Home' Future Building Australian Infrastructure Review : Volume 3 Number 1 Contents futurebuilding 41
Volume 3 Number 1
Back on the reform horse
by 57 per cent -- or by $520 per household -- under
the current government, despite electricity prices
being suppressed at a cost to state taxpayers of $367
million last nancial year.
The case for reform
The economic case for completing electricity
market reforms is clear-cut, but the politics are
Since privatisation in the 1990s, electricity price
rises in Victoria have been consistently lower than in
all other states. Victorian consumers also enjoy and
actively take advantage of their ability to switch to
a retailer of their choice. Retail competition is so
advanced that Victoria is now widely recognised as
the most competitive electricity market in the world,
based on customer switch rates.
Price impacts aside, the privatisation of network
businesses also represents the best opportunity
Australia has to break the back of its broader
Speaking at last year's Partnerships conference,
Macquarie Group and Origin Energy Chairman
Kevin McCann hit the nail on the head. 'At a time of
historic shortfalls, Australia simply cannot afford for
scarce capital to be allocated to areas where private
capital is readily available,' McCann said.
In states where networks remain publicly owned,
electricity investment consumes up to one-quarter
of total public infrastructure investment -- money
that would be much better spent on ailing transport,
hospitals and other social infrastructure.
IPA valuations suggest that the sale of network
assets in New South Wales would have a $50 billion
bottom-line impact, through a mix of capital proceeds
and avoided debt.
This would give the cash-strapped New South
Wales Treasury the ability to fund the North West Rail
Link, the M5 and M4 motorway completions, and the
Paci c Highway duplication, as well as the capacity
to replace ageing hospitals, schools and community
In Queensland, the sale of electricity businesses
would have a similar, game-changing impact on that
state's bottom line.
After years of heavy investment, the combined
Regulated Asset Base (RAB) value of Queensland's
electricity networks is pushing $30 billion -- more
than in any other state. Add to this the roughly 8000
megawatts of state-owned generation capacity.
Opponents to reform are quick to point to the
loss of dividends paid to government. But, as Kevin
McCann told delegates at last year's Partnerships
conference, this argument has little merit.
'Victorian Treasury analysis shows that savings
from the retirement of debt more than compensated
for the loss of dividends,' he said. 'The analysis found
savings from debt retirement outweighed dividend
payments by over $600 million in 1996--97, and by
$718 million in 1997--98.'
Jim Miller says that concerns about job losses are
'Historically, these concerns are not borne out
by experience,' he says. 'In Victoria, for instance,
the prospects for generation and hence employment
actually improved after the assets were privatised.'
He believes that there is much to be gained by
educating the public about the bene ts of recycling
'Some people have yet to make the connection
between needing new infrastructure and the potential
to use the sale of existing infrastructure to fund that.'
But with enormous public appetite for better
infrastructure and cost of living pressures looming as
major political issues, the stars may well be aligning
for the completion of the electricity market. New
South Wales is widely tipped to take privatisation
of network businesses to the next election; and
Queensland has few other options if it's going to
repay its massive debt and fund its capital program.
Only time will tell.
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