Watchdog 107 (December 2004) reported in detail the Overseas Investment Commission’s (OIC) approval for Canadian singing superstar, Shania Twain, to buy two neighbouring Otago high country stations – Motatapu and Mt Soho, totalling 24,731 hectares – for $21.5 million. The article, "Shania Twain Buys Up Big In Otago", by Murray Horton, can be read online at http://www.converge.org.nz/watchdog/07/03.htm.

The celebrity bedazzled media has given Twain and her manager-husband, Mutt Lange, a dream run of approving stories. Opponents of any aspect of the purchase have been routinely vilified, most vehemently by Paul Holmes (who sank without trace following his short and illfated tenure on Prime). More than once he got the opponents of Twain’s proposed house onto his programme all the better to denounce them, referring to them as "shitstirrers" on one occasion. One would, of course, expect nothing else from a fellow celebrity owner of a property in that part of the country.

Fortunately, Queenstown’s independently owned Mountain Scene and its indomitable editor, Philip "Scoop" Chandler, are not so supine. The paper highlighted the illusion that Twain (with the OIC’s approval) had done the country a favour by allowing a new national walking track to traverse Motatapu. The fact is that this section of the proposed Te Araroa Track (which Twain will pay for and maintain) will only run above the snowline. Cliff Broad, a 75 year old member of the Wakatipu Trails Trust, asked Twain for permission to traverse Motatapu via the "low route". He was told no, and that no trampers will be allowed onto the property until the Department of Conservation has created the new high track, which has to be open by Easter 2006. Broad points out that it will only suit experienced alpinists. "It’s not a walking track, it’s a high alpine track – it’s a real gutbuster. If the OIC see where this track’s going to go, I think they’d be astonished" (Mountain Scene, 16/2/05; "Shania: Nope", Philip Chandler). Broad rejected the "win-win" label which had been widely applied to the Twain purchases, when they had been approved in 2004. "I can’t see this. They (Twain and her husband) can say ‘no’ and (the new track is) certainly no-win as far as the average NZer is concerned. (The OIC) has failed the local people and, I think, probably everyone in NZ. But having said that, I have a strong suspicion their hands are pretty much tied by the Government" (ibid.).

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As mentioned in the article in this issue about reaction to the 2004 Roger Award, Westpac spat the dummy when it was named as a finalist (they had nothing to moan about, they didn’t even finish in the top three). Watchdog 107, December 2004, detailed the bank’s many crimes ("Westpac: The Biggest Bank Robbery In NZ Is An Inside Job", by Murray Horton. It can be read online at http://www.converge.org.nz/watchdog/07/07.htm).

That article detailed several different points of conflict between Westpac and various New Zealand regulatory bodies which, unusually, have been showing some backbone in their pursuit of the Australian banks which completely dominate that sector of the NZ economy. For example, Westpac was the only one of the Australian banks that refused to set up its New Zealand subsidiary as a proper stand alone operation, running it from Australia purely as a branch. The Reserve Bank cracked down on this, insisting that Westpac New Zealand had to be able to function in the event of its parent bank collapsing. If that happened, then Australian law (quite correctly) puts the interests of Westpac’s Australian depositors first, leaving the NZ ones to take their chances in the queue. Westpac dismissed this suggestion, describing it as a one in 900 year likelihood. Instead, the bank put up a proposal to run its NZ operation as a "buttressed branch" (does that mean that if the bank collapses, it becomes a flying buttress?). But the Reserve Bank was having none of that, and forced Westpac to fall into line with all the other Australian-owned banks here. This means that Westpac has to incorporate in New Zealand, and create its own board of directors which must act in the best interests of the local operation. The Reserve Bank has the right to veto the appointment of directors and the chief executive of the local bank. The incorporation process could take two years.

Another source of conflict between Westpac and the Reserve Bank was the latter’s veto on the bank physically removing its mainframe computers to Australia, in November 2004. This was for the same reason – that if Westpac only operates a hollowed out shell in New Zealand, its local operation could not survive the collapse of the Australian parent. Once again, Westpac was very far from happy about this tough new policy on outsourcing and enlisted the support of BNZ and the Australian Bankers’ Association in lobbying the Reserve Bank to turn over the issue to the newly created Trans-Tasman Council on Banking Supervision (knowing full well that its Australian members would side with the Australian banks). But, to its credit, the Reserve Bank stood firm and refused to turn over the issue or back down.

