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water politics+political marriages « Previous | |Next »
June 1, 2006

So the political marriage between the Nationals and Liberals is off before they even got to the Church. The feds were not interested in the shotgun Queensland marriage to save the Queensland Nationals from a steady decline.

Geoff Pryor

What suprises me in all of this is the inattention to the privatisation of the Snowy Hydro-electricity Scheme---or more acccurately Snowy Hydro Ltd. The politics of water consumption is a e key issue and is a tailormade issue for their rural populism and conservative values. Yet the Nationals are nowhere to be heard.

Jack Waterford in The Canberra Times says that:

On an issue like the Snowy Mountains Hydro sale, Bill Heffernan is playing the role that a smart National Party, keen for signature points of difference with the Liberals - ought to have played.

The Snowy scheme is a national icon - as important and symbolic in the minds of urban Australians as much as rural ones - but it has a particular significance to the rural sector, not least those who live in the Murray, Murrumbidgee and Darling Basin - that part of the continent within which three quarters of the population, and almost all of the National Party constituency lives.

He's right on that. One consequence of the sale of Snowy Hydro Ltd, says Waterford, is this:
The sale of the hydro scheme does not mean the new operators will be able to fundamentally change river flows. These are, to a degree at least, fixed by intergovernmental agreements which will continue. But the new operators will have considerably more latitude and incentive to operate the scheme for the prime benefit and purpose of maximising their energy return rather than meeting the needs of water consumers downstream.

The latitude is spelt out by Graeme Davidson in The Age as follows:
The first is the seasonal timing of environmental and irrigation flows when they might clash with the privatised company's duty to its shareholders to maximise its returns from the sale of peak electricity or holding water in its upper storages to use as insurance for electricity retailers against price spikes that can drive electricity prices up to the $10,000 MWh cap.

...the three governments are committed to increasing the environmental flows from the present dribble to 21 per cent by 2012 and 28 per cent at some unspecified time in the future. This is water that will not available to Snowy Hydro for electricity generation. The additional flow is supposed to be made available from improved irrigation efficiency. The uncertainty surrounding the likelihood of achieving the extra environmental flows is likely to be increased with privatisation.

Yet the Nationals are not saying boo. Shouldn't they be jumping up and down in the bush? Or have they gone too far down the free market road to care?

| Posted by Gary Sauer-Thompson at 10:19 AM | | Comments (7)


Well spotted re: the nowhere Nationals. But I guess they have more serious problmes on their plate about whether they are Nationals or Liberals.

But at least we have celebrities, and wanna be Lefties to stand up to rapacious capitalism.

Where would we be without these selfless, celebrities! Next time we go to the cinema to watch "our Kate" we won't mind in the least she is earning $12million a pic.

It was the Independents (Bob Katter, Tony Windsor, Peter Andren and Victoria's Craig Ingram) plus Bill Heffernan, Gary Nairn & other Liberal backbenchers who got Howard to pull the plug on the Commonwealth selling its 13 per cent share of the Snowy Hydro. As you pointed out the Nationals--or the agrarian socialists--- were nowhere to be heard.

The Letter of 56 prominent Australian (including Malcolm Fraser and Cate Blanchett), which you referred to above, reads:

"This iconic enterprise was a stepping stone on our path to nationhood, and was seen by all the world as a marker of our aspirations. It is part of the glue that binds us all. At a time of climate, water and energy uncertainty, the sale of such a central pillar of the nation's power and water supply is imprudent. We ask you to suspend the process to give pause for that analysis and time for free and open debate of this manifestly non-partisan issue in all parliaments of the nation. Water is far too fundamental and precious a resource to be put in jeopardy with so little forethought.

Calling for a debate and analysis on this issue sounds reasonable to me, given that there hasn't been one.

The Australian had argued for the sale in an editorial:

There is a great deal of old-fashioned economic nationalism in arguments against the Snowy sale. The idea that Snowy Hydro is now owned by all Australians ignores the obvious fact that there is no more reason for governments to have capital tied up in a power company than there was for them to own airlines, or banks, as they used to, or a phone system, as Canberra does now. Certainly, the sale is being driven by the financial incompetence of the NSW Government, whose 58 per cent share means it has most to gain from the sale. But this in itself does not make the deal a bad idea.

Okay. So why is it a good idea? The Australian continues:
And it seems all opponents dismiss arguments that access to water is enshrined in official agreements that stop Snowy Hydro acting unilaterally, suggesting instead that profit from power production would always come before irrigation and the needs of the environment. But the health of the Murray River is now a mainstream political issue and the political power of farmers who worry about water is significant enough to have already extracted an economically irresponsible concession from Canberra over the Snowy sale. At the heart of this argument is the Hansonite assumption that politicians will always conspire with business against ordinary Australians if given the chance. But the reality is that no government will ever sensibly surrender the right to regulate the use of water.

