By Matt Wade and Sean Nicholls
The power privatisation issue is so toxic that even Mike Baird, Australia's most popular political leader, is struggling to sell it to wary voters.
It's a crash or crash through approach that led to the demise of one of the NSW Premier's predecessors – Labor's Morris Iemma – and most recently reduced the Liberal National Party in Queensland to smoking electoral ruins.
It is surely keeping Liberal strategists awake at night that not just their opponents, but also many of their natural supporters, remain unconvinced that selling the poles and wires is a good idea. That's even with Baird's novel inducement, the plan to build new infrastructure with the proceeds.
On Wednesday Premier Baird was in the ABC's Ultimo studios doing talkback on 702 Mornings on Wednesday when a listener's text message demonstrated the risk.
The sender – apparently a supporter – posed a question: how could she could vote for the Liberal party when she was opposed to its major policy platform, to partially privatise the state's electricity network?
The Premier gave his stock answer, about how the anticipated $20 billion raised from the transaction would bring major benefits like easing congestion in Sydney through the provision of new infrastructure.
But the listener had hit on the issue that will challenge the Liberals as they seek to sell a privatisation policy that is deeply unpopular, including among their own supporters.
The most recent Fairfax/Ipsos poll showed one third of Coalition voters oppose the Premier's plan to partially privatise the electricity network to fund infrastructure if he wins.
When infrastructure is removed from the equation, half of Coalition supporters oppose the idea.
But Baird – with a personal approval rating the envy of politicians across the nation – has explained in recent days that he is forging on because he believes it is "the right thing to do".
It is an enormous political gamble. No matter the outcome of the March 28 election, it is likely to define his Premiership.
The case against privatisation can be summed up this way: why on earth would you sell such a profitable, revenue-generating asset?
Mike Baird was born into a political household – his father is former state and federal MP Bruce Baird – but he chose private sector finance as his career of choice.
He rose to be head of institutional banking for Australia and New Zealand at global giant HSBC. As an investment banker, the hunger for a deal is what drove him. Risk was a part of doing business.
Many would observe that as a politician, little has changed.
Since being lured into politics in 2007, privatisation – often in the face of fierce opposition – has been one of the hallmarks of his second career.
Since becoming state Treasurer four years ago when the Coalition came to power, Baird hasn't let the grass grow beneath his feet.
In that brief period he has presided over privatisations worth in excess of $10 billion.
Into private sector hands has gone the Sydney desalination plant ($2.3 billion), Port Botany and Port Wollongong ($5 billion) the Port of Newcastle ($1.75 billion) and Macquarie Generation ($1.5 billion)
Baird has pioneered a strategy of "asset recycling" – when state-owned enterprises are privatised and the capital used to build new infrastructure. It is designed to make selling public assets more politically palatable and to date it seems to have worked.
Last year Treasurer, Joe Hockey, extolled this "NSW model" as a benchmark for the rest of Australia and even recommended it to the world's most powerful economic officials when he chaired the G20 finance ministers meeting.
Unlike some past privatisation strategies Baird's political pitch is more pragmatic than ideological – it is justified by traffic gridlock and overcrowded trains rather than economic dogma.
He says its the only way for the state to build much-needed new infrastructure without raising taxes or losing the state's triple-A credit rating. Arguments about the efficiency of the private sector are secondary.
With the proposal to lease control of three of the state's transmission and distribution businesses to the private sector, Baird's "asset recycling" pitch is about to be put to the ultimate test.
The case for privatising the poles and wires was laid out by Michael Lambert, a former NSW Treasury secretary, in a comprehensive audit of the state's finances he conducted for the Coalition soon after it won government.
Lambert concluded that privatising the assets was likely to generate more value for the state than keeping them.
There was clear evidence that private owners would manage the businesses more effectively and that would flow through to lower prices. Privatisation would also end the inherent conflict in the electricity sector where the government is both an owner and a regulator.
Lambert argued that strong regulation in the sector meant consumers would be "protected from price exploitation" no matter who owned the businesses. This would also protect standards of reliability and safety.
And of course privatisation would free up billions for the state to spend on other things.
A swag of independent analysts including the Productivity Commission and the Australian Competition and Consumer Commission have backed privatisation.
Last month the head of the ACCC, Rod Sims, said electricity prices in NSW would now be lower had the network companies been privatised five years ago.
Infrastructure Partnerships Australia chief executive, Brendan Lyon, claims today's average annualhousehold electricity bill in NSW would be $580 cheaper if the state had privatised the polls and wires in the mid-1990s.
"There's never been a stronger case for reform," he says.
And yet, voters remain sceptical. A Fairfax/Ipsos poll last month showed only 23 per cent of voters supported the partial privatisation of the poles and wires. That was a 6 per cent drop in support since November. Opposition to the partial privatisation was up 3 points to 67 per cent.
When voters were asked their view if the proceeds were used to fund infrastructure projects in NSW, 47 per cent supported the proposal and 46 per cent were opposed, with 8 per cent undecided.
The case against privatisation can be summed up this way: why on earth would you sell such a profitable, revenue-generating asset?
Labor, which is opposed to Baird's privatisation plan also highlights the loss of revenue that currently flows from the state-owned electricity distributors. That is currently about $1 billion annually but forecast to drop to about $400 million in 2017-18.
