Sunday, August 31, 2008

NSW Power Sale Short-Circuit

This week saw some high farce in NSW politics. Premier Morris Iemma recalled Parliament early to sell NSW's electricity assets. However, the National Party flagged early that it would oppose the sale, because such a sale was certainly not in the interests of regional and rural people. This put the Liberal Party in a no-win situation. It's policy has been to sell ("privatise") electricity (& other) assets. The NSW Auditor-General had largely approved the sale, even though Premier Iemma and Treasurer, Michael Costa, had not put a minimum acceptable price on the assets.

In the end, Liberal leader Barry O'Farrell was caught between a rock and a hard place: follow Party policy; or keep the National Party happy and avoid long-term divisiveness. He chose to keep his Coalition partners happy. As a result, the sale legislation, having been introduced into the upper house, was withdrawn, and Morris Iemma stormed out of the lower house.

Such an embarrassment is usually politically unsustainable. Iemma and Costa quickly formed a Plan B - introduce a mini-budget to amend the lack of new funds, and sell the retail arms of NSW electricity at the same time. This, too, will have implications for the people of NSW:
  • the sale issue has become a political power play - for political parties, and for individual politicians & factions on both sides of politics.
  • it will create a new, privately run oligopoly, similar that run by oil companies. That is, there is a captive market and few companies providing the service.
  • the new private companies will have income and dividend growth for their business plan. This will be achieved through higher prices, and probably, new "fees and charges", similar to those imposed by banks.
  • High-yield dividends will probably be paid int he first 5-10 years to the owners by large borrowings against future income, increasing the debt-ratio of the companies, possibly putting them at financial risk like that experienced by the private owners of the private roads the Cross City Tunnel and Lane Cove Tunnel.
  • the sale has not yet incorporated how the Federal Government's carbon-trading scheme will affect prices, and the price to be paid for the assets.
  • the assets still don't have a highest minimum acceptable price for sale. It is entirely possible that Morris Iemma and Michael Costa could turn this into a fire-sale of assets of which they are custodians, but don't directly own, to satisfy their own political power agendas.
  • Their arguments for sale include the emotional blackmail of no new infrastructure investment, including for hospitals and schools. The NSW Labor Government has done little or noting of that in the last 12 years anyway! Their negligence should not be used to justify a need to make their budget look good.
People will be right to ask questions if Michael Costa, in particular, retires from Parliament with his lifetime government pension and benefits, and goes to work for a company involved in 'his' privatisation. he has already indicated he will retire before the next election (2011)

Barry O'Farrell and the NSW Liberal Party have their own conflicts to resolve: it is Liberal Party Policy to sell NSW electricity assets, but how would they do it, and not look like back-flipping, and how can this be reconciled to the contrary National Party policy.

However a 'sale' happens, the people of NSW will be worse off because of the actions of Morris Iemma and Michael Costa.