National Electricity Market/ETSA Privatisation
Tuesday, 29 November 2016
As I indicated in speaking to the companion bill, and that bill has now passed, the Liberal Party is looking at these as cognate debate companion bills. I want to address some more considered and lengthy remarks to the second reading of this bill. As I have indicated to the Leader of the Government, I will seek leave to conclude my remarks in the morning and be happy to conclude the debate tomorrow as well.
This bill, too, is relatively modest in its intentions. We have been told in the briefings that I have received that the catalyst for this particular bill that we see in November 2016 was an Australian Energy Market Commission report back in April 2013, so certainly the government and governments cannot be criticised for acting hastily in relation to the meat that is within the bones of this particular bill. It has been some 3½ years in the making and, as I said, the government advice was that this was first identified by the AEMC back in April 2013. So, tardy as it is, 3½ years later, we nevertheless, from the Liberal Party viewpoint, are prepared to support it.
We are the lead legislator in relation to National Electricity Market legislation. This particular bill is, as I said, modest in its intentions. It is there to confer on the Australian Energy Regulator a wholesale market monitoring and reporting function. It is evidently intended to ensure that the energy ministers from all the NEM jurisdictions have information and evidence to support legislative, regulatory or other responses where features of the wholesale electricity market are found to be detrimental to effective competition.
This bill is not actually going to do anything or change anything. People should not be expecting or anticipating that. Essentially, all it is doing is setting a framework through which the government and ministers are arguing that more information and maybe better information can be provided to inform ministers to maybe make some changes to the operations of the National Electricity Market. I hasten to say, and I have said this on many occasions before, the National Electricity Market was an original proposal under a federal Labor government and a state Labor government—a federal Keating government (or it might have been a Hawke-Keating government) and the last remnants of the Lynn Arnold government in the early 1990s.
It was supported by federal Labor and state Labor. It was also supported by federal Liberal and state Liberal governments and parties through the last more than 20 years or so of the operations of the National Electricity Market. That is why I chuckle when I see attempts by state minister Koutsantonis and others to attack the state Liberal Party when they say that it was the former Olsen government or former treasurer Lucas who constructed the National Electricity Market, and all of the sins of the National Electricity Market in its construction were the fault of one particular party and one jurisdiction of the National Electricity Market.
No-one who follows the market believes that, because, as the minister and the government have demonstrated through this bill and the other bill—and I guess part of their argument would be, 'Well, it's taken us 3½ years to get to this stage because, even though the AEMC identified this as a problem 3½ years ago, we have had to get all the jurisdictions to agree. We can't act by ourselves, even although we are the lead legislator,' and that is all correct in terms of needing to get agreement at the national level before we as the lead legislator can initiate action.
The notion that any of the identified deficiencies in the rules of the National Electricity Market are somehow the fault of either the South Australian parliament or, more particularly, the South Australian Liberal opposition because, at one stage during the last 25 years, we had been in government, is foolishness in the extreme. What this is setting about trying to do is to provide more information and better information to ministers to, many years in the future, maybe change the National Electricity Market rules to provide for a better and more efficient operation of the National Electricity Market.
I have to say, regarding this minister and this government after almost 15 years as a government, that I think the South Australian community are long past accepting the notion that, in some way, all the problems that exist in the current market are the problems of former governments. For a period of 15 years, the current government has been unable to do anything, suggest anything or make any changes that would seek to tackle any of the problems that they identify.
I want to now address some of the claims that have been made during the debate on this particular bill both in the House of Assembly but also in the community generally in relation to the legislation, particularly this notion that many of the problems that confront South Australia at the moment are not the responsibility of the government that has been there for 15 years but are somehow the responsibility of a party that was last in government almost 15 years ago. The first issue I want to address is in relation to the privatisation of ETSA and one aspect in particular, although there are some other aspects as well, which is the long debate about an interconnector with New South Wales which was originally called, and is still called by many, Riverlink—an interconnector that connects South Australia to New South Wales through the Riverland region.
In talking about this issue of privatisation, I must admit that the hypocrisy of the Weatherill government, in my view, knows no bounds. We have seen the debate on this particular bill in the House of Assembly where the minister and a number of other Weatherill government members sought to, again, say that all the problems that exist at the moment were a result of privatisation. The simple fact is the Victorian electricity system was privatised before the privatisation of the South Australian electricity system, yet Victoria has almost the lowest electricity prices in the nation and South Australia has the highest, which gives the lie to the claim that, in some way, in and of itself, privatisation is the reason for the problems that confront the National Electricity Market in South Australia and electricity pricing and security in South Australia as well.
The hypocrisy of the Weatherill government in blaming privatisation is extraordinary. We have seen, from 2002, the 'no privatisation' pledge that was given by former premier Rann and has subsequently been given by Premier Weatherill and various Labor government ministers over the last 15 years. They pledged to oppose privatisation yet, at the same time, we have been literally drowning in privatisations of state utilities and assets such as the Motor Accident Commission, the Lands Titles Office and the Lotteries Commission of South Australia. HomeStart is being scoped as we speak, and we of course know that the government has secret plans to privatise SA Water. Recently released freedom of information documents reveal not only that the board of SA Water has been, on behalf of the Weatherill government, busily looking at privatisation options with SA Water, but also that Treasury has in the past employed highly paid consultants to look at the privatisation of SA Water as well.
On the one hand, we have a Labor government that promises no privatisation at all in 2002, says that it has always opposed privatisation, says that the privatisation of electricity assets is the only reason for problems in the electricity market and, yet, on the other hand, busily privatises the MAC, the LTO, the Lotteries Commission, HomeStart, and is looking at SA Water. As I said, I think the hypocrisy of those claims is self-evident.
On occasions we have had Treasurer Koutsantonis railing against Liberal members in the other place, I notice, when some have questioned (without opposing) some of the various privatisations of the state Weatherill Labor government, such as questions in relation to the Lotteries Commission, the Motor Accident Commission and the LTO in particular, and has attacked those members as socialists. From his viewpoint, the private sector is much better placed to manage the insurance market than the Motor Accident Commission; the private sector is much better situated to manage the land titles; the private sector is much better than the public sector in managing the Lotteries Commission; and the private sector is much better than the public sector in managing HomeStart.
