|
Mr MIKE BAIRD (Manly) [10.48 a.m.]: I lead for the Opposition on the Auditor-General (Supplementary Powers) Bill 2008. I say at the outset that the New South Wales Coalition supports private sector involvement. Indeed, it is a core principle of these parties that if the private sector can do it both efficiently and in competition then there is not necessarily a compulsion for the Government to intervene. The private sector's involvement in the electricity industry has been effective. Real prices have reduced by between 6 per cent and 8 per cent in Victoria and South Australia under a privatisation model. The Energy Reform Implementation Group's report to the Council of Australian Governments last year shows that New South Wales's electricity assets have underperformed in relation to both labour and capital productivity. Labour productivity in the generation sector from 1999 to 2003-04 across Australia was the lowest in New South Wales, which experienced a 3 per cent decline. Capital productivity in the generation sector across the same period was also lower in New South Wales than in Victoria and South Australia. The Energy Reform Implementation Group report states:
Economic analysis has shown that the potential resource savings within the bulk electricity sector flowing from moving to a fully efficient market would reduce the total economic costs of supplying electricity, within the NEM, by between $200-$300 million per year. At the economy wide level, the long term benefits...include an increase in real GDP of around $400 million per annum. No doubt the current structure in the New South Wales electricity sector has precluded an element of private sector involvement, although there has been some involvement.
The emergence of the national electricity market will ensure that only the most efficient survive. Private operators in the market are concerned about the current structure in which the key participant generates, transmits, sells and regulates. However, these principles and imperatives do not negate the need for social responsibility, and transactions should not occur at any cost. A team that is united and that has demonstrated competence, control and objective reasoning should execute transactions such as this. If we lost that approach we would lose value or, worse still, it would lead to a transaction that was not in the best interests of the stakeholders who, importantly in this instance, are the people of New South Wales.
We have seen the exact opposite from the team that is in charge of this transaction. Members should reflect on the conference and on the issues that were dealt with at that conference. We should ask ourselves whether this management team is in control of this significant transaction. Should the Iemma Government be placing 2011 re-election strategies into this basket against the commonsense strategic objectives represented by this transaction? Should it be playing poker with these assets? Intuitively, I believe that the Government is pursuing this transaction at any cost. It is gambling away potential value for reasons other than the merits of the transaction.
Those are the reasons why the Opposition requested the Auditor-General to conduct an independent assessment to establish whether this transaction was in the broad public interest. I will deal with some of those issues later. Members would be aware that this bill would not have been introduced if it were not for the persistence of the New South Wales Coalition. The bill addresses most of the key issues that were outlined on 8 May 2008. The Auditor-General must assess the Government's power privatisation plans to ensure that the public interest is paramount, and the Auditor-General must report to the Parliament before any sale takes place. This matter must be debated and every member in this House must be informed: the issue is too important for us to rely solely on press releases.
This is a once-only transaction. I believe we would be doing the people of New South Wales a disservice if this transaction were not properly implemented, if we did not have full information about it, and if we did not have an independent view relating to it. The Coalition's remaining community safeguards have been addressed in correspondence between the Coalition leadership and Treasury, and in the Government's Industry Restructuring Bill 2008 and the Community Infrastructure (Intergenerational) Fund Bill 2008, which have been introduced in this place. The Government withheld its support for this final condition until Monday 16 June 2008.
I wish to comment on the many strategic elements of this transaction and on the points raised in the Owen report. I will refer also to the provisions in clause 4 of the Electricity Industry Restructuring Bill 2008, which highlight the reasons why the Coalition pursued this course of action. That clause refers to the model to be used to restructure the State's electricity industry—the model on which the Auditor-General has been asked to comment. Clause 4 refers specifically to an initial public offering, or IPO—or, for the benefit of the Premier and the Deputy Premier, a clear sale. The Deputy Premier told the public that the Government's plan involved the long-term lease of electricity assets, which was not the same as a sell-off. It is important for members to understand that this legislation provides for a clear sale. Whatever spin the Deputy Premier wants to put on it, members must understand that this is a clear sale. On 1 May 2008 the Deputy Premier said:
The current plan is about maintaining ownership, even though there are long-term leases.
