Why more than 80% Indians like bringing back of the SEC?
During last year’s election, Daniel Andrews made a sudden announcement that a re-elected Andrews government would bring back the State Electricity Commission let us say SEC 2.0.
And that surprised many, mostly delivering a pleasant one but shocked his opponents into silence.
The Liberals were not ready and they did not know what to respond with other than saying they would have more to say in the coming weeks.
“We have a plan for reliable, affordable, clean energy and we’ll certainly have more to say about that in coming weeks,” Opposition’s education spokesman David Hodgett had said at the time.
Nothing much was said after that and on the night of November 26, – during Daniel Andrews’ victory speech, the biggest cheers erupted on the mention of the bringing back of the SEC.
From what I can see, the SEC 2.0 appears to be a REAL hot potato for the Liberals and Nationals in Victoria.
Making the announcement of the SEC 2.0 on Twitter last year on October 20 Daniel Andrews said the energy would be one hundred per cent renewable, thus better for the environment, majority govt-owned, deliver cheaper bills, and create thousands of new jobs.
Under the plan, an initial investment of one billion dollars over ten years will deliver 4.5 giga watt hours of one hundred per cent renewable electricity, meeting 30% of Victoria’s energy needs.
The announcement was welcomed by many who have been feeling trapped in the cesspool of privatization of essential services, left at the mercy of private providers.
Victoria is the only state where electricity network is fully privatized. In direct contrast, the SEC 2.0 will be majority govt owned – including its generation, transmission and retailing.
That should add to market competition, putting downward pressure on the price of electricity in Victoria.
Once upon a time – Victoria had its own, very profitable power sector.
It was the sole provider of electricity to Victorians at very affordable prices, with the reliability and customer service which was unparalleled in the world.
And Victorians have very fond memories of it. And it was a real asset in REAL Economic terms. In its final year of operation, before it was disaggregated and privatized, the SEC made a profit of 207 million dollars, after paying 995 million dollars in interest from its liabilities and after it had paid 191 million dollars in dividend to the Victorian government.
In simple terms, it made a GROSS PROFIT of 1.39 billion dollars in its final year.
The questions is… why was it flogged off?
The simple answer is – it fell victim to ‘custom-ordered Designer Economics’.
When Jeff Kennett came to power in 1992, the case to sell off the SEC was already made out.
The arguments had been stacked up against the state ownership of the SEC by the neo-liberal think tanks. It was to be sold off to pay off state’s “so-called” huge debt and to have the AAA credit rating for Victoria restored.
It is true that Victoria under Kennett’s predecessors had incurred big debts.
But Victoria, like the rest of Australia, had just been through a recession, a recession, former Prime Minister Paul Keating said, Australia had to have – suggesting it to be a necessary economic correction at the time.
Watch it on YouTube here
Times were tough. Very tough indeed!
But that should have meant MORE , not less responsible government which would expose the most vulnerable even for their basic necessities, to the merciless market forces of demand and supply which can be artificially manipulated.
The incoming govt led by Jeff Kennett wasted no time in introducing their reform agenda, they called ‘period of discipline’.
They immediately began – selling a number of state owned, profit making assets, including, essential services like electricity, gas and water.
The intellectuals behind this agenda believe assets owned by governments form monopolies. And Monopolies they argue, can lead to inefficiencies, waste, and increased costs.
Note with interest the use of word ‘can’ here.
Is it not interesting that the same asset – (I am only interested in essential services monopolies here) – which can lead to waste, inefficiencies and increased costs – becomes grotesquely profitable in private hands?
Those who are old enough to remember the ‘RED Bills’ -reminders when the bills were not paid on time, would be loathe to witness private providers’ sales pitches offering discounts of up to 35% if bills are paid on time? What sort of margins would have been factored in to structure such sales schemes and prices – under which the companies would still make hefty profits even after offering 35% discounts?
Perhaps an issue worth the look, for another time.
Outside the designer intellectual’s thought bubble and in the real world, their argument to flog off state assets should only apply to non-essential services provided by the government.
Essential services – as monopolies should only be held in collective ownership, controlled by the governments for fair and equitable provision to the people they are elected to serve.
Why would you ever sell-off essential services into private hands unless you are prepared to turn a blind eye to the inevitable price gauging by private companies?
Between 1995 and 2012, electricity prices in Victoria increased by 170% according to the ABS data.
Privatization champions had used the promise of lower prices to sell their agenda. But as some experts had questioned even at the time, lower prices in real terms, never actually eventuated.
The Victorian taxpayers had to subsidize part of costs to cover the seemingly lower energy prices in the initial years, after which they rapidly began to skyrocket. And by the end of 2024, they are tipped to rise by another whopping 56 per cent. Such sky-high energy prices, without any intervention, may prove catastrophic for many Australians.
But how and why, did we end up here?
One of the major architects of the ‘period of discipline’ was Alan Stockdale, Treasurer in the Kennett government.
A peep into his views on privatization and its outcomes gives an interesting insight.
Without mentioning any tangible beneficial outcomes for the Victorian taxpayer, in a paper he wrote in 2001*, Alan Stockdale shrouded his concessions by saying: “There is no one single answer as to whether the reforms took Victoria where we intended to go”.
