The Great Sell-Out


If you think Kevin Rudd and the labour
movement are the chief beneficiaries of the electoral backlash against
the Howard Government’s WorkChoices legislation, think again. The real
winner was Morris Iemma’s NSW Labor Government.

Weighed down by
Bob Carr’s legacy of superb spin and poor policy, Iemma went to the
voters in March this year with the less than memorable slogan ‘More to
do, but we’re heading in the right direction’. Aided by the implosion
of Liberal leader John Brogden and his replacement by the barely
electable Peter Debnam, Iemma scraped home on the back of widespread
fear about WorkChoices.

Now, with a Federal Labor Government,
Iemma is attempting to show that NSW really is ‘heading in the right
direction’ with his first big decision since gaining power: selling off
the State’s retail electricity businesses and leasing the power
generators that supply them.

The privatisation is hoped to
raise $10 billion — or even $15 billion according to the more rosy
estimates coming out of the NSW Premier’s media offices — which Iemma
plans to use on building a subway metro system for Sydney.

just the sort of big, legacy project that Iemma needs as tangible
evidence that he can cut through the Gordian knot of NSW’s powerful
public sector bureaucracy and unions to get things done.

Most of
the current media analysis of the deal has focused on whether Iemma has
the clout to defeat the energy unions, who remain bitterly opposed to
the privatisation. But the real significance of the decision is what it
says about the parlous state of NSW’s public finances, and the
implications for Australia’s forthcoming emissions trading scheme.

NSW is not quite broke
— yet. But this year’s anaemic surplus of $376 million disguises rising
net debt and a tax base highly dependent on property and gaming levies.
More than any other State, NSW is feeling the pinch of the post-GST tax
carve-up. NSW still gets less than its ‘fair’ share of Commonwealth GST
revenue owing to the complicated grants formula that subsidises the
smaller States at NSW and Victoria’s expense. And NSW has not enjoyed
the huge windfall in mining royalties that Queensland and West
Australia have reaped in the past decade.

In other words, the
State has essentially run out of money for ambitious new projects.
Iemma’s decision was motivated by his tight purse-strings, not any bold
desire to take on the unions or deliver slightly cheaper energy to his

Cheaper energy? Iemma is selling the sell-off as ‘price-rise insurance’
in the face of the drought and other factors like the Mandatory
Renewable Energy Target which are pushing electricity prices up.
Consumers in South Australia and Victoria did indeed enjoy a holiday of
lower prices in the wake of the big-bang privatisations of the 1990s,
but those days are long over. Electricity prices are now ticking up,
and any sensible appraisal of the future of energy supply and demand
would suggest that electricity prices will go up, not down, in the
medium to long term.

The reason is two-fold. First, Australian
households are increasingly power-hungry as we fill them with air
conditioners, flat-screen TVs and other high-wattage appliances.
Secondly, most of our electricity is made by burning fossil fuels, and
no-one seriously doubts we will eventually have to pay a price for
those carbon emissions.

Set against these rising demands and
future emissions charges, the construction of new power generators in
NSW has stalled. So Iemma has cleverly decided to handball the problem
to the private sector, saying it will be up to the new private sector
operators to decide whether to build a coal or gas power plant. ‘We
shouldn’t be in the business of picking winners in technology,’ NSW
Treasurer Micheal Costa said. Greenpeace’s John Hepburn accused Iemma and Costa of privatising NSW’s climate policy while they were at it.

truth of the matter is renewable energy is not yet ready to provide
base-load power — even if we go nuclear — as the Inquiry headed by
Professor Anthony D Owen found earlier this year.

set up the Owen Inquiry to investigate the issue of energy
privatisation and NSW’s future electricity needs. Owen canvassed a wide
range of industry experts and found that new base-load power would need
to be found by 2013-14. The Conner Wagnall expert submission
to the Inquiry demonstrates just how difficult it will be to generate
the new base-load capacity from anything but coal. Solar is too
expensive, biomass is too dirty, wind is unreliable and nuclear too
controversial and too expensive to build. Everything else — like wave
power or the promising hot dry rocks technology currently being
trialled in South Australia’s Cooper Basin — is at early stages and a
long way from commercially proven, ‘off-the-shelf’ technology.

other words, Greenpeace is right. Iemma and Costa know that the next
power station built in NSW will be coal-fired. They’ve cleverly
arranged to get someone else to do it.

This is where Kevin
Rudd’s climate change advisor, Ross Garnaut, and Climate Change
Minister, Penny Wong, come into the picture. As Owen points out, any
commercial decision on a new power station will be influenced by what
sort of emissions trading scheme Australia eventually adopts. Gas
turbine plants are cheap to build and emit around half as much carbon
as coal fired plants, so a carbon price which made coal twice as
expensive would suddenly make gas competitive. But Australia is still dodging questions at Bali
about what our 2020 emissions target will be. Everyone is now waiting
for Garnaut’s report, which will shape Australian climate policy to
2050. No wonder he’s not ready to report yet.

As for Morris Iemma and Micheal Costa? Well, this quote from Anthony Owen sums it all up:

combined impact of both the divestment of generation and retail and the
avoidance of new generation investment means that total State net debt
would be up to $26 billion lower in 2020 compared to a ‘retain and
invest’ scenario. This would significantly improve the State’s fiscal
position and the Government’s ability to meet its State Plan

NSW’s cupboard is bare. Now it will sell off its
furniture rather than face up to the nasty problem of climate change.
After all, 2013 is a whole election away.

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