O’Farrell and the Perils of the Pork Barrel.

 

 Far be it from me to teach the press how to do their job but I am going to point out some inconsistencies with what was said at ICAC and the press interpretation of it.

Firstly I was very disappointed to see Mike Seccombe in his excellent piece in the Saturday Paper (19th April 2014) which said the following.

As Watson said to the commission at the outset, and again on Wednesday after O’Farrell’s resignation, there was no suggestion that he had behaved corruptly.

That is actually not correct Mike. What was actually said was at the beginning of the enquiry:-

Commissioner, we have looked carefully at the activities of Mr O’Farrell and Mr Pearce and we have found no evidence to implicate either in any corruption.

There is a world of difference between them finding no evidence and no suggestion that he had behaved corruptly.

Mike Carlton, another journalist I admire said the same type of thing in his SMH column of 19th April. 2014

Yet I cannot believe that he was dishonest. The ICAC Counsel Assisting, Geoffrey Watson, has made it plain that he doesn’t think so either.

I have spent a fair amount of time today reading deeply the reasons for the ICAC enquiry and what they are enquiring into.

I will leave it to others to explain whether or not people are corrupt or not. What I want to discuss is the circumstances which put people into a position where they are tempted to become corrupt.

The landscape of government has changed over the last 30 years. I think it has changed for the worst. By that I mean that the idea of government has changed. Both major parties have gone along with the changes and I think they are both wrong.

The rot started in The USA with Ronald Regan and in the UK with Margaret Thatcher. Single handedly Margaret Thatcher privatised Britain. She shut down state industries and sold them off to the highest bidder.

When I left the town I used to live in the UK in 1978 there was a large Steel works, there were two in fact. When returned there in 1987 for a visit, there was a park and hundreds of thousands of people north of London unemployed.

 In 1992 the  Victoria Liberal party came to power and Jeff Kennett strode into power wielding a Thatcher like axe. He was the nemesis of the state owned utility.

It’s interesting to dwell for a short while on how the sale of the farm (the sale of the Gas and Fuel corporation and The State Electricity Corporation of Victoria) changed the shape of the budget and affected the whole of Victoria and the wallets of Victorians.

The claim by Kennett was that the Labor Government had done such a bad job that we had to sell assets to pay off the debt they left. I don’t think the Liberal party have any new lines there because in 2014 the Liberal party, and their Treasurer Joe Hockey are singing from the same song book. John Winston Howard liked that song book as well.

But I digress, we are looking at why Infrastructure in the form of Utilities is best kept in public hands.

The Year before the SECV was sold off, it paid:-

However, in the case of the State Electricity Commission of Victoria (SECV), debt was not really a problem. In the year before it was broken up, 1992/3, “it paid $995 million in interest, a $191 million dividend to the State Government, and had a profit of $207 million.”

 

And

In addition a 1994 Bureau of Industry Economics study found that Victoria’s electricity prices to industry were eighth cheapest out of 40 OECD countries

 

Source Prof Sharon Beder Wollongong University.

But Kennett did worse than that, he sacked 11,000 workers and raised the price of electricity by 10% (to make it more attractive to the buyers?) and then, when sold a further 2,200 jobs were “liberated” by the new owners.

In effect what happened (in the case of both utilities), was a false marketplace was created, with false competition, huge job losses and the start of the rot of increased electricity prices in Victoria.

But there were other unintended consequences as can be seen in Prof Beder’s research. The interest payment of nearly a billion dollars was for infrastructure loans, the dividend of $191 million went into consolidated revenue and the retained earnings (profit) of $207 was a good reserve for further infrastructure or debt draw down.

A completely hidden consequence of this was the maintenance of electrical and gas Items. Whereas the State owned utility had had a cheap and comprehensive maintenance function, this now went to the private sector. Maintenance of the Infrastructure, an ongoing program by the State owned enterprises was also reduced.

A friend of mine actually counted the times the electricity went off. before privatisation, 8 Times in a year and after privatisation it rose to 27 times in the year.

 

This year I was a victim of the poor maintenance of the electricity network. I always know when it has gone off because the electric clock by my bed is flashing and needs resetting. This last time the power went off it zapped the temperature controller on my Brivis ducted heating system.

On looking at the Brivis web site for service I was astounded to see a call out charge of $215.

