Ever since the early days of Joh
Bjelke-Petersen’s premiership, Queensland has been Australia’s richest
state when it comes to public finances. There was no need for a
Kennett-style $30 billion energy sell-off in the mid-1990s, there was
no collapse of the Queensland State Bank and public sector
superannuation has always been fully funded. This has allowed
Queensland to easily claim the title of Australia’s “lowest taxing
state”, a fact which is best demonstrated by the absence of any state-based
fuel tax – something no other state or territory can sustain.

The
power of Queensland Inc’s balance sheet was demonstrated when the
government-owned Port of Brisbane Authority snapped up almost 40% of
Brisbane Airport from the Federal Government in 1996-97.

Even
more eyebrows were raised when Queensland Rail last month splashed
$446 million on the “above rail” operations of WA-based ARG and Ergon
Energy spent $103 million buying Melbourne-based listed electricity
retailer Australian Energy. Observers noted that Ergon wanted
Australian Energy’s six years of operating experience in competitive
markets as full retail competition approached on its home turf next
year.

When all this talk suddenly emerged after the Toll-Patrick
peace deal of Queensland Rail also spending up to $1 billion buying
Linfox, FCL or even 50% of Pacific National, questions started to be
asked about the broader game plan and where the money would come from.
Now we might just have some answers. Australian Energy was clearly
bought to make Ergon and Energex more saleable propositions. Could the
same occur with Queensland Rail once it completes its plans to expand
nationally?

From a Queensland budget point of view, the
estimated $1 billion from the sale of Ergon and Energex could be
injected straight into Queensland Rail. The timing of the deal is
excellent given the buoyant market for energy assets. Maybe even Snowy
Hydro could be considered as a potential buyer if the vendor
governments leave it with a strong enough balance sheet.

The
Victorian Government leapt through a unique window of opportunity in
securing $30 billion for its energy assets between 1994 and 1999 –
namely the US was deregulating and most of their giant power utilities
wanted to experience Victoria’s world leading competitive market model
in readiness for the same process at home.

The Kennett
Government just happened to find the two right blokes – Dr Peter
Troughton to break up the industry and investment banker John Wylie to
run the global auctions of about 15 different businesses over a four-year period – at exactly the right time.

However, many of the
new owners of these very same assets – Origin, AGL, CKI, Singapore
Power and the like – are now the most likely buyers of Ergon and
Energex. The Beattie Government could easily have opted for the
populist public float option, but perhaps they learnt a lesson when the
Queensland TAB was floated for $2 a share in 1999 but now trades as
Unitab and closed at $14.82 yesterday.

Markets need to become comfortable with business models before floats
can really deliver great value – something the Kennett Government
learnt the hard way in fetching just $2.25-a-share in the 1994 Tabcorp
float. In hindsight, Kennett should have instead just floated a
minority stake and flogged the rest for a much higher price a few years
later once the market better understood its operations and after some
rationalisation of the state-based totes.

A similar argument might just apply to Snowy Hydro given that analysts
are still coming to grips with the notion of more than half its revenue
coming from seemingly bizarre insurance policies that rely on the
company not starting its generators. Energy retailing is now much
better understood by investors but Beattie is clearly out to maximise
the proceeds by welcoming foreign bidders as well.

Peter Fray

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