BY BRONWEN BEECHEY
The South Australian Liberal government believed that it was on a winner when it privatised the state's electricity supply. However, it now looks like the move will be a major factor in the government's defeat at the next state election, and a political albatross around the state government's neck for years to come.
Hardly a week goes by without a new revelation in the press about problems in the power industry. During the recent hot summer, SA had an unprecedented number of blackouts as the privatised local power generation plants and interstate connections failed to keep up with demand. The solution proposed by electricity retailer AGL was that the public should switch off air conditioners in hot weather!
Over the past few months, the emphasis shifted to the increasing cost of electricity as householders and small businesses found their electricity bills soaring. The continuing revelations and price hikes, and the resultant community anger, forced the state parliament to pass a motion to censure state treasurer Rob Lucas on May 3 for "mishandling" the power crisis.
The Liberal state government's promise that the privatisation of the Electricity Trust (ETSA) in 1999 would have no effect on the community has been exposed as a lie.
South Australia's experience is not an isolated one, as the recent power crisis in California shows. It is a classic example of how privatisation of public assets leads to higher charges and poorer services to consumers, while delivering big profits to the capitalist corporations and their rich owners.
The privatisation of SA's electricity supply is part of an international and national trend. Over the last 20 years, the ascendancy of economic "rationalist" ideology has led to the wholesale privatisation of public assets. Publicly owned resources became a target for profit-hungry transnational corporations. An entire industry of consultancy firms, "outsourcing" experts and staffing agencies fed off the profits of "downsizing" and selling off public services. (The consultants for the sale of ETSA were paid more than $30 million.)
Internationally, the privatisation industry has been backed by the International Monetary Fund and the World Bank, which have demanded privatisation in the Third World and the former Eastern European socialist countries in exchange for loans.
ALP role
Although the South Australian ALP doesn't draw attention to the fact, it was the federal Labor government of Prime Minister Paul Keating that initiated the sell-off of the electricity industry, with its commissioning in 1990 of the national competition policy report which became a blueprint for the privatisation of public utilities across Australia.
The report recommended a major restructuring of the electricity industry by breaking up existing utilities into generation, transmission and distribution entities, the "corporatisation" of each entity and placing them in a "competitive marketplace".
In line with the recommendations of the report, the national electricity market (NEM) was created in 1996 by an agreement between the NSW, ACT, Queensland, SA and Victorian governments. Under the NEM, electricity produced by various generators is pooled centrally to meet demand.
The two basic components of the pool are the dispatch process and the spot market. In the dispatch process, generating companies compete by offering power at a certain price to the National Electricity Market Management Company (NEMMCO). Large businesses or electricity retailers (who sell power to consumers) bid for the power they need. NEMMCO matches the offers and the bids and distributes the power accordingly.
In the spot market, generating companies are paid for the electricity they sell to the pool and customers pay for their electricity consumption. NEMMCO calculates a spot price for wholesale electricity for every half hour during the day, using the daily price offers and bids as a guide.
In a recent article in Adelaide Voices, director of Adelaide University's Centre for Labor Research John Spoehr pointed out that, "there is an incentive in the new market-based system to under-invest in new generation capacity to keep supply at levels which maximise financial returns to the generators. In a system where power is purchased through a bidding system, much like the share market, increased demand for power can push prices through the roof like it did in California. Unless governments act to deal with this likelihood in Australia, next summer we could have a California-style power crisis in SA."
Following the establishment of the NEM, ETSA was split into distribution and generation entities. The Liberal government was quick to assure the public that it was not going to renege on its election promise not to privatise ETSA.
However, the inevitable political backflip followed, with claims that SA could lose up to $1 billion in payments from the federal government if it didn't privatise ETSA. In fact there was no requirement under the national competition policy to sell ETSA. It was also claimed that the sale was necessary to reduce the debt resulting from the collapse of the State Bank in the early 1990s, and improve the state's credit rating.
The privatisation deal was opposed by the ALP, the Australian Democrats and independent state MP Nick Xenophon. It was deeply unpopular. However, only token attempts were made to mobilise this opposition, with trade union leaders in particular relying on lobbying politicians to oppose the legislation.
Undersold
In June 1999, the SA parliament passed legislation, with the help of two former Labor MPs who crossed the floor and voted with the government, to allow ETSA to be "leased" to private interests on a 200-year lease. In December 1999, ETSA was leased to Hong Kong Electric/CKI at a cost of $3.2 billion.
According to Spoehr, ETSA was undersold by about $1.5 to $2 billion, based on its total revenue stream and future prospects. The privatisation of ETSA resulted in the entry to SA of one large retailer, AGL, which now controls the bulk of electricity sold in the state. Its supplies are provided, through the transmission company ETSA Utilities Pty Ltd, by five generation companies: NRG Flinders Island Ltd (owned by US nuclear power company NRG); TXU Torrens Island (a subsiduary of USA nuclear power company Texas Utilities); Origin Energy Electricity, National Power Synergen; and Osborne CoGeneration.
The SA government claims that the only way to lower electricity prices is to attract more retailers offering power at competitive rates. This will only happen if existing generating companies are prepared to invest their profits in making more power available, or by attracting competitors by market opportunities.
The state government is attempting to do this by boosting the state's electricity production. The first phase of this was the development of the controversial Pelican Point power station, against widespread community opposition over its environmental impact. There are now plans to increase the size of Pelican Point by one-third through the construction of a pipeline from Victoria. A new gas-fired power station is planned at Osborne.
Environment
Environmental considerations are taking second place to profits. Many anti-nuclear activists are concerned that, with the mining of uranium in SA and the connections of several of the power generation companies with the nuclear industry, the possibility of future nuclear power generation is very real.
From July, companies with power bills over $20,000 will move onto the NEM and face power bill rises of up to 100%. The business community in SA is now getting very nervous about the implications of privatisation. From January 2003, full market contestability will begin and 70,000 SA householders will enter the market. While the SA government claims that competition will keep electricity down, the SA independent industry regulator Lew Owens has warned of increases of up to 40%.
Recently, the SA auditor-general Ken McPherson stated in a report to the state parliament that the arrangements with electricity generating companies "do not, in my opinion, provide for any long term certainty of continued supply of power in SA from the current generation sites". McPherson drew attention to the fact that the leasing arrangements do not require the privately run generating entities to upgrade or maintain their plants.
While the spectacular failure of the ETSA privatisation may spell doom for the SA Liberals, the working people of SA cannot put their faith in the ALP to reverse the privatisation. The history of ALP governments is one of opposing privatisation while in opposition, and then refusing to do anything but tinker with the most offensive aspects of it when in government, using the excuse that it can't break contracts.
There is a real need for a grassroots campaign against privatisation that will link consumers, unions, environment groups and others who believe that basic needs such as electricity should be publicly owned and controlled, environmentally sustainable and supplied on the basis of need rather than to make a profit.