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Sat 3 May - Last week my family and I headed up the coast to Crescent Head and literally collapsed into our holiday abode pretty much running on empty after an action packed start to the year. It is a great place to relax and despite thinking about knocking up an ark after four or five days of downpours, we had a great time. My eldest daughter caught a cracker of bream, my five-year-old son demanded we went on bushwalks and my middle daughter was triumphant in the number of books she read. Mum and Dad on the other hand revelled in the local coffee shop and lazy mornings on the deck.
So it is with a clear head that I return to look at the events of the next few days in relation to what the ALP does with electricity privatisation. I understand the rationale that the Premier and Treasurer have put forward to this plan but, it does have many unanswered questions and ongoing concerns. The starting point is why were they silent on this plan in the lead up to the last election? Indeed whatever statements were made indicated they were not going to privatise let alone just keep a hushed silence on the matter. In a policy of this magnitude it is surely a requirement that the community is made aware that such a plan was on the table and able to give a mandate through an election victory. This has not been explained and makes one wonder on what issues may be behind current State Budget discussions.
The concerns then spread to the current environment. If the Premier proceeds with his plan will the people of NSW achieve the best result in current market conditions? The simple answer is absolutely not!! Many of my former colleagues and industry experts are telling me the market through the sub-prime crisis hasn't been this bad for 20 years. What this means is that the cost of both debt and equity has soared. Whoever bids will pass on these costs to the people of NSW through a lower price and it is also undoubtedly reducing the number of people who may bid or who are unable to raise the requisite debt or equity.
This will reduce the competitive tension and again dilute the price or negotiating position of the Iemma Government. If a public float style option is pursued the resultant price will be diluted through a lower share price. At every turn the people of NSW are being asked to support a sale for 99 years that in many ways could not come at a worse time. This is before we even consider the uncertainty of the carbon price, which until clarified, will further drag the price of the electricity assets down.
It is thus not unreasonable to ask to see in the next few days how these fundamental concerns would be addressed by the Iemma Government's plan. My concern is that in pursuing the "bull headed approach" to get the sale away at any cost, the Iemma Government will have to negotiate away benefits for the people of NSW at every turn whether through carbon tax indemnities, sweeteners to unions or even settling to negotiate with a single bidder. The essence is the market, uncertainty and potential weakness of negotiating position means that the people of NSW could be big losers in this transaction.
We may never know why the Iemma Government has decided to launch this transaction 10 years after it was first tried but, we do know that if they sold when first mooted then the people of NSW may well be $10 billion dollars better off. Such management practices do not give confidence to achieving the best result for NSW as currently proposed. Barry O'Farrell has said we will watch, listen to the detail and then do what is in the best interests of the community. Whatever your politics it is hard to argue with the merits of Barry's approach.
Cheers
Mike
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