Comments on: NSW Electricity Privatisation

By: punter

punter — Wed, 30 Jul 2008 04:39:58 +0000

Ummm, governments do not have a lower cost of capital. In economics, there is a concept of opportunity cost, that is what actual costs are measured by. The same amount of resources need to be sacrificed to make a government owned power station as a private one (perhaps more if the government is less efficient at building it), the difference lies in the fact that because the government has the power to tax, it can subsidise its losses in an area and still afford to pay back its creditors, hence it is a superior credit risk and faces lower interest rates. But this does not mean that it can builds things at a lower real cost. The real savings that are diverted from the private sector’s savings hoard to make the power station are the same. In short, government borrowings crowd out savings for private borrowings increasing interest rates at the margin for them. Or to put in another way, a dollar spent on infrastructure, capital etc by the government is one less dollar spent by the private market.

I find it astonishing that anybody with the slightest knowledge of economics could fail to understand this.

By: Ally Hauptmann-Gurski

Ally Hauptmann-Gurski — Sun, 04 May 2008 03:56:19 +0000

Yesterday’s decision against privatisation is a huge win on the greenhouse gas front. If a company spends 15 billion or so to purchase the system, then they will want to make profit from that system, which stifles innovation.
Consider the two possibilities: 1. The new technology from the university of NSW enables households to generate their own hydron, greenhouse gas free. These hydrogen cells can produce energy for transport as well as electricity. This makes part of the grid obsolete, as well as huge power stations. The purchaser would actually buy a dud, but would try to prevent the above technology because it would eat into their profits. They would have to pay carbon taxes, which they pass on to the consumer, and then they’d plaster the continent with pipelines for carbon capture, the cost of which would also be passed on to the consumer. The NSW government, having cashed in on the assetts, would be lobbied to disallow the new technology.
2. With hydrogen cells on 1.6 million households, powered by the sun, as the University of NSW has developped, none of these costs would arise. Even the retailing business would not be what it once was.
Privatising NSW electricity would be innovation stifling and perpetuate the emissions of greenhouse gases, so it does not make sense. If capacity constraints are around the corner, then the new technology should be introduced as soon as possible.

By: Club Troppo » Missing Link Daily

Club Troppo » Missing Link Daily — Mon, 17 Mar 2008 13:52:31 +0000

[...] Gans joins Troppo’s Nicholas Gruen in slagging Ross Gittins’ silly column on electricity privatisation. 22. KP: Who could ever trust� a columnist who promotes air-headed [...]

By: Molesworth

Molesworth — Mon, 17 Mar 2008 09:05:56 +0000

I’m not economically trained and I’m not qualified to comment on a lot of this, but part of Gittins’ argument was that it makes no sense, when assessing the economic costs and benefits of an action, to disregard the likely political implications, chiefly because those political implications in turn have economic implications.

Part of what he was saying was that there is a political limit to the level of debt that the NSW Government is going to be able to carry, whatever the economic arguments. You might not agree with that political assessment but if it is correct then it has real implications when asking the question, what are the economic costs and benefits of privatising the electricity industry? If it’s true that there is a political cap on how much the NSW Government is going to be able to borrow and political restrictions on what they can borrow for, and I think there are, it might make a lot of sense to direct borrowing to things that have greater benefits attached, which is part of what Gittins says.

Having said that, I thought Gittins was a bit unfair. After all, it is precisely the work of economists and economic commentators in recent times, pointing out that Government debt can be good, that has increased the political cap on borrowing for infrastructure.

By: Christopher

Christopher — Mon, 17 Mar 2008 03:41:56 +0000

Yup – fully agree.

Also very hard to do. Paucity of data at a state level is a signficant problem.

The ERIG taskforce had a go but ended up falling back on several partial indicators – and ran the line that any single partial indicator is of dubious indicator, however, a weight of partial indicators indicated that generator performance in NSW on productivity was behind that of other NEM regions as were price outcomes and signals/incentives.

cheers,
Christopher