There’s been an enormous amount of speculation about what went wrong
with the Snowy Hydro float but Crikey has some new insights that put a
fresh perspective on the situation. It seems the person most
responsible for the stuff-up is NSW Treasury Secretary John Pearce, a
highly risk-averse bureaucrat who ran the process with
an iron fist and focused almost exclusively on ensuring taxpayers
didn’t get ripped off financially.

For Pearce, the most important part of the process was getting the
2006-07 forecasts for EBITDA (earnings before interest, tax,
depreciation and amortisation) right so that the three government
shareholders received a full price for their asset. To that end, Crikey
can reveal that the EBITDA forecasts in the draft prospectus, including
a restatement of past figures, were as follows:

2004-05: $261m
2005-06: $275m
2006-07: $315m

With earnings forecast to rise, the governments were hoping to collect
between $2.25 billion and $2.5 billion for the equity, but when you add
in Snowy Hydro’s $950 million debt (up from $600 million as at June 30,
2005), this would have delivered an enterprise value of between $3.2
billion and $3.45 billion.

We hear that Snowy Hydro actually has a very strong management team,
mainly because each of the three government shareholders has only a
one-third voting interest so none has been able to meddle in its

However, Pearce, rather than Snowy Hydro’s management or advisers, was
filtering all the information flows back to Ministers and there was a
directive that no-one was allowed to talk, which meant that everyone
from Craig Ingram to Bill Heffernan was unable to find out any detail
about the process.

NSW Finance Minister John Della Bosca belatedly went down to debate the
sale with farmers, but this was too little too late from a government
that didn’t really care because no irrigators vote Labor.

Both Victoria and the Commonwealth delegated management of the float to
NSW but even this process was botched because the three joint lead
managers – UBS, Macquarie Bank and Goldman Sachs-JB Were – weren’t even
going to help run the institutional book build process. This was going
to be the sole domain of CS First Boston, the government’s advisor on
the IPO.

The process was also way too slow, especially key decisions such as the
board restructure which was announced on 15 May – a full three months
after Victoria and the Commonwealth signed up for the sale. It is
unlikely that new chairman Rich Holliday-Smith, the doyen who helped
build up SFE Corp, will bother to stick around answering to
disingenuous government shareholders.