NT election dispatch 2

This blog isn’t called Troppo Armadillo for nothing. There’s something about living in Australia’s Deep North that generates frequent bouts of bizarre behaviour, not least in our politicians.

The phenomenon was strongly underlined in the first days of the current NT election campaign, when Chief Minister Clare Martin announced a new scheme for the mandatory imprisonment of habitual drunks (despite having dismantled the former CLP government’s failed scheme for mandatory imprisonment of thieves soon after it was elected).

The evident contradiction involved in mandatory sentencing of drunks instead of thieves didn’t deter Ms Martin for even a moment. Nor, so far at least, has the revelation that NT prisons actually don’t have any space to accommodate large numbers of drunks. The outraged reaction of a number of indigenous organisations, who unsurprisingly see Clare’s announcement as merely adopting the tawdry old CLP trick of playing the race card, didn’t faze Clare either. Instead, she put the weights on prominent Aboriginal politician and outgoing Sports Minister John Ah Kit to make the supreme sacrifice for the Party and profess to support the policy.

Of course, the clincher is that, leaving aside all those factors, Martin’s announcement doesn’t even make sense in policy terms. Unless they’re going to lock up drunks and throw away the key, such a policy will simply create a revolving door situation, with as many itinerant alcoholics being released from prison at any given time as are being locked up. At least I suppose the “long-grassers” (as Territorians call itinerant, mostly Aboriginal alcoholics) will have a comfortable bed and good nutrition for the duration of their incarceration, but they’ll still be alcoholics and will inevitably go straight back on the grog as soon as they’re released.

Presumably Clare’s announcement was triggered by polling data showing that itinerant behaviour was a significant factor that might influence many northern suburbs voters, and presumably Clare’s advisers figured that being seen to do something about it (anything, however stupid) would be a vote winner.

Even more bizarrely, CLP Opposition Leader Denis Burke responded by condemning Martin’s announcement as draconian, and argued that alcoholism should be treated as a medical issue rather than one for the criminal law! He’s quite right, but it’s a spectacular reversal for both parties. It almost seems as if the respective leaders have accidentally swapped scripts. More likely, it’s a cynical (though probably forlorn) pitch by Burke for the preferences of any independent indigenous or left-leaning candidates in marginal seats.

However, in case you’re beginning to think that Denis Burke sounds like quite a sensible chap, don’t leap to any rash conclusions.

Last week he announced a “name and shame” policy for juvenile offenders, which even John Laws condemned as utterly stupid (most juvenile offenders will treat it as a joke and a “red badge of courage”). Yesterday Burke announced a policy for night-time curfews for juvenile offenders, blithely ignoring the fact that they already exist.

And today he’s promised to reduce northern suburbs power bills by 30% by building a 3000km long-distance power line from southern Queensland at a cost of $1.3 billion!!! Shades of the WA Liberals’ water canal from the Kimberley. To be more accurate, Burke claims that there is a private company willing to build this power line, although he fails to mention how much the NT government would have to throw into the pot to make any such scheme financially viable. The Alice Springs-Darwin railway, with a similar price tag, only proved viable after the federal, South Australian and NT governments jointly agreed to kick the can for almost half the capital cost, and transfer the existing railway infrastructure for free.

Burke claims that the scheme is a great idea because Queensland has lots of excess power capacity. Even if that’s true, transporting it over 3000km at a cost of $1.3 billion to service the miniscule NT market sounds like a fantasy that would dwarf even the WA Libs’ canal project in sheer fiscal absurdity. And the absurdity is compounded by the fact that a quick Google search suggests that Queensland may not in fact have a significant long-term excess capacity anyway. As this recent report from national power grid operator NEMMCO finds, Queensland’s minimum required reserve level has just been increased by 160 megawatts (to 610 megawatts), because of:

• demand patterns unique to Queensland; and
• the more limited capability of the interconnections between New South Wales and Queensland at times of extreme summer demands in Queensland.

