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NSW electricity privatisation can be stopped

Webdiarist James Sinnamon has sent us the following piece, which originally appeared on his website candobetter. (The original article, including links, can be read here.)


NSW electricity privatisation can be stopped

The recently released NSW Auditor-General’s report supposedly gives the green light to the NSW Government’s electricity privatisation legislation. NSW Premier, Morris Iemma, has seized on this and has announced that he may recall the NSW Parliament as early as next week in order to rush through the privatisation legislation.

The actual words from the report (pdf, 354K), which NSW Premier Morris Iemma claimed as a "stunning endorsement" of his government’s plans were "... nothing has come to my attention that causes me to believe that the Government’s strategy for the transfer of assets to the private sector ... is not appropriate for maximising financial value for taxpayers."

These read like weasel words, intended to satisfy the political needs of the Iemma Government whilst maintaining a facade that the Auditor General has fulfilled his responsibilities to hold the Government accountable to the NSW public.

A condition imposed by the Auditor-General, which superficially appears to pose a hurdle to privatisation, is that a confidential reserve price for each electricity generation asset to be sold be arrived at. If, for any one asset, the bids fail to exceed that asset’s secret reserve price, that asset’s sale is to be scrapped. One "of the factors used to determine the reserve price for each transaction" is to be the asset’s “Retention Value”. The report doesn’t specify what other factors are to be used in determining the reserve price.

The A-G’s report describes the “retention value”:

The Strategy Document outlines the intended approach to be adopted to estimate the value of the businesses under continued Government ownership. This approach values the projected future dividends from the businesses and projected corporate taxes paid by the businesses which are ultimately received by the State under the Tax Equivalent Regime. The projections should reflect the expected performance of the businesses under continued Government ownership taking into account any impact of Government ownership on the businesses” growth strategy, capital structure and performance. The projected future dividends and tax payments should be discounted at an appropriate cost of equity reflecting the risks associated with the projected cash flows.

From the point of view of accountability and the public interest, there are a number of problems:

  • The “retention values” were unspecified.
  • What is to stop the NSW Treasurer from applying “factors” other than an asset’s “retention value” in order to reduce the reserve price?
  • The process requires, on the one hand, concealing from the NSW public the calculated retention values, whilst, on the other hand, relying on those managing the sell-off to keep that knowledge from the intending purchasers.
  • The “retention value” is defined only in the narrowest financial terms. For example, it appears to accept shifting of costs, previously borne by publicly owned corporations, onto the public as a legitimate means to favorably assess comparative performance of the privately owned utility. One example of cost-shifting typically employed by privatised corporation is the reduction in on-the-job training of its staff.

In other ways, the report helps expedite privatisation. It states:

... it is in the interests of investor confidence and bearing in mind the long lead times for developers to physically obtain generation equipment, that any uncertainty relating to the proposed restructure should be removed as soon as possible.

The report also takes issue with the five year employment guarantee to current NSW electricity employees:

Based on information provided by Treasury, the planned measures for the proposed employee protections are generally consistent with other privatisations and Government restructures, except for the employment guarantees. A five year employment guarantee for certain Generator employees exceeds such guarantees in previous privatisations and restructures, which were for three years or less.

From the A-G’s objection to the five year employment guarantee which he implies is excessive, we can see that he unquestioningly accepts the prevailing economic orthodoxy which is that the greater propensity of private owners to shed jobs is a factor in favour of private ownership.

Whatever can be said of the report, it fails to clearly demonstrate, as the NSW public who paid for the report are entitled to know, whether or not privatisation is in their best interests. It admits that its parameters are confined to dollar projections in the narrowest sense, and does not consider factors beyond this - notably democracy.

The fate of NSW’s electricity assets, paid for over recent decades by the NSW public with taxes and through electricity bills, should not rest on such an obviously limited and deficient report.

Democracy disregarded

The NSW public, the rightful owners of the electricity assets, have consistently and emphatically shown their opposition to the sale. In the 1999 elections where they resoundingly voted against the NSW Liberal/National opposition which stood on a platform of full privatisation. The latest poll showed 79% opposition to the sale. An earlier poll showed 85% opposition. The NSW state Labor Party Conference, wholly consistent with the feelings of the broader community, voted 702 to 107 against privatisation, but was subsequently ignored by the NSW state Labor Parliamentary Caucus.

