Empirical research examining the proposed privatisation of the NSW electricity transmission and distribution businesses has found the asset recycling strategy is likely to negatively impact the state’s credit rating over the medium to long term.
The analysis also examined the relative efficiency of public and private networks, finding that once the physical span of each network was considered — essentially the number of kilometres covered — publicly owned electricity networks currently operate more efficiently that privately owned assets in other states.
Written by Market Economics managing director Stephen Koukoulas, who has more than 25 years experience as an economist in government and banking, the report found there was no logical case for privatisation, with many arguments based on questionable assumptions and generalisations.
The report also highlights that the electricity transmission and distribution businesses currently provide a relatively stable and low-risk cash flow to the budget.
The report made a number of key findings, including:
• Privatising NSW’s transmission and distribution assets is likely to drive up prices due to higher overheads in comparable privatised businesses;
• The physical span of different networks is the single largest factor behind variations in both operational and capital expenditure;
• NSW’s publicly owned networks outperforms privately owned peers on operating expenses;
• Publicly owned networks appear more willing to engage in long-term planning when undertaking capital expenditure; and
• Privatising NSW’s electricity network assets offers little short term budgetary gain and could well be detrimental over the medium to long term.