Investing in electricity lines companies in New Zealand involves a number of approvals and consultation considerations. With a few recent examples highlighted in the media1, including speculation that Queensland Investment Corporation - the owner of the majority of shares in PowerCo, is reviewing its position - and the sale of Eastland Network (now Firstlight Network) in late 2022, we take a look at the key considerations for investors, including:
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Consent under Overseas Investment Act 2005.
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Consents under Resource Management Act 1991.
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Processes for Community Trusts and local councils.
Overseas Investment Act 2005
A key consideration for foreign investors into lines companies is obtaining approval under the Overseas Investment Act 2005 (OIA). The OIA sets out the regulatory regime for investment by "overseas persons" in "sensitive land" and/or "significant business assets".
A potential purchaser of these assets is an "overseas person" for the purposes of the OIA if they are a person or entity domiciled, or owned by a person or entity domiciled, outside of New Zealand. This includes New Zealand-registered entities where more than 25% of their ownership or control interests are held by overseas persons.
Given the nature of their business, lines companies are very likely to own "sensitive land" (in addition to the right to construct and maintain lines). For example, a lines company may own non-urban land with an area greater than five hectares (other categories are set out in Schedule 1 of the OIA). Even if a lines company did not have sensitive land, an investment in a lines company may exceed NZ$100m (this threshold is higher for overseas investors from certain countries which New Zealand has free trade agreements with).
An investment in a lines company transaction that involves "sensitive land" and/or "significant business assets" will also trigger the "national interest" under section 20A of the OIA, as lines companies are classified as "strategically important businesses". A transaction can be declined (or else approved with specific conditions or undertakings applied) if it is considered to be contrary to the national interest2.
In determining whether an investment in a lines company is in the national interest, the Minister may consider (along with anything else the Minister deems relevant):
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national security, public order and international relations;
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alignment with New Zealand's values and interests (consideration is given to broader considerations – for example, environmental policy, and giving better effect to Te Tiriti o Waitangi);
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economic and social interest;
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the character of the investors; and
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overseas government involvement.
It is important to note that the timeframe for an OIO approval can be material, including to account for the below
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The process requires a formal application, which requires the overseas person to gather a substantive amount of information in relation to the ownership of that overseas person, the character of the people who control it and (assuming there is sensitive land) how the investment will benefit New Zealand. If desired, overseas investors can obtain pre-approval in respect of the character test, and will be deemed to have obtained this if they have had an application approved on or after 22 March 2021. This streamlines the consent process, provided that nothing material has changed in respect of the overseas investor when the formal application is filed.
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Where the transaction has a complex structure, a pre-application meeting with the OIO can sometimes be useful, as an opportunity to explain key features of the transaction to the OIO and to answer any initial questions that the OIO may have.
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If the transaction involves farm land, then it must be offered for sale on the open market for at least 30 working days before any application for consent is made (and before any agreement to acquire the farm land is entered into).
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In addition, if farm land is being acquired, the purchaser will need to show a substantial benefit to New Zealand in relation to the form of "economic benefits" or "oversight or participation by New Zealanders" which arise as a result of the acquisition (both being factors which the OIO considers in determining whether the transaction will benefit New Zealand).
Once the application is prepared and submitted, it can then take up to 100 working days to receive approval – for example, where the benefit to New Zealand test is engaged and it concerns farm land (the timeframe is shorter for other types of applications).3
Resource Management Act 1991
The relevant planning framework and resource consents for electricity lines assets are a critical part of the assets.
For electricity lines businesses, the relevant district plan will typically include provisions specific to network utilities such as lines networks. These planning frameworks will outline those activities that can be carried out as of right, and those activities that require consent. Given the scale of electricity networks and their operations, this can have significant implications in terms of how frequently resource consents are required for typical maintenance activities (tree trimming and minor earthworks are examples), and how challenging network upgrades are (whether this be pole replacements or new lines or other infrastructure). There can also be issues with conflicting requirements, such as the interaction between obligations under the Electricity (Hazards from Trees) Regulations 2003 and relevant district plan tree trimming consent requirements.
Where land use and subdivision consents are held, these will run with the land and will remain in place following a sale. However, it will be important to review such consents to determine the full scope of activities consented (and where there might be gaps that need to be filled).
Community trusts and local councils
A number of lines companies in New Zealand are owned by community trusts or local councils.
Where a community trust is looking to sell part or all of its interest in a lines company, it will usually be required to undergo public consultation on the sale (depending on the terms of its trust deed). Similarly, if a local council is the majority owner, and is selling a stake such that it will no longer be the majority owner, then it will also need to undertake public consultation under the Energy Companies Act 1992. If the council's interest in the lines company is a strategic asset (which we expect will be the case), then the sale will also need to be provided for in that council's long-term plan under the Local Government Act 2002.
Once the sale has occurred, the lines company will become (or continue to be) regulated by the Commerce Commission and will have to comply with the Commerce Act 1986 (among other applicable legislation), including with respect to regulated pricing for their regulated lines business and information disclosures (including in relation to pricing, future expenditure forecasts, outages and interruptions and financial statements). Lines companies are also regulated by the Electricity Authority in relation to various operational matters.
Conclusion
Clear understanding of these requirements will assist investors to structure and close their transactions on a timely basis, with confidence that the transactions will secure the required approvals.
This article is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice. If you require any advice or further information on the subject matter of this newsletter, please contact the partner/solicitor in the firm who normally advises you, or alternatively contact one of the partners listed below.
FOOTNOTES
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∧ https://businessdesk.co.nz/article/energy/qic-stays-quiet-on-powerco-speculation
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∧ Section 20C, Overseas Investment Act 2005 .
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∧ https://www.linz.govt.nz/guidance/overseas-investment/apply-consent-variation-or-exemption/how-we-assess-your-application/assessment-timeframes