Home > Economic policy, Oz Politics > Privatisation, 80s style

Privatisation, 80s style

December 11th, 2007

I haven’t had time for a detailed analysis of the Iemma government’s proposed privatisation of the NSW electricity industry, though what I saw of the Owen report suggested that the case was weak.

Fortunately, the announcement that the sale will .help pay for a “new vision” for urban transport, a European-style metro rail line, better country roads and improved water management.’ tells us everything we need to know. The quotes in that link should be around “pay for”, not around “new vision”. There is no meaningful sense in which selling an income-generating asset allows you to pay for anything. The sale price merely offsets the loss of income.

As a matter of public policy, either a metro rail line is a good investment or it isn’t. Whether or not electricity assets are sold can make no difference to this. However, lots of evidence suggests that when people get money that they can regard as ‘free’, they generally squander it.

This is all set to be a repeat of the 1980s and 1990s privatisations when the proceeds of asset sales were sprayed against the wall (I’ve slightly bowdlerised the picturesque description offered at the time).

Following on from the Cross-City Tunnel fiasco, the Labor government in NSW is cementing its reputation as the country’s worst fiscal manager.

Categories: Economic policy, Oz Politics Tags:
  1. Spiros
    December 11th, 2007 at 07:57 | #1

    Suppose for the sake of argument that the metro rail line is a good investment. Iemma is proposing a swap of one asset for another. While this isn’t necessarily good, is it necessarily bad?

  2. Hermit
    December 11th, 2007 at 08:03 | #2

    Maybe electricity is a hot potato in light of looming coal restrictions, more so than say water supply. If private power firms have to take unpopular decisions then the government is off the hook. Of course that could also make the businesses hard to sell.

  3. Andrew
    December 11th, 2007 at 08:38 | #3

    JQ,

    Sounds to me like you are just idealogically opposed to private ownership of power?

    I agree with you that selling power should have no bearing on whether metro rail is a good investment or not – but it is untrue to say that the two are unlinked. I guess the government could go and borrow the money it needs and use the income from the power assets to fund the debt – but does it have the funding capacity?

    If the government releases capital through the sale of power assets and then redeploys that capital in other infrastructure assets – well what’s wrong with that?

  4. Spiros
    December 11th, 2007 at 08:49 | #4

    On Andrews’ point, your objection to earlier privatisations was that it was a bad deal to sell income earning assets and retire debt. Whether or not that was true, that is not what is being proposed here.

  5. December 11th, 2007 at 10:39 | #5

    “However, lots of evidence suggests that when people get money that they can regard as ‘free’, they generally squander it.”

    That depends on the culture. In his autobiography, Nevile Shute records that he found in his entrepreneurial days that windfall gains from farmers selling agricultural land for new urban needs in fact provided a good source of venture capital.

  6. observa
    December 11th, 2007 at 10:49 | #6

    Basically they want to dump politically unpopular power rises onto the private sector, no doubt with soaring cap and trade add-ons in mind
    http://www.news.com.au/story/0,23599,22903822-1702,00.html

  7. observa
    December 11th, 2007 at 10:59 | #7

    And my sage advice to the unions is- never come between a State Labor Premier and the chance to handball responsibility for rising utility bills.

  8. James Farrell
    December 11th, 2007 at 11:00 | #8

    Spiros, I think John’s point is that the onus is on the government to explain what benefit can be expected from the sale; the fact that their announced rationale emphasises how the proceeds can be used suggests that the privatisation has no inherent merit.

    I’m sure Hermit and Observa are right.

  9. Spiros
    December 11th, 2007 at 11:33 | #9

    James, they probably are right.

    What’s more, coal fired power stations might become stranded assets in the future, when a carbon price finally kicks in. Mind you, the buyers would know this, so either the sale price will be marked down heavily or the sale will come with all sorts of guarantees against windfall loss from climate chnage policies.

  10. John Bignucolo
    December 11th, 2007 at 11:34 | #10

    If you don’t reside in NSW you’re possibly missing the political context to what’s occurring. The NSW ALP has morphed into, amongst other things, a mechanism by which the planning powers vested in government are used to facilitate the funding and construction of infrastructure by some of the biggest companies in Australia. The ALP matches finance to construction and then ALP dips into the funds as they pass by to finance its operations.

