Electricity sale 'unsound'

Prof Robert Walker and Betty Con Walker are authors of "Privatisation: Sell Off or Sell Out?"

Governments can claim to have good financial managers, yet allow assets to crumble away.

By Kerri Carr

The proposed sale of NSW's "valuable, essential, profit earning" electricity assets was not based on a sound economic rationale or financial imperatives, Federation's Annual Conference heard on July 8.

"It is simply based on ideological beliefs by individuals who have not learned from past mistakes," Sydney University Faculty of Economic and Business Professor Robert Walker and economist Betty Con Walker said.

"In our view: bad for the Government, and more importantly, it's bad for the state," they argue.

The professor and economist argue against privatisation and debt reduction, saying government policies have been distorted partly by ideology and partly by technical issues.

Ms Con Walker said one of the issues that was often raised in support of privatisation was the aim to reduce government debt, but it was a totally imported idea from Thatcher's Britain.

She said Australia's debt from all levels of government had more assets than liabilities, so on any rational basis, we did not have a problem with debt; that was not a reason to proceed with selling any further government assets.

Professor Walker said governments use the wrong cost of capital to value government assets, using the private sector's weighted average cost of capital, rather than social discount rate (which is basically what it costs the government to borrow).

He referred to the NSW Government selling the State Bank of NSW for $100 million to Colonial, but just four years later it was valued at $2.5 billion.

"We are now facing the prospect that another government�wants to sell another asset at any price," Professor Walker added.

Ms Con Walker said the electricity industry provided more than $1.3 billion directly to the NSW Budget.

"So, we have a very profitable industry and a virtual monopoly, because the government generating sector provides 94.9 per cent of the state's generating needs and it provides 93 per cent of its distribution needs," she said.

Ms Con Walker said neither the Owen Report nor the Unsworth Inquiry addressed sale versus retention values.

Ms Con Walker said the Opposition had asked the Auditor-General to have a look at it, but the involvement of the Auditor-General was no guarantee that the sale was of the right price, the right time and whether it should occur at all.

She said they had lobbied to ensure there was a proper look at the sale price.

"It hasn't gone as far as we would like it to go, but it will be looking at�'the sales price that is reasonably expected', whatever that may mean," she said.

Ms Con Walker quoted ratings agency Moody's to counter the argument that NSW couldn't borrow for investment and retain its AAA credit rating: "The positive performance of water and electric utilities eases the state's debt burden as these corporations' debt is self supporting through user charges under a regulated pricing structure."

"So, Moody's had no problem at all. It goes on to talk about how the state is capable of increasing its debt in order to invest in further infrastructure," Ms Con Walker said.

"We're not saying increase debt to spend on operating expenditure, we're saying increase debt to invest as any householder, as any government ought to do to in order to maintain its infrastructure in order to provide the services that should be provided to the community.

"That is what a government is about."

Professor Walker said accounting distorted impressions about what was important and what was not.

He said NSW agencies were once required to establish a 'provision for deferred maintenance' on their balance sheets, but this practice has since been banned by accounting standards, so accounting reports need not disclose a key indicator of how legacy infrastructure has been allowed to deteriorate.

"I think we're seeing in political debates today, some of the ramifications of that," he said.

"Arguably, a responsibility of government is to maintain legacy infrastructure - road systems, electricity and water distribution systems - in a serviceable condition for future generations.

"Yet, we have a situation where governments can report a balanced Budget, or even a surplus, even though they've got growing obligations to repair or upgrade infrastructure.

"They can be claiming to have good financial managers because they've got a surplus, and yet they can be allowing our roads and our hospitals and our schools to crumble away."

Professor Walker said that oddly, NSW had pioneered international reporting requirements for local government that required reports on whether different categories of infrastructure were in a satisfactory condition; if not, what would it cost to fix it; and what was in the next year's budget for maintenance.

He said reporting obligations have compelled more rigorous assessments of maintenance requirements in local government.

Professor Walker said a case could be made for all NSW agencies to report on their infrastructure condition, as part of their annual reporting requirements.

©2000-2002 NSWTF Online is a resource for teachers
provided by the NSW Teachers Federation.
[Authorisation of election comment] [Privacy]

http://www.nswtf.org.au/journal_extras/powersale.html
Last Modified: 07 Aug 2008