Hansonite=xenophobia to the free marketeers opposed to all limits on foreign ownership, whilst celebrating the self-stablising mechanisms of free market capitalism and paying homage to their Adam Smith.

However it is highly likely that the rest of the water industry will remain in government hands for the foreseeable future.That is a political reality.

So why privatise? The Australian says:

A private-sector Snowy Hydro, with its access to water properly regulated, will make It is time to let the fearless pony of privatisation have its head.

Could not a government owned Snowy Corporation also make an economically essential contribution to the endlessly increasing demand for power?

Hmm, now we have Howard the defender of public assets.

I don't know how the electorate will read this - as Howard the hypocrite - ready to sell off Federally owned assetts against public opinion, but willing to shaft the states, or as the hero of the Hydro.

Last time I saw back flips as big as this was Olympic gymnastics.

To my mind, the right thing has happened, for mostly the wrong reasons.

Kirk McKenzie, the President of the Labor Party’s North Sydney Branch and Chair of the Finance and Economic Policy Committee of the NSW Branch of the ALP, argues for the sale of Snowy Hydro Ltd in New Matilda. He says:

For whatever reasons, Snowy Hydro’s generating business has been earning profits far below expectations. The best estimate of the current value of the company is $3.1 billion and last year it earned approximately $150 million. The dividend paid of $110 million amounted to a 3.5 per cent return (probably less than 1 per cent on the generating assets), which could be bettered by investing the money in a term deposit. Not, surprisingly, NSW and (to a lesser extent) Victoria — which have a long-term revenue problem because of the unfair distribution of GST funds through the Commonwealth Grants Commission process — want access to the substantial funds locked up in this under-performing asset. The two Governments' need for infrastructure capital must be given greater priority over keeping a power-generating business that provides a meagre return to its taxpayer shareholders.

It's not just an underperforming power generating business to provide energy for Sydney and Melbourne, and it never has been. The Snowy Scheme was also about making the deserts bloom and ensuring regional development west of the Great Dividing Range.

McKenzie addresses this irrigation aspect by saying:

Irrigators and environmentalists fear that if Snowy Hydro is sold, the flows of water back into river systems will be restricted. This fear is illusory because the water is owned by the NSW Government and only licensed to Snowy Hydro. The water releases for the irrigators have been agreed for the next 72 years and can only be changed by legislation. This is hardly likely to change given the sensitivities of the various stakeholders.

That does not address the need to return more water to the Murray river through environmental flows. McKenzie makes no mention of this despite the water politics around this for the last two decades.

So an incompetent and dysfunctional NSW Lemma Government is going to sacrifice ecological sustainability of the Murray-Darling Basin to prop up the bottom line of its budget. Sydney (and Melbourne) may still be the political centre, but it is no longer the economic centre. That is WA and Queensland and the population is starting to shift to better climates and living conditions as manufacturing declines in South eastern Australia.

I agree. Howard has made the right call, even it if was done under political pressure.

Yep, wrong reasons, right move.

There are too many variables that have not been addressed too allow it's sale at this time, if ever.

On purely economic grounds, it needs to lift it's profit performance to command a decent price.

Some good analysis at John Quiggin's site. Probably a mix of factors, but Howard probably thought he could show himself as sympathetic to (overwhelming) public opinion and realised that Iemma will wear most of the oppobrium (and would be in the biggest hole vis-a-vis his Budget).

I wonder whether the beneficiaries of the first privatisations (Com Bank etc) are less of a cohesive voice now, so far down the track, whereas there have been some pretty bad stuff-ups (SA water, Vic rail, etc) in more recent memory. Ally this to IR, etc, and people slowly realise that the beneficiaries of privatisations are relatively few in number and often the same people every time.

Any economist reading this comment will immediately understand that it is an emotive argument. I stand by it.

yes to Quiggin. He says

In any case, there were substantive arguments against privatisation that weren’t effectively answered. We’re in the middle of trying to sort out what to do with the water in the Snowy-Murray system, and not making a really good job of it. The last thing we need is to have a private company (probably with foreign owners who can appeal to the protection of the US-Australia FTA) with large, but still poorly-specified, entitlements to use the water or receive compensation for changes in use.

Spot on. The whole issue about water entitlements/rights, environmental flows, over allocation is a mess.