Yet, Treasurer Koutsantonis would want us to believe, when it suits his particular argument, that whilst he believes the private sector should manage all of these other assets because they are better than the public sector, he argues the alternative argument when it suits him to say, 'But that is not the case in relation to electricity assets'. He obviously believes that the public sector and politicians are better placed to manage electricity assets in the National Electricity Market.
He has not been asked in recent years—when he says he supports a competitive national electricity market, and he is on the record as saying that he supports a national electricity market and a competitive national electricity market—how on earth he can argue that you can have a competitive national electricity market in a truly competitive sense when you have government-owned either generators in some states and jurisdictions competing against private sector-owned generators, or government-owned electricity entities competing against private sector entities in other parts of the National Electricity Market, such as retailing, for example. Can he explain how you can have a competitive electricity market, which he says he supports, when you have governments owning and operating and clearly being responsible, in part, for policy?
So, you have a situation where the government, through ministers and ministerial councils, etc., changes the policy and governs the policy that operates the market and yet they would be operating businesses within that market. How you would describe that as a truly competitive market only Treasurer Koutsantonis would know how he would explain that. I am yet to see an explanation from him in relation to that particular issue.
I want to place on the record again something that I placed on the record a number of years ago, and it was reported briefly at the time, on 14 November 2013 in relation to the hypocrisy of Treasurer Koutsantonis on this particular issue of privatisation. Let me repeat what I said on 14 November 2013:
“I want to take the opportunity today to put on the public record something that I have not before put on the public record and this has been prompted as a result of continuing to hear minister Koutsantonis and some other Labor members saying that they had always proposed—“
It is a typo in Hansard, I might note. It says 'proposed', but it is 'opposed'—
“privatisation of electricity of ETSA and they continue to oppose the privatisation of ETSA. I can indicate that former Labor legislative councillor the Hon. Trevor Crothers was one of two key votes in the Legislative Council to support the privatisation of ETSA in South Australia, a courageous decision that he and his colleague the Hon. Terry Cameron took at the time.
The Hon. Trevor Crothers told me at the time, and on a number of occasions after that debate and before he passed away, that during that particular debate he was approached by very many Labor MPs at the time who were in the parliament, including now minister Tom Koutsantonis. He told me that now minister Koutsantonis, at that particular time before the vote, urged him to cross the floor and vote with the Liberal Party, the Liberal government, for the passage of the ETSA legislation.”
Let me repeat that: the Hon. Terry Crothers told me as the minister at the time that at that particular time before the vote—that is, before the Hon. Terry Crothers had to decide whether he would cross the floor and be expelled from the Labor Party as a Labor rat for voting against the Labor Party—now Treasurer Koutsantonis spoke to the Hon. Trevor Crothers and 'urged him to cross the floor and vote with the Liberal Party, the Liberal government, for the passage of the ETSA legislation.' I continue my quote from that speech:
“As the Hon. Mr Crothers put it to me, it was not because of any ideological position or merit-based judgement the Hon. Mr Koutsantonis had arrived at: it was simply a view that Mr Koutsantonis and a number of other Labor MPs had that the Labor Party would be crucified at the upcoming elections in relation to problems with the State Bank debt, or the state's debt, if the Labor Party was seen to prevent the pay-down of the state's debt through the privatisation of the ETSA assets. That particular conversation —“
That is, the conversation Mr Crothers had with me as minister—
“is also known to the Hon. Terry Cameron who, of course, is still alive. The Hon. Terry Cameron can attest to the accuracy of that particular statement that the Hon. Trevor Crothers made to me on a number of occasions.
I think it is important to highlight the cant and hypocrisy of certain members, in this particular case Labor minister Koutsantonis, on this issue of ETSA privatisation because, as I said, when it suits him he loves to run around saying that he is always opposed to privatisation and continues to oppose the privatisation of electricity assets, yet what is…clear is that right from the word go he was urging Labor MLCs Trevor Crothers and Terry Cameron to cross the floor and vote with the Liberal government for the privatisation of electricity assets in South Australia. As I said, I think it is important at this stage to put that on the public record. Of course, I was not there for those discussions; I can only recount what the Hons Trevor Crothers and Terry Cameron have told me over the years in relation to those conversations.”
That is the end of the quote from my contribution at the end of 2013. I can only repeat that this issue of privatisation that the Hon. Mr Koutsantonis continues to prosecute, clearly from his own colleagues' words directed to me, is rank hypocrisy in relation to what his position was on the privatisation issue.
Further, in relation to the debate on this bill in the House of Assembly, there are a number of claims made by the government in relation to the issue of Riverlink. As I have explained before, Riverlink was a proposed interconnector linking the New South Wales electricity market with South Australia through the Riverland area. The argument from Treasurer Koutsantonis and other government members over the years has been that the Liberal government stopped the Riverlink proposal because it wanted to drive up the value of the ETSA proceeds. Let me put on the public record some of those particular claims by various ministers. On 15 June 2016, Treasurer Koutsantonis said:
“Now, the State Government, ETSA when it was publicly owned had reached agreement with NEMMCO to build an interconnector into New South Wales. We had agreement. That was Riverlink. That was signed off, approved. Then Treasurer Rob Lucas and the Government stopped the construction of Riverlink and the reason they stopped it was to maximise the sale price of ETSA.”
On 26 July 2016, Premier Weatherill made similar claims:
“When Rob Lucas privatised ETSA he made sure that he scotched the interconnector to New South Wales because he wanted to drive up the price. The best way to drive up the price is to sell a monopoly product.”
Again, on 1 August 2016, Treasurer Koutsantonis said in a press statement:
“That lack of interconnection exists because Opposition Shadow Treasurer Rob Lucas killed off plans to build an interconnector to NSW when he was Treasurer in order to inflate the sales price of our power assets.
It is one thing to privatise state-owned assets in order to create increased competition and efficiency, but it is another thing entirely to limit competition in order to inflate the sales price and create private sector monopolies.”