    David Richmond stated recently that the greatest impediment to the deal flow in NSW (his words) was not the Cross City Tunnel, but the delay in the approval of the M4 East project in 2005. The privatisation is about using billions of dollars of public funds to guarantee that the M4 East is built, irregardless of the fact that Peak Oil and Global Warming require that money be spent on transport modes, like heavy and light rail, that are able to move large numbers of people and be powered from renewable sources.

    Interstaters have no idea of the extent to which the Roads and Traffic Authority and its designated stakeholders (the Road Transport Association and the construction companies) control transport planning in NSW/Sydney. The Department of Transport, which is responsible for public transport, is regarded as a sheltered workshop, dependent on public funding that shows up on the state’s balance sheet. The RTA on the other hand has used the PPP bonanza to decouple itself from Treasury and as a consequence has been free to implement its bureaucratic vision for Sydney – roads, roads and more roads. Congestion is something to be addressed by building more roads.

    The metro plan is a smokescreen. It will never be built. There are already critically important heavy rail projects, like the North-West line and second harbour crossing that should have been delivered years ago. Instead the NSW government keeps pushing them off into the never-never. The monies flowing from the privatisation of the retail electricity sector will be used to maintain the flow of major road projects in Sydney.

  11. observa
    December 11th, 2007 at 11:37 | #11

    The benefit is you can all apply for the head honcho’s, humungously well paid job in the new ‘Essential Services Commission’ like we have http://www.escosa.sa.gov.au/site/page.cfm?u=162&c=2143
    Your job is largely to mumble something serious and economically unintelligible as you rubber stamp the inevitable, well documented cases for power price rises and then go about your daily life in the community, while everyone from the State Premier down, treats you as a cross between Osama and a paedophile. It pays bloody well but so does does bouncer at the Baghdad Belly Dancers Club and the OHS is a lot better.

  12. December 11th, 2007 at 11:52 | #12

    “… the Labor government in NSW is cementing its reputation as the country’s worst fiscal manager.”

    I don’t think you need be so narrow in your description of its incompetence. ‘Country’s worst government’ is fine.

    I suppose we should be grateful they’ve mustered the energy to do anything at all after nine months of almost total inactivity.

  13. Ikonoclast
    December 11th, 2007 at 12:06 | #13

    Yes, the (quasi)-privitisation of “Toxstra” has been such a success hasn’t it? So far as I can tell, that company has become toxic to consumers, toxic to its workers and even toxic to whatever government is in power. And I almost missed the fact that it’s been fairly toxic to its shareholders as well. At least it’s even handed.

    Two issues have bedevilled the public/private ownership debate. The first has been poor thinking on the political economy front. The second has been the natural prediliction of sectional interests to act selfishly and dishonestly when not firmly controlled. The issues run together of course. The influence (and confluence) of ideology and self-interest have distorted this whole area of policy.

    The problem is that basic economic principles are ignored and sacrificed on the altar of ideology and self-interest. As JQ said, “There is no meaningful sense in which selling an income-generating asset allows you to pay for anything. The sale price merely offsets the loss of income.”

    Costello argued that the sale of futher tranches of Telstra (to give it its proper name) would help pay for other things. This was nonsense of course. The income stream of Telstra could have been used. The government could have borrowed separately, issued bonds and so on. This is patently clear to anyone with financial knowledge.

    And let us not forget that Labor started this privitisation folly. When I say “folly” I mean it can consist in the false economic logic as above but also in the failure to apply further essential principles.

    These principles must be to applied so that privitisation proceeds on a case by case basis on not an open slather basis. The main principles to be observed must be;

    1. Maintaining the general public interest and particularly ensuring that poor people have access to essential services including the basic utilities of water, power and communication. That they also have access to education, hospitals, health services, dentistry and public transport.

    2. The law of natural monopoly must also be observed. It is more efficient and equitable to provide one comprehensive infrastructure to all(eg. rail links, cable etc.) rather than parallel and competing infrastructures. The latter tends to fights over the high end of the market and leaveing others with no services. Our broadband and cable debacle to date is a good example.

    The state should retain ownership of such natural monopolies and on a case by case basis let service providers compete (by tender) to operate services over them where that makes economic sense.

