February 26th 2000

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Articles from this issue:

COVER STORY: Power, strikes and privatisation


EDITORIAL: The end of General Wiranto?

NATIONAL AFFAIRS: Kernot's leadership ambitions: unfinished business?

RURAL: Major debt crisis in rural Queensland

OBITUARY: William G. Smith SJ

FAMILY: The family strikes back

AUSTRIA: Haider: a warning rather than a threat

KOSOVO: They have made a desert and called it peace

ECONOMICS: Managing countries, managing companies

ASIA: Taiwan's poll a rowdy, close run thing

HEALTH: Treatable diseases rampant through Africa

BOOKS: Rabbi's defence of the Judeo-Christian culture, Rabbi Daniel Lapin

CANBERRA OBSERVED: Bush tells Canberra it won't be cajoled

Privatised power

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Privatised power

by Professor Lance Endersbee

News Weekly, February 26, 2000
The Victorian Government has been the most active in Australia in pursuing opportunities to gain additional funds through sale of public utilities.

In many respects it is rather similar to the activities of a private company, eg BHP, in selling off non-performing assets.
When a public utility is sold, the new owner has to recover the capital investment from the consumers. Low interest government bonds, eg SEC bonds, are replaced by borrowings at commercial rates, the new enterprise pays taxes, and seeks to make a profit. In the end, the consumer pays the bills.

Australia, mainly because of Victoria, won the world record for income from privatisations over the decade from 1988 to 1997.
The generation and distribution businesses of the former SEC were sold for roughly twice the book value of the assets.
The Victorian Government was thrilled. They considered that the high bids justified their decision.

The coal-fired electricity generating stations now carry an enormous burden of debt, while trying to offer competitive prices on the National Grid.

The stations compete with one another in Victoria and NSW, and with Snowy hydro.

The high bid prices and the debt servicing charges now have to be recovered from electricity consumers.

Estimated debt of Victorian coal-fired generators

Name Sale Price Estimated Debt

Loy Yang A $4.8 bn $3.12 bn
Loy Yang B $2 to $2.5 bn $1.3 to $1.6 bn
Yallourn $2.42 bn $1.57 bn
Hazelwood $2.35 bn $1.5 bn

As the commercial problems of the coal stations worsened and they were unable to meet debt repayments, the state Treasurers were anxious to find ways to increase the revenue from power sales.

One small measure could be to reduce the competition from the Snowy Hydro-electric Authority in the middle part of the load curve. That is, to reduce the Snowy kWh which could be generated in thermal plant, while maintaining the peak capacity of the Snowy Scheme.

The Victorian and NSW Treasurers initiated the Snowy River Waters Inquiry. This was an interesting new development, where a government environmental inquiry was deliberately set up as a smokescreen to achieve a commercial objective.
From the national perspective, it is quite wrong for the states of Victoria and NSW to attempt to solve their problems of over-capitalisation of coal-fired generation by taking water away from the farmers and towns and cities. There are more direct ways of solving the problems in the electricity industry.

In any case, expect higher electricity costs.

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