Petroleum Bill

Extract from Hansard

Legislative Council
16 May 2001

Sandra Kanck
Deputy Leader Australian Democrats
Member of the Legislative Council

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The Hon. SANDRA KANCK: I seek leave to make a brief explanation before asking the Treasurer a question concerning estimated revenue forgone as a result of the privatisation of South Australia's electricity utilities.

The Hon. SANDRA KANCK: The report of the Auditor-General for the year ending 30 June 2000 states that revenue forgone from South Australia's privatised electricity utilities for the year 2000-01 is estimated to be just $150 million. It should surprise no-one in this Council that the Department of Treasury and Finance is responsible for this astonishingly pessimistic prediction. A comparison with the figures from the ETSA annual report for 1995-96 is instructive. In 1996, before Optima was disaggregated from ETSA, before the $450 million capital restructure distorted ETSA's books and before the state government's privatisation plans made ETSA's financial reporting unreliable, ETSA paid the state government $174 million in dividends, $ 55 million in income tax equivalents and $43 million in statutory sales levy. The total revenue from ETSA to the state government was some $ 272 million.

Five years later, the Department of Treasury and Finance, overseen by the Treasurer-whose job it was to make the ETSA privatisation look more palatable-estimates that businesses leased for $5.4 billion would have returned just $150 million if kept in public ownership. That figure comes at the end of a five year period when peak summer demand has grown from 2 078 megawatts in 1995-96 to 2 833 megawatts in 2000-01. During the privatisation debate, the Treasurer persistently claimed that cutthroat competition would drive down prices and reduce returns from the electricity utilities should they remain in public ownership. Now, 3 000 South Australian contestable electricity consumers are facing increases in their electricity bills of between 30 per cent and 100 per cent. My questions are:

1. Does the Treasurer stand by the Department of Treasury and Finance estimate that the electricity businesses would have returned just $150 million in 2000-01?

2. If so, can the Treasurer tell this Council precisely why it is alleged loss of revenue would have taken place?

In relation to the general issues of what electricity businesses might or might not be earning, the one difference between 1996 and 2001-should the honourable member not be aware of it-is that we have gone from a monopoly position in South Australia where the government was the sole arbiter of what the businesses could earn to a situation where we have the involvement of the ACCC in relation to transmission pricing, we have the involvement of the Independent Regulator in relation to distribution pricing and we have the involvement, as we have discussed at some length over recent weeks, of generators and retailers in relation to the national electricity market. In all those areas, the state government, unlike in 1996, no longer has direct control over the pricing of any of those four components, other than, I should hasten to say, that the government established an electricity pricing order, which, for a period, governs the prices that the distribution company and the transmission company can operate.

The Hon. R.I. LUCAS: The Hon. Mr Crothers highlights the fact that there are a number of differences between 1996 and 2000-2001. As I said, the major difference is that we have a national electricity market, and we as politicians and public servants no longer have the power to set prices in this market, which, as we have highlighted much to the chagrin of the Deputy Leader of the Opposition, was established by Prime Minister Keating and Premiers Bannon and Arnold in the early 1990s, and then, as I have always acknowledged, supported by Prime Minister Howard and Premiers Brown and Olsen in the establishment of the national market.

There is a shared responsibility in relation to the national electricity market in South Australia. I will take the honourable member's questions on notice and bring back a reply. As I understood, part of her original explanation referred to the audited accounts undertaken by the Auditor-General for 1999-2000, and ultimately the Auditor-General's Report is a responsibility for the Auditor-General in relation to how he reports on information that is provided to him, whether it be by Treasury and Finance, or indeed any other government department or agency.

The Hon. T. CROTHERS: I have a supplementary question. In 1996, the previous questioner-

The PRESIDENT: Order! The honourable member will go straight to the question, please.

The Hon. T. CROTHERS: When the Treasurer is researching these facts, will he also research what interest rates were payable in 1996 on the State Bank debt-

The PRESIDENT: Order! The honourable member cannot explain his supplementary question.

The Hon. T. CROTHERS: In the audited report he refers to for the year 2000, will he then inform this Council as to what the interest rates are today after we have paid off some of the debts through the lease of ETSA?

The Hon. R.I. LUCAS: I am happy to take the honourable member's question on notice and bring back a reply as soon as I can.

The Hon. R.I. LUCAS: I have received advice from my department on the issue of the revenue forgone from ETSA as a result of the privatisation of the corporation.

The number of $272 million has been quoted as the total of contributions by ETSA Corporation to the state in 1995-96. This includes a dividend of $174 million, statutory sales levy of $ 43 million and income tax equivalents of $55 million.

However, of the dividend total of $ 174 million, $18 million related to the sale of ETSA's light motor vehicle fleet and a further $ 5 million related to the elimination of the future plant replacement reserve. Therefore, removing abnormals the dividend that was paid to the government in 1995-96 was $101 million or $199 million including the statutory sales levy and income tax equivalents.

The risks associated with operating in the national market were highlighted by Mr Mike Janes, chairman of ETSA Corporation in 1997-98 when he noted in his annual statement that `ETSA risks becoming marginalised when the national electricity market begins full operation. In these circumstances it would be difficult for ETSA to maintain shareholder value.'

With the commencement of the national market, government owned retailers and generators lost their monopoly position and as noted by Mr Janes, in that environment any dividend payable to the Government would be diminished.

When South Australia entered the national market, it gave up direct power to control prices. The electricity pricing order is an interim measure to protect consumers and help with the transition to the national market. The ACCC now regulates transmission pricing and the independent regulator now regulates distribution pricing. In short, the government no longer has the power to set prices, unlike in 1995-96.

For the purposes of estimating the future dividend that may have been payable to the state, the most appropriate indicator is the dividend that was paid for the last full financial year before any entities were leased. Budget Paper number 2 shows that for 1998-99 the dividend to the government was $103.3 million and the estimated income tax equivalent was $69 million. In total in 1998- 99, the last full year of operation before privatisation, the government received $172.3 million from ETSA Corporation and the associated Generation Corporation.

Therefore, the number quoted by the Auditor-General as an estimate of the revenue forgone for 2000-01 of $150 million, is appropriate and consistent with previous dividends paid by the electricity entities, taking into account the increased level of competition and other risks, associated with the operation of the national electricity market.

In relation to the supplementary question regarding rates of interest, the South Australian government raises funds at different times with varying maturities which results in different interest rates. Therefore, the interest rate that the South Australian government pays over a period relates to the average rate on the outstanding borrowings for that period.

During this period, SAFA managed its debt to an average maturity term (modified duration) of 2.8 years. The hypothetical SAFA 2.8 year modified duration rate was:

However, it should be noted that the 2.8-year modified duration SAFA rate is a hypothetical rate as it has been derived through interpolating existing SAFA bonds in the fixed interest market at each specified date.