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| Mike Elliott Leader Australian Democrats Member of the Legislative Council |
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Legislative
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| Mike Elliott Leader Australian Democrats Member of the Legislative Council |
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The Hon. M.J. ELLIOTT: I seek leave to make a brief explanation before asking the Treasurer a question in relation to the Auditor-General's Report into the electricity businesses disposal process in South Australia.
Leave granted.
The Hon. M.J. ELLIOTT: My question relates to pages 53 and 54 of the report which refers to implications from the use of success fees.
The Hon. R.I. Lucas interjecting:
The Hon. M.J. ELLIOTT: In his report the Auditor- General says that, although maximising revenue from the disposal is a state objective, it is coupled with the further objective of minimising the risk to the state of the disposal, and it is important that advice received is balanced in terms of both objectives.
He later makes a specific recommendation about success fee arrangements and says that they should not be used as a matter of course. He does not spell out the risks, but I would add that in recent weeks I have had several discussions with major users of electricity in South Australia who told me that they are not seeing the sorts of price reductions that were promised. In some cases they have faced cost increases, and they are extremely disappointed. They described two reasons for this failure to get price decreases: first, the structure that was created; and, secondly, the fact that they saw it as not being terribly competitive due to the fact that coal producers were never going to face any competition from gas and vice versa.
When the Auditor-General talks about minimising the risks-and he does not spell out what risks he is talking about, and certainly it was an issue that the Democrats were concerned about when it was debated in parliament-the question is whether or not the advisers were involved in providing advice as to what structures were to be created, recognising that the particular structure that was created probably optimised the price returned to the state and therefore maximised their fee, but it also had a potential negative impact on the price of electricity for South Australians.
The Hon. R.I. LUCAS (Treasurer): With due respect to the leader of the Democrats, I will need to repeat some of the criticism I have directed to his deputy leader over the past two years in this area of the electricity debate. To make the assertion that the industry, and particularly the generation industry that he mentioned, has been structured in such a way to maximise the value because in some way that would maximise the success fee is, frankly, the most bizarre notion I have heard since the Hon. Paul Holloway in question time today put forward the other bizarre notion-
The Hon. M.J. Elliott: Did they provide advice on the structure?
The Hon. R.I. LUCAS: Yes they did. I indicated back in the middle of 1998 that they provided advice on the structure. The Hon. Mr Elliott is obviously a slow learner. It has taken 2½ years for him to come back and ask the question again. I went on the public record during the debate in this chamber in late 1998 when his colleague took exception to one of the advisers being on the floor of the chamber because he was not an Australian. The whole debate was about the advice they were providing on the structure of the industry. It might be a blinding flash of acknowledgment from the leader of the Democrats that that is what they were here for, but everyone else in the chamber has known that for 2½ years-that they were here providing advice on a range of things, including the restructuring of the industry and preparation of the industry for entry into the national electricity market. I refer to not just the lead advisers but the whole range of advisers that the government had, including legal and economic and those who advised on the management of the privatisation process. That is the first aspect.
The honourable member is desperate to try to get an angle on this when he says that they cleverly constructed an industry structure for generation which maximised their success fee opportunities, the inference being that these greedy consultants obviously took the government and the people of South Australia to the cleaners in terms of the structure. I just remind the honourable member that the Australian Democrats, and indeed some others in South Australia, actually said to the government at one stage (the Democrats' position did change, and I must confess that it was hard to keep up with) that what we needed to do was to keep Optima as a single entity. By inference, what the honourable member said was that part of the criticism was that we had divided the companies along the line of coal and gas. I am not sure how else you would do it. One of the plants is wholly coal and another is wholly gas. Unless we are going to divide them into half and give half to someone and half to someone else-
An honourable member interjecting:
The Hon. R.I. LUCAS: I think that was one of the Hon. Mr Elliott's earlier bizarre notions.
An honourable member interjecting:
The Hon. R.I. LUCAS: No, I don't think he did 1 000 hours: his deputy leader did. How you would do that, I am not sure. The notion put to the government was that we should keep Optima as one entity rather than splitting it into three as we did. The argument was that that would maximise the value to the taxpayers of South Australia, because it was a monopoly provider. It was a portfolio provider. It had coal, gas, diesel and fuel oil. It was at Port Augusta and Torrens Island-it was spread over the state. We were told-indeed, the Optima board argued strongly to the government-that, if you want to maximise the value of the asset to the taxpayers of South Australia, the shareholders, you sell Optima as the monopoly it was without splitting it up to try to get competition.
Our advisers-the ones that Mr Elliott is trying to infer in relation to the structured generation industry-were the ones who, together with the economic advisers and the government, were strongly supporting the breaking up of the power that Optima would have as a monopoly supplier in South Australia. In doing so, that would reduce the value of the generators in terms of the sale value to the people of South Australia. It was a conscious decision not to keep Optima as a monopoly entity but to break it up into three, knowing that we would not be maximising the value of the asset, and also knowing that we had a public interest in trying to ensure, to the degree that we could, competition in the marketplace in South Australia.
Now the Hon. Mr Elliott, in typical Democrats fashion, is trying to suggest that in some way the lead advisers had structured the generation industry in South Australia to maximise the success fees that they might have accepted. When we looked at the notion of breaking up the assets, we saw that there were at least two or three options. One was to break up the entity into two competing companies, and the other was to break it up into three. Again, in the interests of trying to dilute the market power regarding the generators in South Australia, to the degree that we could, we took the more radical option of breaking it up into three and not into two generators. Therefore-
The Hon. M.J. Elliott interjecting:
The Hon. R.I. LUCAS: Again, the Hon. Mr Elliott does not understand what the structure was in 1998. The government's position, until it was held up by the parliament, was to offer the base load opportunity at Pelican Point, together with the peaking plants, as one development opportunity to a company, so it could compete with the other two. The only reason they were originally disaggregated was that the parliament stopped the sale or lease of the peaking plant, Synergen, and we had to proceed quickly with the new development opportunity, the base load plant, at Pelican Point.
But the original model that was brought down was a model based on Torrens Island, of just over 1 000 megawatts, a model based on Port Augusta, which is about 700 or 800 megawatts, and a new proposal for Pelican Point, together with peakers, which was 500 to 800 megawatts, plus the peaking capacity of a couple of hundred megawatts or so spread across the state.
So the interjections and the original question of the honourable member have no substance to them at all, and all the advice that the government has taken is that the decisions we took were in the interests of trying to develop a more competitive market in terms of the structured generation. They certainly went against the advice we had that, if we wanted to maximise value and, by inference, maximise success fees for advisers, we would not have adopted the structure that we did.
