Go no further

The widely-held view in New South Wales that it has been governed for most of the past four years by a conga-line of political clowns should lead to a substantial defeat of the ALP at the end of March – but the issue of how this will affect the electricity privatisation process will roll on beyond the poll.

The situation is not helped by the fact that the mainstream media seem unable to differentiate between the straightfoward sale of the retail arms of the three government-owned electricity distribution businesses and the messy “gen-trader” deals, which involve not only the output of power stations but also the sale of future generation sites and the development of a coal mine with taxpayer funds.

One sidebar issue is why the Keneally government barred Snowy Hydro, owned by it and the Victorian and federal governments, from participation in the bidding process.

Another is what lies behind the decision of the government during the “gen-trader” process to bar Delta Electricity from signing a new electricity sales contract with Hydro Aluminium for its Kurri Kurri smelter, although it apparently allowed Macquarie Generation to complete a similar deal with Rio Tinto for a new contract to supply to the Tomago smelter. As the Labor member for the seat in which Kurri Kurri is located pointed out to the NSW Legislative Council committee investigating the privatisation process, there are 500 jobs affected by the ban.

The retail sale presents no governance issues: Origin Energy and TRUenergy have paid what is perceived in the energy industry as over the odds to acquire some three million account-holders customers, and will now have to work like billy-ho to retain them as other private sector retailers offer them deals. Good for supply competition and good for State revenue.

The controversial “gen-trader” process is further complicated by the fact that Treasurer Eric Roozendaal was not able to complete the sales in December and before his panicked Premier prorogued the State Parliament. Should he now go ahead and take final bids for Macquarie Generation output and remaining parts of Delta Electricity production by the end of January and pursue the sale before the government goes in to caretaker mode on 5 March ahead of the 26 March poll?

Well-regarded business journalist Stephen Batholomeusz, writing in Business Spectator, argues that the threat by the Coalition and the Greens that they will undo the privatisation deals after the election, and following a judicial inquiry, is “misconceived.” This would require legislation to be passed by the new government.

Batholomeusz says this would do “unnecessary damage” to the State’s reputation with investors.

He is right, I believe, to argue that undoing the retailer sales would be irrational, but the “gen-trader” situation and the related Cobbora mine development may be another matter.

The first imperative here is to get all the information relating to these done deals publicly available. The second, it seems to me, is to send a very clear “buyer beware” message to those in the market for MacGen and the rest of Delta. If these deals are pushed through under the present circumstances, a future Coalition government and the Parliament post-poll would be entitled, I believe, to say the buyers knew that the sales would be challenged and can have no complaint if they are over-turned.

Public disquiet about the privatisation process, something Premier Keneally has now confessed to the LegCo inquiry that she “under-estimated” in trying to shut it down, will not be lessened by The Australian revealing, and former Premier Morris Iemma reportedly confirming, that State Cabinet was told in 2007 that the “gen-trader” idea was a distant third preference behind full privatisation of the State-owned generators or their being leased out.

Apparently the concept of auctioning the generation trading rights was also rejected by former Premier Bob Carr and his Treasurer, Michael Egan, in 2004.

Given that a substantial portion of generation output has not yet been sold under the flawed “gen-trader” model – Macquarie Generation production and the remaining Delta output account for well over half the government-owned assets – it would be best if any further activity in this area was put off until after the State election.

Any “crash through” approach by Roozendaal, supported by the Keneally Cabinet, would rightly be considered by the electorate as outrageous and by the next government as beyond acceptance.

The most recent media coverage suggests Roozendaal himself believes the bidders for MacGen output and remaining Delta assets may have been spooked by the “gen-trader” furore and may not ready to put in final offers by 31 January, as required. The firms concerned may be wise to hasten slowly rather than exposing themselves to becoming part of further political fall-out from this badly-managed process.

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