So, in April 2005, Westpac accepted defeat and committed to maintaining its mainframe processing in NZ for the foreseeable future. Ross Hughson, Westpac’s Chief Information Officer, said that the Reserve Bank has sent "a clear message that it wants Westpac to keep its infrastructure in New Zealand. We can’t argue with the regulator though, clearly, people have the right to lobby. For the foreseeable future it’s here. If you read the policy dictates given to ANZ and likely to be given to BNZ, then that is what is going to happen" (Press, 25/4/05; "Westpac NZ to keep mainframes in NZ", Tom Pullar-Strecker). This didn’t only apply to Westpac – ANZ National Bank has already agreed to move the processing of ANZ bank accounts back to NZ from Melbourne, and BNZ is likely to have to follow suit.

All the Australian-owned banks, including Westpac, have been hit by the Inland Revenue Department (IRD) recalculating the amount of tax they had paid in past years, dating back as far as 1998, coming to the conclusion that the banks had been paying only an effective tax rate of 6.7%, rather than the official 39% company tax rate. In April 2005, Westpac announced that it had been given a second tax bill, claiming up to $85 million, for the 2000 financial year. These bills relate to what are called structured finance transactions, whereby banks borrow money overseas, channel it through NZ then invest it offshore. IRD maintains that the banks have deducted interest they pay on these loans from their taxable NZ profit, even though they pay no tax on the transactions here. It does not believe the banks should make these deductions. Westpac has calculated its liability to be up to $711 million, with interest continuing to accrue. In May 2005, it went to the High Court seeking a binding ruling that its structured finance transactions were legitimate.

In total, the Australian banks calculate that they could be collectively liable for $1.63 billion – but none of them are accepting this liability. The Government, however, is determined to close this tax loophole (it is legal tax avoidance, not illegal tax evasion) and, in June 2005, passed the Taxation Base Maintenance and Miscellaneous Provisions Act to do just that. As well, from July 2005, banks have to hold a minimum amount of capital in New Zealand to qualify for interest deductions.

This new get tough policy on tax dodging by the Australian banks is starting to reap benefits for the long suffering New Zealand taxpayer. In June 2005, in the first of its election year lollies, the Government made a one-off payment of $500 million into the transport network, saying that it was as a result of windfall taxes. Announcing it, Dr Cullen, the Minister of Finance, said: "A significant portion of it is due to some large, unexpected payments from the financial sector relating to previous tax years…Cullen said he was bound by tax law not to reveal who made the payments, but officials said that it would be ‘safe to speculate’ that it was related to the long running dispute between the Inland Revenue Department and the four main banks over their tax arrangements" (Press, 24/6//05; "$500m tax windfall to fund transport").

All of this has not gone unopposed by the Australian banks. In fact, it is a textbook case with which to refute those apologists for the transnationals who say "what’s the problem, they’re subject to our laws, after all". If you’re a multi-billion dollar bank, with powerful business and political friends, and you’re being pinpricked by Inland Revenue and the Reserve Bank, you’ll do your damndest to get those laws changed. The Australian banks, led by Westpac, have gone for the kinghit. They want all banks in Australia and New Zealand to be subject to a single regulator. They have succeeded insofar as the Australian government persuaded New Zealand (in the person of Michael Cullen) to agree to the creation of the Trans-Tasman Council on Banking Supervision. But that is not sufficient for the Aussie banks, as it is not a policy making body. They either want the job given to the Australian Prudential Regulatory Authority (APRA), or the creation of a new body or bodies.

In April 2005, Ann Sherry, Westpac’s Chief Executive, wrote to all New Zealand MPs, saying: "The logical end point of the current demonising of banking regulatory harmonisation and Australian-owned banks is a New Zealand banking sector populated exclusively by small institutions with inevitable capital constraints and increasing survival challenges in a global market" (Press, 16-17/4/05, "Bank debate heats up", Roeland van den Bergh). She warned that the Australian banks could pull out of NZ if they didn’t get what they wanted (a classic example of a threatened strike by capital). This was greeted with incredulity by people who are normally their cheerleaders. Tim Brown of investment firm, Infratil, pointed out that the Aussie banks make an annual combined profit of about $2 billion in NZ: "Are they going to turn their backs on that? It’s just a joke" (ibid.). David Tripe, Massey University’s Director of Banking Studies, said: "The Australians appear to be waving around some conditions which are pretty extreme and making some comments which are of doubtful veracity" (specifically their claim that the status quo causes them an annual loss of $A300 million in ‘lost efficiencies’)…The impression that one gets is that you will do it their way, full stop" (ibid.).

