Should Premiers sell power assets?

Will selling power assets affect your electricity bills 171 74044 0 14091841 300

Many people have questioned the need for privatisation and queried whether it does work to lower electricity prices.

The latest expert to put his two cents in is Tony Wood, who wrote an opinion piece for the Australian Financial Review on Monday June 23.

He argues that privatisation could cut state debt and improve state budgets if done well.

Benefits of privatisation

The state governments in New South Wales (NSW), South Australia (SA) and Queensland are looking at selling their assets in order to cut debt and improve their budget positions.

The funds raised through the sale of these assets will be poured back into new infrastructure, which has the potential to boost productivity.

Privatisation could in fact, bring costs down for consumers, according to Mr Wood.

However, he said it is the national Australian Energy Regulator that must take the lead in reducing the wholesale prices charged by the distributors. Selling power assets, therefore, won't have that much of an impact on power bills.

However, selling these assets could open up the industry to competition, which may help to drive down prices, according to Rob Sims of the Australian Competition and Consumer Commission (ACCC).

Speaking at the CEDA state of the Nation Conference in Canberra on June 23, he said improving competition would mean price mechanisms could play a crucial role in signalling to businesses how to meet their consumers' needs at the lowest possible cost. 

"While the ACCC recognises competition laws must strike a careful balance, and not inhibit healthy competitive behaviour, if competition laws are too weak there are large efficiency and welfare losses from systematically poor conduct," he said. 

Concerns about selling power assets

Mr Wood said voters are often apprehensive that privatisation will drive up electricity prices, lead to job losses and reduce reliability of the service.

A 2012 Grattan Institute report found government-owned companies spend more on capital investment and operations than private companies.

However, reliability is often set externally, with standards specified by the state government, so there is no real risk of this changing.

Another concern is that privatisation will not improve the financial position of the state, which will leave the general public in a worse position, according to John Quiggan from the University of Queensland's School of Economics.

He says reforms in the electricity market over the last few decades "have resulted in higher prices and a misallocation of investment, which has been made worse by privatisation and corporatisation".

Mr Quiggan claims the entire process should be reassessed before a change in ownership structures can be considered.

Posted by Liam Tunney.