  14. observa
    December 11th, 2007 at 12:13 | #14

    Now come on, let’s be honest. Who among you are responsible for loading and cocking the gun and pointing it at Iemma’s temple, saying ‘privatise or make my day’? Answer yes if you have been applauding Kyoto cap and trade, or Ruddy’s pledge to jail petrol price fixers and the concomitant unleashing of NRMA spokespersons and microphones under the man in the streets’ noses to get their lynch mob, metoo views, not to mention applauding the prospect of an army of taxeaters with clipboards checking Coles and Woolies prices. If you answered yes, then you are clearly a most worthy candidate for the new NSW Essential Services Commisioner’s job.

  15. snuh
    December 11th, 2007 at 12:46 | #15

    seconding john bignucolo, it was interesting that the north-west line and the second harbour crossing were not mentioned in plans for how to spend the money, with the presentation instead revolving around a fantasy of a “metro style” system which will be so awesome and frequent you won’t even need a timetable.

    apropos of nothing, noted trot michael costa is known to oppose building the north-west line and the second harbour crossing, although previously he’s always cited a lack of money. it’ll be interesting to see what his reason is now.

  16. observa
    December 11th, 2007 at 12:46 | #16

    “However, lots of evidence suggests that when people get money that they can regard as ‘free’, they generally squander it.”

    And I must remember to file that line away for safe-keeping.

  17. jimbirch
    December 11th, 2007 at 12:50 | #17

    I think this kind of question would be better decided by a real cost/benefit analysis, rather than a general spraying of simplistic pet truths?

  18. observa
    December 11th, 2007 at 12:54 | #18

    Mind you, if you’ve got some ‘free’ money sloshing about, Cinderella wouldn’t mind some to go to the ball via electric train. http://www.news.com.au/adelaidenow/story/0,22606,22898583-2682,00.html

  19. gerard
    December 11th, 2007 at 13:08 | #19

    Can I add to what Ikon was talking about? When I came back from China I was utterly astonished at the totally crap quality of Australia’s internet and telecom services. It’s worse than China – YES I am serious! If a rich country like Australia can’t do better than China it’s pretty pathetic. I was STUNNED when I discovered that sending a text message cost something around 20 cents with my Vodaphone card. 20 cents for a message!!! What is the ‘production cost’ of this text message?? It must be something like a fraction of one cent or something. In China, sending a text message costs 0.01 yuan, or in Australian terms less than one sixth of one cent. That is what text messages would cost if Australians weren’t being ripped off blind. The EU regulates prices, why shouldn’t Oz? Oh, I know, because the Market is the Invisible Hand of God and it’s Always Right.

    What does it cost to call mobile-to-mobile in Australia? I don’t remember but I do know that it is several times more than it costs for me to call Australia from China. How ridiculous that an international mobile-to-mobile call is so much cheaper than a mobile-to-mobile call inside the same suburb of Brisbane! Plus, in Australia, when you buy a phone these days, the actual phone is usually physically bonded to one service provider (so you can’t put a new sim card in and change providers). Well this is great for Crazy John I’m sure but not so good for customers, which is why this sort of phone-bondage is banned in France, China and other countries with sensible telecom policies.

    Aussie internet SUCKS! In China you can pay 800 yuan (about $120) for a year’s high speed ADSL cable, which is 100% reliable (never cuts out like stupid Optusnet), has UNLIMITED download (no stupid 12 Gig limit), and free immediate installation! The cost of high-speed internet in Australia is totally out of proportion to ‘production cost’, it is simply a fleece job by an unregulated oligopoly!

    Just like the Aussie telecos, the Aussie banks are absolute pirates. Wacking you with ‘service fees’ simply for keeping your money untouched in an account! Five dollars a month for doing nothing! Five dollars for using a competitor’s ATM machine – even if just to check the balance! Fifteen dollars for replacing your card (a piece of plastic which costs nothing)! Fifty dollars for overdrawing your account by a couple of cents! Utterly crap service if you’ve got a problem, hope you’re patient enough to spend ages on their ‘unhelp line’, or can find the time to go in during the few hours each weekday that they’re open. But who would want to go back to the bad old days of regulated banking?? That is, who, except anyone who has banked in a country where banks are regulated not to rip off everyone at every opportunity. I was literally in shock the day I went to open my first bank account in China – I was so used to time-consuming hassle and unreasonable charges that I couldn’t believe the whole thing cost nothing and took less than a minute to do.