"…Sherry’s comments also conflicted with those of 14 New Zealand banking executives – many of whom work for Australian banks – who told the Reserve Bank recently that a single regulator was not a priority and was not needed to create a seamless market. Instead they were more concerned about New Zealand head offices being gutted as their Australian masters cut costs. Some indicated that they found the policy arguments in favour of joint regulation difficult to substantiate and that Australian support for this approach was largely motivated by commercial considerations" (ibid.).

Even Australian bankers support New Zealand on this. Greg Camm is the Managing Director of AMP New Zealand and a former senior bank executive with ANZ, including having been its NZ Managing Director prior to its merger with the National Bank. He publicly opposed this Australian push for a single banking regulatory authority, saying that there are higher priorities. "Camm said he had seen a lot of organisations establish themselves on both sides of the Tasman and it took great care to get it right. ‘It is way too easy to treat New Zealand as a state of Australia, when you are sitting in Australia’. Australians who had not worked in New Zealand did not understand this was a different country with its own culture and approach to legislation and regulation, Camm said. Despite the strong economic links, the two countries were actually growing apart, each with a different geographic focus. ‘Australia is looking to Asia, New Zealand is looking to the Pacific. So any regulatory or other similar initiatives have to be really carefully considered given those dynamics. You can make some pretty serious mistakes on both sides of the Tasman if you don’t fully understand that’" (Press, 4/8/05; "Aust-NZ watchdog plan raises concern", Roeland van den Bergh).

Andrew Dinsdale, Chairman of KPMG Financial Services Group, said: "One of the ironies of the Australians calling for the APRA-controlled model is the strict policies they have regarding bank ownership to protect their national interest. In fact, foreign ownership of systemically important banks in Australia is expressly prohibited" (Press, 6/5/05; "Warning on Aust bank domninance", Roeland van den Bergh). So it’s very much a case of do what I say, not what I do.

"Harmonisation" is fine when it comes to protecting the profits and interests of the banks. But not when it comes to looking after their New Zealand workers. Earlier this year, Finsec, the bank workers’ union, led ANZ National Bank workers on a strike for increased pay and better conditions. It was settled, for the time being, in June 2005. The workers got a 5% increase over 16 months but the bank refused to relent over paying its NZ workers who work weekends the same rates as its Australian workers who work weekends. Currently, ANZ staff get time and a half penal rates for weekend work. Finsec wanted that to be increased to the nearly double time rates paid to their Australian counterparts who work on weekends. Even worse, management refused to pay anything above standard rates to current National Bank staff or to any new ANZ staff. Finsec’s Campaign Director, Karen Skinner, said: "Even though we have accepted this for now, this won’t be the end of our push for penal rates" (Press, 25/4/05; "ANZ staff take offer").

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Comalco was the original reason that CAFCINZ was founded, more than 30 years ago. And it (both the company and its Tiwai Point aluminium smelter, near Bluff) remain just as obnoxious all these decades later. We last wrote about it in Watchdog 103, August 2003 ("Comalco Still Wants Secret Sweetheart Deal", by Murray Horton. It can be read online at http://www.converge.org.nz/watchdog/03/08.htm).

Surprise, surprise, it still wants special treatment. In March 2005, it threatened to quit New Zealand saying that the cost of the Government’s new carbon tax on greenhouse gases (as part of its obligations under the Kyoto Protocol to combat global warming) could put it out of business. Tom Campbell, Comalco Smelting’s Managing Director for NZ and UK, denied that it was an empty threat, saying: "You can flick a switch and walk away" (Press, 17/3/05; "Tax may force smelter to close: Comalco wants Kyoto exemption", Marta Steeman). "It appears to be putting heat on the Government for an exemption to the carbon tax through a negotiated greenhouse agreement (NGA). But it wants more – for the NGA to extend well beyond 2012 – the cutoff point for NGAs under present Government policy. Only two companies so far have an NGA, the New Zealand Refining Company and gold miner Oceana Gold. Others like Comalco are queueing up…The Minister Responsible for Climate Change, Pete Hodgson, said Comalco could not have an NGA beyond 2012. That was because the Protocol did not extend beyond that. Only the first commitment period, 2008 to 2012, had been settled. ‘They need to come and negotiate with us on that and not through the media. And I’m sure they didn’t mean to negotiate through the media’" (ibid.). Oh yes they did.

