Date December 8, 2014 – 12:00AM Sean Nicholls Sydney Morning Herald State Political Editor
Premier Mike Baird’s plan to privatise half the NSW electricity network and use the money for infrastructure projects risks increasing household power prices by up to $100 a year and placing pressure on the budget, an analysis has found.
As the government prepares to release details of a scoping study into the privatisation, the report by economists Stephen Koukoulas and Thomas Devlin recommends abandoning the plan.
Commissioned by the Stop the Sell Off campaign, via the Labor-aligned McKell Institute, it says the government should instead use ongoing dividends from network businesses for infrastructure or to consolidate the NSW financial position.
Mr Baird has announced he will seek a mandate at next year’s state election for the long term lease of 49 per cent of the NSW-owned electricity transmission and distribution businesses, known as the “poles and wires”.
The government anticipates earning at least $13 billion from the transaction with which it will fund $20 billion worth of infrastructure projects. It has rejected claims by Labor and unions that prices will rise after privatisation.
It has backed up its argument with a Treasury-commissioned report from Ernst and Young which found electricity network prices are lower in Victoria and South Australia as businesses are more efficiently run by their private owners
But the new report, Nothing to gain, plenty to lose, argues the Ernst and Young analysis is flawed because it did not take into account the larger physical span of the NSW network.
It says this leads to higher costs due to the need for more staff to service more poles and more vegetation management.
The report compared overhead costs of NSW companies Ausgrid and Endeavour Energy with the Victorian company AusNet, owned by Singapore Power and State Grid Corporation of China – touted as potential bidders for NSW assets.
The comparison found AusNet had higher overhead costs and faster growth in overhead costs.
The report calculated that based on equivalent figures, NSW customers would see an increase in their electricity bills from $38 a year to $103 a year over five years – or a total of about $350 over the period – under private ownership.
The analysis also found that privatisation would put medium-to-long-term pressure on the budget, particularly in light of the federal cuts to health and education funding.
It says loss of annual dividends and other payments to government, most recently worth $1.7 billion, would place pressure on the state’s ability to keep revenue growth above expense growth – the key to maintaining the Triple A credit rating.
NSW Treasurer Andrew Constance rejected the recommendation to abandon the transaction.
“All credible evidence shows power prices will fall, and while doing so, $20 billion will be unlocked to build productive infrastructure, which in turn will power the economy and the state’s balance sheet,” he said.
Mr Constance said it was “important to note” Mr Koukoulas was once an advisor to former Prime Minister Julia Gillard and the McKell Institute’s directors include Unions NSW secretary Mark Lennon, who opposes the privatisation.
Mr Koukoulas says he is not generally anti-privatisation and examines each proposal on its merits.