Of course, in this house, we have seen ministers Gago, Maher and Hunter make similar claims. They are all obviously singing from the same hymn sheet. They are given the hymn sheet and they religiously parrot what is given to them. On 29 September 2016, Minister Hunter said:
“[Rob Lucas] was part of the government that stopped [Riverlink] being built. He was part of the failed Liberal government that stopped that interconnector being built …
The Hon. Robert Lucas over there was the one who took the decision, because he wanted to maximise the sale, the privatisation, of the state's assets of ETSA.”
Again, minister Hunter was making it quite clear: the accusation is that the Hon. Rob Lucas was the one who took the decision to stop the Riverlink interconnector from being built. Then on 20 September 2016, the Hon. Mr Hunter again said:
“It was the Hon. Mr Lucas. Who was it who closed down the proposal to build an interconnector with New South Wales? It was the Hon. Mr Lucas. He was the one who said, 'No, no, let's not build the interconnector with New South Wales. It will drive down the price that we can get for privatising ETSA. Let's scupper that. We'll send that one to the back room. We won't build that, even though it will drive down electricity costs to our consumers. We want to sell ETSA. We'll scupper that. We won't build that interconnector because it means that we will get a bigger price for ETSA.”
I could have quoted any number of quotes from the Hon. Mr Maher, the Hon. Mr Holloway, the Hon. Ms Gago and others but, given that Mr Hunter is the flavour of the week, I thought I would put his statements on the record.
All those claims are wrong. They are based on whatever you might want to call them—lies, deliberate falsehoods, porky pies, or whatever phrase or colloquial expression you want. They are all quite simply wrong, and I intend to demonstrate the facts in relation to that. The simple reality, as I will demonstrate later, is that no government in South Australia or, indeed, in any jurisdiction has the power to decide either to allow an interconnector to go ahead or to stop it. Those decisions are taken by independent national regulatory authorities, so the claim that in some way the Liberal Party, the Liberal government or a particular individual, a Liberal minister, had the power or the authority to stop an interconnector is factually wrong and can be demonstrated as such.
There have also been many other false claims made during this debate in the other place and in the community generally. Among the most frequent are claims made by Treasurer Koutsantonis that the Liberal government, in privatising our assets, was only concerned about the value of the dollars we would receive to help pay off the State Bank debt. I might say that it was not something we were gathering for ourselves: we were actually trying to collect as much money as we could to pay off the Labor Party's State Bank debt in South Australia.
One of the often-mentioned claims is that the Liberal Party or the Liberal government deliberately sold our ETSA assets to monopoly interests. Let me read some of extraordinary and ill informed claims that Treasurer Koutsantonis has made on this issue. On 13 October this year, Treasurer Koutsantonis said:
“The National Electricity Market: the privatisation of the contracts have ensured that this state remains in a monopoly and we've got to try and smash that monopoly up.”
What Treasurer Koutsantonis is saying in parliament and on talkback radio is: 'The privatisation contracts were all sold to monopoly interests, and the state of South Australia still remains in a monopoly and we've got to try and smash that monopoly up.' It is quite clear that Treasurer Koutsantonis does not understand what a monopoly is. It would probably assist if someone from Treasury gave him a hymn sheet or a cheat sheet to describe what a monopoly is, what an oligopoly is, what market power might be and what a competitive market is, so that he might actually understand the differences.
He is clearly of the view—and he continues to prosecute the view because it suits his political purposes—that the privatisation contracts have ensured that this state remains in a monopoly and that we have to try to smash that monopoly up. He goes on in that interview to say:
“Because of the monopoly market that Mr Marshall's party created here, we have to try to break that monopoly up.”
He continued to return to that theme in a debate with the member for Dunstan, Liberal leader, Steven Marshall, on that particular date. Again, on 18 October, during the debate in the house on this bill, Treasurer Koutsantonis actually made this statement in the parliament. He is talking about the generators that operate in South Australia and he says:
“Because they were given a monopoly through the privatisation. All roads lead back to Rome. So, you cannot just ignore it and say that it was 17 years ago or 20 years ago. Why is it that generators can exercise monopoly power in the Australian energy market? Why is it?”
He goes on to say again that it was the Liberal government that sold the generators with monopoly power to exercise that monopoly power within the National Electricity Market in South Australia.
It is quite clear that that particular claim is simply garbage. What Treasurer Koutsantonis clearly does not understand is that what existed prior to privatisation was in fact a monopoly. What we had in South Australia originally was one company, ETSA, which generated power, distributed power, transmitted power, then retailed power and sold it. It did all the four things that generators, distributors, transmission companies and retail companies do now.
Under the Liberal government and competition policy during the nineties, prior to privatisation, ETSA was broken up into a number of companies under government ownership. They nevertheless still remained monopoly operators in the South Australian power market. That is what a monopoly is and was: a single entity which controlled the market and monopolised it. Clearly, the government of the day had to help set the power prices and things like that, but it was a monopoly operator.
I placed on the public record (and I will put in one quote here) that at the time of the privatisation, as the minister who took over the responsibility and had carriage of it, the very strong advice I was being given in terms of maximising the sale of the ETSA assets was to not disaggregate Optima, the government-owned generator in South Australia. In a contribution in parliament on 17 June 1998 I said:
“The government has a decision to make as to whether or not in its restructure we support a one Optima policy, that is, maintaining Optima as it is, or a policy where Optima is disaggregated.”
I repeat, Optima was the government monopoly generator which controlled the Torrens Island gas station, it controlled the Port Augusta power stations and one or two other smaller stations in country areas. It was called Optima after the original disaggregation. So what I was saying on 17 June 1998 was that the government had a decision to take: did it sell Optima as a monopoly to a private sector operator or did it break it up to introduce competition into the marketplace? I continue the quote:
“It is quite clear from a number of statements what the Optima board’s position is. Mr Ainsworth—“
who was the chair of Optima at the time—
“has made it quite clear that the Optima board believes, in terms of optimising its value, that Optima ought to be retained as a whole.”
That is consistent with all the advice I was receiving at the time from that electricity business; that is, if you are going to privatise, if you are going to sell a government generator, you will get more money for that sale if you sell it as a monopoly operator. If you break it up and introduce competition to the market, you will not get as much money from the sale.