The Deputy Premier must understand that leasing for three generations represents the same thing. I believe that the Deputy Premier is being disingenuous. The legislation will enable a complete sale of electricity assets. I am sure that when the Deputy Premier lies in bed at night he would have difficulty finding comfort from the fact that he has told the truth relating to this matter because, frankly, he has not. Every member in this place must understand that this legislation will enable a sale of the assets. The Premier's record in this regard is worse than the record of the Deputy Premier. His office gave unions written assurances via emails three weeks before the 2007 election that he had no intention of privatising the power industry, and that it would remain in public hands. In May 2007 the Premier said in Parliament:
There will be no sale of electricity generation, transmission or distribution.
Why did the Premier and Deputy Premier not tell the people of New South Wales? Unions have articulated that one-third of Labor voters would have switched their vote at the last election if they had known about this Government's agenda. If that is the Government's approach to this matter, it means that it will stand up for nothing. Why has it avoided public scrutiny? What is it hiding? The people of New South Wales would respect it more if it stated its case and stuck to it. The community wants a government that is honest and transparent; it does not want a government that makes disingenuous statements that it is not selling this State's electricity industry.
I believe that this Government thinks the people of New South Wales are fools. The Coalition wants the Auditor-General to reveal the truth about this matter. Last year the Government commissioned Professor Owen to assess the State's future baseload electricity generation requirements. Professor Owen determined that the State's demand for energy would outstrip supply by 2013 and that additional capacity would be required. Professor Owen recommended that the Government divest itself of its ownership of retail electricity and electricity generation. I wish to comment on a number of aspects in the Owen report.
The conclusions in that report have been well publicised but what has been lost in the detail is the cost of the impact of this Government's mismanagement of the sector over the past 14 years. The Government has neglected generation infrastructure for years. There have been no new assets or no increase in generation infrastructure over the past 15 years, even though there has been a dramatic increase in the population of New South Wales. As surely as night follows day there will be an imbalance in supply and demand. The Government's years of neglect of its generation infrastructure, its inaction on energy efficiency, its failure to seize the opportunity of coal seam methane and its failure to prepare for a carbon-constrained economy have created the energy crisis in this State. In March this year Annabel Hepworth from the Australian Financial Review summed it up perfectly when she said:
NSW, after years of reform inertia, has chosen the worst possible time to privatise. The credit crunch and crisis among bond insurers known as monoline makes debt funding more expensive for possible bidders. That's not great news for trade sales. The turmoil on financial markets makes any initial public offering hard to price. And uncertainty about carbon policy isn't going away. Bob Carr admitted that this State would have received double the capital if it did not fail in its privatisation attempts 10 years ago. He told the Daily Telegraph:
We didn't pull this one off [in 1997] when we were offered real advantages ... $30 billion in new capital. The position we are in today is because the Government has not faced up to this emerging crisis. It appears as though it will do that now, at any cost. Infrastructure has been neglected and no new infrastructure has been built for 15 years. The Owen report states:
As no baseload generation plant has been built in NSW in 15 years, the energy consumed in NSW is catching up with supply. What action has the Government taken? It has failed to invest in carbon technologies. Last year, for the first time, carbon emissions in the United States reduced in generation because, for a number of years, it has been investing in carbon scrubbing technology. We will face many problems, as we are not doing that in Australia. Despite reaping billions of dollars from dividends and taxes there has been no strategic investment in our generators—something that any prudent manager would do. Any company that had assets would prepare for possible market shocks, but that is not what this Government has done. In the United States greenhouse gas emissions from its generators fell by 54 million metric tonnes after it installed carbon reduction technology and increased its use of sub-bituminous coal, which emits less sulfur dioxide.