This was too good an opportunity to miss. CAFCA wrote to the Press (28/3/05; "No tears of sorrow if Comalco smelter closes"), which duly gave it lead letter status and the headline. "Comalco is threatening to close its Bluff smelter, saying that the Government's new carbon tax could put it out of business. We say bring it on! That smelter is the single biggest electricity user in New Zealand, consuming around 15% of the country’s power. From its inception, more than 30 years ago, Comalco has had a sweetheart deal with whatever Government is in office. It has a special (and still secret) price for its electricity, a deal unavailable to anyone else. Throughout its controversial existence, the smelter has proven to be good for Southland but very definitely bad for New Zealand.  So, please go and good riddance. Let's take the chance to shut down this parasite that has been draining our national grid for decades. That would free up a huge block of electricity to be used much more productively than subsidising one of the world’s biggest transnational corporations"(for whatever reason the Press edited out the words in italics). Another reader, James Ayers, also wrote, under the headline "Flick the switch" (Press, 29/3/05). He calculated that other NZ electricity consumes are subsidising Comalco annually by about $700 million ("this $700m figure is based on the total power used by Comalco, the price it is reported to pay and the average price the rest of us pay", ibid.).

There’s nothing new about our demand that the smelter be closed, it’s been our position since Day One. But the Press then did something interesting. It devoted more than a page to considering what would happen if that scenario came to pass ("Turning off Tiwai Point", 9-10/4/05, Paul Gorman). Not surprisingly the company screamed blue murder about what a disaster that would be, as did Invercargill Mayor, Tim Shadbolt (it pains me to see what has become of Twinkletoes Tim, considering that we once shared some adventures, including him allowing me to share his Parnell floorspace with his legendary dog, Brutus. But as the man said, that was a long time ago in a galaxy far far away). We’ve always accepted the position that Comalco has been very good for Southland, and very bad for the country as a whole. So, obviously, its closure would hit Southland hard. That is a given. Interestingly, Meridian Energy (the smelter is its single biggest customer) was quite blasé about the hypothetical closure scenario, saying that if it was a planned closure over several years, then the power company could handle the redistribution of the huge amount of extra electricity that would become available, but that there would need to be major expenditure to increase the capacity of the transmission system to get it to its new destinations. Transpower said much the same thing.

The real reason why Comalco was making these bullshit threats to close down soon became apparent. In June 2005 it started negotiations with Meridian Energy on the country’s biggest power contract, expected to be worth more than $5 billion over 20 years. The present contract expires in 2012; the new contract will set the price for several years after that. Hence the threats to pull the plug or, alternatively, to set up its own power supply, such as building a 600 megawatt coal-fired power station next to the smelter (it has floated other power generating possibilities also).

Comalco gets 90% of its power at the fixed, secret, price but the other 10% has to be bought on the spot market (that jewel in the crown of the electricity supply deregulation madness of the 1990-99 National government). In June 2005, it complained that soaring increases in the spot market price were costing it up to $US500,000 per week in reduced production (the smelter requires a continuous, uninterrupted power supply).

So these are the reasons why Comalco has suddenly gone public with its complaints, as it does every time it perceives something to be a threat to its interests. And, equally suddenly, there are the "good news" Comalco stories in the media, such as how it won a contract to supply high quality aluminium for the wings and fuselage of the new Airbus A380, the biggest passenger aircraft in the world. The bottom line is that, despite all these "problems" that it is moaning about, it is raking in the profits. For the 2004/05 year, it made $67.3 million, well up on the previous year’s $30m, and despite rising costs. Company documents show that Comalco has an accumulated surplus of $263m.

These complaints about the carbon tax, power prices, the spot market, threats to close or build its own power supply, are all very familiar tactics from Comalco. It behaves like this - threatening, demanding the continuation of its special treatment - every time the power contract comes up for renegotiation or something else happens that it sees as impeding its ability to continue milking the New Zealand taxpayer for all it can get. Our advice to Comalco is: don’t idly threaten to bugger off, please do so, and the sooner the better.

Watchdog 108 (April 2005) detailed the inspiring story about how Hawkes Bay locals formed the Cape Kidnapers Protection Society and defeated the proposal by US billionaire, Julian Robertson, to build a luxury lodge at the iconic Cape ("How The Cape Was Saved!", by Liz Remmerswaal. It can be read online at www.converge.org.nz/watchdog/08/05.htm).