That was the advice of the board, and we employed the board. In essence, the board was there to look after the interests of the shareholder, and we were the shareholder; they were providing advice to us, the shareholder, saying, 'If you want to maximise the value, don't break us up.' We took the decision to break up the monopoly operator Optima because we took the view that in the public interest we needed to introduce a greater level of competition into the marketplace and try to place downward pressure on electricity prices in South Australia.
We eventually broke it up into four new companies: Optima, which continued to operate the Torrens Island power station; Flinders Power, which continued to operate the Port Augusta power stations; Synergen, a company designed to operate a small number of country and regionally-based, government-owned generation assets; and a new company called Terra Gas Trader, a gas trading company designed to try to find gas contracts and then supply them to the gas-fired power stations that might require them, in particular Synergen and Torrens Island, which was Optima.
So, the government rejected the advice to maximise its sale value by keeping Optima together and selling it to a private sector operator, and broke it up into, in essence, three generators and one Terra Gas Trader company. Not only did we do that, we also (for other reasons which I shall outline later) fast-tracked the most efficient gas-fired power station in Australia at the time—and I suspect it is still so today—Pelican Point. It was a 500-megawatt power station with the capacity to increase in size to 800 megawatts.
I say so with a touch of irony in that we did that against the fierce opposition of the Labor government, represented now by Mr Weatherill and Mr Koutsantonis, but at the time Mr Foley and others were the local members down there. Mr Koutsantonis would have been a member. There was fierce opposition to the Pelican Point power station from Labor Party members, who helped organise major protest meetings that I attended down at the Port.
People were baying for blood, protesting that this power station would destroy the ambience of that particular region and that we would kill the pelicans. There were coffins on Parliament House steps with protests that Rob Lucas was going to boil the pelicans off Outer Harbor because, with the hot water coming out of the power station, we had not done the calculations and all the pelicans would die and the deaths of those pelicans would be on my shoulders and the government's shoulders. These were major protests organised by the Labor Party.
I chuckle now that, in the aftermath of the most recent price spike in July, and the power blackout in the last month, Treasurer Koutsantonis had to go cap in hand to the operators of Pelican Point to ask them to operate down there even though his government and his party opposed them right from the word go. He is now saying, because of the closure of Hazelwood, that potentially the saviour might be gas-fired operators like Pelican Point being able to operate again in the South Australian market. If he and the Labor Party had had their way, we would not have had Pelican Point operating, because they did all in their power to support the protesters to stop that particular proposal from going ahead.
The point I make in relation to the monopoly is: if you are arguing, as the government is, that we sold, through the privatisation contracts, a monopoly generation market when we moved from a monopoly position to three government-owned generators that were sold off, and we fast-tracked the 500-megawatt competitor, the one thing to guarantee to drive down the price of your existing assets is to fast-track, with development approval, which was being opposed by everyone at the time. We fast-tracked development approval to get Pelican Point down there.
The way to drive down the price of your assets if you are going through a privatisation is to fast-track a 500-megawatt, super-duper efficient competitor that will enter the market and be able to be more competitive than you. It was many times more efficient in terms of its use of gas and production of power than the old, ageing Torrens Island power station. I do not have the figures with me today, but it was many times more efficient because it was modern, it had new technology and it was therefore very attractive in terms of both greenhouse gas emissions and also in terms of efficiency of using gas to generate electricity at a lower price.
All of those factors were factors in driving down the potential value of the generation assets at that particular time. It would have been possible to get much higher value for your generation assets if you did none of those things rather than what the government actually did during that particular period. The other extraordinary claim that I have seen in relation to this bill and the related debate was again made by Treasurer Koutsantonis on 18 October, who said:
“They [that is the Liberal government in the privatisation] did not do what Geoff Kennett did when he sold his assets—“
I might note for Hansard's purposes that Jeff Kennett is spelt with a J and not G-e-o-f-f—
“that is, ensure that he retired debt with the proceeds, which is what the former government did not do—in fact, they increased debt after they sold ETSA.”
That is just an extraordinary claim: it is wrong. Treasurer Koutsantonis must know that it is wrong because in the actual legislation that was passed by the parliament, one of the conditions of the debate that we had with the Hon. Trevor Crothers and other Labor members was that all of the proceeds of the privatisation had to go to the retirement of debt.
So, clause 21 of the Electricity Corporations Restructuring Disposal Act 1999, which is 'Application of proceeds of sale/lease agreement'—without going through all of that because there are some elements that have to be used to balance prices in the country with the city, that is the Community Service Orders (CSO) to make sure that there are equal prices in the country as in the city, so there are some of those things that the proceeds had to be used for— but once electricity and market-related issues have been resolved, all of the proceeds of the more than $5 billion received from the privatisation had to go to the retirement of debt.
Yet, Treasurer Koutsantonis stands up in the House of Assembly in the debate on this particular bill and makes that extraordinary claim that the Liberal government did not retire debt with the proceeds. How he makes that claim with a straight face, when the legislation sitting in the statute books in his own chamber of the House of Assembly makes it quite clear that that is what was required, again, is just extraordinary. All of the claims that Treasurer Koutsantonis has been making in relation to the privatisation issues on the supposed monopoly, on the fact that it was not used to retire debt are, again, all wrong. As I said earlier, either based on lies or deliberate falsehoods, or porky pies—whatever phrase or euphemism or colloquial expression you want to use that suits your purpose—they are simply, and were simply, all wrong in terms of the privatisation.
In looking at the Riverlink issue, the simple explanation of why, as I indicated earlier, the government claims have been wrong—and I listed a long number of government claims—is, as I said at the time, the South Australian Liberal government and, indeed, the South Australian Labor government, never had the power to stop the Riverlink interconnector. Contrary to all of the claims that have been made, they just never had that power. At that time, it was a decision that had to be taken by NEMMCO, the National Electricity Market Management Company, which has now morphed into other bodies under recent changes to the legislation.
The proof of the fact that the Liberal government could not have made a decision to stop Riverlink is self-evident by my copy of the Labor Party's pledge card:
“My pledge to you. Labor: the right priorities for South Australia, 2002.”
My pledge card, which was obviously a pledge that, not only Mr Rann gave, but Mr Koutsantonis gave to his electors in his electorate and Mr Weatherill gave to his electors in his electorate, states:
“(1) Under Labor there will be no more privatisations…
(2) We will fix our electricity system and an interconnector to New South Wales will be built to bring in cheaper power.”