Some business leaders seem incredulous the plan is being questioned but privatisation has always been more popular with political and business elites than the general public.
A new study by Sydney University's Professor Gabrielle Meagher and Macquarie University's Dr Shaun Wilson found voter support for privatisation has fallen over the past 25 years and that there is hostility towards the sale of public assets across the political spectrum.
"Elite enthusiasm for privatisation has not rubbed off on voters – even when they have had years of experience of privatised services," the study says.
Some well-qualified expert critics believe voter scepticism about the privatisation of electricity assets is well-founded.
A report by prominent Queensland University economist, Professor John Quiggin, for a trade union found no evidence that states which undertook full scale privatisation in the 1990s have performed any better than other states. He concluded that electricity privatisation in Australia "has produced no benefits to consumers, but has resulted in large fiscal losses to the public."
In January, the state's peak welfare agency, the Council of Social Service for NSW (NCOSS) – had consultants examine how the privatisation of the poles and wires in NSW would affect consumers.
It found that while the prices the businesses may charge will remain tightly regulated, there are risks to consumers from privatisation such as being saddled with the asset buyers' transaction costs.
NCOSS chief executive Tracy Howe noted that 33,000 households had their electricity disconnected in the past year due to non-payment.
"The issue for us is that you put safeguards in place," she said. "We want to make sure that number of 33,000 is decreasing, not increasing".
While it's clear electricity privatisation policy is on the nose with the NSW public it was also a tough sell within the Coalition. When it became apparent Baird was going to pursue the policy, the Nationals staged a mini revolt in part because of the job losses that will inevitably follow privatisation.
The internal backlash dictated the shape of the government's privatisation policy.
When the government's plan to lease to the private sector 49 per cent of the "poles and wires" businesses was unveiled, the major rural and regional distributor, Essential Energy, was not included.
The government has since made much of its claim that its plan would see 51 per cent of the state's electricity distribution network in public hands. But that comforting political message belies a more complex structure.
Although Essential is quarantined, the private sector will be offered a 99-year lease for 100 per cent of Transgrid and 50.4 per cent each of Ausgrid and Endeavour Energy.
So the structure of the sale in fact means that 70 percent of the state's electricity consumers will be served by businesses with majority private ownership, even as the government retains 51 per cent of the network overall. The sale process is anticipated to take about 18 months to two years.
TransGrid, which owns and operates the state's high-voltage transmission network, would be the first business privatised. Expressions of interest for its long-term lease will be called in May and the transaction completed before year's end should the Coalition's plans win parliamentary approval.
Leases for Ausgrid and Endeavour Energy would follow soon after.
The state's minority interest in the leased electricity assets will be overseen by an independently governed "holding entity" with a mandate to protect the value of taxpayers' interest in the leased assets through the exercise of reserved shareholder rights.
As for potential buyers, the most likely option is for a single buyer, or a consortium, to take the lease although, the government will consider floating Ausgrid or Endeavour Energy on the stock market "should market conditions indicate that this would result in a better outcome."
The steady, long-term returns offered by a regulated utility business make the poles and wires an attractive target for large superannuation and pension funds.
The state's large diverse economy and Australia's reputation for being a low political risk are also drawcards. The prospect of a controlling stake in each of the businesses for sale should encourage a higher price.
Further bolstering the potential sale prices is the unexpected political event north of the border.
When the policy was announced it was anticipated the Queensland government would be selling electricity assets at the same time. But the Liberal National Party's shock defeat in Queensland means those electricity assets are off the table.
This promises to increase competition for the NSW assets because the pool of potential bidders will be larger.
But an issue looms that could reduce the proceeds: the Australian Energy Regulator's final decision on the revenue Transgrid, Ausgrid and Endeavour can raise over the next four years.
The draft decision last November proposed a revenue cut of about 30 per cent, reducing the potential profit margins and therefore the price for the leases.
Vince Graham, the chief executive of Networks NSW – which runs the businesses – has estimated this will result in the loss of about 4600 jobs. The final AER decision is due on April 30 – after the NSW election.
But even if Mike Baird wins the election, the politics of the privatisation may still be problematic.
First, there is the perennial bugbear for governments: getting legislation through the upper house.
With ALP and the Greens opposing the privatisation plan, the government will likely need the support of the cross bench in the new parliament.
The two parties which share the balance of power – the Shooters and Fishers Party and the Christian Democratic Party – are a good chance to continue doing so in the next parliament. Both are playing hard ball.
The Shooters and Fishers are intractably opposed and the Christian Democratic Party is demanding five-year job guarantees for power workers.
The ALP's position, criticised by business, has left the party without the ability to match Baird's $20 billion infrastructure spend at the election.
But its position is understandable, given how the issue has torn the party asunder in recent years. It is also politically opportunistic, given the fate of the Queensland government.
Opposition to electricity privatisation is powering the ALP's election campaign. It promises to deliver Labor more votes than it otherwise could have dreamt of just four years after being tossed out of office.
So the anti-privatisation campaign is sure to intensify as polling day approaches.
Mike Baird has just three weeks to allay voter fears – most importantly those considering voting for the Coalition.