Sunday, 19 March 2017

Are there plans afoot to sell off part or all of the Snowy Mountains Scheme?

Snowy Hydro Ltd states on its website that:

The Snowy Mountains Hydro-Electric Authority was corporatised on 28 June 2002 under the Snowy Hydro Corporatisation Act 1997 to establish Snowy Hydro Limited. The Snowy Hydro Limited Constitution (Constitution) prescribes the responsibilities of the Board and Snowy Hydro’s reporting obligations, subject to the Corporations Act (Cth) 2001. Snowy Hydro’s shareholders are the New South Wales (58 per cent), Victorian (29 per cent) and Commonwealth (13 per cent) governments, with each shareholder having equal voting rights…….
Since corporatisation in 2002, Snowy Hydro has grown beyond the Snowy Scheme and now operates a growing and profitable retail energy, wholesale energy risk management and power generation business. We combine the power of the mighty Snowy Scheme with gas and diesel fired peaking generators to deliver a flexible and reliable mix of energy to our customers every day. We have 15 power stations, generate 4500 Gigawatt hours (GWh) on average per annum and have 5480 Megawatts (MW) of generating capacity across New South Wales, Victoria and South Australia. We’ve become the fourth largest retailer in the NEM by investing in growing our customer base, modernising our generation infrastructure, building and acquiring more generating capacity where we need it and developing our workforce of more than 1700 employees.

Snowy Hydro controls the headwaters of the Snowy, the Murray and the Murrumbidgee rivers and its water licence allows it to collect, divert, store, and release water by and from the works of the Snowy Scheme for the 75 year term of the licence. This licence is due to expire sometime between June 2076 and June 2077.

On 19 December 2016 the Dept. of Energy and Industry called for expressions of interest in conducting a valuation of the corporation for the three owners – with the contract to commence 1 February 2017.

The tender document states in part:

The contractor is required to provide each shareholder with a “fit for purpose” certified report, detailing the valuation of Snowy Hydro Limited's (SHL's) equity at fair value as at 30 June 2017 and 30 June 2018. The report will detail the scope, methodology, procedure and outcomes as well as all relevant assumptions, definitions and limiting conditions appropriate to the procurement. The contractor will supply the three shareholders with the preliminary and final versions of the valuation report in both written and electronic format. The report is to include explanations of movements in the valuations from year to year and take into account the interest holdings of the Commonwealth, NSW and Victorian Governments. The contractor will undertake the valuation as at 30 June 2017 and 30 June 2018 as a Limited Scope Valuation Engagement….. 

On 15 March 2017 Prime Minister Malcolm Turnbull announced Securing Australia’s Energy Future with Snowy Mountains 2.0 – a plan to boost Snowy Hydro’s power generation by 50 per cent.

This announcement mentioned $2 billion in federal government funding but in effect only commits to a feasibility study of pumped hydro expansion.

Remembering the 2006 push led by the Howard Government to sell off the Snowy Mountain Scheme as well as 2016 media reports of a possible sale, the valuation of Snowy Hydro Ltd raises questions about Turnbull’s out-of-left-field announcement.

Was it a prime ministerial thought bubble thrown in to quieten the heated debate over energy security which is currently taking place or was it a calculated ‘sweetener’ thrown in to make future sale of the corporation to institutional and foreign investors more attractive?

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