So, the Labor Party was elected on the specific promise that it had been saying that the Liberal Party and the Liberal government had stopped Riverlink, but they knew that this claim was wrong, they knew that it was a claim that could not be sustained, but they, nevertheless, went to the election with a pledge, which specifically said, 'We will build this interconnector between New South Wales and South Australia.'
That was the whole part of their 2002 election campaign as it related to electricity, that, in some way, the Liberal government had stopped the interconnector, solely for the purposes of driving up the asset sale value and that, if they were elected, that would all stop because the Labor Party, if elected, would immediately build this interconnector with New South Wales, with all the wonderful claims and benefits that would ensue, or so they claimed. Clearly, they knew that that was not true, but they nevertheless made the policy promise.
The clear fact that, 15 years later, a Riverlink has not been built is a clear indication that the state Labor government was in the same position as the state Liberal government; that is, it had no power to make the decision on the Riverlink interconnector. In fact, the state Labor government made endeavours to get the Riverlink interconnector built, but it was eventually, after a number of appeals, judged not to be in accordance with the National Electricity Market rules.
A Victorian Supreme Court decision—which eventually went via NEMMCO, via the National Electricity Tribunal, and eventually settled in the Victorian Supreme Court—made it quite clear, unequivocally, that Riverlink would not get the regulated asset status and would not get the go-ahead as an interconnector between New South Wales and South Australia, even though the state Labor government had promised that it would be delivered. NEMMCO at varying stages said yes and no but ultimately, at the end of the process, the Victorian Supreme Court made it clear that the answer was no.
In looking at this, it is important to look at what the facts of the situation were during this period of 1998 through to the year 2000–01. I think the first thing for members to understand, and most do not, is that there are two types of interconnectors—and they certainly were at the time. There were unregulated interconnectors and regulated interconnectors. An unregulated interconnector was an interconnector such as Murraylink, which is operated by a company called TransEnergy. It was an interconnector which linked New South Wales through to South Australia through the Riverland. It was an underground interconnector, and it was supported by the then local member there because it was underground and did not go through the orchards and destroy some of the farming grounds. There was concern about above-ground interconnectors through the Riverland. The local member at that time was Karlene Maywald.
An unregulated interconnector in essence has to compete in the National Electricity Market. If it does not transport any energy across the line, it does not make any money. So, the people who invest into that interconnector are investing in a business. There is no guaranteed return. If they have made the right commercial judgement—that a lot of power will transport across the interconnector—then it will make money, but if they make the wrong commercial judgement and it is not used, then they do not make money, they lose and they probably end up going bankrupt.
A regulated interconnector was one which was approved by NEMMCO, the national body, and was regulated on the basis that, even if it was not being used—that is, if no power was being used—the operators of the interconnector would receive some guaranteed return. The investors investing in that interconnector did so on the basis that, even if it was never used, the taxpayers of South Australia and New South Wales would have to pay money to the operators of the interconnector—unlike a generator, who is competing in the same market. If you were not selling any power, you did not get any guarantee of money.
In the case of the regulated interconnector, if you did not transport any energy at all, you still got paid a return. That is why operators preferred being a regulated interconnector: it meant the electricity consumers in New South Wales and South Australia would be paying a guaranteed return, irrespective of whether it was needed or not through the Riverland. So, they were the two forms of interconnectors at the time that were being proposed for the Riverland.
The other thing to bear in mind during this particular period was that South Australia through the summer of 1999–00 had experienced blackouts through lack of capacity, lack of supply and some system-related faults. Again, they cannot be blamed on the privatisation because they were assets that had been operated for decades by the government of South Australia, and any of the problems that were occurring in 1999-00 were significantly the problems that rested with decades of operation under public sector management.
Nevertheless, during that very hot summer, and the previous summer, there were some significant blackouts and there was great concern as to what the situation would be in the following summer of 2000-01. So, there was an urgent demand in South Australia for extra supply options to be delivered by the summer of 2000-01—by the end of 2000 was the requirement.
The judgement that the Liberal government made at the time, right as it was, clearly, in hindsight, was that the only guarantee of extra supply by December 2000 in readiness for the summer of 2000-01 was to fast-track in-state generation at Pelican Point, which was one of the reasons why the Liberal government supported in-state generation, because the whole notion of interconnectors was beyond the control of the state government.
If you were going to an election, you could do what the Labor Party did and promise an interconnection after the election knowing that you would not be able to deliver it, but the Liberal government at that time was going to be there until March 2002 and it knew that it had to deliver for the people of South Australia extra supply options into the market by the summer of 2000-01. Our judgement was, and as I said with the benefit of hindsight it was clearly correct, the only guarantee of supply by that summer was a fast-tracking, as we did, of in-state generation at Pelican Point.
As I have said before, it also had the advantage of introducing extra competition into the generation market in South Australia, competing against the three former government-owned sections of the generation market that are now under private operation, and they would be significant competitors to those operators. On the downside, if you look at it from the Optima board's position, the advice they gave to the government was that it would devalue the sale price of the assets at the time.
These were not just judgements that I made at the time. Before I seek leave to conclude my remarks today, I want to finish with a quote from the then independent industry regulator, and someone well known to this government because I think they have appointed him to the Chair of SA Water, and that is Mr Lew Owens. He is someone with a long history of involvement in utilities businesses, both electricity and water, and this government regard him so highly that they have appointed him as the Chair of SA Water and various other positions.
At that time, Mr Owens was the independent industry regulator. He was the equivalent in South Australia of ESCOSA, or the Australian Energy Regulator, operating at the national market. I refer to a statement I released on 11 August 2001, after a report released by the independent industry regulator, Mr Lew Owens, on the Riverlink interconnector. My statement reads as follows:
“Regulator Lew Owens has concluded that price benefits in South Australia for customers may be lower than some claims have suggested, and that in some circumstances SA customers might not benefit overall.”
