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April 2006
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Daily Media Quotation

Desperate Deal To Sweeten The Books

April 8, 2006

by Alan Ramsey - Sydney Morning Herald

Various governments - state and federal - have sold at least $82 billion of Australia's public assets over the past 20 years. Something like half has gone to foreign buyers. The three most prolific sellers have been the Howard Government, Victoria's former Kennett government and federal Labor's deceased Keating government.

None of this is contestable. In December 1997 the Reserve Bank published the details of the first 10 years of what is coyly called privatisation. That is, politicians selling what the nation's taxpayers collectively own.

The Reserve Bank at the time put the value of the sell-off in the first 10 years, from 1987 to 1997, at $61.3 billion. It included the first chunk ($14.2 billion) of the Howard Government's piecemeal sale of Telstra in 1997. Since then, the second chunk ($16 billion) was sold in 1999. So, too, was Sydney Airport (for $4.2 billion) in June 2002. Plus various smaller plunderings. There you have your total: $82 billion.

Next, at a sharemarket near you, three governments, in collusion, are selling their shares of Snowy Hydro Ltd, the corporatised version of what used to be the Snowy Mountains Hydro-electric Scheme, one of this nation's two greatest engineering achievements. No NSW government has yet been game enough to try to flog the other, the Sydney Harbour Bridge. Give it time, though, should Labor be in office.

Meantime, taxpayers lose Snowy Hydro.

The deal has been done. NSW's Iemma Government, with its 58 per cent share of Snowy Hydro's ownership, is desperate to get the sale at least on the books before the end of June. It needs $1.7 billion (hopefully) to make its coming budget balance before next year's March election. Labor is terrified of a bad budget figure and, thus, a possible downgrading in the state's credit rating.

So the Snowy has to go. NSW announced its unilateral decision last December. The Bracks Government in Victoria, with 29 per cent ownership, and the Howard Government (13 per cent), have acquiesced, with some reluctance. So, too, has federal Labor. It is Kim Beazley's gift to his NSW Labor mates not to make a fuss. He needs NSW's electoral favour as much as does the besieged Iemma Government.

Oh, how they both need it!

Yet some things have not gone as smoothly as some would like. Senator Bill Heffernan, the Junee farmer who is one of John Howard's most vigorous pot stirrers and news makers, was on the phone this week, his words as quotable as ever. He is unhappy about the way some people have gone on about the Snowy Hydro sale. He is just as unhappy about the confusion and anger among "real" people, especially in the bush.

He said yesterday: "The industry's been asleep, because all governments, as part of their justification for privatising Snowy Hydro, have relied on the fact the industry was on side. Well, the industry took it as a given that dealing with a government-controlled Snowy Hydro would do what it has always done, and that is protect its interests.

"I stumbled into a meeting 10 days ago, which was a briefing on the privatisation, and I went nuts. I said, 'What about the physical side of this?' And they said, well, that's a state issue for NSW and Victoria. So it's a sort of political no-man's-land and a bit of a booby trap for all players.

"Two weeks ago I didn't know this, but Snowy Hydro's core business is not generating electricity or delivering water to the river systems and the irrigators. Most of its income comes from the derivative market. Snowy Hydro is really just a financial instrument. I mean, it gets 80 per cent of its income from insurance. It is an insurer of other energy suppliers. If you're a major power generator and you want to insure against a breakdown or a peak in demand, whatever, you can take out insurance with Snowy Hydro and they'll cover you. For a price, of course.

"And it's very profitable. They made $100 million out of it last year."

When Heffernan talks about "the industry" he means the irrigators and farmers who get their water from the Snowy's vast tunnel and pipeline system that channels water into the two great southern rivers, the Murrumbidgee and the Murray. And when he refers to the "physical side" of the scheme's sell-off, he's talking about electricity generation and water - mostly water.

Heffernan went on, referring to Snowy Hydro's lucrative insurance broking: "The average punter wouldn't know any of that. But the industry knows it. The catch is, the Federal Government has ticked this off, but it's a only a minor shareholder in an industry where the constitution says the water, the physical aspects of the deal, are a matter for the states. Now NSW is busting to get the money before its next election. It's why they want it all fixed up by June 30. Credit Suisse has been appointed already as adviser to the privatisation float.

"I went to this briefing, for the Government's backbench finance committee, on Monday night last week, and they ticked it off as a goer. From a financial point of view, of course it is. I said, 'Hang on, what about the physical side? The water, and rest of it?' And we were told, well, that's a matter for the states. I then got up in the party room on Tuesday and said, 'I think it's a catastrophic error we've agreed to this. I almost got booed. I acknowledged it was a matter for the states, but I said we had a political responsibility, because there were a lot of local members who'd wear the shit if it all turned to shit, and we should at least be fully briefed.

"So then we had a briefing on the Thursday night for all the local [Coalition] MPs and the first question I asked of Snowy Hydro's CEO was, 'Have you ever briefed anyone in this building on this aspect of the privatisation?' and the answer was, 'No'.

"We had Snowy Hydro there, we had the Murray-Darling Basin Commission, we had the Department of Agriculture, although the bureaucrats sat there like stunned mullets, while the others sought to answer, 'What's Heffernan raving about?'