  20. December 11th, 2007 at 13:14 | #20

    Agree with JQ, The motivation for these privatisations is unclear. The $40m bribes paid to union members presumably for labour reforms are a small part of the deal.

    The claim of the State government that its debt ratting would deteriorate if it undertook infrastructure expansions via debt seems unsound by John’s logic – you don’t improve your net worth by selling off assets at their value.

    I assume the higher cost of borrowing that private firms will incur must mean higher electricity prices.

    I hadn’t thought of Observa’s point re climate change – maybe but this was not an issue on the horizon when privatisations occurred in Victoria.

  21. Andrew
    December 11th, 2007 at 13:28 | #21

    Spot on Gerard. Telecoms in this country is a disgrace. The sooner Conroy gets the whacking stick out on Telstra the better. The company has to be broken up.

  22. ks
    December 11th, 2007 at 14:03 | #22

    I often wonder if any of the Eastern State planners paid attention to what happened in W.A. In short:

    1). The previous labour government (for its failings) did invest in the northern rail link — and its been a big success. There are those who argue otherwise and say W.A.’s public transport should be privatised (a well known think tank comes to mind). Also, vested interests who made money out of selling cars and building roads were not to happy….

    2). The present labour government bit the bullet and is soon to to open the south line. To early to say if that will be as successfull of course. But, on the train the other day I heard a group of youths talking about how they were looking forward to catching the train to Mandurah (for a swim and some fishing).

    Possibly a sign of another success to come.

  23. December 11th, 2007 at 14:15 | #23

    and who will bell the cat. after all this heated and or learned analysis, no ever says, “right, we’re agreed, let’s get started.”

    do you imagine iemma is reading this, nodding, saying “hmm, they’re right, i’ll change my plans”?

    if so many learned and concerned people are agreed that their state and nation is being run by dimwits, fools and charlatans, how come no one ever says “we can do better?”

  24. John Bignucolo
    December 11th, 2007 at 14:48 | #24

    The previous labour government (for its failings) did invest in the northern rail link — and its been a big success. There are those who argue otherwise and say W.A.’s public transport should be privatised (a well known think tank comes to mind). Also, vested interests who made money out of selling cars and building roads were not to happy….

    2). The present labour government bit the bullet and is soon to to open the south line. To early to say if that will be as successfull of course. But, on the train the other day I heard a group of youths talking about how they were looking forward to catching the train to Mandurah (for a swim and some fishing).

    Possibly a sign of another success to come.

    Would that the NSW government were so sensible and sane.

    Professor Peter Newman was a crucial proponent for increased public transport investment in Perth. The extent of the (enlightened) transformation in spending priorities in Perth is illustrated by the shift in road to public transport spending of 5:1 under the Court Liberal government to 1:5 under the Gallop/Carpenter ALP governments.

    Prof. Newmann’s experience in Sydney is instructive of the toxic planning/civic culture permeating the NSW government. He was appointed to the role of Sustainability Commissioner by the then planning Minister Craig Knowles. He made useful contributions to improving sustainability standards in the building industry and nudged his Minister in the direction of sensible transport planning and project assessment. However, Prof Newmann resigned in frustration soon after the present Minister for Planning, Frank Sartor, was appointed. Minister Sartor has been characterised by an overweening arrogance and penchant for ignoring advice unusual even by the low standards of NSW government ministers.

    The first thing that Frank Sartor did was to exempt large property developers from the sustainable building codes previously adopted by the NSW government. In a strange coincidence, the large property developers are amongst the biggest donors to the NSW ALP. So are the large construction companies who have built/owned/operated Sydney tollroads since Nick Greiner set the PPP ball rolling.

  25. Ikonoclast
    December 11th, 2007 at 14:49 | #25

    I just noticed all the spelling mistakes and typos in my last post. “How embarrassment!” as Effie would say. I will try to do better.