However, Robertson didn’t get where he is today by letting a little thing like defeat (and public opprobrium) get in his way. In May 2005, he announced that he plans to build a bigger luxury lodge on his Cape Kidnappers land and is daring anyone to protest about it."It is not near anything that could be called an iconic view or anything – I think everybody will be pleased. It will be much better….I thank them (protesters) in a way because we were really trying to do something that was so fabulous. If it was not going to be appreciated it should not have been done…There is a whole bunch of us wanting to do good things. I love Hawkes Bay and think it is a fabulous area of the world. We are very big advocates" (Stuff, 27/5/05; "Tycoon dares protesters", Karen Hodge). When the Environment Court rejected Robertson’s original proposal, in December 2004, it was extremely critical of the cheerleading role played by the Hastings District Council. This time around, Hastings Mayor, Lawrence Yule, said: "I would hope that it goes through. These opportunities come along once in a while and it puts us on the world stage. It means that a lot of very influential people will come to our region" (ibid.).

As for Robertson, he found himself dragged into the limelight in July 2005 when Cabinet Minister, Trevor Mallard, accused him of being a major donor to National’s election campaign (portraying National as being George Bush’s arselickers vis a vis the nuclear free policy and the Iraq War was a major component of Labour’s campaign strategy). Mallard rather overreached himself, however, because he couldn’t produce any evidence to back it up. Robertson claimed that the only politician that he given any money to was Labour MP, Dover Samuels. I have no doubt that a US billionaire who owns several luxury resorts and golf courses around the country would endeavour to get on side with whichever politicians could best protect his interests. On past history, he’d be equally safe with Labour or National. Labour only bashes a US billionaire when that serves the vital purpose of keeping it in power; the rest of the time, it doesn’t have any problem with billionaires, US or otherwise. Indeed, it bends over backwards to look after them.It’s the "little people" who have to carry the burden of protecting the country from the likes of Robertson.

This is not an update of any particular story that we’ve previously run, but it features themes that have been depressingly familiar to Watchdog in recent years (indeed they can be found in this issue), namely shonky foreigners, the Overseas Investment Commission (OIC), and Jim Anderton. You can never predict what the media will decide to run with on this issue of foreign control and when they will come seeking quotes from CAFCA – it usually involves a suitably outrageous foreigner (Tommy Suharto and Lilybank come to mind, but only when the NZ media decided that it was PC to no longer back the Suhartos).

In 2003, the OIC approved Greg and Julie Leniston, from the UK, to buy Christchurch’s iconic Otahuna homestead, and turn it ino a luxury lodge. They also said that they would set up a hydrogen fuel cell business, hydrogen being the current buzzword among the get rich quick set (a few years ago it was the Internet and any company name beginning with e- or @). By early 2005, the Lenistons were bankrupt and owing a string of very big debts all over town (Greg shot through to Spain, leaving his wife and kids in Christchurch), Otahuna was in the hands of receivers, and nothing had ever been heard again about the hydrogen business. Sad but hardly unique.

However, the Press decided to get stuck in and ran with it. So CAFCA found ourselves being asked for unsolicited comment on more than one occasion. We took the opportunity to point out that things would get even worse under the new Overseas Investment Act. I was quoted as saying:"I suppose it shows that all that glitters is not gold. This is once again a perfect illustration of why the overseas investment regime should be tightened rather than liberalised. Our so-called regulatory authorities are not regulatory authorities and are basically door opening authorities" (Press, 3/3/05; "Developer interested in Otahuna", Colleen Simpson).

The Press went to town on this story, giving it a full page feature ("The price of grandeur", 12/3/05; Colleen Simpson), as well as several news stories. Colleen Simpson dug up all sorts of fascinating stuff, such as her March 10 article headlined "Failed English investors had help from Anderton". This, in turn, led to an editorial on the subject ("Wielding influence, 11/3/05), criticising Anderton for writing to the OIC on behalf of the Lenistons, in his capacity as MP for Wigram, to ask it to expedite their application. Anderton duly took umbrage at this and was given the right of reply (Perspective, 15/3/05, "Actions fair, reasonable"). Simpson also found out that the Minister of Finance, Michael Cullen, had overruled the OIC, which had actually recommended that the Lenistons’ application be rejected (on the grounds that it was not in the national interest as there was no guarantee that they would get a long-term business visa from Immigration). The OIC’s Chief Executive Officer, Stephen Dawe, said: "In some ways it was unusual and in some ways not. The cases where ministers have taken a different view tend to be immigration ones. We have a fairly strict approach to it, whereas the ministers have a bit more flexibility" (16/3/05, "Cullen overrules OIC on Lenistons"). Once again we were asked for comment: "…Murray Horton said the Leniston case pointed to the need for more scrutiny, transparency and ‘intelligent selection’ of foreign investors. ‘You can pick and choose and in this case it looks like they picked and lost’" (ibid.).