Typically these service people make 8 calls a day which comes to $1720 per day earned at that rate. In a 5 day week that is $8600 and for a 48 week year that comes to $412000. Even if they only did 4 visits a day it’s still $206000 per annum. And that is before they have done any work of fixed anything.

I actually “only” had to pay $150 for the service call. A new controller cost $180 and took about 30 seconds to install.

About a year ago one of these power outages zapped my computer hard drive.

It was ironic that the serviceman was complaining about the cost of electricity and a bill he had recently because he had had a new smart meter installed. I don’t know for sure but it looks as if the electricity provider has estimated his usage rather than reading the meter. All part of the reducing costs regime of the private sector.

Another unintended consequence is the complete stop in the training of apprentices in these organisations.

Yet still another is the change of shareholding from the public to overseas interests who bought the Utilities. As shareholders, their recourse, if unhappy was to vote against the government at the next election.

What has this to do with Australian Water Holdings?

This is how the present ICAC investigation started. Sydney Water, a government owned utility needs to provide ongoing water and sewage infrastructure for an ever growing city.

Instead of this work being done by Sydney water directly, it was farmed out to the Rouse Hill Consortium Pty Ltd, which was to become Australian Water Holdings. Apparently they were responsible for the work to be done in the Sydney North West Growth corridor. (NWGC)

For the first couple of years of operation this company was a not for profit enterprise. At some time into the arrangement it changed its name to AWH Pty Ltd and became a for profit organisation.

It had one customer. Sydney Water. The work done for Sydney Water was the installation of Infrastructure in the North West Growth Corridor (NWGC). This was done at first in Stages and then packages, each of which was a separate entity.

Meanwhile the AWH company were in difficulty financially, having trouble paying their Tax Bill and their Superannuation payments, yet at the same time they paid a lot of money for a corporate box at Olympic Park, retained consultants for huge fees and gave away money to political parties.  

The employees of the company and its Directors were paid huge remuneration packages.

I cannot see what possible advantage, using a second party to develop infrastructure would be had from the arrangement; in fact it leaves it open to all sorts of possible shenanigans (I am not saying that it was but that it is possible). Through the tender process and choice of suppliers.

The Private Public partnership evaluation process which is the subject of the ICAC investigation highlights what can possibly go wrong and how much money is at stake. In this case over a Billion dollars.

So for all the reasons set out in this blog, the reasonable man/woman would come to the conclusion that PPP’s are very bad news for the public. They deliver cost of living increases far greater than any Carbon Price ever did, they starve State budgets of funds. In Victoria these dividends have been replaced with gambling revenue and speeding fine revenue. Suborning society with gambling problems and making a cohort of Victorians criminals

They reduce the number of jobs available in the society and hence the amount of disposable income available to make the economy go around.

They tend to casualise the workforce as maintenance done at their places of work is done by contractors and casual workers.

They decrease the pool of trained tradespeople because private enterprises tend not to train apprentices. Their focus is on profit maximisation and cost minimisation.

So Government policy is core to the problems it creates in society. If it is framed by poor politicians it is bad policy and produces a poor society.

The ICAC enquiry is an example of the result of poor public policy, brought about by the conservative side of politics where the dollar is king and any means justifies the maximisation of that dollar.

What is needed in Public administration is the proper regulation of services which are delivered to the populace who pay the bills.

In my view Water, Gas and Electricity are not the play things of financiers to milk to their own advantage. They are the province of a well run Government organisation where they are properly regulated and scrutinised by an Auditor General. (and an ICAC like organisation if required).

Before elections we hear the popular refrain of the conservative side of politics saying loud and strong that they will reduce the cost of living.

I see the Sydney Daily telegraph are having a “People Power” campaign because of electricity price hikes. It even mentioned the Carbon Tax.

The carbon Tax has nothing to do with the price of electricity. It’s impact was fully covered by compensation to users. The price of electricity is the direct result of an invasion of Conservative supporting businesspeople who see it as a cash cow.

In conclusion the Private Public Partnership (PPP) has become a way to enrich certain parts of society at the expense of the paying public. All they do and have ever done is deliver massive salaries to the private sector and milk the people who have to pay huge increases year on year to satiate the lust for wealth of the privileged few.

 

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