May 042008

In the face of over-whelming party disenchantment with NSW Labor government’s stated intention to sell off publically owned electricity generation assets, one wonders at the probable fall-out for Morris Iemma, Michael Costa, et al, should they push on, as they claim they will.

It’s relatively easy to understand why business interests are calling for Iemma to do precisely that. Assets which Iemma’s predecessor, Carr, failed to gain party support to dispose of ten years ago, are now ten billion dollars cheaper. Likely $10 billion dollars more run-down as well. Two trains of thought on this issue. One which says that instrumentalities which provide vital public services should be administered by the public’s elected representatives, and remain in public hands as assets of the state. The other which states that only a market-driven system can ensure the lowest cost, highest efficiency service of vital utilities because competition will ensure the cost-benefit outcome will always remain in the public interest.
I don’t necessarily subscribe to either. Certainly, there are some vital utilities which ought to be the responsibility of government. Water is one. Health, in the hands of private enterprise, has generally been shown to be efficient and easily up to publically owned standards. However, there is a cost. Privately owned & run health facilities are expensive, simply because private enterprise is answerable to shareholders, not users. Electricity generation, in the hands of private enterprise retailers in Queensland, for example, isn’t a fait accompli. Only 8 of the state’s 24 power generation entities are fully privately owned. 2 are partly privatised and 14 are in government hands. In 2004 a report issued into the then Beattie government’s long-term privatisation agenda for the electricity generation industry, which cited government interference, nepotism and a general unwillingness for government to step away from the issue to an extent which would allow private enterprise to prove it’s worth, or otherwise.
Queensland has fully privatised the retailing of electricity, even though the state retains majority control over the generators. A flurry of new entrants into the retailing marketplace has created a competitive environment, but only within the South-East corner of the state, within the ENERGEX wholesale distribution region. Retailers of electricity distributed by Origin and Ergon, which supply the north and west of the state, are having to be subsidised by government due to the higher than SE-corner instances of default on power bills, due to drought and other environmental factors. In the south-east corner, retail power bills have risen more than 12% over the past year, undoubtedly due to this subsidisation. Further price increases have been mooted, as this paper from the Griffith University Centre for Credit and Consumer Law details. Mind you, Peter Beattie told all Queenslanders that the cost of electricity to the small consumer, which is anyone who consumes less than 200 megawatts per annum, would fall. The opposite has been the case. Is privatisation of retailing to blame?
Queensland has a quasi-privatised electricity marketplace. Major industry has the power to negotiate the cost of their consumption. In some cases, even buy from itself. The small consumer doesn’t have that option. This raises in my mind just what Iemma has planned for the New South Wales consumer. At the end of the day, we may be small consumers, but there are a lot of us, and we vote. The other issue Iemma has to deal with is the political one. The NSW Labor Conference is being hi-jacked by union power doing it’s level best to protect the jobs and futures of members involved in the electricity generation and related industries. Privatisation means job cuts as a natural consequence. The political decision is undoubtedly the more difficult one right now. Standing up to the unions will surely win the hearts and minds of business, but will it spell the demise of the Iemma government ultimately? Do the NSW voters want their electricity privatised, especially in light of the Queensland experience? Were I a cockroach, I’d be siding with the unions.
Interesting times ahead for cockies and NSW Labor alike.