Success of privatisation plan requires $12 billion spent wisely

As I’ve commented on previously, I’d prefer the Queensland Government to allocate all of the privatisation proceeds to debt reduction to maximise our chances of regaining our AAA credit rating. By allocating a sizable fraction – now $12 billion according to today’s Courier-Mail – to infrastructure projects, the Government runs the risk of not regaining AAA and, further, adversely affecting the State budget balance, given that it would lease out some assets but invest the proceeds in assets that are either:

  • non-income producing and costly to maintain, such as regional roads; or
  • unlikely to fully recover their costs such as the Townsville Super Stadium.

Many of the assets the Government invests in out of privatisation proceeds may cost the Government money over the long-term, and it will have forgone any gain from lower interest payments through debt reduction. Sure, the Government might argue that it would need to borrow money and pay interest to invest in many of these new assets anyway, so it’s not really forgoing the reduced interest payments, but it’s unclear if there is an urgent and unavoidable need for the new infrastructure in the first place. Given Queensland’s $80 billion debt and the need to regain our AAA credit rating, the Government should think carefully about the merits of its $12 billion infrastructure package. Some of the items, particularly the Townsville Super Stadium, appear to be of dubious merit and designed mainly to secure support for the Government in a community with marginal seats (see Privatisation proceeds should be spent wisely).

Finally, I’d note that the information provided to the Courier-Mail for its exclusive today shows just what a bad idea the original non-share equity injections proposed for Energex, Ergon and Powerlink were, with proceeds being boosted by over $3 billion by switching to leases instead. Incidentally, I still expect we’d get even more from the outright sale of the businesses (see ABC radio interview on asset leases).

Advertisements
This entry was posted in Budget, Energy and tagged , , , , , , , , , . Bookmark the permalink.

6 Responses to Success of privatisation plan requires $12 billion spent wisely

  1. Mark Beath says:

    “Finally, I’d note that the information provided to the Courier-Mail for its exclusive today shows just what a bad idea the original non-share equity injections proposed for Energex, Ergon and Powerlink were, with proceeds being boosted by over $3 billion by switching to leases instead.”

    I did see a reference somewhere that the strongchoices process feedback was that people understood the hybrid equity concept. That is something I would seriously doubt given the complexity of most hybrid products. Perhaps they are a product easily sold to retail investors which is not the same thing as being understood.

    • Gene Tunny says:

      I agree. I also have doubts about whether they understood it. The Cabinet probably didn’t even understand it, because if they did they probably wouldn’t have put it forward in the draft plan. It was a wacky idea.

  2. Katrina Drake says:

    Even wackier is the export of all the Queensland jobs to maintain and operate the leased assets that will now be given to foreign nationals by the overseas lessors.

    • Gene Tunny says:

      Thanks for the comment, Katrina. I don’t think protecting local jobs is a reason to keep an inefficient business in government ownership. How many jobs do you expect would go overseas anyway? They’ll still need a lot of people on the ground to run the business.

  3. The Happy Hillbilly says:

    In the case of things like electricity and water provision, arguments about inefficiency are less applicable than they would be to a private business since the whole point of government ownership is not to provide a financial return to private shareholders first and foremost but to provide and maintain the basic building blocks upon which a functional modern society (or economy if you prefer that term) are built. A private owner simply cannot consider this first and foremost since they are driven by the profit motive and are bound to maximise returns to private shareholds, even if what they are doing runs counter to the broader public interest. And the rules regarding how they operate will not be all that stringent – would you buy an asset with such restraints on profitiablity attached to it? If it wishes to get the best price, the government will not be able to attach to many heavy-handed conditions designed to protect you and I.

    Lastly, it must be noted that the state-owned electricity industry actually returns a net profit to the government, despite being wracked with inefficiencies designed to safegaurd the public interest. They would just be selling the cow in order to buy milk.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s