Corpratising the Snowy Mountains Scheme: hijacking environmental concerns for commercial gain

The Snowy Mountains Project is a large multi-purpose water project that was planned and built to serve the people of Australia as a whole. The project had a catalytic effect on the development of the nation. The benefits of the Scheme have steadily increased over the years.

It is now 50 years since the start of the Scheme. In that 50 years, the population of Australia has trebled, and electricity production in Australia has increased by more than 20 times. The peak capacity of the Scheme was enlarged accordingly. Peak capacity of the Snowy could readily increase further. The scheme has enabled a major increase in the volume and value of irrigation in the Murray-Darling Basin.

The Snowy Mountains Scheme is monumental in world terms. Much of the major construction of the Scheme was underground, with some of the world's largest and longest water diversion tunnels and underground power stations.

It is a complex, integrated, water management system, regarded as one of the most complex and successful water management systems in the world.

The process of corporatisation of the Snowy Mountains Hydro-Electric Authority (SMHEA) began with a Council of Australian Governments (COAG) decision in 1993. I wonder if they had any idea at the time of the mind-boggling complexity involved. The Environmental Impact Study Report on the corporatisation of SMHEA includes this statement, "The Snowy corporatisation process involves the development of some thirty inter-governmental agreements to replace the current governance arrangements and to provide for a competitively neutral regulatory regime."

I think the whole process is doctrinaire and irrational. It all started on the wrong course of action because COAG tried to apply the rules for private or public thermal power stations to a complex, multi-purpose, national, water resource project. COAG probably thought it was a good idea at the time. It is now obvious that it was not, and the muddle has grown steadily for seven years, seemingly without prospect of resolution.

For many reasons, it is vitally important that the ownership, management and continued operation of the Scheme be a clear responsibility of the Australian Government, not a state or a group of states, or the private sector, but the nation.

It really does not matter what the Constitution may say about the limits to the powers of the Commonwealth, the fact is that the Snowy Scheme now exists, and must now be managed and further developed in the interests of the nation as a whole. The High Court would certainly recognise that fact.

There are many examples around the world of similar national projects that are owned and managed by national governments, and which operate harmoniously with the private sector and state and local governments.

The rapid progress on the design and construction of the Snowy Scheme was made possible by a cordial relationship between the young Snowy Authority and the long established and experienced United States Bureau of Reclamation.

The Bureau of Reclamation today is an outstanding example of the way the Australian Government should approach the management of national multi-purpose water projects:-

The whole Bureau complex of dams, power stations and irrigation supply canals and pipelines in the 17 western states is operated and managed as an integrated dynamic system. It is accepted in America that there will be continued growth and development of that system, and there is a free flow of ideas for development from the public and by the Bureau.

This is all in sharp contrast to the proposals for corporatisation of the Snowy Scheme by NSW and Victoria, where the inland diversion of the Snowy River water is to be substantially reduced, and for a firm period of 75 years. Those proposals are unreal and destructive.

The proposals by NSW and Victoria to reduce the diversion of water to the inland, to reduce electricity output, and to lock these restrictions in place for 75 years, can only be seen as a deliberate challenge to the national purposes of the Snowy Mountains Scheme. The proposals, thereby, are a deliberate attack on the national interest.

The challenge by the states is directed to reducing the so-called unfair competition from Snowy Hydro to state and private thermal power in NSW and Victoria, and to assert state rights. In these circumstance it is useful to review the background in the electricity market that led to these actions by the states.

During the past two decades there was a mood of desperation at state level in NSW and Victoria as they sensed the growing competition from Western Australia and Queensland in terms of new industrial development, population growth, and increasing gross state product. Sydney and Melbourne became the havens of the service sector of the economy, while new production was attracted to WA and Queensland.

Electricity demand is a convenient indicator of these trends, as shown in the chart. Please note that the chart shows market share ratios of national electricity production, not actual kWh.

It is possible to divide the states of Australia into two groups, which we may describe as older industrial Australia and newer industrial Australia. Note that the comparative behaviour on the chart has followed a consistent pattern since 1965.

The state of Victoria under the Cain government tried to correct this matter by greater investment in thermal power, but this was against the market trend. The Kennett government, faced with over-capitalisation on powerplants, then privatised the lot, leaving the new private owners, who overbid, to cope with insufficient revenue to service their investments. There have since been massive capital write-offs by the new thermal powerplant owners.

In all these circumstances the Snowy Scheme was seen as an unwelcome competitor, particularly that capacity of the Snowy to sell into the grid in the middle part of the load curve, at the margin with thermal power.

The attacks on the Snowy Scheme began, initially, on the basis that thermal power was cheaper than Snowy hydro. The argument was irrational, as thermal was base load, and hydro was peak. The Snowy managers were criticised if they charged market prices, and criticised if they charged less than market prices.

The Snowy River lobby in Gippsland, who were advocating the return of waters to the Snowy River, even if for quite obscure purposes, and white-water rafting, were seen by the state governments of Victoria and NSW as providing a reason to reduce Snowy output. This reason had the wonderful advantage that it had nothing whatsoever to do with the financial difficulties of thermal power stations, but it was all about the environment. The state treasurers of NSW and Victoria became friends of the environment, and initiated a grand environmental inquiry into the adverse environmental effects of the transmountain diversion of the Snowy River.

The inquiry was conducted by the NSW Government, and was made to appear like a royal commission. That was part of a cynical and elaborate deception. The report of the Inquiry is essentially a political report, giving credibility to quite weird and unsubstantiated claims. But the objective was clear from the start, and that was to reduce the electrical output of the Snowy, even if that meant taking water away from farmers in the Murray-Darling Basin. In the meantime, the Victorian Government was planning for a Bass Strait cable, which would have a similar function on the grid as the Snowy, and negotiating with private sector interests as if the reduction of Snowy output was already an accomplished fact.

The response to the NSW "Inquiry" by the Australian Government, in the Draft EIS on Snowy corporatisation, simply shows that Commonwealth had been successfully intimidated and had swallowed the bait. This whole issue is vitally important to the national economy and the future of the nation. It is not about the environment, but all about competitive development at state level versus national responsibility for national development.

Australia has long reached the end of state-based development. The future lies in national development, directed to expanded production and competition in a global economy, not competition of state against state, or states against the nation.

The Snowy Scheme, with its great water diversion tunnels and water storages, can be regarded as eternal. It was planned and built for the nation. It should be owned and operated by the nation. There are many outstanding examples around the world of similar national water development projects.

It is quite inappropriate to consider that the management and future development of the great dams and tunnels of the Snowy Scheme should be placed in the hands of the private sector. The Snowy Scheme is not like ephemeral investment activities such as telecommunications or thermal power stations, which have a limited life and suit private investment.

The Australian Government should now introduce legislation to formally place the ownership, management and future operation of the Snowy Scheme firmly in the hands of the Australian Government only, that is without any participation by the private sector or state governments.

The States of NSW and Victoria may be tempted to challenge the Australian Government on this issue, but I believe they would find that the weight of public opinion would be strongly in favour of the Australian Government retaining full ownership and control of the Snowy Scheme.

If there is any challenge in the High Court, which I doubt, it would provide the opportunity for the Australian Government to correct some constitutional impediments to national development, and to introduce some new interpretations better suited to a modern nation in a global economy.