If this Government takes seriously the reduction of greenhouse gases, why would it not invest in such technology? Government Ministers often make ministerial statements and refer to the Government as a green Government. Investing in technology is a practical solution to reduce greenhouse gases. It should be borne in mind that approximately 40 per cent of emissions in this State come from our generators, but this Government has done nothing to address that issue. A report by Standards and Poor's, which was released in February, stated that this State's relatively aged generation assets and the significant level of investment required were likely to lower the sale price. For the past 15 years this Government has ignored these assets and has not improved their quality. In its submission to the Owen inquiry, the Australian Gas Light Company said that the State's generators were not operating to capacity. It also said:
If existing coal-fired generators in NSW operated at capacity factors comparable to coal-fired generators in Victoria and Queensland (around 80%) an additional 15,000 GWh of energy per annum would be available. That is important because the total increased energy requirement in 2013-14 is below that level. Yesterday, for the first time, this Government made an announcement about energy efficiency, but it is too little too late. According to an EnergyAustralia survey released this month, households collectively are adding around 2.5 million tonnes of carbon dioxide to the atmosphere every year in New South Wales alone. That is equivalent to putting an additional 500,000 cars on the road every 12 months. If every household in New South Wales reduced its energy consumption by 10 per cent there would be no need for new generation.
We have not been doing enough to improve our energy efficiency, which has obviously led to increased demand. We have not invested in our generation assets or looked after them with up-to-date technology. At the same time, we have an emerging crisis that will hit us in 2013-14, as articulated in the Owen report. A general question for all members is: does that time line hold when they look at the need for energy efficiency and also the investment that could have been made in existing generators?
Coal seam methane is the most significant opportunity this Government has missed. Unlike the other mainland States, New South Wales is forced to import nearly all of its natural gas from its neighbours. Gas-fired power stations emit only 40 per cent as much carbon dioxide as those fired by steaming or black coal and require much less water to operate. However, New South Wales has no pipelines—there has been an announcement, but that is all it is—capable of bringing gas from the coal seam gas fields of Queensland, Gunnedah and the Hunter Valley to major population centres in Sydney, Newcastle and Wollongong. Lucas Energy's Paul Bilston said:
I think the Government needs to focus on the development and legislative environment under which coal seam gas works in New South Wales.
The Owen report states that, "the potential exists for significant coal seam gas supply from New South Wales". Coal seam gas methane has been extracted in the United States for more than 25 years, with production levels now at 1.9 trillion cubic feet a year, and it is on the rise. This is another point the Iemma Government has failed to address.
The desalination plant will cancel out the only announcement about renewable energy generation—the Bungendore wind farm. All renewable energy will be consumed before it leaves the planning table. The 2008-09 budget does not allocate funds for renewable energy infrastructure, and that is another black hole that the Government must address. It is important to note that while the Government is intent on selling old assets, it is forgetting to invest in new ones. It is the Government's role to strategically anticipate renewable sources of energy to meet new requirements when markets are not, and to intervene to stimulate those sources to provide for the future of the State. Only 6 per cent of the State's energy is from a renewable source—lower than Queensland and Tasmania—but the Government has promised that renewable energy will supply 15 per cent of energy needs by 2020, or an extra 7,250 gigawatt hours.
According to the Owen report, only 1,600 gigawatt hours are expected to come from renewable energy by 2016-17, which is obviously far less than the Government's target. Owen said, "There is uncertainty around the likely siting of renewable generation." Are these targets real? Is the Iemma Government taking them seriously or is it developing an energy policy, at the core of which is electricity privatisation, on the run and on the basis of lack of action and management incompetence? Owen says renewable energy will achieve 6,600 gigawatts, including hydro, by 2017. If that is so, how can it reach 13,000 gigawatts by 2020? That is something the Government must address. These are the reasons why the Coalition fought for an independent review and a public interest test on this transaction. We do not want to rely on press releases. We want to see the facts and we want to understand them. We want to determine once and for all whether the Iemma Government has done everything possible to avoid this crisis and that the proposed transaction is in the best interests of the State.
The Leader of the Opposition and the Leader of The Nationals have led the charge. They have put public interest at the core of this transaction. There is no budget imperative to drive re-election strategies. It is nothing more than making sure this transaction makes sense for the people of New South Wales according to the parameters. I repeat the first five of those parameters. The first is that all sale and lease arrangements be subject to the Auditor-General reporting to Parliament before finalisation. That includes timing and price, conditions for workers, pensioners and low-income earners and price guarantees for consumers. Within this context we asked the Auditor-General to consider the impact of the sub-prime crisis; the impact of the lack of definition of carbon tax; asset management and how the Government has managed its assets; the financial investment of one billion dollars per annum into dividends and taxes; the contract impacts; the coal contract maturity profile from 2009 to 2011, how that impacts on the sale price and why it is such a short-term profile; electricity hedging, why the Government has undertaken the derivatives, what impact that will have on the price and how it affects the assets; and valuation of the assets over the past five years and projections to 2013.
