The roosting chickens (1)

Today

Nick McKim MHA

Sunday, 21 May 2006

LABOR’S HIGH RISK BASSLINK GAMBLE FAILS

$300m to Hydro Means Health Crisis to Continue

The Tasmanian Greens today responded to reports in the Sunday Tasmanian that Hydro Tasmania has a cash-flow crisis by accusing the Labor government of putting Hydro Tasmania in the position that a sale of generation assets, or a $300m taxpayer funded bailout, is now necessary.

Greens Deputy Leader Nick McKim MHA said that Labor will now have to choose between a fire-sale of Hydro Tasmania assets, which the Greens will not support, or stumping up $300 million dollars which should be spent on Tasmania’s ailing health system.

“The situation to which Labor has brought Tasmania is clear – sell Hydro assets, or prop it up with money which should be spent on the health system,” Mr McKim said.

“How ironic that after its mantra of ‘hands off the Hydro’ in 1998, Labor has to now accept full responsibility for the sale of Hydro Tasmania’s assets being considered.”

Mr McKim warned in 2002 that Labor’s ‘House of Cards’ investment strategy in the Energy sector carried major financial risks.[1]

“Labor scoffed when the Greens warned about this very situation, but unfortunately it is now Tasmania’s taxpayers who will have cop the pain for the government’s mismanagement.”

“Labor has had plenty of warning from the Greens, as well as the Auditor-General, as far back as 2002, and Paul Lennon now has to accept personal responsibility for Hydro’s cash crisis.”

Mr McKim said that today’s revelations meant that Parliamentary Government Business Enterprises Scrutiny Committee must now be reconvened after scheduled hearings were cancelled to allow the election to proceed.

“Parliament must be given the opportunity to get to the bottom of this mess.”

Mr McKim said that without the major risks associated with Basslink the situation would be far less problematic.

“The documents obtained by the Sunday Tasmanian clearly show that Hydro Tasmania would not be in this mess if it had not proceeded with Basslink, which is of course Paul Lennon’s pet project.”

“We have now got Hydro Tasmania on the record, in the form of General Manager Corporate Mr Lance Balcome, admitting that its current troubles were caused by Hydro Tasmania’s leap into the National Electricity Market.”

“And Basslink now has an even smaller chance of trading profitably, given the news that the trading strategy will have to be geared towards lower risk and therefore lower returns.”

Mr McKim also said that Tasmanians should have been informed of Hydro Tasmania’s financial woes before going to the polls in March.

“We need to know what Paul Lennon knew, and when he knew it, because of course he had form on hiding crucial information from Tasmanians at elections when he revealed just after the 2002 election that the gas rollout was in crisis.”

Mr McKim was commenting on today’s Hydro crisis revelations due to his previous experience in this portfolio and as the Greens’ new Energy spokesperson, Kim Booth MHA, is currently on leave.

RELEVANT HANSARD EXTRACTS:

Tuesday 10 June 2003 – CONSOLIDATED FUND APPROPRIATION BILL 2003 (No. 36)

Mr McKIM – My word, when all the energy house of cards that you are setting up come tumbling down, Deputy Premier – if it ever does – unfortunately all I will be able to say is, ‘I told you so’, but, my word, I will be feeling better about it than you should be feeling if it does come tumbling down because you are setting Hydro Tasmania and therefore the Tasmanian taxpayer up for a massive fall in relation to your investment in energy projects in Tasmania…

Wednesday 1 October 2003
Ms PUTT – For years now the Greens have warned of the house-of-cards scenario with respect to another upcoming round of State debt that investment from the Government has chosen to make. So it is important to note that one of the reasons that the Government will be building up money is that they know that they are going to end up carrying the can in a much bigger way than the public has been made aware of…

