trading on the NZX suggests most investors still have an expectation the merger is likely to be cleared.

Manawa shares were trading 12 cents higher at $5.42 in late afternoon trading on Monday.

The commission is currently due to make a decision on the merger by November 26, but the history of past clearance applications suggests that is highly likely to be delayed.