The process of selling the nation’s jewels in order to “save” the budget looks to be gaining momentum, with Queensland’s Newman Government appointing investment banks, Macquarie and Rothschild, to assess whether to sell two of its biggest assets: utilities SunWater and PowerLink. From the AFR:
…they mark the Newman government’s first move towards embracing privatisation as a way to pay down debt, which is due to peak at $81 billion in 2016-17…
The $2.2 million Costello commission of audit recommended the whole-sale privatisation of energy assets as quickly as possible – which it predicted would have raised $25 billion to $30 billion.
Earlier this year, Treasurer Tim Nicholls pushed for a sale of Powerlink, the long-distance electricity transmission line, which would have reaped $10 billion for state coffers.
Mr Costello and Mr Nicholls warned Queensland could face a further credit downgrade unless it undertook a wholesale asset sales process. It lost its AAA credit rating in 2009.
The former federal Liberal treasurer then told LNP MPs it made no sense to keep Powerlink and private sector companies would be “lining up out the door” to buy it. He said the sale alone could reduce the state’s debt by 15 per cent.
As argued earlier this week, the notion that Australia’s governments will “save” the budget and pay down debt via asset sales is misguided.
While the government will receive funds up-front from such sales, it will lose the ongoing cash flow (dividend stream) from the assets – in effect substituting a future income stream for a smaller lump-sum. Whether such asset sales are, therefore, beneficial to taxpayers depends on whether the upfront funds received by the Government outweigh the expected net present value of future dividends. If not, then the sale is likely to be detrimental to long-term budget finances.
Indeed, there are also strong equity and efficiency arguments for keeping essential utilities, like SunWater and PowerLink, in public hands. Since these type of assets are natural monopolies facing minimal competition from other players, there is the risk that a private player could attempt to gouge consumers by raising prices. The government would also be more likely to guarantee access to poorer members of the community, thereby improving social outcomes, as well as better inforce minimum quality standards, which is particularly important in the area of water supply (SunWater’s core business).
While some of these concerns could be overcome through regulation, such regulation would also likely lower the sale price on the assets, reducing proceeds to the government.
In short, the Queensland should avoid looking for a short-term budget fix and proceed carefully on any privatisation of its essential utilities.
unconventionaleconomist@hotmail.com