    Toxtra’s provision of internet services is a disgrace. A friend of mine got inveigled into a Toxtra cable deal that bundled phone and internet. The price was good but he soon discovered something very interesting, by which I mean infuriating, about Toxtra’s Internet service. It’s supposed to provide an “up to� 8 megabit service. When he uses it to browse or download from general web pages it is as slow as a wet week. His tests indicated 2% of the possible maximum speed. These tests of which he made several, were spread across sites, across days and at different times. Two percent of the promised maximum was a consistent result. In his own words, “Barely faster than a dial-up modem.�

    When he complained to Toxtra, they asked “What speed tester are your using?� He told them. They said, “We use our own test program.� He tried this which was on their site and ZOOM! 8 megabits! He tried a few downloads from Toxstra and ZOOM! 8 megabits service!

    It seems to be the case that Toxtra throttles other sites’ content downloads but optimises its own. Of course Toxtra sells music, movies etc from its own site. Isn’t there a conflict of interest here? Here is an ISP (service provider) who is also a content provider who is then giving differential service! Is this not a form of anti-competitive behaviour? Is it not also dishonest promotion to advertise up to 8 megabits and then not mention that this sneaky throttling technique is in place?

    I think consumers in general, the ACCC, the communications ombudsmen and the government need to get seriously stuck into Toxtra over these behaviours.

    And I’ll add another matter. Consumer law ought to include a provision that “Big Print� claims in advertising (suitably defined) always should be met unconditionally or the consumer’s money must be refunded or the product replaced. It would make them darned careful about their big print claims. Big business gets far too many free kicks. The only kick the consumer gets is in the guts.

  26. gerard
    December 11th, 2007 at 15:09 | #26

    then I might actually get a $0 mobile phone?

  27. Socrates
    December 11th, 2007 at 15:30 | #27

    I agree with JQ on this – we are talking about privatising the whole NSW industry bar the distribution grid. So, a la telstra, another unregulated private monopoly is created. It is both a poor long term financial outcome and bad economics.

    Moving back from Telstra and monopolies to NSW, why is that State such a financial basket case? Just a few years ago they had enjoyed record income after the Olympics (Federally subsidised), record property tax revenues and more GST than expected. It has spent little on capital (toll roads may have cost road users but didn’t cost taxpayers) and schools and hospitals are still underfunded. Where has their money gone? They must have a huge deficit on recurrent spending.

  28. Socrates
    December 11th, 2007 at 15:35 | #28

    KS and Jogn Bignucolo

    I think the rail line from Perth to Mandurah has been a success already, before the first train has rolled. There has been a phenomenal boom in Mandurah housing, knowing that it will have reasonable acces to teh city. Given Perth’s overheated housign market, this both generates development and is most welcome from an equity viewpoint.

  29. John Bignucolo
    December 11th, 2007 at 16:30 | #29

    They must have a huge deficit on recurrent spending.

    NSW has been running budget surpluses for most of the years since the election of the present ALP government in 1995. It’s one of the ALP’s main claims to fiscal responsibility.

    According to the 2007-2008 Budget Summary, the NSW budget surplus will be $376 million. Previous years have seen surpluses of 1153 (2003-2004), 724 (2004-2005), 994 (2005-2006), and 444 (2006-2007) $ millions.

    The budget summary goes on to say:

    Net financial liabilities of the general government sector will decline as a share of gross state product (GSP) over the forward estimates period from 8.0 per cent to 7.5 per cent. With an increase in net debt, total State sector net financial liabilities are forecast to rise as a share of GSP from 15.2 per cent in 2006-07 to 17.6 per cent in 2010-11. The increase in net debt will fund a record capital works program of $49.6 billion over the four years to 2010-11.

    I don’t know how NSW’s net debt and spending as a percentage of gross state product (GSP) compares to other states.

  30. observa
    December 11th, 2007 at 16:34 | #30

    “I assume the higher cost of borrowing that private firms will incur must mean higher electricity prices.”

    Well that’s a moot point all tied up in ‘sovereign risk’. The argument is that sovereign risk is always lower than private risk, so why not defer to sovereign risk whenever possible? Sounds fine but an example might show the fatal flaw. The govt follows the sovereign risk meme and deduces it can house all the people more cheaply than a plethora of private lenders with higher borrowing costs, so we all get our cheaper loans from the sovereign lender of first and last resort, fixed rate for the life of the loan naturally. From the North Shore of Sydney to Wadeye in the NT and everywhere in between, it’s all a matter of cheaper, fixed rate, sovereign risk folks. The old fallacy of composition again eh? The Soviets fell for it for 30 odd years too.

