Why WA Liberals and Liza Harvey should stick with plan to sell off Western Power

If Liza Harvey wants to know why she is wrong to rule out selling Western Power, she needs to go into the archives of the Government Media Office and dig out a 22-year-old press release issued by the bloke she says she is taking advice from now. That press release will touch on issues relating to the sale of public asset sales and, by extension, the critically important economic concept of opportunity cost. In her former life as a tackle shop owner, Liza Harvey practised the theory of opportunity cost every day. She would have, for example, weighed the profit from investing $1000 in blocks of mulies against the earnings from buying a Penn reel wholesale for $1000 and selling it for double. Harvey would do well to apply the same comparison process before she completely shuts the door on a sale of half of Western Power. The opportunity cost of keeping this $13 billion asset in public hands is enormous. By refusing to sell half of it, as Harvey’s government wanted to three years ago, she isn’t just keeping $6.5 billion under the mattress, she is locking up $11 billion. The Chamber of Commerce and Industry WA reckons wiping $11 billion off State debt would save $7.5 billion in interest payments over the next three decades. Before we get on to the other interesting things we could do with $11 billion, let’s re-examine why half of something worth $13 billion frees up $11 billion, not the more mathematically logical figure of $6.5 billion. The extra $4.5 billion appears out of nowhere because of the way investments are valued by potential buyers. Rather than rely on the vagaries of the market, where asset values can rise and fall on the whim of a tweet from President Donald Trump, bankers use a more stable measure of worth they call “enterprise value”. Western Power’s enterprise value takes into account its market capitalisation (the shares on offer times their value at any particular moment) plus its debt. Throw those variables into the Mixmaster and you get $13 billion, of which $8 billion is debt and $5 billion is equity. Selling half the Government’s equity would generate $2.5 billion. That’s well short of the $11 billion that we say a sale would free up. The extra $8 billion-ish materialises because the accounting rule book lets the government wipe any debt associated with that asset completely off its books. The government can only perform this accounting witchdoctory if it ends up owning less than half the new company — hence the policy of selling 51 per cent. We get to erase $8 billion in debt (which would make the people at Standard and Poor’s and Moody’s very happy) and we still retain a 49 per cent stake in an asset which most people reckon would be worth $5 billion if it was listed on the stock exchange. It’s an economic no-brainer. Politically, not so much. If there’s one thing that a trade union hates it’s privatisation. Privatised companies do things like sack people to make the business efficient. And if there’s one thing that a Labor MP hates it’s an angry unionist threatening to withhold political donations. So you can understand why Premier Mark McGowan is against the sale, even though his Treasurer would love to. (Note to Ben Wyatt: I dare you to take a televised polygraph and answer the question: Do you want to sell Western Power?) The Liberals don’t have that pressure. They should steel themselves to win the political debate knowing that the last election was not a referendum on privatisation, it was a referendum on Colin Barnett. And if they do win the argument then new Tory flak catcher Tony Barrass won’t have to work too hard on the press release. It was written 22 years ago. “One of Western Australia’s most strategically important energy assets will be fully privatised with a target to complete the sale by the end of the year. “The sale has the potential to realise the highest sale price for a State-owned asset in WA’s history. I am confident the sale will deliver a substantial return to WA taxpayers on their investment. “There has been a significant amount of public debate on issues to do with the sale. I have talked at length to industry groups to gauge their views and I am confident the sale terms and conditions will be supported. “There will not be any shortage of parties interested in putting forward firm bids.” Word-for-word, that was what then WA energy minister Colin Barnett said in a press release issued on May 22, 1997. He was talking about the privatisation of the Dampier-to-Bunbury gas pipeline. The world didn’t end when that happened. Barnett was right to sell the pipeline just as he was right to privatise the gas assets that created Alinta. Does anyone today who is playing Alinta off against AGL, Origin and Kleenheat to win a third off their gas bill think they would be better off if the State Government still owned SECWA?