The plans to privatise were never put to the NSW public during the 2007 elections. As it is impossible to believe that privatisation had only occurred to Iemma and Costa since the election, it would appear that they deliberately concealed their intentions, knowing that they would have been rejected.

If democracy in this country is to have any practical substance whatsoever, then the NSW government has no mandate to proceed with the sale.

Given that the Iemma Government may well have the numbers on the floor, how is it possible for the NSW public to prevent this brazen theft from proceeding?

The public have already made it clear they don’t support privatisation of electricity

As the Vietnam Moratorium and many other popular protest movements have demonstrated, Parliament does not always get its way when it is so far removed from the will of the public.

The most effective way to block privatisation would be for the Electrical Trades Union (ETU), members of which stand to lose the most should it proceed, to carry out their threat of industrial action. In all likelihood the ETU would not even need to carry out its threat. If it were simply made clear to the Iemma that, unless privatisation is abandoned outright, or the legislation put to the NSW public either through a referendum or at the next election, it will proceed with industrial action, it is hard to conceive of how this could not enjoy the overwhelming support of the NSW public and it is hard to conceive of how Iemma, faced with such an ultimatum could see any alternative but to agree.

Whether or not the ETU decides to pursue this course, all parliamentary representatives must be held to account for their actions. As hardly any who have voted in Parliament for privatisation, least of all the Labor representatives, are acting in accord with the will of their constituencies then their constituencies have every right to have them replaced by others who will. In the case of the NSW Labor Party, whose will has also been ignored, simply supporting those few Labor members who have voted against privatisation is hardly sufficient. They should not hesitate to disendorse each and every member who have voted for privatisation, starting from Morris Iemma and Michael Costa. Given the generally appalling record of the Iemma Government and its abysmally low popularity, this would seem, in any case, to be the only realistic chance that Labor would have of retaining government in NSW in 2011.

If the public don’t endorse the sale it can be revoked later on

However, the most important measure that should be adopted by those now fighting privatisation is to clearly warn those intending to buy NSW’s electricity assets that they have no right to do so and be resolved to both remove from office all those who are pushing privatisation and to renationalise those assets.

All those who intend to buy NSW’s electricity assets in open defiance of the will of the NSW public must be told in no uncertain terms that once a government, which is representative of the NSW public, comes to power, that they, and not the NSW public, will be made to bear the cost. Whatever costs, which were illegitimately imposed on the NSW public in the course of privatisation and whatever further costs are necessary to renationalise those assets should be discounted in full from the money paid for the repurchase of these assets.

If this were stated clearly now, then they won’t be able to say that they weren’t warned.


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Bubo burst

Yep. Look what their argy bargy has cost them. No more Costa and new Rees government.  Miracles can happen if people hang in for long enough and keep their pecker up.

The more I learn about Keating the less I like him

Thanks for the interest in my article and thanks for the comments. Ian MacDougall's point about Paul Keating was most interesting. The more I watch him and the more I learn about him the less I like about him. His role in backing the privatisation of electricity sets a new low-water mark in his atrocious career.

Further articles about this issue can be found at candobetter.org/NswElectricity

Richard: James, anything on your mind for a new piece?

e pluribis unum

I remain in awe of Fiona Reynolds.

The only other notion that can inspire this awe remains examples of the stupidity and arrogance of politicians, as each new dummy-spitting antic goes to somewhere where not even a politician would have gone before.

You'd have thought we would have seen it all after the Howard government self destructed, followed by the antics of its opposition remnants, but Iemma and Costa truly take the cake, precisely for the reason forwarded to diarists by Fiona alluded to by Mitchell: unmittigated arrogance.

A red letter day, indeed. We read buried away in a dark obscured corner of the Oz, news that Gunns can "no longer guarantee"
that their infernal filthy pulpmill can go ahead, because of the strife they have got themselves into.

We hope Kevin Rudd will quietly take heed rather than also resorting to argy bargy when people shy away from a policy because they don't understand, because he and his colleagues have been too lazy to explain it properly.

Whither electricity?

It looks like the NSW electricity privatisation is dead in the water, as Fiona says.

