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Owen Report offers NSW Premier a compromise limited retailer sale and generator lease option: potential buyers stand in line

Posted by gmarkets on 18 September, 2007

There was a saying in politics that went something like ‘Never commission anything unless you know what the answer will be’, according to Matthew Warren in the The Australian (15/9/2007, p. 31).

Terms of reference: In May, when NSW Premier Morris lemma commissioned a review of future base load electricity supply for the state, the terms of reference he crafted seemed straightforward enough: “tell us we need a new power station and describe how we can get the private sector to build it”.

Pandora’s boxes: To make sure they cut through the political hubris surrounding the coal v gas v renewables debate, the Iemma Government hand-picked a no-nonsense energy economist, Tony Owen, for the job. The Premier would have been aware that this line of interrogation could open a number of Pandora’s boxes. But even he must have been surprised when “the professor” (as Iemma described him) flagged what he had in store. Owen recommended the sale of all three government-owned generators and the three retailers, worth more than $15 billion in total. He also recommended the removal of retail price controls on electricity by 2010 which, if implemented, meant the price of electricity would increase.

Political hand grenade: “The electricity business is a political hand grenade courtesy of climate change and the spin surrounding it,” commented Warren. “The last thing the Premier wants to do is commission a new base load power station himself. If he builds it using gas, it will push up wholesale electricity prices and business will yell at him. If he builds coal-fired power, green groups and activists will yell at him. Owen told the Premier he could avoid this political lose-lose by allowing the private sector to make the call. The catch is, they will do it only if they control the rest of the energy infrastructure, which means full privatisation. Which, in turn, means the unions will yell at him. Owen has offered the Premier a compromise where he can sell the less controversial retailers and lease off the generators. Potential buyers are queuing up. The assets’ value is falling every day, which means less to invest on schools, hospitals and other infrastructure. Let the yelling begin.”

The Australian, 15/9/2007, p. 31

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