We have also asked for a rural community impact statement. The Nationals are interested in looking after its community. Its members are interested in the transaction if it is in the interest of their communities. That is a big distinction between the way the New South Wales Coalition has attacked this issue and how the Iemma Government has presented it to us. The Nationals have asked for real consultation. We heard from the Parliamentary Secretary that there has been consultation. There were no rural community impact statements before The Nationals became involved. The Nationals will look, among other things, at jobs, prices and service levels to communities outside the Sydney central businesses district that day in day out feel ignored by the Government.
We have also asked for an independent oversight body comprising the Auditor-General, community representative and a financial expert to monitor the use of funds realised from the sale. We do not want this sale to be a slush bucket for marginal seat funding, which has been a characteristic of the Iemma Government. It should be on the priorities of this State, and that is what we have asked for. We have asked for a parliamentary oversight committee to guarantee the delivery of improvements in clean, green and renewable energy investment resulting from the sale. The Government is selling the power of old and not doing enough to invest in future power or energy sources. That is one of the fundamental, strategic absences in this transaction. More should be done on renewables and coal sequestration, but not enough is being done. We also asked for the retention of poles and wires in public ownership and appropriate safety nets for pensioners, low-income families and employees as determined by the Auditor-General. The Government has substantially agreed to our conditions, and we are pleased that only this week it has agreed to our request to have the Auditor-General oversee this transaction.
I will touch on why some of those concerns are important. We hear about the impact of the sub-prime crisis. Why does that matter and why is it important to this transaction? It is difficult to raise $10 billion to $15 billion in current market conditions. I say $10 billion to $15 billion because the Treasurer has alluded to figures of up to $15 billion. We are not sure what we will receive—somewhere between the Owen report and the optimistic projections of the Treasurer. The cost of raising that sort of money today, compared with 12 months ago, will be $400 million to $600 million more, which is a substantial amount. It is a new school hall for every public school in the State or it is two new hospitals, and it is something that we should be concerned about. The head of Deutsche Bank's financial sponsors group was asked by the Sydney Morning Herald in March if he had ever seen the markets like this in his 20 years in the industry? He replied no. That is the comment I get from around the world, from colleagues still in the marketplace. This is the worst they have seen it in 25 years. Is this a time one should undertake such a transaction? Will privatising the assets, selling the assets, give New South Wales the best value? Delaying the sale might well see some of this cost burden removed. That is what we want, independent advice that addresses that concern.
The uncertainty around carbon tax cannot be underestimated. Gavin Madson from the Finch ratings agency has commented on the uncertainty among potential bidders because of the emissions trading scheme. He told the Sydney Morning Herald in February, "The generators in NSW, being coal-fired, assets which will be at a particular risk of a shock to you to carbon pricing." He believes it is unlikely New South Wales will get the high prices for privatisation that Victoria and Queensland did. Professor Owen stated in his report, "Carbon uncertainty and Government ownership [are] impediments to [private] investment." Recently released projections from both Citibank and Deutsche Bank estimate the cost of a carbon tax to be between $20 and $100 a tonne. Considering that generators emit 57.8 million tonnes of carbon dioxide a year, that means a potential annual cost to prospective buyers of between $1 billion and $5 billion.
When asked in the other place whether the huge uncertainty around carbon trading—also a key concern of the Owen report, which repeatedly says this is an impediment to private investment—could significantly erode the price of the generators, the Treasurer admitted that he did not know. He said, "We cannot assess the final impact until we see the details of the carbon-trading regime." He made that statement on 5 June 2008. That is just one of a number of reasons why I have asked the Auditor-General to look at this issue as part of his report, because there is too much uncertainty to give New South Wales any confidence that it will get a fair price for these assets. With such uncertainty apparent, any private investor is likely to focus on the top end of that liability when negotiating a price. In other words, selling with no clarity on the carbon tax may ultimately cost New South Wales billions.
