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| Sandra Kanck Deputy Leader Australian Democrats Member of the Legislative Council |
Parliament Index |
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Legislative
Council |
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| Sandra Kanck Deputy Leader Australian Democrats Member of the Legislative Council |
Parliament Index |
ELECTRICITY, PRIVATISATION
In reply to Hon. SANDRA KANCK (27 May 1998 and 10 March 1999).
The Hon. R.I. LUCAS: I provide the following information in response to the questions asked by the Hon. Sandra Kanck on 27 May 1998 and 10 March 1999:
Would the sale of ETSA and/or Optima Energy impact upon the State Government's contract with EDS, and if so, how?
The contract with EDS (Australia) Pty Limited enables the State to add and withdraw agencies from its scope. EDS was advised of the State's proposal to sell its electricity utilities, and a strategy to handle the consequences under the contract was agreed.
Specifically, the State and EDS agreed to separate the new electricity utilities from the main contract between the State and EDS, and to put in place replacement contracts directly between the utilities and EDS. Negotiations are being completed with EDS to implement these new contracts (on a stand-alone basis with each of the new electricity entities).
These separate contracts will be for services required by the electricity businesses and will be of shorter duration – approximately three years rather than the seven years remaining on the whole of Government contract. If the disengagement process under the whole of Government contract had been implemented, a payment would have been payable to EDS. The disengagement process would have taken approximately 12 months. This would have had significant negative implications for the year 2000 compliance issue to be confronted by ETSA and would have placed the ETSA and Optima entities in a situation where there is no replacement service provider in the period where the Government intends to sell those entities.
Therefore, the view was taken that separate three-year contracts with each of the entities would be preferable.
EDS will require compensation (of a lesser amount than for straight disengagement) to disengage the ETSA and Optima entities and to effect stand-alone contracts with a shorter duration. This cost is directly attributable to the disaggregation of ETSA and Optima and provision has been made for this cost in the electricity businesses.
Any subsequent sale of the electricity utilities will then be subject to those replacement contracts.
In return, EDS has agreed that the revenues earned by EDS under the replacement contracts will continue to comprise eligible revenues for the purpose of the contract between the State and EDS, and thus attract the revenue linked industry development obligations under that contract.
Would any of the current arrangements between EDS and ETSA, EDS and Optima Energy impact upon the sale price of ETSA and Optima Energy? If so, by what amount?
The outsourcing of the State's electricity utilities requirements for IT infrastructure services is unlikely to affect their sale price to any material extent. Outsourcing of non-core business activities (including in particular information technology services) is a standard commercial practice.
From a contractual viewpoint, the State and EDS have agreed to execute replacement contracts for each of the electricity utilities so that they can be dealt with in the sale process in a conventional manner.
A three year contract with EDS with each of the entities will not be expected to affect the value of the entities. In particular, because any such contract ensures that EDS is responsible for year 2000 matters relating to the provision of equipment and services by EDS, this should have a positive impact. In addition, in terms of sale, there would not be a long period of contract remaining after any point of sale in order to allow purchasers flexibility.
The alternative is to run the existing whole of Government contract on in the electricity entities for the remaining period of 7 years, which could have a significant impact on sale value and purchaser flexibility.
Why was the disengagement of the electricity utilities from the EDS whole of Government contract undertaken without the sale of the utilities guaranteed?
The Government's contract with EDS (Australia) Pty Limited contains provisions regulating the `disengagement' process that applies when a Government agency's assets are to be removed from the contract.
In late 1998, as a first step, the Government and EDS agreed how the seven disaggregated electricity supply industry entities would be handled under their existing contract. Specifically, the seven disaggregated entities were added to the contract in place of the former ETSA Corporation.
As a second step, to prepare the entities for possible sale, arrangements were also made to enable the infrastructure services provided by EDS to the seven entities to be `unbundled' from the whole of Government contract, and `bundled' with the package of assets and contracts to be sold with each of the entities.
To this end, the Government and EDS agreed to negotiate separate `replacement' contracts between the new entities and EDS. These replacement contracts can then be included as part of any sale process, in the same way as any other contract those entities might have entered into for the provisions of any services.
Those separate contracts are still being finalised, so at this stage, the utilities have not yet been `disengaged' from the Government's principal contract with EDS. However, the separate replacement contracts will proceed once the documentation has been agreed.
Once the contracts are signed, the entities will be disengaged from the principal contract with EDS. The Government and EDS have agreed that the replacement contracts will be linked to the principal contract for certain purposes (for example, the purposes of economic development benefits provided by EDS and for the pricing benefits gained by the Government under the existing contract) for so long as the entities are owned by the Government.
Who provided the advice that this should be done?
The Government decided upon this course of action after taking advice from the Electricity Reform and Sales Unit and officers in various Government departments.
From which part of the State budget has this money come?
Whilst the establishment of the replacement contracts entails both costs and benefits to the Government, it is considered that, on the whole, the Government is advantaged by this process. A `separation' fee will be payable to EDS on execution of the replacement contracts, but the Government is satisfied that it is reasonable in all the circumstances. The fee will be met from the budget of the Electricity Reform and Sales Unit (ERSU) of the Department of Treasury and Finance.
Will the Treasurer reveal the exact cost to the taxpayers of South Australia and, if not, why not?
The amount of the separation fee is $1 million.
