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Issue #1673      February 18, 2015

NSW electricity privatisation heading for trouble

If the NSW Baird government wins next month’s elections it will claim a mandate to dispose of the transmission company Transgrid, as well as 50.4 percent of two other state-owned “poles and wires” infrastructure companies, Ausgrid and Endeavour Energy, via 99-year leases.

However, in an opinion poll last week only 23 percent of respondents supported the plan, (a 6 percent fall), and 67 percent opposed it, (an 8 percent rise), since the scheme was announced in November.

Some 47 percent of respondents indicated they would accept privatisation if the proceeds fund new government infrastructure – but even that figure represents an 8 percent fall.

The government claims that the estimated leasing cost of $13 billion, plus interest and a federal government contribution, would yield $20 billion. However, most of that would be used to construct new privately-operated transport infrastructure.

And that includes Sydney’s rail network. Sydneysiders have bitterly opposed previous suggestions for privatising the city’s rail network, so the government is proceeding in small steps.

It’s currently constructing a new privately-operated line from the outer north-west suburbs to Chatswood, north of the city. It proposes to construct another underground line from Chatswood to the city, which would also be privately operated, and funded by sale of the electricity infrastructure.

It’s already talking about building a third underground line from the city 16 kilometres southwest to Bankstown, and other lines later. They would all be privately operated and presumably funded by the sale of more government assets.

It is part of the coalition’s dream: selling off government assets to fund the introduction of new privately-operated public services, ending up with all services privately owned or operated.

But can the Baird government achieve it?

Of mice and privateers

The recent Queensland elections demonstrated very clear public opposition to privatisation, and the Greens, the Shooters and Fishers Party and Labor have united in support of the Unions NSW anti-privatisation campaign.

A number of commentators have urged the Baird government to stick to its privatisation commitment. Economics professor Gary Sturgess argues that the public often opposes the sale of government assets but soon forgets all about it.

The sale of the electricity infrastructure is a different matter. According to a recent opinion poll 75 percent of respondents in South Australia and 67 percent in Victoria believed that electricity privatisation had led to price increases, not reductions.

A poll taken four years ago also indicated support for re-nationalising some industries, including telecommunications (47 percent), Qantas (44 percent) and the Commonwealth Bank (41 percent).

Privatisation advocates point out that after plants were sold in Victoria and South Australia the operators made small reductions in electricity rates. But they could afford to, because the governments had jacked up the rates prior to sale, which made the plants highly tempting for purchasers.

In fact, operation by private firms is inherently less efficient than by the government because each plant must hire its own marketing, personnel and other staff, who were previously all under one managerial roof.

The public knows that government-run organisations must provide the best service for the lowest price, whereas private operation must locate and operate at the point of profit maximisation.

Where things are headed

Private firms that take over power plants usually inherit monopoly or near-monopoly market conditions – a situation beneficial under public ownership – in which consumers have limited elasticity of demand.

Prices are nominally controlled by the Australian Energy Regulator, but a recent investigation in South Australia revealed that the regulator allows firms to increase their rates when demand falls, to maintain their profit levels.

They’re also allowed to pass on state and federal taxes in their prices. They are, in effect, tax exempt; the consumer actually pays the companies’ tax.

Moreover, when the Abbott regime removed the carbon tax one South Australian company did not lower its prices, and refused to release information on its pricing and tax strategy. Other firms undoubtedly do the same.

A report commissioned by Unions NSW indicates that privatising the state’s electricity infrastructure will probably result in annual price rises from $38 to $193 per household over five years.

And the government would lose the “poles and wires” organisations’ annual income of $1.7 billion if they were leased.

Acting in the public interest

Public opposition to privatisation is justifiably greatest in cases where the service is essential, for example electricity generation, railways or water supply. In a 2011 poll, 59 percent of respondents said that private companies were the biggest winners from the sale of Telstra, the Commonwealth Bank and power utilities. Only 26 percent nominated the government and six percent the general public as major beneficiaries.

In NSW the Shooters and Fishers Party, which shares the balance of power in the state’s upper house, opposes electricity privatisation, and the government may not win enough seats to get the legislation passed.

Moreover, the Baird government’s estimated 56 to 44 percent two-party lead over Labor was determined by distributing preferences taken from the previous election. If new preference figures from the latest poll were substituted, the government’s vote would fall to 53 percent and Labor’s would rise to 47 percent. A voting swing against the government is likely, and if it’s substantial the government may fall.

Electricity network privatisation has a major bearing on the mitigation of climate change, which requires the phasing out of coal-fired power stations as rapidly as possible. However, private firms that have bought power stations will fight to keep them running indefinitely.

The worst example is Hazelwood, one of the oldest power stations plants in Australia, and the dirtiest. It was expected to cease operations in 2000 but since its sale in 1996 it has been belching away at full blast as its owners seek maximum returns on their investment.

The electricity industry should be taken over by the federal government, but the danger is that this won’t happen until after the climate passes the tipping point.

The best thing the people of NSW can do right now is to replace the Coalition with a government that opposes privatisation and genuinely supports the interests of Australia’s working families.

Next article – Preserving Gomeroi grinding grooves

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