In a climate of uncertainty and with those types of projections in the market while we are negotiating a price and a point of time opportunity—we are only doing it once in a 100-year cycle—we have asked for independent advice on whether we should do it now. Should we wait until we get clarity on the national emissions trading scheme, which the Federal Government is due to announce in the next 12 months?
We need to know also whether market conditions preclude participants from bidding in the process, thereby removing competitive tension and diminishing the value of the sale. Participants with a triple-B credit rating—the rating of many generators and in robust market conditions they would be expected to participate heavily in the process—would be unlikely to raise the debt required in the current market. The Owen report suggests that the private sector needs carbon tax certainty to invest. However, the uncertainty, coupled with the market conditions, may well mean that we are not seeing the competitive tension required to achieve the best results for these assets. That is another reason why we have asked for an independent report.
The Premier Morris Iemma said in Parliament on 4 June that "if no private investment occurs the Government will be able to pursue a baseload power station development". That evokes a huge number of questions. It undermines all his arguments over the past few months. What advice is he receiving? Is it that the private sector will take the assets but not invest in the new generators? And how does this impact on the budget Michael Costa delivered recently, which was devoid of any investment in generation whatsoever? If this is a possibility, should the Government not have a contingency plan for forward estimates, and can we meet those forward estimates if this eventuates? Or is our triple-A rating under threat? Those questions need answers.
The Premier stated, "If private investment does not occur, then we will". My understanding of the transaction is that he will undertake the sale of these assets because that is the only way to achieve private investment in the generation. How does that match with his comments, "If they don't do it, we will" once the assets are gone? It is incongruous. The Iemma Government does not have the best track record in negotiating with the private sector. Its record is appalling. Can the people of New South Wales be satisfied that the Iemma Government's management team will receive the best results on the basis of its track record?
Mr Barry O'Farrell: No.
Mr MIKE BAIRD: No, it will not. We have heard about Star City and the $400 million increase in value the day after the licence extension was announced. The Cross City Tunnel opened in 2005 and was boycotted in protest against street closures. The original owners were placed in receivership in 2006 after the State Government reversed road changes that funnelled cars into the tunnel.
The DEPUTY-SPEAKER: Order! Members will cease interjecting and allow the member for Manly to be heard.
Mr MIKE BAIRD: I quote the words of Don Urquhart, a constituent from North Ryde, the seat of the Deputy Premier. He summarised the feelings of many New South Wales taxpayers when he wrote in the Sydney Morning Herald as follows:
The sale of the state's power industry planned by Morris Iemma and Michael Costa may and may not be good public policy—that is open to debate. What is beyond debate is that the State Government should not be permitted to undertaken this exercise given NSW Labor's appalling record in managing the sale of state-owned assets and its equally abysmal record in the delivery of services and strategically important infrastructure projects.
The history of mismanagement has eroded trust and thus demands a high level of scrutiny. A transaction of this magnitude and importance demands the involvement of the Auditor-General. The Opposition has concerns that will be addressed in the amendment to be moved in Committee, which seeks to broaden the role of the Auditor-General's report.
Whilst talking about energy and sources, another emerging crisis relates to peak oil and how the Government is managing the industries when preparing for the future. This crisis is looming, yet the Iemma Government is again doing nothing. Australian oil production has already peaked and what is left is significantly harder to extract. The Queensland Oil Vulnerability Taskforce estimates that retail prices of petrol, diesel and gas will be roughly 18 per cent to 22 per cent higher in 2015 than they were in 2005. We must reduce the State's reliance on oil urgently. The inaction of the State Labor Government is adding to the crisis. The State's public transport system is crumbling: commuters have no choice but to drive. There is overcrowding, unreliability of service and fanciful new announcements. If we do not do something about this crisis, we will face a crisis similar to that faced today with electricity generation. This crisis requires action, determination and strategic understanding of the issues this State faces.
We must be sure that the transaction being presented is the best result possible for the people of New South Wales. People's concerns have been deepened by the increasingly inconsistent comments of the Iemma Government. The Auditor-General's review of the proposed plan before any sale takes place will reveal whether it is in the best interests of New South Wales. We are concerned about the Iemma Government's contribution to this crisis—the "all or nothing" approach, the lack of management discipline and the loss of objective reasoning or long-term thinking. We acknowledge the need to open up the electricity market to the private sector and the budget imposts that will be faced if that line is not pursued, but we reiterate that it should not be at any cost at any time or on the back of any deal.
