TiP

We are now just five sleeps from C-day, so it is not surprising that politicians and the media are all excited, but the sun will rise on Monday, 2 July in a world not that much changed from right now.

The uncertainty for energy investors about where policy and the market are going in Australia will be as high then as it is today.

The fragile state of the federal government, and in particularly of Julia Gillard, this week marking the second anniversary of her political assassination of Kevin Rudd, will not have changed.

There will be no clarity next week on when we can have an election to change this situation.

So, let’s assume for the sake of the argument that a winter of rising community discontent leads Labor to oust Gillard when the parliament returns to a thawing Canberra.

Assume that whoever is the new leader understands that he – a male successor is as near a certainty as anything in this life – needs to get quickly to the polls to make the most of a brief honeymoon period, not to win the election (defeat is as near certain as anything in political life) but to minimise the damage.

Assume that the ensuing Abbott-led government has a thumping Representatives majority and has managed somehow to achieve a Senate situation with just enough votes to effect change (this is the really hard bit).

What will we see in 2013?

In this scenario, the carbon tax as it exists now, shambling towards C-day, will be ditched before its first birthday.

This view runs counter to the prevailing mindset in the media, and therefore among a lot of business people, many of whom (but not those running major companies who have their own information streams established at some cost) rely to a remarkable extent on what they read in the papers, see on TV or hear on the radio – or at their club – for information on which sometimes they are betting the firm.

The mainstream media view right now is that it will take “until at least early 2015” to get the legislation repealed, by which time it will have been in place some 30 months and dropping it will cause too much angst as well as endless legal complications relating to compensation.

Interestingly, this appears to be a view shared by the hoi polloi: the latest Essential Report polling, which shows that the number of respondents opposing the carbon tax has risen from 48 per cent in March 2011 to 54 per cent today, finds that 40 per cent now believe it is unlikely that Abbott will repeal the measure when he wins office. Mind you, 62 per cent of those holding this view are diehard Labor supporters.

Whoever is right – whether there can be a clean fix to the issue or a messy, drawn-out one – when this is resolved, the core question will remain: how to transition Australia, and especially the electricity supply industry, in to a decarbonising era?

Some media are fixated this week on the steps some coal-fired generators have had to take to get their debt refinanced. No surprises here, really, despite the newsprint hype.

Perhaps the most interesting aspect is that the owners of Yallourn and Hazelwood in Victoria and of Millmerran and Callide C in Queensland in each case have eschewed getting entangled with the federal government for assistance under its emergency loans arrangements and have raised the necessary money from their own resources.

The point is that owners were not forced to this recourse, as has been reported, but chose this route in all probability because they feared opening the door to government interference.

On the other hand, the Hazelwood owners, GDF Suez and International Power, had no trouble getting the Australian and Asia-Pacific banks to refinance Loy Yang B.

And the biggest of the brown coal generators, Loy Yang Power, was relieved of its refinancing problem by being sold to AGL Energy.

The difference, it seems to me, is that the Loy Yang operations have a future assured across a couple of decades and thus bankable.

Even with the bothersome financing issue stitched up, mainstream generators are not happy campers at present.

The never-far-from-the-media Ross Garnaut has been out and about saying, somewhat smugly, that falling wholesale power prices plus the carbon tax could lead to closures of plants. However, this is okay apparently because “we have too much” generation capacity.

Energy Supply Association chief executive Matthew Warren sees the situation a bit differently.

He has issued a warning that the mainstream generation sector is operating under “extreme stress” at the moment, given the new tax and falling wholesale prices.

There is a danger of the fossil-fuelled operations “being paralysed until they break,” he says.

Meanwhile, a big question mark now hangs over the value of the black coal-fuelled New South Wales generators the O’Farrell government is engaged in selling.

Leave aside the pair affected by the “gen-trader” deals of basketball enthusiast Kristina Keneally. Their value was slam-dunked by her part privatisation process and, while it will be interesting to see the outcome of their sales, it is not a major money issue – unless you are a taxpayer annoyed by the less-than-satisfactory overall return.

The main game is who will buy Macquarie Generation’s parts, given that the ACCC will insist on a split-up, and what will they pay, bearing in mind the impact of the Gillard carbon tax on the asset value?

Just how many hundreds of millions – billions? – will the taxpayers of NSW see washed down the sink as the result of a whole slew of mistakes and political games, not forgetting the role of the trade unions?

I should think two government treasurers will be watching the sale outcome with much interest.

NSW’s Mike Baird because he needs as much money as possible and Wayne Swan because he will trumpet a good price for the MacGen parts as evidence his carbon tax is not an investor deterrent.

Coming back to the latest Essential Report, the political message is that, after all the federal government explanations and after the recent mailing out of “compensation”, 67 per cent of poll respondents expect energy prices to increase a lot, 53 per cent expect the same to happen to other fuel prices, 41 per cent hold this view on the impact on grocery prices and 22 per cent think it will lead to a large rise in interest rates – while 58 per cent believe it will add to unemployment.

On this basis, it is highly unlikely that the horse Gillard and Swan are riding will do a Black Caviar at the election – there’s a better bet, I think, that, with a lot of help from the carbon tax, their nag may be dead before the race starts.

Which still leaves us with the question “And then what?”

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