Thursday, March 05, 2009

NSW government to squander privaitsation funds

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According to the SMH, the NSW taxpayers are about to lose $3 billion in public funds. You might be asking why? Well there are several reasons:
1. The NSW government is selling state assets at a time when public assets are at their lowest value in 20 years, and confidence is low
2. The way previous privatisations have been performed is that the government commits the utilities to long term vested contracts which lock in future revenues in order to get a higher price from the sale. The implication is that taxpayers are effectively being taxed
3. The broking industry is paid huge sums to coordinate a privatisation process which would be far cheaper if the government just tendered the sale of each power station, yet made a commitment to sell all of them.
4. The taxpayer would have been better off if the government had reformed the sector prior to sale
5. The taxpayer would have been better off if the industry was structured in a way which delivered competitive electricity services
6. The taxpayer would be better off if

The sale of NSW power assets is expected to raise $10 billion for the government. The decision is being taken because the NSW Labor government has placed the state’s finances in a parlous state. It is now under pressure to sell assets to buy its way out of the political dumpster. This is a political backflip by a government that has long campaigned for public utility ownership. Now it finds itself in a bind, it wants to sell off the family jewels for a song. This is just further evidence of the short-range thinking of politicians. Whilst I agree these assets should be sold, this approach is nothing more than a short term grab-for-cash. The notion that these assets needed to be sold, according to Finance Minister Joe Tripodi, was because “private sector investment was needed to ensure power supplies in NSW into the future”. This is nonsense. There is no reason why the government cannot tender for a build-own-operate power station. There is no reason why these assets need to be sold. This is political party cash raising prior to the next election to find future election bribes. This is a power-hungry party placing its own interests ahead of taxpayers.
Joe Tripodi’s other reason for privatising power assets was to “return proceeds from the sale to NSW taxpayers”. Of course there will be a return because these assets have been held by the government for decades. The question is why now? Why sell when the stock market has fallen through the floor. There is a very good reason and its totally political. They want access to the cash, at a time when they will not get a good price for an asset which is a cash cow.
There are many examples around the world where taxpayers experienced a deterioration of service and a huge increase in costs after privatising power supplies. NZ has amongst the lowest cost power plants in the world, but its power costs have blown out since these businesses were privatised. Why? Because assets which were previously political instruments (and thus not open to service price increases) are now ‘market instruments’ upon which the government has poorly conceived the ‘competitive market model’ such that these utilities can collude to charge what they like. Prices are at the end of the day going to be charged
The problem is that by selling these assets in such bad times most investors will steer away from these ‘cash assets’. The bulk of shares will go to foreign investors who will be using their cheap $A to buy up these assets. The profits will go to foreign utilities and brokers for doing nothing. For cutting staff to trim costs which the government was too scared to do for political reasons. There will also be higher consumer prices after the next election because the utilities will not have the same compelling ‘political’ reasons for keeping prices low.
This is not good policy, this is not goo leadership. This is political expediency from the NSW. We saw the same with the railways in Sydney. Talking up a non-commercial railway then dropping the project after the election. This is typical political electioneering and VERY CYNICAL POLITICS. Taxpayers might superficially think that the state is making money from this deal, but it’s getting a fraction of what it should because the government will squander the benefits. This should be considered as taxation (for the high prices you will pay), higher surcharges (for all the commissions paid to brokers) and kickbacks (for all the money they will spend on marginal seats prior to the next election).
Andrew Sheldon

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