If it were not actually happening, one would be hard put to invent a worse example of government management than the NSW handling of the “gen-trader” sales.
While Kristina Keneally’s apparent decision to back down from the sale of further assets before the election is to be welcomed, information leaking out to the media about the process gives a new meaning to poor governance. (I say “apparent” because, as with so much else associated with this government, Keneally has obfuscated about the issue: bids are still being accepted until Monday, but, she says, “there is no guarantee” the transactions can be completed before the government goes in to caretaker mode on 5 March. Meanwhile, leaks from within the Labor party to the media say that shaken and stirred MPs have been assured that the deals will not be finalised.)
The Australian Financial Review, in a report published today, asserts that a driver in Keneally’s latest backdown was the prospect of some MacGen directors following the example of those on the Delta Electricity and Eraring Energy boards and resigning rather than approving a deal. The paper quotes the director as telling it: “The process (has) involved an appalling lack of attention to detail, almost no communication with the power companies and a frightening disregard for the protection of taxpayers against ongoing financial risk.” The director is reported to claim that the board is concerned that the deal could leave it in a position of trading while insolvent, with the cost of extra-ordinary payments and repairs beyond regular maintenance not covered by the sale arrangement. It is also claimed that the MacGen board put in “dozens” of submissions to Treasurer Eric Roozendaal’s transaction team outlining concerns about the structure of the sale without receiving any feedback.
While Keneally’s move to prorogue State parliament has stymied the attempts of the Nile committee to call the directors who resigned to give evidence, there is still time before the election for Roozendaal to be summoned back to answer the serious allegations published in the Financial Review.
Meainstream media reporting of the power situation in NSW, however, remains confused. Despite reports, it is hard to assert that there is lack of investment in the industry when some $19 billion is being outlayed over five years on networks — and it is this expenditure that is driving up end-user costs.
The critical issue affecting investment in new generation capacity is the lack of federal government action on a carbon price. Once that is in place, provided it is adequate, private investors will have a signal to pursue investment in new gas-fired baseload generation. The federal RET will also drive some investment in wind farms in the State — the problem here at present is the slump in REC prices caused by the mishandling of renewables process by the Rudd government (of which Gillard and Swan, of course, were senior members.)
The problem with the “gen-trader” fiasco is that it exposes the government-owned generators to untoward risk and, if there is a failure of private sector power station development, could lead to these plants, some of them approaching 40 years of age, having significant operational difficulties later in the decade. The implications, if this happened, for supply security are serious.
Opposition leader Barry O’Farrell has told the Nile committee that he is assailled with community complaints about power prices wherever he goes in the State. It serves his political purposes to conflate this concern with the “gen-trader” fiasco — and, while the community doesn’t understand this issue, it does appreciate that it is another example of Labor’s “beyond bad” governance –but the Coalition should take care not to create an impression that a change of government, a judicial inquiry in to the deals and a new policy on generation ownership will ameliorate the rising trajectory of retail power prices.
The price drivers are network costs, the growing impact of the RET (although a small burden by comparison), the flow-on costs of Keneally’s misbegotten rooftop solar subsidy and, when and if it arrives, a carbon price. Collectively, these factors are on track to increase end-user power bills in 2015 to double what they were in 2008. Not only does O’Farrell have no announced plan to change this — it is hard to see what plan he could offer. Network charges are judged by an independent national regulator, the embedded costs of the solar FiT are now unchangeable and the RET and carbon tax are federal policy.
Any hope that major users had that an incoming Coalition government could effect a radical change in the network sector can now be abandoned. Under pressure to protect the Coalition from Labor scare tactics in the election campaign, he has pledged that a sale of “poles and wires” — a term that in itself betrays a lack of understanding of the network business — will not be pursued.
Reading the evidence that OFarrell and his Treasury spokesman Michael Baird gave to the Nile committee, it seems likely that a Coalition government will set up a new version of the 2007 Owen Inquiry in to NSW generation needs and the best means of meeting them. In some respects, this is to be welcomed — it will create some clarity in a confused environment — but investors will be rightly concerned at any further long delays in establishing firm NSW policy on power production.