When Dan Andrews fronted the Labor faithful at the Village Green pokies pub in his still safe seat of Mulgrave on election night, it was the reference to “bringing back the SEC” which generated the loudest cheers.
And this is how The Age opened its front page splash last Saturday, Andrews’ first post-election newspaper interview after Victorians gave him an emphatic third term mandate:
Premier Daniel Andrews says the promise of resurrecting the State Electricity Commission was a killer blow in the election campaign that delivered Labor a third term in office last weekend.
But what does this political masterstroke actually mean?
In 1993, a whopping 29 years ago, I wrote the press release for the Kennett government announcing the SEC had been abolished. It was the world’s most integrated government electricity monopoly, doing everything from digging up dirty brown coal in the Latrobe Valley to chasing down the pensioners who couldn’t afford to pay their electricity bills.
The initial step was to break it into three — creating Generation Victoria for the mines and power stations, Powernet Victoria for the monopoly transmission assets, and Electricity Services Victoria (ESV) for the poles and wires distribution monopoly.
After that, ESV was broken up into five regional distribution monopolies and progressively sold off to largely US buyers for a collective $8.3 billion between August 1994 and December 1995, as you can see on this power sector master list tracking transactions over the past 30 years.
After that, the six generation assets — comprising four standalone brown coal-fired power stations in the Latrobe Valley, a package of two smaller gas-fired power stations, and a cluster of small hydro facilities — were sold off for a combined $10.32 billion between March 1996 and April 1999. Throw in the $2.55 billion sale of Powernet Victoria to US firm GPU in October 1997 and you are talking $21.1 billion of debt reduction across 12 transactions over a five-year period.
Fast forward 25 years and Victorian power prices are, on average, cheaper than in Queensland which still has a majority state-owned power sector under the umbrella of Energy Queensland, which owns the likes of Energex and Ergon.
Energy Queensland claims to be Australia’s largest government-owned electricity utility and reported $4.9 billion in revenues for 2021-22 and a $302 million after-tax profit. It also has Australia’s biggest single entity debt of $18.5 billion which is owed to the Queensland Treasury Corp, although the 2021-22 annual report claims this is supported by $28.4 billion of assets.
Dan isn’t proposing to spend $28.4 billion creating Victoria’s equivalent of Energy Queensland. Instead, “bringing back the SEC” involves creating an entity to construct new renewable energy capacity which will only be 51% owned by taxpayers, with industry funds tipped to take the other 49%.
What that means for existing or prospective renewable operators in Victoria is anyone’s guess. For instance, is Dan’s new SEC going to buy Westwind Energy, which reached financial close two weeks ago on a whopping French-owned 4000 gigawatt-hour wind farm in the shire of Golden Plains, which is less than 100km east of Melbourne?
The Kennett government did some shocking privatisation deals, but breaking up and flogging off the SEC wasn’t one of them. Awarding Transurban the contract for Melbourne’s City Link tollroad concession and privatising Tabcorp each turned into disasters, particularly because they effectively created privatised monopolies that delivered adverse public policy outcomes.
Transurban became the toll road giant that swallowed Melbourne, Sydney and Brisbane, distorting urban planning decisions, gouging motorists and delivering super-profits to shareholders. As for Tabcorp, it unleashed the scourge of privatised gambling across Australia and went on to buy multiple listed gambling companies, albeit mostly destroying shareholder value by overpaying.
The whole point of Victorian energy sector privatisation was to fix Victoria’s debt-laden balance sheet and break up a lazy government monopoly by introducing competition. And because Victoria was the first jurisdiction in the world to offer 100% foreign ownership to trade buyers — unlike Thatcher’s Britain which went for discounted public floats — there was a stampede of largely US and UK bidders who overpaid in their desire to keep up with the Joneses and learn how a genuinely competitive power market actually worked.
Critics say SEC stood for “Slow Easy and Comfortable” for its 24,000 staff, particularly when the privatised sector was able to keep the lights on with about 6000 staff.
The Dan Andrews political rhetoric justifying a return of the SEC included the rubbish claim that the various buyers of the old SEC made super profits of $23 billion and then left.
Throw in gas sector privatisations and the Kennett government actually raised $30 billion in 17 transactions, equivalent to almost $50 billion in today’s dollars. The foreign bidders largely overpaid, particularly for the generation assets, and ended up selling out for a loss as can be seen from the various secondary sales on this master list. More fool them.
As for Dan’s line about foreign buyers pillaging and then leaving, that seems to be based on AGL proposing to close Victoria’s biggest power station Loy Yang A by 2035, which is hardly a wholesale exercise of handing back the keys. Privatising Loy Yang A for $4.85 billion in April 1997 now looks like a masterstroke for Victorian taxpayers.
Finally, it is worth pointing out that Andrews has hardly been anti-privatisation during his eight years as premier. In 2016 he sold Port of Melbourne for $9.7 billion, but at least that was promised from opposition. Ahead of the 2018 Victorian election, he then suddenly sold the state’s 29% stake in Snowy Hydro to the federal government for $2.1 billion and the database run by Victoria’s Land Titles Office for $2.86 billion.
This was followed by the $7.9 billion sale of the VicRoads licensing database last year, again without any mandate from the public to do this.
All up, that was $22.5 billion across four transactions, yet with no mining royalties to speak of, Victoria’s debt is still projected to peak at $165 billion in 2025-26. By way of comparison, the Kennett government slashed state debt from $33 billion to $3 billion during its seven years in office, largely thanks to dismantling and selling the SEC.
