“The most dangerous man to any government is the man who is
able to think things out for himself, without regard to the
prevailing superstitions and taboos. Almost inevitably he comes
to the conclusion that the government he lives under is
dishonest, insane, and intolerable…” - H.L. Mencken (Prejudices:Third
If you want to get to the bottom of the NSW energy
sell off you’ll need to grab your sunscreen and some comfortable
shoes, and pack your lunch.
The electricity sell off in New South Wales has played out
like the Millers Crossing epic. Remember Johnny Casper’s line:
“…It's gettin' so a businessman can't expect no return from a
fixed fight. Now, if you can't trust a fix, what can you trust?
For a good return, you gotta go bettin' on chance - and then
you're back with anarchy, right back in the jungle….”
Just how much wining and dining and how many back lane
punch-ups have occurred in order to “get the deal done”? Having
spent years pushing for “energy reform”, did the possibility of
a hung parliament in March 2011 cause the “privateers” to hit
the panic button? Did they make a couple of calls to get a
little more certainty?
The pious ranting we have heard from the leader of the
Opposition seems targeted at the way the deal was done and the
price paid rather than at the sell off itself. The voluble Barry
O’Farrell sounds somewhat disingenuous given that privatisation
has always been high on the Liberal agenda.
Electricity: an essential service
Believe it or not some of us think the role of government is
to ensure the provision of essential services to the people. If
government itself provides the service it does so on the basis
that it doesn’t make a profit but charges a price for the
service at a level where the price we pay generally will cover
the cost of providing the service and allow for the extra cost
of making sure the service will continue to be provided to the
population in the future. Proper modelling and costing can
ensure that what we pay now creates appropriate reserves to
maintain the infrastructure we inherited and build new
infrastructure in the future.
Privatisation of an essential service, on the other hand,
focuses on return on investment. Investment capital seeks
interest or dividends, and merchant capital seeks profit. Their
objectives are best served if the service is provided at the
cheapest possible price and charged for at the highest possible
As with water, the international march towards electricity
privatization appears to have taken root here in the mid 1990s.
Sharon Beder in,
Sale: The Power of the People, and with Damien Cahill in
the power shift: the state, capital and electricity
privatisation in Australia provides an informative
analysis of how the quest to privatise energy was pushed.
I sometimes wonder whether, in exchange for some kind of
bail-out, Australia once signed some sort of structural
adjustment program that no-one bothered to tell us about.
Some of the key occurrences include:
- The establishment of the National Grid Management
Council (NGMC) in July
meetings in 1993 and 1994 which reaffirmed the
commitment of most State governments and the Federal
government to energy reform.
- Premier Bob Carr and State Treasurer Michael Egan
pushing for electricity privatisation in NSW in 1997, a
clean-cut sale of retail and generation for $30 to $35
billion. They failed.
- COAG commissioning a review of the energy market in
2001, which resulted in the Parer
Report, Towards a Truly National and Efficient Energy
- In June 2001, COAG establishing the Ministerial Council
on Energy (MCE) to provide energy policy leadership.
- In December 2003, the MCE establishing its energy market
- In July 2005, two new bodies being established: the
Australian Energy Market Commission (AEMC), with
responsibility for rule-making and market development, and
the Australian Energy Regulator (AER), with responsibility
for market surveillance and energy market regulation.
On 10 February 2006, COAG endorsing the need to continue the
structural reform process and establishing an expert group, ERIG,
to prepare a
report. ERIG found that government ownership (especially in
electricity) acted as a barrier to entry and an impediment to
competition. To improve efficiency in Australian energy markets,
ERIG recommended disaggregation and full privatisation of
government-owned energy assets throughout Australia, taking
place as quickly as possible given the practicalities of the
privatisation process. ERIG acknowledged that privatisation may
be politically sensitive.
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