THE NSW government is to start negotiations with EnergyAustralia and Origin Energy on the first tranche of its power generation assets to be sold as it seeks to raise more than $3 billion before the next state election to fund a new round of infrastucture spending.
The former Labor government last year raised $5.3 billion from the sale of government-owned power retailers, along with so-called "gentrader contracts", or the right to buy output from Eraring Energy and the two Delta Electricity power stations near Lithgow, to Origin and EnergyAustralia, respectively.
The government is to sell the power stations underlying those contracts, and all other government generators.
Origin and EnergyAustralia are the most likely buyers of the gentrader power stations, although others such as Ratch Australia are believed to be interested.
"Along with these bilateral negotiations, the government will also pursue a range of other options to ensure that any disposal of the gentrader assets maximises the financial returns for the state," the Treasurer, Mike Baird, said in a statement.
"There are a number of operators who are interested in these assets."
The most value resides in the other power stations to be sold, especially Macquarie Generation, which supplies an estimated 10 per cent of the national electricity market from its Bayswater and Liddell power stations in the Hunter Valley.
Also on the sale list are the remaining fully owned assets of Delta - the Colongra gas-fired peaker plant and Vales Point, on the central coast.
The government has confirmed taxpayers face as much as a $1.5 billion liability due to commitments made to develop the Cobbora coalmine, near Mudgee, to supply cheap coal to the generators.
"The Labor government's decision to invest in a coalmine created signficant risks and massive liabilities for the state," Mr Baird said. "Expert advisers put the potential loss to the state currently at about $1.5 billion."
Private companies have baulked at operating the mine without access to export markets, due to its poor prospects otherwise.
Macquarie Generation, Delta and Eraring have access to long-term coal supply contracts at low prices - believed to be less than half the present export price for Hunter Valley coal of about $US100 ($96) a tonne.
AGL has expressed interest in the sale, while smaller groups such as ERM and Australian Power and Gas are likely to team up with institutional investors to bid.
The government hopes to finalise the sale of the gentrader assets by the middle of next year, with Macquarie Generation to follow by year-end.
It hopes to sell Macquarie to a single buyer, depending on competition concerns.
While AGL has a presence in the electricity retail sector in NSW, it does not hold any generation assets in the state. Following its purchase of Loy Yang A power station in Victoria, the focus is on whether the Australian Competition and Consumer Commission, would prevent AGL from bidding for Macquarie Generation.