australia: October 16, 2009

In 2008 the New South Wales Government, led by former premier Morris Iemma of the Labour Party, attempted to swiftly privatize the NSW electricity industry.  Their plans, however, were met with stiff opposition from union interests mid last year.  Since then, the Labour Government has been forced to rethink its approach in its effort to implement the proposed reforms.  While the Iemma government proposed more rigid plans of selling off not only its retailers but the generators themselves, the current Reese government has since reviewed its initiative in order to pacify the virulent opposition of the labor unions.

In regard to generators, the Reese government is looking to sell the energy trading rights of state-owned power stations Macquarie Generation, Delta Electricity and Eraring Energy.  The plan, generally known as the “Gentrader” model, means that the trading and carbon risks would be transferred to the private sector.  The carbon risks are likely to be very significant as most power producers in NSW use black coal as a means of generation.  The main concern with the Gentrader model is that crucial maintenance to the infrastructure might not receive the attention it warrants under private ownership.

The government currently owns three electricity retailers – Energy Australia, Country Energy and Integral Energy.  It is widely speculated that the two largest retailers, AGL and Origin Energy, will be looking to acquire the majority of assets and naturally there is a concern regarding the consequences of a smaller, less competitive, electricity market.  TRUenergy is also seen as a third possible buyer, but it is a significantly smaller operation than either AGL or Origin Energy.  There is a view in the industry that these retail assets are worth somewhere in the $2 to $2.5 billion range. Beginning in late September the government declared a six-week period of expressions of interest.  It is anticipated that all transactions will be finalized within the first half of 2010.  With a more condensed retailer market, the consumers will need to be extra cautious in making their electricity purchasing decision.