It is claimed that the sell-off will liberate $20 billion to invest in new infrastructure. But the numbers just don’t add up. The $20 billion is supposedly made up of a net $13 billion proceeds, plus $2 billion from the federal government under the asset sales incentive program, and $5 billion in interest earned from investing the sale proceeds over 10 years. There are issues with all three components, including the $5 billion interest over 10 years when the funds are to be invested by 2019 to secure the federal funds – more like over two years. This alone would leave the claimed $20 billion bucket of money short by about $4 billion. In any case, wouldn’t it be better to use the money to retire short-term borrowings as more expensive forms of debt fall due? Yet a full bucket of $20 billion would not pay for all the promised new projects, even accepting current cost estimates (which are probably conservative). The Baird government claims that the proceeds would be invested in "public transport, roads, water, hospitals, schools and other projects that improve services, increase opportunity and grow the economy". Nice sounding words. The list comprises a second harbour tunnel for rail and linking networks, $10 billion; Regional Roads Fund, $6 billion; Regional Water Fund, $1 billion; Schools and Hospitals Building Fund, $2 billion; Sports and Cultural Fund, at least $500 million. Add in proposed arterial roads across Sydney, estimated by commentators at $10 billion (a figure not yet denied) and all that totals $29.5 billion – or more than double the expected net sale proceeds. It’s tempting to mention in passing some of the misleading claims put forward to justify how the deal would be in the interests of both the state and consumers. Top of the list is the claim that the sale is of only 49 per cent of the assets – with the state owning 51 per cent (see the government’sfact sheet 9). But check the fine print and that 51 per cent includes 100 per cent of Essential Energy – so the proposal would pass control of Transgrid, Endeavour Energy and Ausgrid to the private sector. Commentators (other than Fairfax Media’s Brian Robins) have missed that point.

If the percentages are based on 2013 book values, the state would be left with only a 38 per cent interest in those three entities. The second misleading claim is that the assets will remain in public ownership and be leased for 99 years. Some may recall the same story was told about the old Treasury Building in Macquarie Street – now the site of the InterContinental Hotel. In the face of objections to the sale of a heritage building, it was only a 99-year lease. A few years later, when public interest had evaporated, the freehold was quietly sold. Business readers may wonder how Baird can lease only part of the transmission and distribution systems. Would that involve leasing a selection of assets? Or part of the system in different geographic areas? How would government and the private investor each earn revenues? But investment bankers have their ways. Possibly the proposal is to lease 100 per cent to a new vehicle in which potential investors would hold a 62 per cent share of the three agencies while the rest (plus Essential Energy) would be owned by a new Future Fund. That may avoid problems if there were disagreements about spending on upgrades. Experience suggests that private sector owners of a controlling interest would seek to maximise short-term returns, at the expense of maintenance. Passing a 38 per cent shareholding (plus 100 per cent of Essential Energy) to trustees of a fund looks like a tricky way for politicians to avoid responsibility for any future sales. Any decisions about selling down that holding would be made by the fund’s "independent" trustees. In the meantime, one can only wonder why any canny investor would put billions of dollars into a venture, without a wink and a nod about future sales, or some other incentives or sweeteners.

The bottom line is that the sale is not in the public interest. Past sales of businesses with a stable stream of dividends and tax equivalents have already cost the state dearly, and made it more reliant upon relatively volatile revenues from property transfers. Privatisation of a majority interest in these agencies can only make the situation worse. According to the 2014-15 budget papers, the state’s electricity assets were expected to pay more than $1.4 billion in dividends and income tax equivalents this financial year, or $5.2 billion including the following four years. A large part of that would be lost. It’s noteworthy that this time the proponents of electricity privatisation have avoided claiming that increased efficiencies from private sector ownership will lead to significantly lower retail prices. Consumers are not mugs. Australia’s experience is just another case study of how price regulation can legitimise price increases. If the regulatory regime enables businesses to earn a rate of return on assets employed, that creates incentives for those businesses to over-invest in infrastructure. But that’s now history. More immediate is the possibility that further price increases will be influenced by efforts to "fatten the calf" before sending electricity businesses to market. The Baird government’s approach is to deflect attention from whether the proposed deal will exceed retention value (and any subsequent claim to the contrary will lack credibility unless accompanied by disclosure of critical assumptions). Then again, one would not expect a politician (let alone one with an investment banking background, or any other salesman) to highlight any of the negatives of the latest ‘deal’. Dr Bob Walker is an emeritus professor of accounting at the University of Sydney. Dr Betty Con Walker is an economist and former Treasury official.