  31. John Bignucolo
    December 11th, 2007 at 16:42 | #31

    I think the rail line from Perth to Mandurah has been a success already, before the first train has rolled.

    It’s a fine example of the benefits of smart, transit oriented development.

    The approach embraced by Michael Costa, Frank Sartor, Eric Roozendahl and the rest of the dominant ALP right faction is the exact opposite: take greenfield sites, provide only road access, and leave the provision of rail infrastructure to some indeterminate point in the future, subject to public demand. Or to (accurately) paraphrase Michael Costa, public transport is for losers.

  32. observa
    December 11th, 2007 at 16:55 | #32

    And then there’s Ikonoclast bitching about how Telstra who has to service 21 million potential consumers (hey the kids get pocket money)in a whole continent, when they’d all fit into a provincial town in China, reckons he’s getting ripped off. Obviously he’s pouring his life savings into Telstra shares as fast as he can in order to grab as much their supernormal profits for himself as possible. As for the Big Oil cartel, sticking it up us with petrol prices all the time, according to all those experts who never manufacture or distribute a drop of it themselves, I just can’t figure why the silly beggars ever drop the price. A warped sense of humour I suppose?

  33. Matt Canavan
    December 11th, 2007 at 17:04 | #33

    I don’t know much about the merit of privatising electricity assets but your post doesn’t enlighten me much John. Attacking the government’s propaganda/marketing for the deal does not necessarily negate its worth.

    Also, although it’s of course right that selling an income generating asset does not make you better off to the extent of the sale price, if the buyer values the asset at a greater amount then gains can be made.

    Isn’t it at least possible that this is the case? Won’t the private sector be able to make the electricity industry more productive? (Didn’t this happen in Victoria?) Won’t private ownership be able to manage risk better (by merging with retailers and/or interstate companies)?

    You might have good responses to these points, but you at least need to address them to convince me.

  34. SJ
    December 11th, 2007 at 17:13 | #34

    The whole Owen inquiry was a sham.

    The terms of reference were as follows:

    1. Review the need and timing for new baseload generation that maintains both security of supply and competitively priced electricity.

    2. Examine the baseload options available to efficiently meet any emerging generation needs.

    3. Review the timing and feasibility of technologies and/or measures available both nationally and internationally that reduce greenhouse gas emissions.

    4. Determine the conditions needed to ensure investment in any emerging generation, consistent with maintaining the NSW AAA Credit Rating.

    Point (4) is treasury speak for not borrowing money. In other words, do we need another power station, and can we get one without paying for it.

    The obvious answer, delivered in report is, yes, you need one, and no, you can’t get one without paying for it. Duh.

    The report offers the escape that the government can walk away from the problem altogether, and the market pixies might (or might not) fix it.

    Costa is probably deluding himself about how much money he’s going to get, as well. The going rate for retail customers has collapsed completely, to something like one tenth what the Queensland government got, and the NSW government’s equity in the generators has dropped to about $500m. Its equity in Macquarie Generation is actually -$57m. Most of Macquarie Generation’s future income is already committed to servicing its existing loans and hedging contracts. Good luck trying to find a buyer for that.

    We’ll probably find out after the sale that the NSW government has taken on the debts of the generators and given exemptions or guarantees in respect of future greenhouse taxes or costs as well, so that everyone involved apart from the purchaser loses in the biggest way possible.

  35. Ian Gould
    December 11th, 2007 at 17:51 | #35

    John,

    Your argument assumes that the price private investors are willing to pay for a public assets is equivalent to the capitalised value of the current revenue stream.

    In practice, rightly or not, private investors assume they will be able to significantly increase the revenue stream and price the asset accordingly.

  36. Ian Gould
    December 11th, 2007 at 18:01 | #36

    Spiros: “What’s more, coal fired power stations might become stranded assets in the future, when a carbon price finally kicks in.”

    Actually I believe that while the transmission and retailing assets are being sold outright the generating assets are being leased out.

    Uncertainty over future carbon taxation policy probably does have lot to do with that.

    On the other hand, it’s wroth noting that Hazelwood power station in Victoria was sold off by the Kennett government for something like $1-2 billion but is now several times that.

