I’ve had a few responses to my recent report on the history of electricity privatisation and market reform in Australia. There’s one here from Lynnette Molyneux, who’s with another research group in my own school, and one from the Electricity Supply Association (doesn’t seem to be online, I’ll post a link shortly). Most interestingly, one from Sinclair Davidson at Catallaxy who starts with a couple of points of agreement.
A couple of thing where we agree:
Economists, at least when they were thinking clearly and speaking honestly, were as one in rejecting the most popular political reasons for privatisation: as source of cash for governments or a way of financing desired public investments without incurring public debt.
I made a similar argument recently in New Zealand.
Then he is critical of Public-Private Partnerships. I am too – albeit for different reasons. All too often, I suspect, they are financing mechanisms looking for infrastructure to finance, as opposed to being a positive NPV infrastructure project looking for financing.
before going on to quibbles and more substantive criticism.
I’ll try to present a proper rejoinder to the criticisms later, but for now I want to observe the striking fact that the point on which Davidson and I, and (AFAICT) all Australian economists, agree is also the focus of agreement between Campbell Newman and his predecessor, Anna Bligh, along with Peter Costello, Barry O’Farrell, and the great majority of Australian politicians. The only problem is that the politicians agree on a view exactly opposite to that of the economists
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The announcement that Lend Lease is pulling out of a joint venture bid with Aurizon (the former Queensland Rail freight arm) to participate in the expansion of the Abbot Point coal terminal comes shortly after the Great Barrier Reef Marine Park Authority has approved a proposal to dump dredge spoil from the Abbot Point coal terminal expansion in the marine park area. (The government’s go-to guy for “independent” ethical clearances, Robert Cornall, assures us that there were no conflicts of interest arising from the presence of coal companies executives and employees on the Board. Then he had to rush off to
whitewash investigate the conduct of the government and its agents on Manus Island).
On normal commercial calculations, this decision ought to have made the project more appealing. But the Lend Lease statement withdrawing from the project included the slightly gnomic observation that “Lend Lease remained committed to applying “rigorous due diligence” and considering the environmental impacts of all it projects,” it’s reasonable to infer that the decision made the project more toxic rather than less. The obvious reasons
* Coal projects are attracting more and more opposition, but it’s always possible for the proponents of one project to say that if theirs didn’t go ahead, another, possibly worse one, would. By contrast, when a government that’s busy revoking World Heritage Status announces that the project will involve dumping waste in a sensitive marine park, any company that cares about its public image is going to run a mile
* Given the obvious PR costs, the fact that the proponents went for this, rather than looking for a more expensive but less politically toxic approach to waste disposal suggests that the project is economically marginal, an inference supported by the earlier abandoment of a more ambitious version involving Rio Tinto and BHP.
An obvious follow-on project is: who is financing these projects. It looks as if all the major Australian banks are involved to some extent. Westpac is already running into trouble in New Zealand for financing coal mines in sensitive areas. As major international banks, particularly development banks, start dumping toxic projects like this, the Oz banks are likely to find themselves with a lot of undiversifiable risk.
fn1. Breaking usual protocols, I’ve linked to the Oz. When the Murdoch press calls someons a “Howard defender” and strongly implies that he’s stooge, I think it’s safe to say that the appearance of independence is compromised.
Telstra is lining up behind Qantas for the removal of restrictions on foreign ownership. It’s worth mention that these annoying “restrictions” were marketed to the public as “safeguards” when these enterprises were privatised in the 1990s. As I said at the time
Based on past experience, it seems unlikely that restrictions on foreign ownership will ultimately be effective. The effect of the ‘safeguards’ in the Telstra (Dilution of Ownership) Bill will be to reduce the sale price obtained by taxpayers while obscuring the fact that the ultimate outcome of privatisation will probably be either a foreign-controlled monopoly in telecommunications or a duopoly consisting of two foreign-owned firms.
Current and recent proposals for the sale of state-owned electricity assets have been pushed with safeguards of this kind, which achieve nothing. If it’s OK to privatise a business, it’s OK, and indeed obligatory, to sell it to the highest bidder. For obvious reasons, this will usually a foreign multinational in the same line of business.
It is surely not without just reproach, that a nation, of which the commerce is hourly extending, and the wealth encreasing, denies any participation of its prosperity to its literary societies; and while its merchants or its nobles are raising palaces, suffers its universities to moulder into dust.
A JOURNEY TO THE WESTERN ISLANDS OF SCOTLAND by Samuel Johnson