Privatisation and the morbid spectacle of the NSW ALP

If anyone is not convinced of the utter rottenness of ALP politics in Australia, they need to look no further than the NSW state electricity privatisation. Premier Kristina Keneally’s moribund state government is set virtually to give away prime public assets to the private sector and in the process even further alienate its working-class constituency. Why has Labor persevered with this?

The current chapter has its origins in late 2010. The conclusion of the sale of the retailers EnergyAustralia, Integral Energy and Country Energy, along with output from the three state-owned power generators (Macquarie Generation, Delta Electricity and Eraring Energy) and sites for new power stations, netted just $5.3 billion.

Meanwhile all hell broke loose in state parliamentary politics. Eleven members of the boards of Delta Electricity and Eraring Energy resigned over the terms of the sale. Despite parliament arbitrarily being “prorogued” by Keneally, opposition and cross-bench MPs used their numbers in the upper house to order an inquiry into the sale.

As Direct Action goes to press, key witnesses are ignoring calls to testify in the inquiry, and Galaxy opinion poll results released on January 23 show 83% of the electorate believe the government had “done a poor job handling the electricity assets sell off”. If an election were held, the poll suggested the ALP’s primary vote would be just 20% with a two-party preferred vote of just 34%.

Great power rip-off

NSW Labor’s addiction to privatisation is part of a national trend towards handing assets and revenue of power utilities over to private capital. There has been a long series of “reforms” aimed at making electricity (and now gas) generation and markets “ready for business”.

In the post-World War II period, power generation was seen mostly as a “natural monopoly”. The size of investments needed for infrastructure and the difficulty in allowing competing firms to operate profitably led to consensus that power generation was best left in public ownership.

This began to change in the 1980s. As Harry Schutt notes in his book The Trouble with Capitalism, the lack of new markets to expand into led to the emergence of a predatory tendency that came to be called “privatisation”. Private capital, especially financial capital, began to develop ways to seize ownership of public utilities. Revenue that would otherwise go to maintaining infrastructure would instead go to profits and dividends for private capital.

An ideological justification was invented. Pointing to real and imagined inefficiencies of the old state monopolies, it was argued that private ownership would enable competition to lower prices and allow for more investment in technology.

Australia eventually became captive to these interests. The Kennett government privatised Victoria’s electricity generators and market in the 1990s. Nationally there was a trend towards the corporatisation of utilities (nominal state ownership but geared towards profit). Competition was encouraged in retail and generation, while transmission and distribution remained in public ownership. The establishment of a national electricity spot market in 1998 meant generators were able to sell electricity at often wildly fluctuating prices.

Of course the great new deal for consumers never materialised.

According to the Reserve Bank’s December 2010 Bulletin, household electricity price rises have consistently been above inflation figures for the rest of the economy. The high point was in June 2010, when electricity registered a 15% annual price rise nationally.

In truth, as with many cases overseas, preparatory corporatisation and privatisation of utilities led to domination by a handful of oligopolistic firms. According to sustainability expert Sharon Beder, “companies selling electricity in this market manipulate the price so that it fluctuates from a reasonable $30/MWh all the way up to the current regulatory cap of $10,000/MWh.”

NSW privatisation

The NSW ALP government has long harboured ambitions to deliver the state’s utilities to the private sector. It knows that its ability to stay in office depends on a balance between serving corporate interests and maintaining the illusions of its working class and progressive constituency. Premier Bob Carr tried initially to raise the option in the late 1990s and was quickly rebuffed.

His successor Morris Iemma and treasurer Michael Costa (called “stark raving bonkers” by author and former minister Rodney Cavalier ) revived the proposal in 2007. They proposed to hand over the state’s electricity assets while crying poor about the government’s ability to fund social services. In a grotesque display of wedge politics, they argued that proceeds from the sale were needed to fund services while maintaining the state’s “AAA credit rating”.

Many rank and file ALP members, the NSW trade union movement and some sitting MPs rebelled against the proposal. Economists such as John Quiggen and Nicholas Gruen were easily able to demolish the Iemma-Costa arguments. The gains of borrowing for infrastructure investment and revenue from the industry would far outweigh returns from the sale in the longer term. Unions NSW and community activists led an intensive campaign of lobbying that caused the May 2008 state ALP conference to vote against the plan. Eventually divisions in the ALP caucus resulted in defeat of the legislation. Iemma was replaced by Nathan Rees as premier.

Privatisation was not dead, however. Unions NSW never waged the kind of campaign that would be needed to retain the industry in public ownership. Rees developed his own “compromise” plan in late 2008. The retail arms of the sector would still be sold off. Instead of being sold, however, the generators would be obliged under lease arrangements to sell electricity at low cost to distributors. The distributors would in turn sell this on in the national spot market.

This time opposition was muted. After lengthy deliberation and attempts to promote scrutiny through the Australian Competition and Consumer Commission, the sale went ahead in late 2010. Just two companies - Origin Energy and TruEnergy - emerged as the dominant operators after buying government-owned entities. Origin bought Integral Energy and Country Energy, while TruEnergy bought EnergyAustralia. This has given Origin half of the state’s retail electricity customers and TruEnergy 40%. AGL has 10%.

The punch line is the impact on prices. Despite claims that prices will remain regulated, there has been a 13% rise since July. Another 13% is permitted from mid-2011. The magic of the market.

Why privatisation

The effect of all this will almost certainly be the electoral annihilation of the ALP in NSW. Many look on in bewilderment as to why the ALP would pursue such obviously flawed policies that conflict so much with its electoral base.

Now voters in NSW face the prospect of an even worse state Liberal government led by Barry O’Farrell. While opportunistically voting against the government, it has made no commitment to stopping, let alone reversing, privatisation.

Labor, however, is accustomed to placating corporate interests. Ultimately it is these interests that it has always served, above those of its working-class supporters. When its base did revolt against privatisation, it was held back by the Unions NSW leadership. Any real fight back against privatisation will most likely emerge from outside these traditional channels and with new leaderships.