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Again, this is why we do not privatise public utilities

We’ve been down this road: with water (also here), with public roads, with rail. With electricity.

And again with electricity:

NSW taxpayers could be forced to pay more than $15 billion to indemnify private companies bidding for the state’s power assets, a report has found.

The indemnities – against losses that privatised coal-fired power stations would face under a new national carbon trading scheme – would wipe out the $15 billion revenue boost the Iemma Government expects to gain from the privatisation.

An analysis by the independent think tank the Australia Institute has revealed the carbon trading scheme the Federal Government intends to introduce to combat global warming would dramatically reduce the value of coal-fired generators.

According to the author of the report, economist and institute director Clive Hamilton, the cost of the indemnity could reach $15.4 billion.

“This amount would be the cost borne by NSW citizens if the NSW Government indemnifies private buyers against future carbon liabilities,” he concludes.

Maybe, maybe not:

The State Government has challenged the institute’s findings. Alison Hill, a spokeswoman for the Premier, Morris Iemma, told the Herald last night: “There will not be an indemnity.”

But the Iemma Government has set a precedent by indemnifying Bluescope Steel for the next 25 years to ensure new investment in its Port Kembla steelworks.

“The Government has form on this issue,” Dr Hamilton said. “And they will come under even greater pressure from potential buyers to offer them indemnities, too. There is nothing to say the Government could not, and would not, do this in secret, using all sorts of commercial-in-confidence provisions, and the public may know nothing about it for 20 years.”

The NSW Government said last night the indemnity given to Bluescope did not apply if a carbon trading regime was introduced.

Of what is and is not a part of the conversation, Clive Hamilton made this excellent point:

“It’s a bad time to be selling electricity assets when there is so much uncertainty about the carbon liability of coal-fired power plants,” Dr Hamilton said.

The institute’s report warns that no prudent investor would commit to major expenditure in such a risky commercial environment, predicting that “carbon liability and the indemnity issue will dominate negotiations in the sale process”.

If there is one truth to privatisation, it is that the private capital folk make damn sure there will be no bag-holding done by them. The risk is always pushed into the future, and onto taxpayers – the group without a seat at the table. There is no reason why this will go any differently for NSW citizens.

In fact, if the government is serious about forming any manner of trading scheme, it makes sense for them to retain, securely, control over any public utilities that will form key components of such a scheme. Selling them off and then going for cap-and-trade regulation is not at all the sensible order of things.

Building a ‘national savings culture’

Two Australian stories – inflation first. Prime Minister Rudd has worked out that, in order to slow the economy, C in the Y = C + I + G + NX has be attacked – and what better way than to boost Savings?

Householders could be offered incentives to cut spending and save more of their income as part of the Federal Government’s drive to control inflation.

Mapping out a five-point plan to fight inflation yesterday, Kevin Rudd said he wanted to build a national savings culture to help reduce demand pressures which were pushing up prices.

“Providing attractive incentives to save can help take the pressure off inflation, help people save for their future and help lift national savings,” the Prime Minister said.

While he did not give details, measures likely to be examined include encouraging higher superannuation contributions and tax breaks for savings.

Mr Rudd also promised to increase the budget surplus to around $18 billion next financial year and to speed up policies to train more skilled workers and get more people into the workforce.

“Householders” is a term of art – you don’t need to own a house in order to benefit (although you will certainly benefit more, thus). Rudd is also coming good on his technocrat’s credentials.

Cabinet also decided yesterday to go ahead with plans to establish Infrastructure Australia, a body to co-ordinate public and private investment in areas such as ports, roads and railways.

That should be interesting to watch – Lord knows, a lot of countries (the US in particular) could benefit from some thinking along those lines.

The news also comes at the same time as the demand factors behind Australia’s inflation are reinforced.

An official survey of the prices paid by businesses has found they are paying less than expected mainly due to falling prices for imported goods.

Prices paid by retailers, manufacturers and wholesalers rose by 0.6 per cent over the final three months of last year, nearly half the pace expected by economists.

…

But another survey of prices, those paid by consumers, is due out tomorrow and is still expected to show inflation running hot.

This is as opposed to, say, excess liquidity (I warned you) and cost-push, oil-and-food factors driving inflation elsewhere. Australia’s is a function of incomes: incomes increase, consumption increases. Demand increases, Prices increase (holding Supply relatively constant). Feeding back by way of information, Rudd’s plan to attack the propensities to save and consume (while the incentives further trim the budget) seems like a pretty smart move. We shall see.