The Guardian 21 May, 2008
The mad rush to privatise NSW power
Peter Mac
Last week, contrary to his previous assurances, NSW Premier Morris Iemma disclosed that if the state’s electricity power system was privatised, its power generators might be sold off, rather than being leased for 50 years.
The legislation to enable the privatisation to take place was rushed through the lower house of State Parliament last Thursday, just before Iemma left for a trade tour of China.
ALP members of the upper house have been threatened with expulsion from the party if they cross the floor to vote against the legislation. The government itself is facing the possibility, albeit remote, that Iemma, the Treasurer and others might face expulsion themselves, for ignoring a seven-to-one vote against privatisation at the NSW ALP Conference.
Where’s the fire?
Significantly, Iemma has been arguing that the sale would encourage the private sector to invest in new baseload power stations. Baseload is the minimum amount of power necessary to supply the community’s needs at all times of the day and night.
The Howard government always argued that power stations which utilised renewable energy, such as solar or wind stations, could not be relied on to meet baseload requirements.
This has now been proved totally wrong by a number of new technological innovations, for example the solar thermal power generators which can store heat energy overnight, to power generators that operate over long periods. A one gigawatt plant of this type is under construction in California, using Australian technology, and is expected to be supplying power this year.
At the same time, the Rudd government has stated that it will soon introduce a carbon trading scheme as a means of reducing the emission of greenhouse gases, in order to meet the challenge of climate change.
It remains to be seen whether the Rudd government will introduce a really effective trading scheme. There has already been some discussion of coal-fired power stations being given an exemption from the scheme’s requirements, which would largely negate its effectiveness.
Nevertheless, it is almost certain that a carbon trading scheme will be introduced, and that it will to a greater or less extent penalise high carbon-emitting industries.
The Iemma government has argued that it is necessary for the state to get out of the power generation business, before the carbon trading scheme imposes impossibly heavy financial burdens on its operations. This is an invalid argument, because the state’s power generators are already relatively old, and would have to have been replaced within the next twenty years, even without a carbon trading scheme.
Playing off one sector of demand for its services against the other, as it so frequently does, the government maintains that the funds derived from selling off the power system would facilitate the purchase of new infrastructure for education, health facilities, etc.
This argument has however, been weakened by Iemma’s statement that most of the sale proceeds will now be diverted into in investment fund known as the Community Infrastructure (Intergenerational) Fund, which would derive interest to compensate for the loss of revenue from the existing power system.
This move is obviously prompted by statements made in numerous quarters that selling off a huge revenue earner would ultimately result in a huge loss to state revenues. However, it also begs the question, why not just keep the system, update it, and benefit from the revenue it raises?
The purchasers hover
If the sale goes through, the companies that would be likely bidders for the power system will doubtless argue successfully that the purchase cost of the generators should be marked down to next to nothing, because of the financial impact of the carbon trading scheme.
Gaining access to the system at rock bottom cost would enable the purchasers to replace the existing generators with new renewable energy generators within a relatively short period. They would thus derive an immediate financial benefit from the carbon trading scheme through extra emission licences, which they could sell off to emitting industries, either in Australia or overseas if the Rudd government enters into an international trading scheme.
Given the state’s overwhelming demand for energy, the potential purchasers of the NSW electricity system thus stand to gain riches beyond the dreams of avarice.
Indications are that the whole NSW electrical power system could be sold off within eighteen months. It would appear that the Iemma government is intent on pre-empting any punitive action against Iemma and Infrastructure Minister Michael Costa, by presenting the NSW division of the Labor Party with a fait accompli. The government would also like to have the sale complete prior to the introduction of a carbon trading scheme.
The alternative approach is, of course, for the NSW government to replace the existing power generators themselves, and to derive the carbon trading benefits for the public purse.
But that’s not the way that Iemma and Co think. They believe that the private sector has a sacred right to derive financial benefits from essential services, and governments have no rights at all. They are, in short, the servants of the major corporations, not the people who voted them into power.