"While by no means a blanket condemnation of privatisation, the report found
that private ownership did not automatically solve problems in government-run enterprises."
That quote comes from Madelaine Drohan in an article titled "Now They Tell Us: Privatisation Is No Panacea" in her discussion of the latest World Bank report on privatisation. My response when I read it was "so tell me something I don't know!" Just a few days earlier, tucked away in the business pages of The Age newspaper was a little article titled "Low Power Prices Turn off Generator Plans".
This little piece revealed a number of interesting things about the methods and
imperatives of privatisation and how we, as citizens and tax payers, are being screwed both by governments - in their failure to provide for us - and by the
companies that profit off our backs.
For some time industry and other commentators have been saying that there will be severe electricity shortages in the future. Ten years ago when Jeff Kennett and Alan Stockdale began their foray into privatisation - telling us it would bring lower prices, better service and more "choice" - they and their fellow ministers promised us that the then projected deficit in capacity would be addressed by the private investors keen to ensure reliable service and cheap power. Ten years later this is what the industry says "Low power prices are holding back several generation projects . increasing the likelihood of a peak-power shortage within two summers".
I've been saying for years that the generators here in Victoria have been "screaming like stuck pigs" because they cant make enough profit on their generation operations to meet the demands for the return on investment required by their shareholders. The exception to this is the Mission Energy plant which conned the then Labor government into a deal which means no matter what they do (even if they break down) they get paid a premium by the government (read tax payers) to ensure they maintain a base level income regardless of how much they sell their power for. It's been interesting to hear their and the government's silence on this nice little earner for a foreign company. Without putting fine an edge on it, the Victorian electricity user has been subsidising this companies operations in the US due to the lack of capacity to meet demand in some states. Why this lack - because investor wanted returns not more spending on plant and equipment. A study of the Californian energy crisis is illuminating in the parallels to our own predicament.
However, returning to the main topic, it is fairly simple to see what's going on here.
The ideology of privatisation ruled for a certain time. However, as the new owners and investors soon realised, you cant privatise an industry, sack most of the workers, establish half a dozen or more bureaucracies to replace one, let infrastructure wear down and at the same time hope to make a sustainable profit. The only ones who made anything out of the deals were the merchant bankers and international financiers who made hundreds of millions setting up and brokering the deals. Like used car salesman, they did the hard sell, got the suckers to sing on the dotted line and walked away from the wreck they once it was driven out of the yard.
Buried right at the end of The Age article is this little gem. "Decisions to put these and other projects on hold could be reversed quickly if the prices for peak power jumped quickly during the summer".
A couple of summers ago a number of "events" at the local power stations saw the
price of electricity (the cost to the distributors) jump to tens of thousands of
dollars on the "spot" market. Average prices are in the $35-50 range. In other words, due to a shortage in supply, the value of the
power being generated sky rocketed to prices that distorted the market momentarily. If we look at
electricity as a commodity, like fruit, we expect to pay more when there is less
of it around, like at the start or end of the season. If we want to get it when it's scarce we pay more. When it's in
abundance, we pay less. This retail demand flows back to the producer of the fruit who, in the high demand, low
availability seasons charges a premium and makes high profits and in the low demand, high availability, cycle either makes less profit or may only break
even. In other words, the peak times subsidise the low times to some extent. The
"average" sale price can me distorted by wild fluctuations in the "market" on a short term
basis and so a sensible fruit grower looks at their books with a long term view based on historical evidence and potential growth opportunities. That's
why farmers are so conservative in outlook. They're in it for the long haul. They understand the market and how it works. The rarely pin their hopes
on one crop to sustain them through the year.
When we come to electricity, our peak times are a little more spread out. Cold winter and hot summer days are the critical times for peak demand but they come few and far between and so the generators cant rely on them to provide the volume of "profit" they need to sustain year long provision of their "goods". In this case a basic service - electricity. Add to that our somewhat excessive use of air-conditioning and the demands that puts on the grid, and we find the lifestyle choices of some effect the prices we have to pay to maintain their comfort. In short, the scarcer the commodity the higher the price for its provision.
Most of the political discussions we hear about essential services (such as health, ambulance, fire and police) are couched in terms of providing "better" services. Both governments and oppositions maintain their arguments that there is an imperative to provide the best possible, most reliable and 'cheapest' service they can. However, when it comes to electricity they say, well it's a private system now, we can only subsidise them to a certain extent and they must make up their own minds as to what they do. Of course the privatised power companies never talk about how subsidies distort the market, but that's another story,.
While there are, no doubt, many good people working in the power industry, I suggest that most of them want to keep their jobs - having seen most of their friends get done over, made excess to requirements, outsourced, made redundant or just plain sacked - and so wont speak out against the system that, a little less than one hundred years ago went through similar times.
Back then there was no co-operation between suppliers. Local generators set up
their own grids and supplied to a few people in small areas. Many people found that if they moved from one location to another that their few electrical
appliances wouldn't work due to variations in voltage or frequency (i.e. 50, 40 or 60 hertz). The generators couldn't make any money as they were unable to
'integrate' their grids and eventually went to the governments of the day and said, we need to be subsidised. Most governments did subsidise them for short
time, but all eventually bought out, standardised and developed universal, integrated grids.
Ten years ago Jeff Kennett and Alan Stockdale undid all that by carving up and selling off an essential service, which the new owners now tell us, they cant afford to run. Even more scary than that is that they wont provide for growth for the future. If this was to happen in a third world nation we would "tsk tsk" about it and say, well what do expect from a backwards people, they got ripped off by some fast talking con men. Sadly, so did we. Due to the hard work of the ACCC we all know that there is no such ting a collusion and price fixing among big businesses. They are all so upright and honest and self regulated that to even suggest a crisis is being manufactured by the power industry to drive their prices up is verboten. So I wont. However, the governments of our states and nation are facing some interesting times. The Victorian government has already provided hundreds of millions of dollars to privatised companies to bail them out of financial troubles. Imagine headlines that might read "Government to buy back power stations and grid - Minister says, this will be good for all Australians". But isn't that what they told us the sale would be in the first instance?
The problem in not who owns the business, be it government or private enterprise, it is the ideology which underpins the management and direction of the business that counts. Private profiteers 20 years ago decided that then was the time to get into more important areas than cars, boats and TV's and 'luxury' items. After all we can all get along without any of these things. The services we need and which are essential to our modern way of life are water, health, education, telecommunications, gas, electricity and police and prison services. The ideologues realised that the things we cant "do without" are the things they should get their rich sponsors to invest in. Not that any of these ideas are new or radical, it was just that nothing on the same scale had been attempted before. Having convinced their sponsors to invest, the ideologues made promises they couldn't keep, unless they convinced the rest of us to swallow their shallow, course lies. They did. We did. And now our future seems very shaky indeed.
I doubt we will see headlines like the one I proposed above, but we might. If we do, all it will prove is that nothing has changed and we remain, as someone once said, suckers to the end. And if we do take to the streets to demand basic services and get arrested and jailed, chances are we'll get interred in a privatised prison, run a multinational that also owns the power, telephone, gas and electricity that keeps the prison running. Then our rulers will say, at least then one more problem has been solved.