Weather patterns in Queensland and specific load characteristics lead to electricity demand being less “peaky” than the southern states, particularly when compared to Victoria and South Australia. This means that, in Queensland, maximum demand or close to maximum demand occurs for significantly longer periods of time.

The result is that Queensland generating units may operate for sustained periods with higher loading than there southern state equivalents. Under such operating conditions it is necessary for the power system to carry a higher level of spare generating capacity to maintain the Reliability Standard.

The report finds in summary that:

At present, both Queensland and NSW:

have significantly more installed capacity than required to meet the minimum reserve level alone; and

should have sufficient capacity to meet the reliability standard for the next few years.

However, the latter point desn’t suggest that the excess capacity is large enough or long-term enough to make it sensible to build a $1.3 billion power line to Darwin, especially when imminent onshore arrival of natural gas supplies will create the potential for generating much cleaner power much more cheaply.

The prospect of any such scheme ever being viable is so remote as to be laughable, one would think. Will any swinging voters be impressed? Who knows? Maybe some of them have been drinking the same fermented jungle juice as Denis Burke.

PS – If anyone needs any further persuading about the silliness of Burke’s 3000 km power line idea, I just had a very quick look at NT Power Water Corporation’s 2004 annual report. It is currently the NT’s monopoly provider of power, water and sewerage. Its total revenue last year was $431 million. I can’t immediately see how this was broken up between power, water and sewerage revenue, but let’s assume that electricity generated half of this or $215 million. If we assume that a new entrant bringing power from Queensland might capture 20% of the local market, that’s just over $40 million per year. Even if we assume the new operator has no overheads other than servicing the $1.3 billion debt on constructing the power line, that is a paltry return on capital of about 3% per annum.

But in fact such an operator would also have to (a) purchase power from Queensland; (b) pay for repairs and maintenance on a 3000 km power line running through the hottest and most remote parts of Australia; and (c) pay NT Power Water Corporation some reasonable amount for use of its existing infrastructure in Darwin to deliver its power to customers. I have no way of knowing what indicative figures to put on those overheads, but you can confidently assume that they would reduce the net return on capital to significantly less than 1%. Who is going to lend a private operator $1.3 billion on those figures?

PPS – I emailed University of Queensland economist and blogger Professor John Quiggin and asked him to have a quick look at Burke’s proposal and my own rough figuring. Here is his reply (note that JQ has only looked at this very briefly indeed, so he’d probably want to include some major caveats:

It is possible to transmit power economically over long distances, but there are substantial scale economies, and the small size of the NT market means these won’t be realised. In addition, as with the WA canal project it looks as if the plan involves a lot of excess capacity, with the hope that this will be taken up in the future. This is almost always a bad idea in capital-intensive projects.

An investor would be looking at an average return on capital of 8 per cent or $100 million per year, and depreciation and OPEX would probably be a similar amount, say $200 million all up.

The electricity transmitted might be 500 GWh/year (about half of total NT consumption) at a stretch, so we’re looking at 20c to 40c/Kilowatt just for transmission.

The offsetting saving is the difference between generation costs in the NT and Qld, no more than 5c/Kwh.

Hence, the great majority of the cost of $100-$200 million per year will be borne by Territorians either as consumers paying higher prices or as taxpayers subsidising a white elephant.
.

As I then observed to JQ:

I think the average price for power in the NT is about 13.88 cents per kwh, whereas Queensland’s average price is something like 8.5. So the differential is roughly what you suggested. Presumably that means a new NT operator getting power from Queensland could not afford to charge customers any less than about 35 cents per kwh (i.e. 2.5 – 3 times the current NT price) without receiving huge government capital or operational subsidies.

In fact, I think NT total consumption is more like 1600 GWh/year (rather than the 1000 that JQ assumes). But that doesn’t make the scenario achievable. After all, JQ has generously assumed that a new operator could reasonably expect to sell about 500 GWh/year or about 30% of the total NT market. With any less than that very generous market share assumption, the equation looks even worse than JQ suggested.

NB I got a few things wrong in the hasty comments immediately above. See my comment below for a revised claculation.