Hydro: the worst is yet to come

HYDRO TASMANIA’s request for a $300m cash injection from the State Government earlier this week has focussed attention on the company’s financial performance and viability.

The State owned company owns and operates all electricity-generating infrastructure in Tasmania.

Hydro’s Corporate General Manager, Lance Balcombe told the media that ‘’claims of a cash crisis were unfounded’’ but admitted that the company would have to look at other options if the request was denied.

The revelation comes only three weeks after the controversial Basslink undersea electricity cable between Victoria and Tasmania came online, with the Hydro locked into an annual line rental of $92m for the next 25 years.

The company also conceded it had a $1b debt and needed the cash injection to fast track repayments.

Tasmanian Treasurer, Michael Aird, confirmed that a cash injection had been discussed but has ruled out any extra assistance in the coming budget.

Special dividend

In addition the Hydro pays an annual ‘’special dividend’’ of between $40m-$60m per year to the Government.

An energy industry consultant, speaking on the condition of anonymity, said the Hydro’s debt was a hangover from the construction of its last hydro-electric scheme.

‘’To compound that they, the Hydro, have rushed into Basslink without even undertaking a study on how to best drought proof Tasmania.’’

‘’Basslink was originally heralded as a sound financial investment but the Government’s line changed around two years ago, saying that the project was the best way to drought proof the State.’’

‘’Basslink was supposed to allow Tasmania to export electricity to the national grid when there was an excess and import it when there was a shortage.’’

Selling Bell Bay

He was also critical of the Duke Energy gas pipeline.

‘’The theory behind that was to import gas from Victoria, turn it into electricity at the Bell Bay power station and then sell it back into Victoria, in addition to further drought proofing.’’

‘’Millions have been spent on that but its viability is questionable because they have to buy the gas, rent the pipeline, plus compete with Victorian electricity generators.

‘’The Hydro has operated without competition for almost 100 years and now they are subject to market forces and competition.’’

‘I have also heard that they plan to run Basslink at 650 mega watts but with line leakage they will probably lose 90 mega watts, who will pay for that?’’

He also cited ageing infrastructure, increased maintenance costs, hydrological risk and the special Government dividend as problems.

‘’When Basslink was first considered the dams were pretty full, now they are far below capacity and need maintenance.’’

‘’So when the Hydro comes out and says it will decrease maintenance if it doesn’t get some financial assistance that would just make things worse.’’

End badly

‘They are having problems with the inlet valve on the Gordon Dam and have sent in divers, that’s just one example.’’

‘’Tasmania is suffering from decreasing rainfall and that’s why the Hydro is diversifying into wind technology and spending a packet on cloud seeding.’’

‘’The problem is that you need good infrastructure to make money and service your liabilities, that isn’t happening here and it’s only going to get worse.’’

Another option Hydro Tasmania has canvassed publicly is selling the gas fired Bell Bay power station.

‘’Bell Bay is what some people would call a ‘’stranded asset,’’ it’s my understanding that it’s exempt from the legislation prohibiting the sale of electricity generating infrastructure so they could sell it but I don’t know who would want it and it’s probably not worth that much.’’

Hydro spent $50m converting the power station from oil burning to gas fired.

‘’All I know is that unless there is some kind of bailout things are going to end badly.’’

What the Greens reckon

Kim Booth MHA

Thursday, 25 MAY 2006

GREENS TO REQUEST AUDITOR GENERAL INVESTIGATE BASSLINK

The Tasmanian Greens today announced that they will be writing to the Auditor General requesting that an investigation on Basslink and its impacts on Tasmanian power prices be conducted.

Greens Opposition Energy spokesperson Kim Booth MHA said that the call follows significant power crashes and outages since Basslink came on line and reports of Hydro paying the highest price in the nation at $10, 000 per megawatt hour.

“With revelations that Basslink is delivering the dearest power in the nation, and remaining questions about power crashes and outages, it is appropriate for the Auditor General to investigate the probity of this huge power public investment, especially whether it exposes the Tasmanian public through increased power prices or loss of Health or Education services,” Mr Booth said.

“Only an independent investigation will unravel the myriad of myths and spin that the government has been disgorging about the purpose and so-called benefit of Basslink.”

“Initially Basslink was supposed to be a profitable export opportunity, now we are told that it is meant to drought proof the state which is quite a different situation, with different associated risks.”

Mr Booth also said that the Hydro must also explain why the Bell Bay power plant has remained idle for months.

“The Bell Bay gas conversion was used to justify the gas rollout as the mechanism to drought proof the state, but now we discover that the power station sits idle.”