The debate over price controls also misses the point that prices will inevitably increase as a direct result of any emissions trading scheme. Australia has the lowest power prices in the developed world and is also one of the highest emitters of carbon. Therefore a high carbon impost is required to provide the right price signals to encourage investment in cleaner generation (eg gas) and reduce coal fired generation as a proportion of Australias overall energy supply. However for this to occur steep price increases should be expected to flow through to customers (with some compensation for lower income households). However maintaining price controls will raise concerns that retailers will be squeezed. This in turn will reduce the value that the private sector places on the retail assets. In addition, forcing through the sale before the full details of the emission trading scheme are published will also potentially increase the risk and reduce the value that the private sector will be prepared to say.

This all adds up to a poor outcome for Lemma and Costa although I agree that privatisation is the right path. Private operators are far better placed to manage the risks in the highly volatile national electricity market (note that one NSW retailer lost around $60m in June last year as a result of insufficient hedging). The next few months will be very interesting……..

“The better argument to put would have been in terms of the special benefits the private sector might be able to bring to cost minimization in a more competitive market place”

Does that sound like some whose ideologically opposed to privatisation?

I actually doubt there are many serious commentators these days that are “ideologically oppposed to privatisation” at all. Nobody thinks airlines, for instance, should be run by governments anymore. But there are plenty of reasons to be concerned about specific attempts at privatisation, and what the risks may be. In the case of selling of power generating units, I think we have sufficient reason to be confident that private operators will do a satisfactory job of running them in Australia (as they do in Victoria, SA and parts of Queendland), however there is one item for genuine concern: that once a publicly-listed corporation is running a coal-fired power station, its obligation to shareholders is to keep making as much profit as possible from that investment as long as it can. That seems somewhat in conflict with the need to reduce CO2 emissions, something I’ve not even seen mentioned in the debate as yet.

What does it matter to you that Iemma is intellectually dishonest? Were you considering voting ALP? It’s not a unique or new insight that politicians lie or twist the facts. Mankind has known this for some centuries. Politicians are professionals at reading public sentiment. So they often run with side arguments about credit ratings. Iemma obviously thought this would wash better with a public ignorant about economics.

What is relatively new, in the greater scheme of things, is clearcut evidence – from abroad and our very own Productivity Commission – that privatisation of government assets and a competitive market leads to improved service quality and possibly lower prices. Unless you have some new insight to add on this latter point that disproves hundreds of peer-reviewed studies, I find it odd that you’re devoting so much effort to knocking down a side argument.

Perhaps you have some ideological bias against privatisation and couldn’t find the evidence to back up your beliefs, so are instead attacking the side argument to cast doubt in the public’s mind about the whole exercise of privatisation?

Incidentally in my hometown in India (Guwahati), the power goes out every few hours. That’s what it’s like living with publicly owned electricity assets.

The real question is, does the state need to invest in electricity generation to make it happen, the answer is clearly no. The sate has enough to worry about without getting involved in things that it could be taxing.

Again, the EU countries are bound not to exceed a cash deficit of 3 per cent of GDP over the cycle, leaving plenty of room over the medium term for debt-financed public investment.

Uh, that should be past tense. France and Germany both simply ignored that, and so the stability pact can’t credibly be said to exist anymore. Which does not, of course, stop it being a good idea.

I am a little confused – I admit that I don’t know much about government accounting. Surely Governments gear on the basis of their gross liabilities to gross assets? Ie if you buy a power station at 80% debt-funding, you have an asset of $X and a liability of $.8X (or maybe between .75 and .9 depending)?

If it is as I understand you to say, that governments would record that as a liability of $.8X only, that is absurd. They aren’t measuring indebtedness then but (very crudely) practical liquidity. Maybe banks should have to report that! But it is hard to see why 150 year old governments with investment grade ratings should.