POWER SAGA READS LIKE CORPORATE RUSSIAN ROULETTE
4 August 2008
MATTHEW WARREN
NSW electricity assets, worth $35billion a decade ago, were valued at $15 billion last year
MOST of Australia's public assets are managed by six state governments, their voters acting as proxy shareholders. Every three or four years voters hold a general meeting to vote on the performance of the existing management team.
The Iemma Government in NSW is living proof the majority of shareholders are willing to tolerate chronic underperformance, indecision and even the whiff of corruption, provided they see their state growing in value. And they will turn in brutal and unrepentant fury when it does not.
In 1991, South Australian premier John Bannon announced and accepted responsibility for the collapse of the local State Bank, which ultimately cost South Australian shareholders more than $3 billion: effectively an extra credit card debt of about $3000 for every resident.
Despite his subsequent resignation and all efforts to repair the damage, the voters waited in not-so-silent fury, reducing Labor to the size of a cricket team in the subsequent bloodbath election of 1993.
Electricity reform has been the exception that proves this rule, where the most lucrative decisions have been unceremoniously punished by voters and inaction and prevarication has been endorsed.
Inaction has ended up costing shareholders in NSW and Queensland billions more than John Bannon ever dreamed of in his many nightmares.
The energy supply industry recently released ACIL Tasman modelling of Australia's electricity market to achieve deep cuts (10 per cent) in greenhouse emissions by 2020 or very deep cuts (20 per cent).
By comparison the European Union also is committed to 20 per cent cuts in this time frame, but adjusted for the inclusion of the collapsed and rebuilt Eastern bloc countries, the real scale of their cuts is more like 8 per cent.
A 10 per cent cut will need $30 billion worth of new-generation infrastructure, including eight to 10 new gas base load power stations and more than 2000 wind turbines in the next decade. All this to be ready in time as at least 10 power stations stop running because they simply go broke under the weight of a price on greenhouse emissions.
ACIL Tasman's power station closure schedule reads more like a corporate game of Russian roulette than a strategic shift in energy supply.
First to the wall will be the small Energy Brix brown coal power station at Morwell in Victoria, run by HRL, followed by International Power's Hazelwood and Loy Yang B power stations and TRU Energy's generator at Yallourn.
Babcock & Brown Power will lose both its Playford and Northern power stations in South Australia and at Redbank in NSW. Transfield will lose its Collinsville power station in Queensland, and the Queensland Government will lose a small black coal power station.
The lone Victorian brown coal survivor would be Loy Yang A jointly owned by AGL (32.5 per cent), Tokyo Electric Power Co (32.5 per cent), Transfield Services (14 per cent), Motor Trades Association of Australia Superannuation Fund (12.8 per cent), Westscheme (5.7 per cent) and Statewide Super (2.5 per cent). But it's a hollow victory because their operating margins will be shredded, net revenues per kW hour sent out falling by more than 80 per cent.
It will be much the same story for the surviving government-owned coal-fired power stations in Queensland and NSW. Their operating life will be sharply curtailed, peddling hard just to break even. None of them makse a very attractive business venture under an ETS but, then, that's the idea.
Shareholders of these ``polluting'' assets have received little sympathy from either Professor Ross Garnaut or the federal Government, be they stock holders of these publicly listed companies or the residents of NSW and Queensland.
Former prime minister Paul Keating established his competition policy that created the national electricity market in 1995, paving the way for the states to complete the reform process by privatising their generation assets. Victoria's premier Jeff Kennett was the first to oblige, selling off his state's generators at the top of the market, delivering $22.5 billion to shareholders. John Olsen in South Australia followed suit in 1998, also getting a top-dollar price, $5 billion, which he used to retire the State Bank debt. Both were rewarded for their troubles with political annihilation.
By contrast, Labor premier Bob Carr also tried to privatise in 1999, but was blocked by the unions and baulked at the lack of public appetite for reform.
His decision cost NSW shareholders a fortune, and they rewarded him comfortable re-election.
Keating estimated the NSW assets were worth $35 billion a decade ago and Tony Owen estimated their worth at $15 billion last year, if you throw in the retailers. It's a lot less now. Iemma or his successor will probably proceed with the sale, but it's getting more and more like trying to shift a Leyland P-76.
At the end of last financial year, Victoria's Government delivered its submission to the National Infrastructure Audit. In it Premier John Brumby warned his peers in NSW and Queensland that holding on to their generators could discourage much needed private investment and privatisation would create a more efficient national market.
After campaigning so hard against privatisation last century, it was a remarkable affirmation of Keating's vision and belated recognition of Kennett's and Olsen's leadership in adversity.
Copyright 2008 News Ltd.
The Australian
Go to top
Print Page
Smaller
