Tuesday, September 02, 2008

RETAIL ELECTRICITY SALE OFF FOR ONE YEAR

Delayed electricity retailer sale pushes proceeds back a year

Brian Robins and Alexandra Smith, smh

September 2, 2008

THE sale of the first of the state's electricity retailers to be privatised has been delayed. It is not expected to be put up for sale until next year, so any money from the sale is not likely to be received this financial year.

At the same time, fears NSW will lose its AAA credit rating has resulted in investors fleeing the market for investments issued by the State Government, driving up the cost of borrowings.

The financial fallout emerged as the Premier, Morris Iemma, yesterday warned the Treasurer, Michael Costa, to "zip the mouth, put the head down and get on with the job".

The warning came after Mr Costa indicated he would quit politics if he did not get his way on a raft of reforms and public sector cuts. "That's the message for him, loud and clear," Mr Iemma said, adding that all MPs should heed the message.

NSW Treasury has estimates that a cut in the state's credit rating by one notch from AAA would cost $500 million in higher interest payments alone, he said. Investors holding NSW government-issued bonds also face losses, as bond prices have fallen amid concerns about the state's creditworthiness.

The Opposition energy spokesman, Mike Baird, said investors pushed up interest rates on some NSW government bonds by as much as 10 basis points in a quick reaction to the aborted electricity privatisation plans. "Thirteen years of mismanagement of the state's finances have come home to roost. Putting rates on creditwatch is at least a $20 million impact on borrowing costs, and many more millions to come," he said. NSW has $20 billion of state borrowings.

#Under the original privatisation plan for the state-owned electricity industry, EnergyAustralia was to have been put on the market by the end of the year. That has been delayed until next year, a Treasury official said, signalling sale proceeds will not be received until the 2009-10 financial year.

The delay comes as NSW is facing a steep loss of tax revenue due to the downturn in the property market, while the abandoned electricity sale has forced the Government to compile a mini budget by early November.

In a report, finance giant Citigroup said the failure to proceed with electricity privatisation "is not good news".

By the end of this financial year the NSW Treasury has to borrow another $3.5 billion, and the rise in rates will be felt as soon as it approaches investors to raise the additional funds, officials have warned.