Fitch Ratings says today that the Australian Competition and Consumer Committee's (ACCC) 20 May 2010 final determination denying authorisation for the New South Wales (NSW) government's proposed co-insurance arrangement may delay the privatisation of the state-owned electricity sector even further.
"Although the ACCC's decision will come as no surprise, it is yet another set-back for the NSW government; the on-going saga of electricity privatisation is set to run and run," said Steve Durose, head of Fitch's Asia Pacific energy & utilities team.
The co-insurance arrangement was associated with the so-called gentrader contracts, which are the NSW government's mechanism for selling the right to trade the output from the state's three power companies, without the need to privatise the generation companies or assets. The NSW government proposed the co-insurance arrangements to increase competition and attract new entrants to the privatisation. However, the ACCC determined that on balance the co-insurance arrangements would result in public detriment.
"Whilst Fitch broadly agrees with the ACCC's view, the agency recognises that competitive tension is important in any privatisation auction and new entrants can push up value. Whilst co-insurance was one mechanism for mitigating the risks for new entrants, alternative options are available," added Mr Durose.
Fitch notes the NSW government is working on alternative structures without the co-insurance arrangement. However, the agency expects a deferral of the privatisation to the second half of 2010 at the earliest, provided there are no further delays.
The special report entitled "Australian Energy and Utilities - The Challenges of Change", published on 19 May 2010 details the proposed co-insurance arrangements.
Fitch also recently released two other special reports: "Australian Power & Utilities - No Capital Punishment", which analyses capital raised by the sector over the 16 months to April 2010 and "Australian Wind Energy - Gusty Growth", which analyses the growth of Australia wind energy and challenges facing the sector. Both reports were published on 17 May 2010.
All three of reports mentioned are available at www.fitchratings.com
