ABC radio interview on asset leases

At a BDO economic outlook breakfast I attended at the Brisbane Convention Centre this morning, Treasurer Tim Nicholls announced that the Government would consider asset leases as an alternative to the previously announced sale of the power generators and the (weird) non-share equity interests in Energex, Ergon and Powerlink (see my previous criticism of non-share equity interests in Government should just sell Energex, Ergon and Powerlink). I would prefer the originally proposed sale, rather than the long-term lease of the power generators, because I expect selling them would raise more money and would allow the operators to fully realise efficiency gains. However, leases of electricity distribution and transmission network assets currently on the books of the government-owned Energex, Ergon and Powerlink are probably a better option than the non-share equity interest alternative, which I thought was a weird, slightly tricky financial instrument.

As I’ve commented before, my feeling is that we’d be better off selling all of the assets. But leasing assets over a very long-term (e.g. 50 years) gets us a large part of the way toward private ownership, even if it isn’t perfect and there is always the risk of government interference down the track. The Government is still putting up a proposal that should yield significant efficiency gains (i.e. long-term leases), even though those gains may be lower than if the assets were sold. Unfortunately, Strong Choices was a weak, uninformative and unconvincing campaign (see my post Failure of Strong Choices now obvious), and the Government has had to accept political reality and find alternatives for politically toxic though economically desirable asset sales.

I more or less made these points in my interview with Rebecca Levingston on 612 ABC Brisbane this afternoon:

What to do with asset leases

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2 Responses to ABC radio interview on asset leases

  1. Jim says:

    Good one Gene

    Has anybody actually done an impartial analysis to compare the benefits and costs of the alternative strategies (hold, lease, sell, none-share equity etc.)? We seem to be in a world of policy by press release.

    I suspect that the lease option doesn’t actually do anything for debt levels as no capital payments are made? And on the revenue side of the equation, aren’t the State simply substituting a lease payment for profit?

    I also wonder about the commercial risks associated with changes in technology and how that could change the outcomes of the analysis. Of all of the potential classes of assets that could be privatised, I would have thought the long-term risk of ownership (think stranded or under-utilised assets) is greatest in the electricity sector. The cost of instintaneous generation from solar is rapidly approaching that from coal and gas, and the cost of storage is also declining quickly. This may create a risk of more consumers going “off grid” in the future, which will greatly impact on the viability of the existing energy assets.

    Those issues are for others to analyse, but the analysis should be done and made public anyway.

    • Gene Tunny says:

      Jim, thanks, I agree regarding the need for analysis to be done and made public.Regarding the leases, I expect the Government would receive lump sum payments rather than periodic payments. Otherwise, you’re right, leases won’t help the government achieve the big debt reduction it wants.

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