Apart from paying off part of Victoria’s debt other outcomes Stockdale listed are simply amusing, to say the least:
Like – Australian consultants gaining advisory work around the world;
One could be forgiven to ask ‘How many out of Victoria’s population of 4.5 million?’
Number 2 -Politicians no longer required to answer questions on energy;
“It is much less common now for Ministers to face questioning in the parliament about the day-to-day performance of the energy industries”, argued Stockdale.
Imagine, ministers not having to answer questions on their responsibility, as one of the significant benefits of selling off STATE ASSETS.
At number 3 was Stockdale’s argument that the Taxpayer no longer carrying the risk or burden of further investment.
Victorians were told that they had been relieved off future investments in the sector.
This is another classic ‘designer intellectual’s argument’.
Imagine you own your home and have a mortgage like most Australians. Then, if you sell your home and start renting, of course! your debt will disappear. And the finances required to maintain / extend or improve your home (the financial burden or risk) will no longer be your responsibility.
No rocket science there!
The argument cleverly creates an illusion of future funding requirement which is non-existent after you lose ownership, having sold the asset.
Why would you maintain an asset after they have sold it?
And on the flipside, protections against future bailouts are never hard coded into anything politicians do.
In a further attempt to make privatization more appealing and palatable, and to highlight the complete elimination of the ongoing risk to the taxpayer.
Stockdale argued that in the sale agreements, the state’s Warranties and indemnities had been capped at just 1 dollar.
Clearly, again a misleading and deceptive argument.
It was divestiture of state’s most profitable, essential services monopoly assets, set in stone to make no loss to the buyer. Where was there any risk to the buyer?
Anyone with knowledge of even rudimentary economics will tell you when a buyer signs a deal worth billions, with seller’s warranties and indemnities capped at just one dollar, it can only be but a ‘GIVEAWAY’.
And then there was the biggest and seemingly most logical argument – to have the AAA credit rating restored for Victoria.
This argument was used to claim they were better and more responsible economic managers. And the better credit rating would have Victoria in huge savings on its borrowings.
That was also NOT the case.
According to the Autumn Audit report (of 1995a), Victoria’s yearly interest bill would be worse off, by not even a pittance, a mere 20 million dollars annually or 0.3 per cent of Victoria’s own revenue, that is less than one third of one per cent considering the deals were worth between 28 to 33 billion dollars.
Thus, the importance of the triple AAA rating to the state budget was far less significant than projected and not a substantial justification for the privatization of essential services.
Fast forward to 2023 – Daniel Andrews says Victoria’s four providers of electricity have made a profit of 23 billion dollars.
Confirming the figure, Professor Bruce Mountain, director of Victoria university’s Victoria Energy Policy Center, says the companies have made 23 billion dollars gross profit or 38 per cent return on revenues of 62 billion dollars since 1998**.
An extraordinary shareholder return, particularly when they have made no real investments or plans to transition into renewables.
Note here, that this was the core argument of the privatization brigade, that Victorian tax payers would not be running the risk of having to foot the bill of future investments in the sector.
Clearly that is NOT the case and we are back to square one!
And we no longer own the assets.
It is not surprising that this privatization spree – a 33 billion dollar sell-off – by the Kennett government has been compared to being a massive heist*** by Professor Graeme A. Hodge, of Monash Law School, Monash University.
SEC 2.0 and Politics of it all
Unbeknown to those who want to continue to eulogize their ‘designer heroes’ of yore, potential political consequences of the privatization of the energy sector through custom ordered designer economics unleashed on our state, may be a lot bigger than most think.
If parliamentary debate is any guide, sadly, the Opposition is failing to acknowledge the gravity of the issue.
More than 80% of Victorian Indians we spoke to, think, electricity in Victoria is fast becoming unaffordable.
Unsurprisingly, they welcomed Daniel Andrews announcement of the SEC 2.0 last year. It also acted as a catalyst in their decision to vote at the last election.
With its promise of 59,000 jobs, 4.5 Giga watt hours of electricity – majority govt owned, meeting approx. to meet 30% of Victoria’s electricity consumption, SEC 2.0 offers an added hope to Victorian Indians.
The idea of state ownership of essential services will always appeal to migrant communities, particularly of South Asian descent.
And with the promise that it will be 100% renewable, Daniel Andrews might have already won over the progressive, Green leaning voters in those communities.
Thus, the Liberals / Nationals face a serious predicament in taking a position on SEC 2.0, sprung at them by Daniel Andrews.
Their hero of the 1990s – Jeff Kennett, looks a lot less of a protagonist in 2023.
Will they be able to or even want to disown his legacy? Or can they continue to claim to be better economic managers in the face of ballooning profits of private providers while taxpayers face mounting energy bills?
Time will tell!
*Privatisation of Victorian Gas and Electricity Industries: Did we Get Where we Thought we Were Going?– Alan Stockdale 2001
**The end of coal-fired power is in sight, even with private interests holding out- Bruce Mountain, The Conversation, 10 October 2022
*** Privatization: Lessons from the War – Professor Graeme A. Hodge, Centre for the Study of Privatisation and Public Accountability, Faculty of Law, Monash University.