Consideration in Detail
ACTING-SPEAKER (Mr Matthew Morris): Order! I shall propose the bill in groups of clauses and schedules. There being no objection I will proceed.
Clauses 1 to 4 agreed to.
Mr MIKE BAIRD (Manly): I move the Coalition amendment:
No.1 Page 3, schedule 1 [2] (proposed clause 1 (2) (a). Omit all words on lines 29 and 30. Insert instead:
(iv) the impact of the proposed national emissions trading scheme (including current hedging and coal contracts of State electricity corporations),
(v) the sale price of the assets that is reasonably expected having regard to professional advice and the Government's preliminary estimates,
(vi) the impact of increased debt over the past 5 years in relation to the assets,
(vii) any relevant Commonwealth legislation regarding competition or foreign ownership,
(viii) any other factors that may impact on the potential sale price of the assets.
As we heard in debate this morning, there is some angst amongst many members about this whole process. Today the New South Wales Coalition is very proud to to have secured the Auditor-General to look at this transaction independently. The concerns of the members reflect concerns in the community. The role of any member in this House is to enable community concerns to be addressed and, most importantly, to make sure that they understand the issues being debated in this place.
The Coalition also understands the concern of the Independents, because whilst it pushed for the amendments and is supportive of this bill, it believes in due process. It is very difficult to ask the Independent members in this House to understand this bill in its entirety in the very short timeframe that has been provided by the Government. I believe that due process and good legislation are achieved by giving everyone the most information available in an independent form and also by allowing sufficient time for them to consider the proposed legislation. The Coalition acknowledges their concerns.
I will not go through the amendments word by word but I will point out the thrust of what the Coalition is trying to achieve for the people of New South Wales in this independent overview of the bill. The Coalition has asked for the impact of the proposed national emissions trading scheme to be considered. As I said in the agreement-in-principle debate, that could potentially cost the people of New South Wales billions of dollars. We need to understand the timing, the impact and whether right now is the best time to undertake this transaction when we do not know what the national emissions trading scheme is going to add, in cost, from all these generators, which may mean the people bidding may be either scared away or may provide a price that is not in the best interests of the people of New South Wales.
The Opposition has also asked for independent assurance on what is a true and fair value for these assets. The people of New South Wales should not rely on a press release that says they are worth $X. They should rely on independent experts' advice so that when the transaction is executed there is an independent expectation of the worth of the assets. The Opposition supports the tenets of the private sector becoming involved in this industry but the assets should not be sold at any cost or at any time. An independent assessment would help the Opposition understand how this transaction fits within that context.
The Opposition has spoken about the impact of increased debt. Over the past five or six years the debt for electricity generation assets in particular has increased significantly, which is almost another form of a hollow log. Electricity generation assets have ramped up dividends back to the Government while the debt has been increasing, but at the same time the Government has not invested strategically in the infrastructure of these assets or in the capital expenditure of these assets. The Opposition wants to know what will be the impact of the sale price on them. The Coalition is concerned also about, and has asked the Auditor-General to investigate, issues of competition and foreign ownership in this transaction, and any other factors that may impact on the potential sale price of the assets.
The Coalition is proud to have delivered the bill to this House, and it makes no bones about being responsible for its delivery. It thinks the people of New South Wales deserve to have before the House all the information that sits with this Government. Members need to understand independently whether this transaction to sell the electricity assets to the private sector is in the interests of the people of New South Wales, because that is the basis upon which the Opposition will judge our position on the legislation that will come before the House at some stage down the track. The Opposition is proud that the people of New South Wales will have an independent view of the facts before the House.
Question—That the amendment be agreed to—put and resolved in the affirmative.
Motion agreed to.
Schedule as amended agreed to.
Consideration in detail concluded.
Question—That this bill be now agreed to in principle—put and resolved in the affirmative.
Motion agreed to.
Bill agreed to in principle.
Passing of the Bill
Bill declared passed and transmitted to the Legislative Council with a message seeking its concurrence in the bill.
|
