Wednesday, 27 April 2016

Basslink highlights State's budget woes

(Published in The Mercury 27th April 2016)
The big danger in the aftermath of the Basslink debacle is the search for someone to blame will divert attention from finding the best solution.

At last week’s Senate hearings in Hobart, Michael Negnevitsky, UTas engineering professor nailed it when he said “...the failure of the Basslink has to be viewed not just as a disaster......but.... as a wake-up call..... in 10 years time we may not recognise our power systems.... (which) in the last five years have changed much more than in the previous 50 years.”

It’s not just a wake-up call from an energy security viewpoint but also from the perspective of the government’s fragile budgetary position as it begins to grapple with the costs of the outage and the after-effects.

The roles of participants will give a glimpse of how the State sector works.

The cash costs of at least $200 million will be borne by Hydro Tasmania. It will have to find the money from somewhere. It won’t come from the Consolidated Fund which would directly impact the general government’s budget. But it will come via the back door, either from TasNetworks or from Tascorp.  The impact on the State’s overall position will be the same. This position will also be affected by the expected massive write-down in the value of Hydro’s generating assets, reflecting reduced future income as dam levels are restored. In 2005 Hydro wrote down the value of its generating assets by $1 billion. A similar write-down would not surprise.

Thursday, 7 April 2016

Budget myths

(Published in The Mercury 6th April 2016)

Treasurer Gutwein is no exception. All State Treasurers no matter what party affiliation will perpetuate four myths whenever a budget or a budget update is released.

Myth number one is if the State economy grows so too will State government revenue.

The second myth is the budget forward estimates for the years beyond the current year can be reliably estimated.

Myth number three is the misplaced focus on the general government rather than the total state sector which includes government businesses.

The fourth myth is that budget sustainability is best measured using a flawed profit figure.

Thursday, 31 March 2016

Is Hydro insolvent?

(Published in The Mercury 31st March 2016)

The Basslink cable outage will have far reaching effects on the finances of the state government.

Working out how to generate enough electricity for our needs is the easy bit. Finding enough dollars to help Hydro Tasmania survive is harder.

Were Hydro a private company a Voluntary Administrator would have been appointed by now as there is no certainty it would have been able to trade its way out of current difficulties.

With borrowings of $850 million plus Basslink liabilities of $860 million at latest reporting date, private lenders would be reluctant to lend assistance.

The reason for the cable fault has not been determined, the repair time is a guess based on experiences with other sub-sea cable problems, and once repaired whether it will meet original design specifications is highly problematical.

In such circumstances the voluntary administrator checks the situation and talks to creditors, lenders and shareholders about the way forward.  In essence that is what Minister Groom is now doing.

The dim light at the end of the electricity supply tunnel gives hope that we might find enough power to continue come what may. Next is the search for the necessary funds to sustain Hydro. We can dispense with talk about profits and returns to government. Neither is likely in the short term. The question is whether Hydro can generate enough cash from operations to cover its annual capex bill of $100 million needed to upgrade dams and generating plant.

Thursday, 24 March 2016

Hydro Tasmania's lynch mob

(An abridged version without the charts was published in The Mercury on 24th March 2016)              

The lynch mob is baying for blood. Running down the dams during the carbon tax years is the accepted reason for our current predicament. It’s all the fault of the bean counters and traders who have hijacked the running of Hydro.

No need to bother checking evidence, Hydro Tasmania’s mismanagement is responsible. Even Energy Minister Groom, tiring of the political pressure, is starting to distance himself from Hydro.

But what if the generally accepted version is wrong? Sure, Hydro’s current board and management have questions to answer, but what if the whole Basslink deal was a dud destined to fail, where once a decision was made in principle to lay the Basslink cable, the need to get the project across the line triumphed over the need for a robust assessment of the business case.

Is Geoff Willis the right person to be heading a taskforce to investigate Tasmania’s energy security, a problem Basslink was designed to fix, when his fingerprints are all over the Basslink business case approval and implementation as CEO and director of Hydro at the time?

Tuesday, 8 March 2016

Basslink under water?

Who exactly is Basslink Pty Ltd (BPL)? Given there’s a distinct possibility that its undersea cable problems will take a lot longer and be more costly to fix, is BPL in a position to weather the storm?

BPL owns and operates the Bass Strait interconnector. It is the main player in the Basslink group which in turn is owned by a Singapore listed infrastructure business.

The Basslink group doesn’t make any money.

Saturday, 27 February 2016

Forestry Tasmania's death throes

Unless Forestry Tasmania discovers gold it will be out of pocket when it knocks over the Mutual Valley coupe adjacent to the Blue Derby mountain bike trail.

The bike trail has recently been funded by governments to the tune of $3.4 million. The whole point of the trail is to attract tourists and help fill the employment gap left by the unprofitable forest industry.

Yet here we have FT, on its last legs in its current configuration, undermining the very industry chosen and funded by public policy makers to fill the void.

Not short of opponents FT is taking on the tourism industry as well.

Saturday, 20 February 2016

Negative gearing

At last the public discussion on the subject of negative gearing seems to be making progress.

Matt Ellis writing as  Rational Radical sums up the arguments to perfection here. If you've got a few minutes it's a must read.