    Closing Hazelwood, a lignite-powered plant which produces more carbon dioxide per unit of power than virtually any other plant in the developed world, and replacing it with power from a new anthracite-powered plant in Queensland or Victoria would overnight reduce our national GHG emissions by a couple of percent.

    Closing Hazelwood while it was still in public ownership would have required a write-off of its written-down book value (probably under a billion dollars). Closing it now would require cancellation of the operating license and probably involve compensation roughly equivalent to the current market value.

  37. SJ
    December 11th, 2007 at 18:06 | #37

    Matt, it’s possible that a buyer like AGL or Origin will value the assets higher, if that will put them in a position where they can extract monopoly profits. This represents a part transfer from future NSW electricity consumers to current NSW taxpayers, who are mostly the same people. Because it’s only a part transfer, those people will be worse off.

    As far as productivity gains, those were mostly won back in the 90s. Labour is now a tiny cost in generation. Some savings in marketing for the retail businesses would be possible, along with savings in the energy trading arms of the generators. Note that these savings come about through a reduction in competition, not through something inherent in the private sector. The NSW government could duplicate the savings by, say, merging Integral with Country Energy, or Eraring Energy with Delta Electricity.

  38. SJ
    December 11th, 2007 at 18:11 | #38

    Ian Gould Says:

    Actually I believe that while the transmission and retailing assets are being sold outright the generating assets are being leased out.

    Not quite right. The transmission assets aren’t being sold at all. The retailing assets are mostly intangible (brand, existing customer base). The generating assets are to be leased for 99 years, which on plant with a lifetime much less than 99 years, is equivalent to a sale.

  39. ks
    December 11th, 2007 at 19:00 | #39

    John, I have been aware of Professor Peter Newman’s view on the value of public transport since I saw him on Lateline back in Maxine’s days (1998 I think).

    I hope more rail lines are built (I am sure Peter would agree). I heard the W.A. government is thinking of putting a line to the airport which could be easily extended to service the hills regions (via buslinks) and the current suburb extensions in the foothills. These extensions are already having an impact on the already clogged roads of that area. If the peak oil theorists are correct, a new link would be an added bonus. Not to mention the health related bonus’s (a key point of concern, but dismissed by some, in discussions as we saw on Difference of Opinion).

  40. observa
    December 11th, 2007 at 19:05 | #40

    The fact that the unions are whinging that a $40000 govt bribe is not enough to compensate for being transferred to the private sector, should tell us all why certain private investors would value the assets higher than the govt http://www.news.com.au/business/story/0,23636,22900423-31037,00.html
    This is of course the same govt that most reckon can’t run a chook raffle, but somehow JQ reckons they should know all about the intricacies of electricity generation, transmission and pricing.

  41. SJ
    December 11th, 2007 at 19:35 | #41

    obby Says:

    The fact that the unions are whinging that a $40000 govt bribe is not enough to compensate for being transferred to the private sector, should tell us all why certain private investors would value the assets higher than the govt

    But the objection isn’t that the bribe isn’t “big enough”. John Robertson says:

    “The $40,000 is about clouding people’s judgments about what is in their best long term interests,” he said.

    “Whilst it looks good on paper, the reality is that this is an industry that people are going to rely on for the rest of their lives, either as workers or as consumers.”

    This is of course the same govt that most reckon can’t run a chook raffle, but somehow JQ reckons they should know all about the intricacies of electricity generation, transmission and pricing.

    This is silly. No one is arguing that the NSW government is great at these things, just that it’s proposing to make things worse.

  42. observa
    December 11th, 2007 at 20:04 | #42

    Silly me, the penny’s just dropped. The Labor govt wants to handball those electricity bill rises to the nasty private sector, whilst big corpora wants to get its hands on the freebie emission caps which is clouding everyone’s judgement about their best long term interests. They’ve got at least 12 months to hunker down the deal before Garnaut reports and the freebie caps are doled out by Rudd and Co and then it’s just a matter of how much of your hard-earned the unions want as a lump sum to grease the wheels. Welcome to Labor and Industry Policy.

  43. observa
    December 11th, 2007 at 20:21 | #43

    And don’t blame me or Howard for letting all those carbon quantity control freaks out of the playpen-
    http://www.news.com.au/story/0,23599,22896334-2,00.html?from=mostpop
    http://www.news.com.au/story/0,23599,22906691-29277,00.html
    http://www.news.com.au/story/0,23599,22906433-29277,00.html
    Try rounding up all the little beggars now.

