Queensland and NSW electricity asset sale

The surprising swing to Labour in the Queensland state election will very obviously affect any plans for privatisation of Queensland’s electricity assets. It remains to be seen if the Queensland election result has any impact on the NSW plans for privatisation of the networks and the long-term lease of infrastructure.

The Queensland LNP Government announced in September 2014 that it proposed to privatise not only the Queensland transmission and distribution networks, but also its generation and remaining retail assets, by way of long term lease.

However as it has now been determined that Labour, with the help of independent Peter Wellington, has been successful in the Queensland state election, any privatisation plans will now be off the table.

During the run up to the election, Labour proposed mergers of the state-owned power companies.  However given that the state owned generators produce around 60 per cent of the state’s output of electricity, the Australian Competition and Consumer Commission (ACCC) may have objections in terms of competition and concerns that a single generating entity could push up electricity prices.

Interestingly, a new report, – prepared by global consulting firm EY and jointly commissioned by Infrastructure Partnerships Australia, Chamber of Commerce & Industry Queensland (CCIQ), Australian Industry Group (Ai Group) and the Property Council of Australia (PCA) – shows that under public operation, Queensland’s network charges have blown out 140 per cent over the past fifteen years, yet have fallen in Victoria and South Australia, where the networks are privately run.

The EY report finds that Queensland energy bills are 37 per cent higher than they would be – the equivalent of $570 per year for an average household – had the State reformed its electricity sector at the same time as Victoria.  Today, an average Queensland household is paying 2.5 times more in network costs than in states where the networks are privately-run, such as Victoria, the report finds.

In NSW, the privatisation of the Networks and the long-term lease and $20 billion infrastructure program will proceed only if the NSW Liberals & Nationals receive a mandate for the reform at the State election in March this year.

The Networks in New South Wales are currently 100% State owned and comprise of:

TransGrid – a transmission business with a regulated asset base of $6.1 billion and 12,800 kilometres of transmission lines.

Ausgrid – a distribution business with 1.6 million customers, a regulated asset base of $14.4 billion and 41,000 kilometres of distribution lines.

Endeavour Energy – a distribution business with 890,000 customers, a regulated asset base of $5.3 billion and 34,500 kilometres of distribution lines.

Essential Energy - a distribution business with 800,000 customers, a regulated asset base of $6.8 billion and 200,000 kilometres of distribution lines.

The structure and sequence of transactions would include a 100 per cent lease of TransGrid offered first. The lease of majority interests in Ausgrid and Endeavour Energy would follow, but a decision as to the sequencing of these transactions will be confirmed at a later date.

The intention is to undertake trade sales for all three businesses. However, it will retain flexibility to consider an IPO for Ausgrid or Endeavour Energy should market conditions indicate that this would result in a better outcome for the State.

The NSW Government will retain 51 per cent ownership of the entire network including 100 per cent of the regional network, Essential Energy.

The Government says that it remains committed to a number of strict conditions for the partial lease of the network businesses including:

- All net proceeds will be invested in new productive infrastructure, through the Restart NSW Fund;
- The transaction will have no adverse impact on electricity reliability;
- The regional presence of the network businesses will be maintained; and
- Essential Energy would remain in full public ownership.