Lew Owens is warning not to believe the claims made by the Labor Party and others about the supposed price benefits of Riverlink. The independent industry regulator—the independent umpire—looked at these claims and said that in some circumstances SA customers might not benefit overall. I then go on to say:
“This is a stunning rebuttal of claims by Rann and Foley that Riverlink would reduce electricity prices to South Australian customers by hundreds of millions of dollars. Rann and Foley must now provide evidence of their extraordinary claims, or stand condemned for misleading SA businesses. The regulator's report has also knocked on the head claims by Rann and Foley that Riverl ink could have been built by last summer.”
This is the point that I want to conclude on:
“In fact, his report, page 2 says, when he received the application back in 1999 —“
that is, for Riverlink, and this is a direct quote from Mr Lew Owens' independent report—
“it was clear that the SNI Riverlink project could not be completed prior to late 2002.”
That, as I said, is the independent assessment of what I put on the record and what Treasurer Koutsantonis has put on the record. The government claims were that it could build Riverlink and that Riverlink could have been up and going under the Liberal government by the end of 1999, in time for the summer of 1999-00. Mr Lew Owens, the independent regulator, said that when Riverlink came to see him in 1999 it was clear that there was no way that could happen, even if everything went right for them, until prior to late 2002, two years after South Australia needed the urgent extra supply.
Of course, that would have been delicious for the state Labor Party and the state Labor government because 12 months before an election, South Australia would have run out of power options during the summer of 2000-01. There would have been rolling brownouts or blackouts through the suburbs in the period leading up to the state election of 2001-02 and the state Labor Party would have been able to run around and say, 'See, here's the problem', in terms of the privatisation.
So, the independent industry regulator confirmed what we argued at the time and have continued to argue that the only way of guaranteeing extra supply back in that period was to fast-track the Pelican Point power station option, and the Riverlink option was a decision that was being taken at the national level and the state government of South Australia had no final say or determination in relation to that issue at all. Finally, and this is also from that press statement of 11 August 2001:
“Importantly the regulator has also noted that the Murraylink interconnector —“
that is, the unregulated interconnector—
“which is meant to be operational by early next year, together with the Snowy to Victoria interconnector upgrade, might achieve many of the claimed benefits for Riverlink.”
So, the independent industry regulator was saying that the unregulated interconnector which the government had supported through the Riverland, the underground and unregulated interconnector, together with the SnowVic interconnector between New South Wales and Victoria, might achieve many of the benefits that were being claimed for the Riverlink interconnection at that particular time. I seek leave to conclude my remarks.
When I sought leave to conclude my remarks yesterday afternoon, I was referring to the views of the then independent umpire in this whole area, South Australia's own independent industry regulator, and the comments that he had made on that. That was Mr Lew Owens, who has been appointed by this government as Chair of SA Water and to various other positions over recent years. The independent industry regulator's views at that particular time were, as I said last night, that the price benefits in South Australia for customers from the Riverlink interconnector may be lower than some claims have suggested, and that in some circumstances SA customers might not benefit overall.
He went on to conclude in his report that many or most of the benefits from the proposed Riverlink interconnector might be achieved by the Snowy to Victoria interconnector, which was a 500 megawatt upgrade, together with the Murraylink underground unregulated interconnector from New South Wales to South Australia through the Riverland.
The independent industry regulator, Mr Owens, also noted that, contrary to the claims the Labor Party and other supporters had made, the Riverlink interconnector could be built and operational by the end of 1999. Mr Owens said that was not correct and stated, 'It was clear that the SNI (Riverlink) project could not be completed prior to late 2002.' That is almost three years after the Labor Party, and other proponents, had claimed that it would be completed.
As I indicated yesterday, it would certainly have meant that as we went into the 2001-02 summer period, leading into the 2002 election—when and if there had been rolling brownouts or blackouts through metropolitan Adelaide in particular—the Labor Party would have been critical of the lack of government action in providing additional electricity supply in South Australia. The only option that was available to the government at the time that was completely within the power of the government to deliver was to fast-track a very efficient gas-fired new generator at Pelican Point, which the government did and, as I said, the Labor Party strenuously opposed at that particular time.
I want to refer to some comments made in the debate at that particular time, and again the government—the Premier, the Treasurer, and other ministers—has made the claim that the former Liberal government, in the interests of ratcheting up the sales price of the assets, took deliberate policy decisions to oppose interconnection generally. I have addressed at length the issues in relation to the Riverlink interconnector but, of course, there were various other options.
I want to repeat from the record, statements made on behalf of the government back on 1 May 2001, in Hansard on page 1376, where I was being asked a series of questions about the National Electricity Market and privatisation. I said as follows:
“The state government supports further interconnection—“
That is, the state Liberal government. I continue:
“We support Murraylink. We are prepared to provide major projects status and see Riverlink continue, if they can resolve all the issues that they have to resolve. We strongly support the Snowy to Victoria interconnector upgrade, which is 400 megawatts of power. In all those interconnection proposals we would certainly see a much stronger national electricity market if at least a good number of them anyway could be got up and going in the not too distant future.”
So, the Murraylink, unregulated, underground interconnector I have spoken about before, was supported by the Liberal government and was implemented by a private sector operator. Again, they had to take the risk that if it was not used, they would not be making any money at all. That was an investment risk that they had to take in terms of competing in the National Electricity Market.
There were also discussions at that particular time about the potential upgrade, which is more than 10 years later. It has now concluded or is about to conclude the upgrade of the Heywood interconnector between Victoria and South Australia. Even in those days, there were discussions about whether or not at that stage it was viable to upgrade the Heywood interconnector. The advice at that particular time was that probably would not be supported by the national regulatory authorities at that particular stage, and that other options would be preferred.
I note and repeat that in relation to Riverlink, there are any number of statements made at the time where we indicated that if they could get the approval of the national regulatory body (at that stage, NEMMCO) then the state government was prepared to support the Riverlink proposal because, clearly, state governments need to do a lot of planning issues and a variety of other development issues to either assist or impede the development.
We had given a commitment to the proponents of Riverlink that if they could get the approval of the national regulatory authority, we would give them major project status. That was something that they sought; it was a commitment that we gave. When you are trying to build a major above-ground interconnector from Victoria to South Australia through a number of local government council areas, the advantage of getting major projects status supported by the state government was a significant support mechanism provided to the proponents, should they get to base 1, which was actually getting approval from the national regulatory authority NEMMCO.
