Keneally's $12 billion furphy

NSW Premier Kristina Keneally and Treasurer Eric Roozendaal are playing a numbers game on power privatisation with New South Wales voters as the opinion polls indicate that they are on the brink of a devastating defeat in March.

Premier Keneally summed up the game in a comment to media over the weekend: "What we have achieved with the first tranche of electricity reform is this – we have avoided a $15 billion liability coming on to the state's books for the next decade because we have avoided the taxpayer funding the next generation of baseload power.”

Her problem, and Treasurer Roozendaal's, providing the mainstream media and the state opposition actually wake up to the facts, is that this claim is a furphy.

The Premier and Treasurer are using the 2007-08 Owen Inquiry into NSW generation needs as the basis for their assertions – a report that conveniently isn't readily available any more if you search the government website.

Apart from the fact that what the Owen Report recommended was that the government opt for long-term leases of its generation fleet, not the controversial "gen-trader” model it is pursuing today, the review broke down the potential $15 billlion of future capital cost it envisaged like this:

One, the retail arms of the state's three distribution businesses – now sold – would need to invest between $2 billion and $3 billion on getting in to the gas business, including investment in peaking plant, to enable them to compete with the private sector. This has nothing to do with providing baseload power.

Two, retrofitting some of the existing coal-fired generators to capture and store carbon emissions over the next 10 to 15 years could cost $3 billion to $4 billion. This was then, and is now, informed speculation: the commercial costs of CCS remain unknown – and, in any event, how does selling the gencos' power production protect the taxpayers from the need to invest in CCS for the plants in state ownership?

(There is also the issue of how many hundreds of millions of dollars the ageing genco trio will need to spend on maintenance and upgrades to sustain production to meet the "gen-trader” requirements.)

Three, building new baseload generation could cost between $6 billion and $8 billion. This was based on assumptions of demand this decade that have been forced down now by the impact of the global financial crisis and other factors. At a maximum today, meeting NSW's baseload requirements in the period 2014 to 2020 will need construction of 1,000 MW to 1,500 MW – for combined cycle gas plant, the most likely option, a capital cost of no more than $3 billion.

By mixing up the successful sale of the retail operations with the bungled "gen-trader” process and repetition of the "$15 billion savings for the taxpayer” mantra, the Premier and Treasurer are engaged in a classic "never mind the quality, feel the width” piece of political spin. And keep in mind that the gen-trader process is only half-completed and confronted, as Roozendaal acknowledged late last week, with bidders for the remaining parts potentially spooked by the current furore, leaving their meeting the 31 January deadline in doubt.

Their $15 billion savings for the taxpayer with respect to baseload power is in reality about $3 billion, assuming the sale of Macquarie Generation and left-over Delta Electricity production actually goes through.

And what is the state's fall-back position if the federal government's carbon policy scares off potential investors in new baseload capacity?