Western Power sale is good news for business

Good for business

The business community has welcomed the WA State budget’s formal announcement to progress with the sale of Western Power as part of its plan to regain the AAA credit rating.

The Government used the budget to confirm it would sell mature assets to tackle debt and fund key capital works going forward – a move that will be taken to the election for a public mandate.

The expanded sale agenda will include Western Power and Horizon Power’s transmission and distribution assets in the Pilbara, Treasurer Mike Nahan told Parliament in his Budget speech.

“Any sensible economic manager, be it a householder, business person, investor or multinational mining giant knows that when debt gets too high, or when they reach their appropriate borrowing limits and still need fresh capital for investment, then it is time to review your asset base,” Nahan said.

Nahan said that asset sales were “the only sensible way” to ensure WA could continue to invest “in the capital of the future”.

“While our level of borrowings is manageable, the overall level is higher than we would like,” he said.

“We do not want debt to get higher, but we still have schools, roads and railways to build to meet the demands of a growing population.

“Western Australia has a huge asset base – it is sound economic sense to sell mature assets that can be run just as well by the private sector in order to fund the infrastructure of the future.”

Combined with the current asset sales process, the sales would generate anticipated proceeds of around $16 billion. Of this, $11 billion will be used to retire state debt and $5 billion would be used to create an infrastructure fund to finance key projects going forward.

“The proceeds will be used to reduce debt and to fund future infrastructure,” Nahan said. “A final decision to sell these assets will not be made until after the next election.”

“A decision to sell the assets will only be made following confirmation that divestment is in the best interests of both taxpayers and electricity consumers.

“The decision will also be dependent on an effective regulatory regime, which ensures electricity consumers are no worse off.”

Dr Nahan said the sales represented a small portion of the State’s asset base.

“While there will be a loss in yearly dividend payments to the general government sector of around $300 million, this will be more than offset by public sector interest costs, which are estimated to be almost $600 million a year lower,” he said.

“That is prudent economic management, not a fire sale.”

Asset sales should boost confidence

The Government’s land asset sales program is anticipated to generate $536 million between 2015-16 and 2019-20. This comprises $293 million in freehold land sales (agency held land) and $243 million in crown land sales.

CCI CEO Deidre Willmott says confirmation of the asset sales would boost business confidence and stimulate investment.

“Western Australia currently has the lowest credit rating in the country, so the sale of Western Power and poles and wires in the Pilbara will go a long way to reducing debt and restoring the markets’ faith in Western Australia as a stable place to do business,” Willmott says.

“CCI’s latest survey for the March quarter found more than half of Western Australian businesses believe economic conditions worsened this year, which actually reversed consecutive confidence gains clawed back in the last half of 2015, so these budget measures should restore some confidence in the community.”

Willmott says the plan to regain the AAA credit rating hinges on the Government’s ability to continue to drive expenditure restraint across the sector and an expanded asset/land sales process.

As part of CCI’s pre-budget submission, CCI called on the Government to implement a fiscal management model to manage public finances across the economic cycle.