I also noted in that response at the time, in May 2001, that the other area where the government had already provided assistance is that we had given special approval to the proponents of Riverlink to enter land through the Riverland, if need be against the landowner's consent, to assist it in terms of its root preparation work should it ever get the approval. In May 2001, I noted that the proponents had had that approval for 12 months and at that time we asked the independent regulator on how many occasions had that approval been used by the proponents and, as of May 2001, the proponents had not used that special approval on a single occasion.
The government again indicated its willingness to support the proponents if they were able to get the national regulator's approval. We provided them with special approval, as I said, to enter land, even against the landowner's consent, to assist it in terms of root preparation work should it ever get the approval and, again, that was not utilised at all. What members now will not realise but at the time there was very strong opposition from the Riverland community to the Riverlink interconnector because they did not want to see big transmission tower lines going through their orchards and properties through the Riverland.
There was a local campaign against that occurring, and they certainly were much more supportive of the underground, unregulated Murraylink interconnector because, clearly, it did not have the same intrusive impacts on their business operations, as they saw it. The local member at the time, Karlene Maywald, subsequently a member of a Labor cabinet, was also supporting her constituents in opposing or expressing concern at the very least about the Riverlink interconnector, and made her views known in the parliament at that particular time on any number of occasions.
Clearly, from the community viewpoint but also from the government viewpoint, when one was looking at interconnection from New South Wales to South Australia, when given the choice of an underground, unregulated interconnector such as Murraylink, which was about 220 megawatts, or an above-ground trying to be regulated interconnector such as Riverlink, there was support at the local level but it was also an attractive option in terms of the cost to South Australian electricity consumers as well because, again I repeat, if Murraylink did not transmit any power then it did not earn any money and electricity consumers did not have to pay for the availability of it.
With Riverlink, if no power was used at all, South Australian and New South Wales electricity consumers would have to pay, in essence, what would in the end be the equivalent of an availability payment for the interconnector that was being built. So, there were negatives to the Murraylink interconnector, but there certainly were attractive elements to that particular proposal.
Also noting the Independent Industry Regulator report, and backing that particular Independent Industry Regulator report, I want to refer to a NEMMCO draft ruling in September 2001, again all occurring in and about the same time. This was the draft ruling in September from NEMMCO in relation to Riverlink, and a summary of that produced in one of the energy journals or reports at the time summarised the NEMMCO draft report of September 2001 as follows:
“'The River link interconnector, which promised multimillion-dollar power savings for South Australia, has been rejected in a draft report by the operators of the National Electricity Market,' reported The Advertiser, 20 September 2001.
Snowy upgrade regarded as more viable option: A National Electricity Market Management Company committee has favoured a 400 MW upgrade of the Snowy Mountains- Victoria interconnector as the more economically viable project for providing electricity to the South Australia and Victoria region. NEMMCO spokesman, Charlie MacCauley, said the $44 million Snowy upgrade was 'far superior' to the 250 MW SNI Riverlink, costing $110 million.”
In a press release issued on 19 September by myself about the NEMMCO draft committee report, I said as follows:
“A draft report from the National Electricity Market Management Company's expert advisory group (Inter Regional Planning Committee) has found that the benefits to the National Electricity Market of increasing the capacity of the existing Snowy Mountains to Victoria interconnector (SNOWVIC) are up to $100 million higher than building the proposed second Riverland interconnector (SNI) —“
which is also known as Riverlink—
“NEMMCO has recommended that the New South Wales Labor government project, SNI, not be given regulated asset status because it has failed to pass the independent market benefit regulatory test.”
Further on in that press statement:
“NEMMCO's analysis is impacted significantly by the fact that an interconnector through the Riverland (Murraylink) is already being built and is expected to be operating by early next year.”
At that particular time, what the government had available to them was an Independent Industry Regulator report advising against, and raising concerns, I should say, about Riverlink, and a September 2001 report from the NEMMCO committee. In the months leading up to that, our advisory team that was working for the government had obviously been working with the NEMMCO advisory committee and the NEMMCO people and was aware of the direction that their analysis was heading.
They were certainly aware of the direction in which the Independent Industry Regulator was heading, and the independent work that the advisers that the South Australian government during that period had employed was not only noting the work that was being done by NEMMCO and the Independent Industry Regulator, the two independent umpires in this issue, but their own work mirrored, by and large, the views that were being expressed, or about to be expressed, by the Independent Industry Regulator in South Australia and the National Electricity Market Management Company on behalf of the National Electricity Market.
That was, essentially, that you could meet and have a greater benefit to the South Australian market through a combination of other interconnection options and together meet the security issues that we needed for the following summer through a fast tracking of the Pelican Point power station, which was, of course, as I indicated yesterday, the government's position. The government's position through much of that period—and I guess we are talking through this period of 1998-99 through to 2000-01 whilst this whole debate was raging, but in particular it was coming to fruition in the early stages and then again peaked at the later stages of that particular period.
Certainly, through that period of two or three years, the government's preferred position in terms of meeting security and supply was the in-state generation at Pelican Point of 500 megawatts, with the potential for an expansion to 800 megawatts; an unregulated, underground interconnector from New South Wales to South Australia, such as Murraylink, with 220 megawatts; a SNOWVIC interconnector of 400 megawatts, which, as I indicated earlier, the independent industry regulator, NEMMCO, subsequently found as being of greater advantage to South Australia and Victoria than alternative options; and then also leaving open the option at some later stage, if they could get regulatory approval from NEMMCO, for the Riverlink interconnector, which was 250 megawatts.
That led to the letter to NEMMCO, that was written by the Liberal government and myself as the operational minister, asking, on the basis that questions were being raised, about what the best options were for NEMMCO to delay its decision in relation to whether or not the Riverlink interconnector should receive regulated asset status or not.
The letter simply said, 'There are increasing questions being raised about whether or not Riverlink would have all the benefits that were being claimed by the New South Wales Labor government and the Labor Party in South Australia and its supporters', and that there were significant questions and doubts being raised as to whether it was, indeed, the best option for South Australia. The South Australian Liberal government reversed its position and said, 'We believe, in light of this, that we would like you to defer your decision in relation to whether or not the Riverlink interconnector should get regulated asset status.'