Though a referendum on it has not been held in NSW, all polls and other evidence point to overwhelming mass opposition to it. Otherwise the NSW Liberals would be going for it full bore.

If one supports democracy, one cannot support Iemma and Costa.

Another massive change along similar lines was the floating of the dollar and dropping of exchange controls by the Treasurer Paul Keating in 1984. Keating had no electoral mandate for this, and it was against then ALP policy. But that did not worry him; after all economic rationalist Treasury mandarins had told him it was the right thing to do.

That massive economic change has arguably brought a large influx of cheap consumer goods, but at the cost of wiping out a large part of Australian manufacturing, and blowing the nation's foreign debt out to over $600 billion, that is about $30,000 for every man, woman and child in the country.

I have maintained all along that this should never have been done without a full public debate beforehand, however allegedly good or otherwise it may have been. But then again, I am democratically inclined, unlike some of its political sponsors.

Ironically, its chief sponsor, the said Keating, gave a speech to the Melbourne Writers' Festival last Saturday which carries an implication that it was not such a good idea after all. The further irony is that its author was apparently unaware that this implication lay within his speech. Some would say we get the politicians we deserve. On the other hand others, including me, would argue that they should each have a personal share in the consequences, positive or otherwise, of their decisions.

A good way to start would be by tying their total remuneration packages to average weekly earnings.

Whatever happens in NSW, centralised power generation (though not the grid) may be already in decline. A major breakthrough in the chemical photolysis of water was announced earlier this month at MIT, which carries potentially huge implications for small-scale (ie home based) power generation and energy storage. Just this news could scare off potential buyers of the NSW system, leading to a large market devaluation. Obviously, if people are going to switch thanks to emerging technologies to using progressively less power from the grid, and only use the grid for what they can't generate themselves, it is likely to blow a hole in the profits of whoever buys the grid. This in turn will either force up electricity prices, leading to more home-based production or cause the private generators to lobby governments to force consumers to buy more or all off the grid. Or both.

Not a good look for privatisation.

Dead in the water

From Alex Mitchell, in today's Crikey:

By the time you read this, the NSW Legislative Council will have killed Premier Morris Iemma and Treasurer Michael Costa’s legislation to privatise the State’s electricity industry by a wide margin.

That’s provided upper house President Peter Primrose calls a division and doesn’t simply let it be decided on the voices -- which would save the embarrassment of Labor MPs who support ALP policy being captured on film crossing the floor to oppose their own government.

When this morning’s Coalition joint party room meeting voted unanimously to oppose the legislation on the grounds that it did not meet their "public interest" test, the planned sell-off was a dead duck.

The utter failure of the power sale project can be sheeted home to two people -- the Premier and his Treasurer. They had a golden opportunity to persuade the NSW ALP, Unions NSW, their backbenchers and the general public to support a plan to raise billions of dollars to help repair old infrastructure and start new projects.

Instead, they behaved like old-style political bosses issuing orders, cracking the whip, shouting down opponents and threatening them. Even with the Sydney media in full throat backing the Thatcherite "solution" to the state’s energy needs, they failed to sell their message anywhere outside the city’s Central Business District.

What gives today’s parliamentary defeat a seismic quality is that Morris Iemma and Michael Costa both placed their credibility on the line for privatization. They raised it to a matter of confidence in them.....


New South Wales Treasurer Michael Costa says he is thinking about quitting politics as his electricity privatisation plans head for certain defeat in State Parliament today.

New South Wales Opposition Leader Barry O'Farrell has confirmed the Coalition will vote against the sell-off plan today.

"Mr Iemma's proposed sale fails the public interest test," he said. Mr Costa says the defeat of the legislation will make him consider his future.

Well, he would say that, wouldn't he? Only 7 weeks to go until he qualified for his little super package.

And just in, from the SMH:

The NSW Government has put its proposed electricity privatisation legislation on ice.

It has moved to defer further parliamentary debate on the proposal until September 23.

The surprise move came at the end of initial speeches by both the Government and the Opposition on the legislation in the Upper House.

Aaaaahhhh, the sweet smell of blood in the afternoon...

Watch this space.

democracy in action

Costa will be grumpy.

The Libs are blocking it in the upper house, so the latest sly little trick has been gazumped...

I know ... a referendum!

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