John Howard pulled the rug out from under the Snowy Hydro float this
morning and NSW Premier Morris Iemma followed suit within the hour, so
the Victorian and NSW Governments are now in a major budget bind as
both were expecting to launch pre-election spending sprees with the
proceeds from their combined 87% stake.

However, there is an option that could still generate cash. Snowy Hydro
was being valued at $3 billion yet the business is only carrying $600
million in debt. The company is probably the last NSW government
controlled business that hasn’t been loaded to the gills with excessive
debt to prop up an unsustainable budget spending spree over the past ten

Therefore, backed by all the forecasts worked up in the prospectus,
Snowy Hydro could easily raise another $1 billion in debt for a special
return to shareholders, although this would also reinforce the
financial desperation of Morris Iemma, whose budget next Tuesday is now
looking even more wobbly.

Democrats senator Lynn Allison claims that $18 million has already been
spent on the botched privatisation plan and the Federal Budget revealed
that an estimated $110 million would be spent in total. It is
John Howard who should carry the can for this because he alone pulled
the float by breaking from the bipartisan support it had at a state and
federal level. Similarly, John Howard was responsible for the
cancelling of the proposed Liberal-National merger in Queensland when a
competent PM would have ensured it never saw the light of day in the
first place.

The man of steel is nothing but a rank opportunist and this latest
backflip will seriously undermine his credibility for upcoming
privatisations such as Telstra and Medibank. A more sensible
compromise would have been to park 10% of Snowy Hydro in the Future
Fund, although cranky David Murray probably would have arked about that.

Similarly, a more sensible compromise for Morris Iemma would have been
to do a deal with Steve Bracks so that only 49% of Snowy Hydro was
floated. That would have also given the market time to understand the
complex derivatives aspect of the business before the balance was

It will be fascinating to see how much the bevy of investment bankers –
UBS, CS First Boston, JP Morgan, Macquarie Bank and Goldman Sachs -JB
Were – will collect for this breach of contract. And will the newly
installed directors such as chairman Rick Holliday-Smith stick around?
If not, will they be compensated? How much of a pay rise was proposed
for Labor figure Bob Hogg, one of the longer term Snowy directors who
was sticking around for the float?

There are just so many angles to this story, including that we haven’t
seen a populist people power uprising like this for quite some time.
The implications are many and varied but the biggest winner is
undoubtedly NSW opposition leader Peter Debnam, because the saga has
confirmed to the public what a mess Labor has made of NSW public