Home' Future Building Australian Infrastructure Review : December 2011 Contents futurebuilding 73
Volume 2 Number 2
New South Wales: Electricity market reform is on the way... at last
McCann warned that privatisation of retail and
generation electricity assets alone will not be enough.
‘Governments must look to the excellent examples
in Victoria and South Australia for the benefit of
privatising transmission and distribution [assets].’
While the Tamberlin Report did not provide a
definitive recommendation on New South Wales’s
transmission and distribution assets, he did find that,
‘Overall, the evidence before the Inquiry tends to
support the view that the privatisation of network
business would lead to efficiency gains over time.
This would result in more effective capital investment,
which should result in a reduction in the charges
permitted to be levied for the business in the next
McCann said privatisation of network electricity
assets is vital. ‘This is not a debate about the
ownership of networks, it is about the price that
Australia’s households and businesses pay for their
electricity,’ he said. ‘Experience in Victoria and
South Australia shows that the private sector is more
capable of ensuring appropriate network investing.
Network costs per customer have been consistently
and considerably lower in those states.’
Of course, full privatisation of electricity assets
in Victoria did more than just lower retail prices.
Electricity privatisation created huge capacity to
fund new infrastructure and reduce debt, equipping
Victoria with the infrastructure it needs to outperform
New South Wales on every economic indicator.
Analysis by IPA shows that a well-structured sale
would strengthen the New South Wales budget by
more than $50 billion – including up to $17.5 billion
in avoided public investment and up to $29 billion
for transmission and distribution businesses – creating
massive capacity to fund infrastructure projects like the
Pacific Highway, new motorways and railway lines,
the delivery of new hospitals, and other infrastructure
Successful public asset sales also take considerable
pressure off state budgets through sharply lower
capital investment requirements, and as interest
cost savings from the retirement of debt more than
compensate for the loss of dividends to government
from their infrastructure assets.
Clearly, there is a compelling economic case for
full privatisation of New South Wales electricity assets
and for a timetable for their sale to be put forward
following the committed review late next year.
Perhaps the strongest argument is the community
itself. Chronic urban congestion and shortfalls across
public transport, freight, health and education
networks all point to the need for massive and
sustained investment in new infrastructure. The public
will accept the case for privatisation, if they can see
that the sale proceeds and avoided debt will be used
to fund new infrastructure.
Everyone agrees the status quo in New South
Wales is not working, and that changes are needed.
State government leaders must present a strong,
balanced case for asset sales, and let the public make
an informed decision. A case must also be made
for the community to be informed of the long-term
problems that will arise if new infrastructure is not
funded as a growing, ageing population leads to more
urban congestion and infrastructure problems.
New South Wales Premier, Barry O’Farrell, is a
keen student of politics, and doubtless he will have
been watching the recent New Zealand election
closely. In that election, popular Prime Minister John
Key spent a year carefully laying out the case for
privatisation, explaining in detail why asset sales are
directly linked to capacity for better infrastructure.
John Key was returned in November with an
increased number of seats, and a strong electoral
mandate for the sale of electricity assets. People should
be watching the New South Wales Government’s
next moves closely, because New Zealand provides a
strong example of where they might go.
Tamberlin’s key recommendations for New South
Legislation be enacted to enable the Government to offer for sale or
long-term lease the Eraring and Delta West generators, which are
subject to gentrading agreements, and the Macquarie Generation and
Delta Coastal generators
The Government sell the development sites
The Government sell the Cobbora mine
The Government determine its objectives for the network businesses
and, in accordance with those, decide whether it will retain public
ownership or sell all or part of the network businesses
The state obtain expert advice as to the implementation, including
timing, of these recommendations, particularly with respect to the
network businesses as the reviews referred to above are likely to affect
value and are expected to be finalised in 2012.
Source: Special Commission of Inquiry into the Electricity Transactions,
New South Wales Government. Oct 2011
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