June 2004

Wednesday, 16 JUNE 2004
GREENS CALL FOR BASSLINK RE-EVALUATION
In Light of Howard’s Decision to Abolish MRET After 2010
The Tasmanian Greens today called on the Government to immediately conduct an analysis of the Basslink business case in light of yesterday’s announcement by the Federal Government that the Mandatory Renewable Energy Target (MRET) Scheme which underpins the Australian renewable energy sector, would not exist after 2010.
Greens Opposition Energy spokesperson Nick McKim MHA said that Hydro Tasmania would be placed at a massive competitive disadvantage in the National Electricity Market after 2010 but would still have to pay around $90 million per year for the next 25 years to access the Basslink cable.
“The Mandatory Renewable Energy Target (MRET) Scheme makes renewable energy competitive with cheaper polluting generation technologies and after 2010, when the scheme will cease to exist, Hydro Tasmania will be massively uncompetitive in the National Electricity Market,” Mr McKim said.
“Hydro Tasmania admitted in 2001 that the business case for Basslink was marginal, and Howard’s announcement yesterday confirms the need for a full independent financial analysis of Basslink.”
“Tasmanian Energy Minister Green has admitted that his Government has done no analysis of the Basslink business case since 2001, which is an abrogation of his responsibilities as a custodian of the interests of Tasmanian taxpayers and power consumers.”
“The Government is sitting back and watching a potential financial disaster unfold, with guaranteed payouts of around $2.25 billion over the next 25 years, but with no guaranteed income.”
“It now seems certain that either Tasmanian power prices will rise, or the Tasmanian taxpayer will be forced to stump up the $2.25 billion over the next 25 years as a result of Paul Lennon’s financial incompetence.”
Mr McKim said that the Tasmanian Government should ask the Auditor General to conduct an analysis of the Basslink business case as a matter of urgency.
“Without MRET support, Hydro Tasmania will be unable to compete in the NEM, but is still committed to $90 million per year going out as a result of Basslink,” said Mr McKim.

December 2002

Nick McKim MHA

Thursday, 5 DECEMBER 2002

HYDRO’S ‘HOUSE OF CARDS’ LOOKING SHAKY
Government Should Come Clean on Financial Risk
The Tasmanian Greens today called on Hydro Tasmania to halt progress on Basslink until uncertainty over the future of the Renewable Energy (Electricity) Act 2000 has been addressed by a Federal ministerial review next year, and urged the Government to release the full financial details and risks inherent in Hydro Tasmania’s investment strategy.
Greens Energy Spokesperson Nick McKim is concerned that although Hydro Tasmania is still carrying a massive debt incurred as a result of its last round of industrialisation, it appeared to be gambling on a high risk investment strategy while ignoring major uncertainty surrounding some of its key revenue streams.
Mr McKim pointed to the following risks inherent in Hydro Tasmania’s strategy:
• Massive investment in Basslink with large chance of making a loss
• A review of the Renewable Energy (Electricity) Act 2000 scheduled for next year, which may result in substantial changes to the Act including altering the methodology of allocating Renewable Energy Certificates to the disadvantage of Hydro Tasmania.
• Uncertainty over whether bulk power consumers will renew their contracts, and the price at which they might renew.
• Uncertainty over the effect that reticulated gas will have on demand for electricity in Tasmania.
• The Auditor General’s comments that “… revenues are low compared to the borrowing costs required to service the loan portfolio.”, and that the Return on Equity (4.7%), “… remains well below that which would be expected for an unregulated commercial undertaking.”

“Hydro Tasmania is an organisation which is facing substantial uncertainty regarding its future revenue streams, and it would seem to be fiscally irresponsible for it to embark on its present expansionist program without more certainty, especially in relation to the review of the Renewable Energy (Electricity) Act 2000,” Mr McKim said.
“Indications are that substantial modifications to the Renewable Energy (Electricity) Act 2000 are possible during the ministerial review that begins in January next year, including revisions to the methods of calculating baseline generation levels for pre existing Hydro schemes.”
“It is certain that the Renewable Energy (Electricity) Act 2000 review process will contain submissions from generators and industry bodies which will address the perception that Hydro Tasmania currently enjoys a competitive advantage as a result of being able to generate RECs without new investment,” Mr McKim said.
“Hydro Tasmania is underpinning its investment strategy with revenue from Renewable Energy Certificates, and should halt progress on Basslink until the uncertainty over the Renewable Energy (Electricity) Act 2000 is resolved.”
“The ‘house of cards’ which the Government has been building in Tasmania’s energy sector is starting to look a little fragile, and an unfavourable breeze from the Renewable Energy (Electricity) Act 2000 review in Canberra could result in a collapse of a major component of Hydro Tasmania’s revenue stream.”
“Any negative outcomes from Hydro Tasmania’s high risk strategy will flow on to Tasmanian taxpayers in the form of increased taxes, reduction in services or a rise in power prices.”
“Hydro Tasmania is staking its financial future on an ability to turn a profit over Basslink, which by Hydro’s own admission has a ‘50% probability of not breaking even’,” Mr McKim said.

Nick McKim MHA