"So we had this briefing, and we offered up our views. I mean, it's not to kybosh the thing, it's to put in some safeguards - some real safeguards. I mean, there needs to be absolute community service obligations on the regulated supply of Snowy water, and the time of year those water flows are made available.

"They're obligated to [annual flows of] 1026 and 1064 gigalitres down each of the Murrumbidgee and Murray systems, but there's no obligation on what time of the year. So if the irrigators need the water at a certain time, there's no obligation on Snowy Hydro to provide it then. Why? Because, in the past, everybody's been dealing with three governments - Commonwealth, NSW and Victoria - who want to get themselves re-elected and they all have local MPs affected, so it's always worked out. That is, they've always got the water when it was needed.

"But if you sell the show to [expletive] Beijing Pty Ltd, or [expletive] Thames London or someone, and their core business, bear in mind, is derivative, their obligation is to maximise the benefits to their shareholders, not to pissant around with a part of the business which is only 10 per cent of their income - that is, the supply of water to our farmers.

"Understand, Snowy Hydro doesn't own the water. What they own is control of the [regulated] flow into the Murray and Murrumbidgee. And when others kept saying industry was onside, I started to ring around last weekend. That is, ring the irrigators, the NSW farmers, the various irrigation councils. When I did I learnt they all had these caveats. They said, 'Bill, we agreed to this on the basis of such-and-such.'

"I mean, there is no agreement on an ownership cap. Farmers and irrigators want a cap of 10 per cent ownership for any one corporate entity. You also need a community service obligation, like they put on Telstra, for supply of water at times that suit [farmers and irrigators]. And you've got to have some way of managing the conflict of interest between the interests of the physical users of Snowy Hydro and the ASIC obligations of its directors to maximise profits. They're the sort of things that need to be sorted out.

"And they haven't been. And of course there's a rush to get all this done by the end of June to meet the political interests of you-know-who."

Indeed we do.

Heffernan added: "I've been saying to the boss for three years, 'the Commonwealth has got to take water over, it has to get it out of the hands of the states'. It's a f--- up. And you can quote me."

Indeed I can.

They Went To Water Over The Snowy Sale

by Alan Ramsey - Sydney Morning Herald

Greg Alchin lives and works in country NSW. Last weekend, at home in Orange, he read the story on this page of how parliaments in Canberra, Sydney and Melbourne had endorsed the sale of the Snowy Mountains Hydro-electric Scheme, and he whipped off an angry email to 54 Labor MPs, state and federal, among them the NSW Premier, Morris Iemma, eight of his ministers, and the federal Opposition Leader, Kim Beazley.

The email said: "What in blazes were you thinking when you agreed to sell the Snowy? How can you raise concerns about the privatisation of Telstra and not realise that many of those same arguments apply to the Snowy?

"I can see it now, in years to come, 'Oh, I'm sorry, there isn't much we can do about the problems. The Snowy Corp is a private company!' As the independent MP] Peter Andren [Alchin's federal MP] so rightly put it, 'The continued control of the Snowy system by the governments of this country, I believe, is absolutely essential to the environmental outcomes so desperately needed along the [NSW] river system … What we will be guaranteeing is the slow death of the Murray-Darling system.'

"I used to be a party member. I voted for the ALP and worked on election booths, but I haven't for some years. I'd like to believe in Labor again but how can I with decisions such as this? When you come up with your election strategies next year, remember, politically expedient decisions - sold to us by spin doctors - disillusion the electorate and turn people off. People of integrity and vision give the electorate hope and belief and a willingness to be involved. Regards…"

That same day Alchin also emailed a dozen members of John Howard's Government. Among these were the Finance Minister, Nick Minchin, who has federal responsibility for Snowy hydro's sale; the Deputy Prime Minister and Minister for Trade, the Nationals' Mark Vaile, and the Liberals' Malcolm Turnbull, who is parliamentary secretary to the Prime Minister, with special responsibility for water issues.

This time his email said: "I have just finished reading Alan Ramsey's article in today's SMH. I am deeply disappointed and angered by this decision to sell control of the Snowy. One of the lone ALP voices of dissent (Parramatta's Julie Owens) stated you are 'a lazy Government, one that cannot be bothered to put its case to the public [and] too fearful to allow proper debate'. I personally think it is arrogance based upon a fundamentalist belief of the supremacy of privatisation.

"Furthermore, how can you say you have strong environmental credentials with such shallow decisions? Once again blind fundamentalism creates havoc for years to come. Regards…"

Alchin sent his emails last Saturday. As of midday yesterday, not one of the 54 Labor MPs or the 12 federal Coalition MPs had replied. Not even a formal acknowledgement. Nothing.

Get lost, you tiresome voter.

Greg Alchin emailed me the same day: "Thank you for the article in today's Herald. I find it so disheartening there are so few politicians of independent thought and integrity around these days. I felt so angry by the Snowy decision I felt compelled to send off the [attached] email to NSW and federal ALP politicians. Why just them? A sense of betrayal. I have a low opinion of most Libs and Nats. I expected more from the ALP. I am sending one to the Libs with a different tone."

I replied on Monday: "I understand how you feel. Labor has lost itself. The rest of us go on losing a great deal more."

Alchin responded: "The light on the hill grows dimmer as the fire for the social good is doused by the desire for personal power."

What light was that?



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