Within days, as it was entitled to do because it was independent to the South Australian government and we had no control over it, NEMMCO ignored the letter from the South Australian Liberal government and brought down its finding. I do not know whether I have the exact date. Around June 14th or June 17th, it brought down its ultimate finding. On 17 June 1998, I put the position of the South Australian government on the record in Hansard when I said, amongst other things:
“In relation to the Riverlink decision, clearly NEMMCO's role was pivotal. It had to take a decision as to whether or not Riverlink was a regulated asset [or not]…”
And then further on:
“More importantly, the other issue is what the attitude of the South Australian Government will be and—as the honourable member might have gleaned from my press release—given the recent advice that we have taken, the State Government has been reviewing its decision which it made late last year of an in principle support for Riverlink. Indeed, we had put a point of view that, because of the recent changes and because of the advice that we were receiving, if NEMMCO was to make a decision that it would be a regulated asset, we would prefer it to put on hold its decision whilst we as a State Government finally went through our process of deciding whether or not we still supported Riverlink. As it turned out, clearly NEMMCO had already made up its mind, because it issued its decision pretty quickly. It had given us some forewarning that it was on the way and it had taken a decision that it would not be a regulated asset.”
As I said, whilst the South Australian government did send the letter saying we were rethinking our position and would they defer their decision, they ignored that particular position, as they are entitled to do, and said, 'No, it did not meet the test,' and that they, as the independent body, would not support it being built as a regulated asset at that particular time.
I can only repeat again, on the basis of that particular decision, that the South Australian Liberal government—contrary to the claims being made by Premier Weatherill, Treasurer Koutsantonis and ministers in this chamber and elsewhere—never had the power to stop Riverlink. Even after the 2002 election, when the Labor government had promised that it would build Riverlink, it came to the same brick wall, and that is that eventually the national electricity market regulatory bodies and appeal mechanisms said no, it would not be built as a regulated asset and the consumers of South Australia and New South Wales would not be required to fund the availability of the Riverlink interconnector.
I conclude my comments by saying that the problems that we and the state confront with the national electricity market is that, quite frankly, after 15 years of a state Labor government they must start accepting some responsibility for the dilemmas and problems that now confront South Australia. They were the ones who promised in 2002 to build an interconnector to New South Wales as the simple solution, knowing that they could not do it, and they have not delivered. It has only been in the last few months, since the most recent price spike problems, that the South Australian government has now found $500,000 towards a business case for an investigation into, in essence, a Riverlink interconnector between New South Wales and South Australia.
Even if that proceeds, it is three to five years before such an interconnector—if it gets approval and it has to go through the same independent assessment that Riverlink has been through on so many previous occasions—even if it gets approved it is going to take a three to five-year period to actually be delivering or be available to deliver extra power into South Australia. The upgrade of the Heyward interconnector from the first business case to actually being completed has taken four to five years. That is a relatively simple task because there is already land acquired, poles and wires constructed and you just have to increase the capacity; a much simpler engineering task but it has still taken four to five years to do that.
The task of actually acquiring property and land, building an interconnector over a completely new route, getting planning approval, if you have to from either councils or the state regulatory bodies—all of those issues—after you get the approval from the independent regulator, demonstrates that if the government was such a believer in interconnection it would have taken action much sooner than this year, after they had been in power for 14 or 15 years, in terms of delivering.
It is déjà vu all over again, if I can use a colloquial expression. They went into the 2002 election promising an interconnector to New South Wales to solve all the problems and they are hoping to go into the 2018 election, 16 years later, with virtually the same promise, only this time they promise $500,000. Back in 2002 they promised $20 million to the New South Wales Labor government to help build the interconnector—again, a public relations stunt because they knew they had to be seen to be looking like they were doing something even though they knew that it was an independent national body that had to take the final decision, and it was highly likely to say no to that particular interconnector.
After 15 years, this Labor government can no longer validly blame privatisation which occurred almost 20 years ago, when, as I put on the record yesterday, Treasurer Koutsantonis was urging a Labor member Trevor Crothers to cross the floor and support the privatisation when it occurred in the late 1990s.
As I said yesterday, if privatisation is posing the problem, according to the Labor Party analysis, then how come Victoria, which privatised earlier and much more significantly than we did in South Australia, have the lowest electricity prices and in South Australia we have the highest electricity prices?
In summary, I repeat that the Liberal government did not stop Riverlink because it never had the power to, and therefore it did not stop Riverlink to drive up the sale price of the assets because at that particular time the Liberal government fast-tracked a 500-megawatt gas-fired generator at Pelican Point to be a significant new competitor. Contrary to the Labor Party claims, the Liberal Party did not sell the generators to a monopoly, as the Labor government is still claiming.
It was in fact the Liberal government that smashed the monopoly of the old Optima, or the old ETSA, ignoring the advice of the board of Optima at the time, which said, 'You will maximise the sale price of your assets if you sell the generation assets as a monopoly.' The former Liberal government smashed the monopoly generation capacity into three generators and Terra Gas Trader. Not only did it do that, but it then introduced the significant new competitor at Pelican Point, the 500 megawatt gas-fired generator.
I conclude again, as I noted yesterday, how ironic it is. Clearly, Treasurer Koutsantonis and Premier Weatherill work on the basis that South Australians have very short memories, because in the last few months their policy has been directed towards Pelican Point being part of the solution to the problem; that is, Pelican Point were the ones who were encouraged and implored to open up their capacity, with the problems of recent months, and to start operating to help South Australia continue to operate. Treasurer Koutsantonis went cap in hand to the operators of Pelican Point to ask them to assist South Australia in its current crisis.
More recently, Treasurer Koutsantonis has been saying that with the closure of Hazelwood in Victoria he hopes to see that Pelican Point will now be able to become an operator in South Australia. This is the same Pelican Point power station that the Labor Party, with Treasurer Koutsantonis and Premier Weatherill, fought trenchantly to have established here as an in-state viable generation option for electricity supply in the state of South Australia.
With that, I indicate the Liberal Party support for, as I said at the outset, what is a modest measure in terms of tackling the problems of the National Electricity Market, and for those reasons, because it is modest, we have no problems with supporting the second reading.