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A tale of two selloffs

By Ian MacDougall
Created 10/05/2008 - 22:48

On Tuesday 6th May 2008 Morris Iemma, presently Premier of NSW, chaired a Cabinet meeting in which it was decided by the politicians present that the power generation and distribution system of NSW will be privatised. This despite a motion of the ALP State Conference three days before, carried 702 to 107, against selling the state's electricity retailers and leasing its power generators, and popular polling [1] in NSW indicating that a huge majority of voters are against it. On December 19 2007, the Sydney Morning Herald [2] reported that:

A survey of 1011 NSW voters, conducted by Essential Research for Unions NSW, found 85 per cent of people oppose privatising the electricity supply, while 96 per cent fear private operators would force up the cost of electricity.

The most spectacular clash of this kind in Labor history was in 1916, when NSW Premier Holman and Prime Minister Billy Hughes were expelled from the ALP for defying the party’s policy on conscription. In this present clash between the politicians and the ALP members whose work and support put those politicians into office, there can only be one winner. If the party membership wins, it will arguably be a step towards more democratic decision making. If Iemma wins (note: he has no electoral mandate for this move) future ALP conferences can carry whatever motions they like, but policy will be 100% at the discretion of the politicians. The NSW ALP Executive, on the other hand, could call an emergency meeting and expel Iemma and perhaps one or two other ministers from the ALP. At that point Iemma would become an independent MP and the ALP parliamentary party would be obliged to elect a new premier.

The ostensible argument for power privatisation is that NSW needs the money (an anticipated $15 billion) for schools, hospitals and other expenditure. The reality is that sale of capital is touted as the way to finance ongoing expenditure, analogous to the classic case of the farmer who sells off a bit of the farm each year to keep the family clothed and food on the table. Needless to add, it leaves the farmer with less income and closer than before to bankruptcy. What is proposed for selling off presently earns the NSW government over $1 billion per year, which is why private buyers are interested.

The arguments that are being applied to power in NSW could be run for privatisation of anything: schools, hospitals, even suburban roads. We could in addition have private security companies contracted to perform work presently done by the police, and on an increasing basis. Maintenance of secondary and suburban roads could be privatised, in return for the right of the private operators to collect tolls at numerous toll gates. But in connection with that, the observation of former NSW Auditor-General Tony Harris [3], made in relation to Sydney’s M2 and other toll roads, is pertinent:

There is no reason why the Government could not have borrowed and, if it found it necessary, impose a toll the same way that the private sector is doing. One of the advantages of that is the absurd profits that the private sector is making out of these tollways would have accrued to the public.

We don't have to run a deficit. All we have to do is not pay off the debt so assiduously as each of our governments is doing. New South Wales now has no debt, the Commonwealth is virtually debt-free. Victoria has no debt and this is the same for other States - Queensland has no debt. And yet the population is going without quite important infrastructure.

That argument could be applied to any revenue-generating public property a government wants to sell off. Moreover, the experience of the Iemma government’s handling of Sydney’s Cross-City Tunnel [4], where free alternative routes were deliberately blocked to force motorists into the privately operated tunnel, and the Lane Cove Tunnel [5], which likewise ran into public relations problems in that motorists declined to use it because of the high tolls demanded, does little to inspire investor confidence in privatisation, except if a monopoly is thereby created. Arguably, this will be the case in the electricity privatisation, because the whole system most of the time runs close to peak capacity. Electricity privatised in NSW would be a classic seller’s market, and a licence to print money in the coming greenhouse environment. The number of large corporate sellers would probably diminish with time through mergers and takeovers.

A similar issue on a smaller scale: in response to changing demographics in the suburbs of Canberra, the ACT Government has closed a number of schools, but so far has not gone as far as selling the sites for private redevelopment. Canberra in my view (I have spent a bit of my life there) is one of the finest examples of town planning in the world, and the original plan envisaged that every primary school child should live within easy walking distance from school; likewise, within easy cycling distance from a high school.

Now Holt, Village Creek (Kambah), Cook, Melrose and Weston primary schools will be converted into ‘community centres’, and a decision deferred on what shall be done with the valuable adjoining playgrounds and ovals until after ‘community consultation’. One does not need to be clairvoyant to see where that is heading. In addition, three government-owned preschools will be sold outright. The arguments being used today to justify the irreversible step of redeveloping school sites for private housing at the above locations will be trotted out again whenever the government is sufficiently short of money to feel tempted to repeat the process at whatever stage of the electoral cycle it feels is safe enough.

What happens when the demographic cycle brings young families with children into these suburbs once again? That will be a problem to be dealt with by a new generation of politicians, as the ones responsible for the present planning travesty will by that stage be well into their abundantly superannuated retirements. But one suspects that those children will be driven across a few suburbs, past numerous other sold off and redeveloped school sites, to some gigantic central primary school with thousands of pupils, inadequate playing fields and grounds at God knows what parental expense in petrol and time. Cycling will be out of the question for many if not most, and cardiovascular disease begins these days for some people as young as five years old.

Behind the NSW and ACT selloffs lies a problem of state financing, which the GST was supposed to address but clearly is not adequate for. Otherwise there would be no hospitals or schools crises – the very issues Iemma claims the NSW power selloff will solve, and which led to the recent rash of school closures in the ACT.

What happened to the money that could have been spent on these public facilities? It has transmogrified thanks to Costello’s tax cuts into some things wide and wonderful, like hopelessly expensive to run suburban SUVs tootling among the plasma screened McMansions. Stand by for the Rudd government to deliver more of the same. Its consulate [6] in Guangzhou, China since 17 September 2007 (in John Howard’s last term) (has been publicising the investment opportunity available for potential Chinese investors in a NSW power selloff:

Potential technology solutions for new electricity generation capacity identified by the Owen Inquiry include combined cycle gas turbine (CCGT) and ultra-supercritical coal (USC). The report does not envisage privatising high-voltage transmission or low-voltage distribution networks.

Electricity generation companies owned by the NSW Government include Macquarie Generation, Delta Electricity and Eraring Energy, and its electricity retail companies are EnergyAustralia, Integral Energy and Country Energy.

However, it is possible that Iemma’s power stations may not be such an attractive commercial proposition. They are likely to run into greenhouse problems from which carbon capture and storage, even if that can be shown to be safe and viable, cannot rescue them in the diminishing time left between now and 2020 for the CO2 reduction measures envisaged by Garnaut. (Satisfaction of Australia’s Kyoto commitment, according to one insider I know, would require the equivalent of shutting down the entire Latrobe Valley.) The interests of private power companies lie in encouraging maximum generation and use of electricity, or alternatively massive price hikes for householders per kilowatt hour used.

Iemma’s proposed selloff of the existing retailers could (I stress could) prove disastrous, because technical improvements to rooftop solar generation may shortly make it possible to decentralize generation on a large scale, with the owners of rooftop solar units being in a position to sell their excess power to the grid. (Friends of mine in Adelaide already sell to the grid with a standard photovoltaic unit.) Privatised electricity retailers will likely be disinclined to buy such power for easily conceivable reasons. For example, this [7] high temperature photovoltaic innovation is claimed to generate power at 5c US per kilowatt hour with an energy conversion rate at a whopping 37.5%.

A useful article [8] on this is to be found at the Greenleft site, and though readers of an extreme right persuasion will no doubt find it repugnant, they might be comforted by Thomas Friedman’s view [9] that concentrated political power over energy supply is bad for democracy.

The ALP internal brawl can best be followed in my view by reading Bob Gould’s reportage at Ozleft [10].


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