Monday, October 31, 2011

Power to the People

The Tamberlin Report has been released, and, suffice to say, it is a doozy.

It is long - some 264 pages, plus an executive summary, plus appendices.  I'm certainly not going to purport to summarise the whole thing.

What I do want to do is talking about a few of the issues that are or have been politically interesting:
  • The value for money of the sale
  • The resignation of the directors
  • The proroguing of parliament and
  • What happens next.
Value for money

It is incredibly hard to calculate the value for money that the state may or may not have received . Any conclusion rests on so many assumptions and caveats that there is no way there can be a definitive answer.

Do we include the cost of losing a AAA rating?  Do we factor in the future cost of upgrading the network?  And what exactly we comparing?

It's therefore unsurprising that we have seen parties with vested interests trying to push their perspective on a confused public. 

The goal of assessing the value for money was expressly listed in the terms of reference:

Indeed, an entire topic of the report is devoted to the issue:

The conclusion is that, broadly speaking, the deal was in the state's interests:

It is necessary to clarify a few of the issues above.

As you may recall, in 2008 the Iemma government decided to lease the power stations and sell the retailers.  This came after NSW Labor just about tore itself apart over the issue - so much so that it was one of the major causes of Morris Iemma's demise.

O'Farrell had tipped him over the edge by cannily/cynically (depending on your perspective) opposing the privatisation, despite the fact that most believed that it was what the Coalition actually wanted to do.

A privatisation as sought by Iemma would have required, as I understand it, legislative change.  This is why O'Farrell was able to stymie the move - Labor needed the Coalition's votes to get it through.  Without them, the sale as envisioned could not happen.

In those circumstances, if there was to be some privatisation then Labor needed another solution.  For various complicated reasons, what has been called the "GenTrader" option was this solution. 

It wasn't the ideal solution, but given the Coalition's position Labor's options were limited. The report has found that, in those circumstances, the price obtained was a fair one.


The resignation of a number of the directors of the electricity generation companies was a major scandal. It served to tar the transactions - it was seen as being proof that the deal was bad for NSW.

Having now read Tamberlin's report, I certainly did not, until tonight, understand the actual reasons why the directors had resigned. It certainly puts a different spin on exactly what occurred.

There are 3 major electricity generation companies in NSW - all wholly owned by the state.  They are Macquarie Generation, Delta Electricity and Eraring Energy. Those corporations sit under the State Owned Corporations Act 1989

The report explains how the Act characterises the role of a State Owned Corporation:

Section 20N of the Act is important:

Without getting too bogged down in the detail, the directors were compelled by the Minister (Eric Roozendaal) to approve the sale.  Given that the Minister is (for present purposes) speaking for the shareholders of the company, the Directors were obliged to comply.

The problem, as I read the statements of the directors of Delta and Eraring who resigned, as quoted in the report, they were all of the opinion that the deal was not a good deal. Many used the word "moral" rather than "legal" in describing their decision to resign.

Their individual reasons bear reading, if you are interested, and can be found on pages 135-166 of the report.

In any event, history shows that those directors were very promptly replaced the transaction proceeded as intended by the government.

Proroguing of Parliament

The report does not have a great deal to say about this, which is unsurprising given that it lies outside the general ambit of the inquiry.

Given what the directors who resigned have subsequently said about the sale, the fact that parliament was prorogued is entirely unsurprising.

The report helpfully summarises events leading up to the proroguing:

What the report is clear about is that the directors who resigned were within their rights in not attending the Committee's hearing, given that Parliament had been prorogued.  There can be little doubt that the fact that they did not attend and give evidence spared the Labor government significant embarrassment in the lead-up to the election.

What Happens Next

The report cavasses a number of different options. 

In a discussion of the adoption of the GenTrader model (page 213), the report makes it clear that the best option would have been the original scheme as proposed by the Iemma government. In those circumstances, it unsurprising that the report dismisses the status quo as being undesirable.

However, the report also does not approve of unravelling the GenTrader arrangement, not least of all because of the damage that would do to the State's reputation.

The report favours the sale or lease the generators of electricity to "encourage private investment in baseload electricity generation in NSW."

The report also examines whether the transmission network and distribution networks should be sold.  Those two terms are defined in the executive summary:

The report reaches the following conclusion:


The final recommendations of the report are as follows:

Unsurprisingly, the report doesn't particularly assist either Labor or the Coalition.  It (at least partially) vindicates Labor actions and the GenTrader option by indicating that the only better option was blocked by the Coalition.

It suggests that privitisation of further elements of the electricity network would be a good thing.  This is good for the Coalition because I think most people believe that this is what the Coalition wants to do.  It is an awkward position for the Coalition because there will be a massive campaign against it - perhaps even a campaign to match the NSWinconsin protests earlier this year.

It would reinforce the perception that the Coalition is the party of big business, not the party of the individual. I'm not sure how many times the Coalition can reinforce that view without doing serious damage to their chances at the next election.

Having said that, the Coalition needs the cash from this sale.  They made a lot of infrastructure promises, and they need to fund them somehow.  This would seem like the most sensible source for those funds.

O'Farrell repeatedly (some might say famously) refused to rule out privatisation before the election.  It looks like this report might be the excuse he has been hoping for, and the route to the cash injection his promises desperately need.

No comments:

Post a Comment