  44. Ian Gould
    December 11th, 2007 at 22:23 | #44

    “This is of course the same govt that most reckon can’t run a chook raffle, but somehow JQ reckons they should know all about the intricacies of electricity generation, transmission and pricing.”

    Electricity generation costs in Australia are amongst the lowest in the world.

    There are some industries where the success criteria are very simple and the main challenges are technical.

    That doesn’t mean those industries should necessarily be run by the government but it does mean there probably aren’t huge efficiency gains to be made from privatisation.

  45. Tony G
    December 11th, 2007 at 22:32 | #45

    JQ said;

    “There is no meaningful sense in which selling an income-generating asset allows you to pay for anything. The sale price merely offsets the loss of income�.

    There is “meaningful sense� when you don’t have to supply the service and still keep the income.

    This is the scam of privatisating and corporatizing government services. The government gets the services off balance sheet and the consumer has to pay twice; Once to the corporation and again to the government who are maintaining or increasing taxation revenues as a proportion of GDP.

    Large sections of previously provided public services are now provided privately. The cost to the consumer for these services is now borne on top of taxation revenue.
    Expenses previously included in taxation are on top of it.

    Many public sector services have been removed from the calculation of public sector revenues by privatisating and corporatizing. Welfare pensions into private super; public to private healthcare; corporatizing of public utilities; public into private education; private toll roads; private hospitals; privatising public transport, etc etc.

    Privatisating and corporatizing is disguising and camouflaging the real increase in taxation.

    Taxation as a proportion of GDP has been rising, yet the services provided by the public sector has been reducing substantially.

    The issue isn’t who provides the service as both corporations and the government can and do provide good and bad service. The issue is why do we have to pay twice?

  46. observa
    December 11th, 2007 at 22:39 | #46

    Oh and a word of advice for you Ikonoclast. If you didn’t ditch your T1 shares before the election and switch into the AGLs and Origins you’re a mug with those poll figures. By the time those Federal chook raffle experts get around to investing your hard earned in their grand broadband fibre rollout, it will be all over bar the shouting
    http://www.news.com.au/business/story/0,23636,22907117-31037,00.html
    but then that’s why Howard wanted to flog Telstra for you in the first place.

  47. LuxuryYacht
    December 11th, 2007 at 22:47 | #47

    “Following on from the Cross-City Tunnel fiasco, the Labor government in NSW is cementing its reputation as the country’s worst fiscal manager.”

    Really, as the worst government. Pretty much the worst government of NSW ever, including the short-lived Unsworth government.

  48. SJ
    December 12th, 2007 at 21:58 | #48

    John, I just came across something you wrote in 2003:

    At one level, politicians are aware that this idea is false.Their own Treasuries have repeatedly told them that public-private partnerships are not a means of expanding the overall level of resources available to spend on government-funded social infrastructure. Putting the point succinctly, NSW State Treasury Secretary John Pearce and Victorian Treasury Secretary Ian Little have observed that ‘PPPs do not provide governments with an additional bucket of money for use on infrastructure projects’

    This is, of course, consistent with what you’ve written here.

    However, I believe that you were completely wrong about John Pearce. From my experience, Mr Pearce is a committed Thatcherite, who regards privatisation and competition as ends in and of themselves, and not as a means to economic efficiency. Hence the rhetoric in the Owen report that prices have to rise to encourage competition. What’s the point of the competition if it doesn’t reduce prices? Allocative efficiency, of course, but there’s no evidence presented of cross-subsidisation.

  49. cs
    December 14th, 2007 at 00:16 | #49

    Nice ball on middle stump John. To me, it is evidence of how bankrupt the government is in the ideas department. Privatising electricity has been around since Greiner, growing a beard in Treasury’s draw. Whenever a new government comes in, or the call goes out for departmental ideas, the dear old thing is dusted out, and the Treasurer or Premier of the day becomes momentarily virile on the idea, to the applause of the Big End of Town. Usually, the idea is buried for another 18 months or so in the next act, but you never know. This lot have a good deal of vacant space to fill, and seem very keen to appear “tough”, for reasons that entirely escape me at the moment.

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