by Alex M.
One of the shining examples
of how privatisation of state owned enterprises (SOEs) was supposed to deliver
reduced costs and greater efficiencies is the electricity sector.
It
is not surprising to those of us of a more critical outlook, that far from
delivering reduced costs and greater efficiencies, privatisation of the
electricity sectors in places like the UK and Victoria here in Australia, have
led to higher costs to consumers and less efficient services.
The UK experience
Margaret
Thatcher’s government in the UK was a pioneer of privatisation amongst the
advanced capitalist countries. In a long and detailed essay that summarises the
UK experience of electricity privatisation (London
Review of Books, 13 September issue), James Meek contrasts Thatcher’s
rhetoric on her resignation from Parliament in 1990 - when amongst other
things, she asserted that with the participation of the public in purchasing
shares in former state industries, ‘power [was returning] … to the people’-
with the reality in 2012, where ‘the result of electricity privatisation [has
been] to take power away from the
people.’
Privatisation
of the UK electricity sector, which Thatcher promised would mark an increase of
power for UK citizens on the basis of shareholding, did the reverse.
It
opened up the sector to overseas ownership and control. Paradoxically, one of
the major owners of UK electricity suppliers is the French company EDF.
Paradoxically, because EDF (Electricité de France) is a large state owned
producer and supplier of electricity in France, run according to Meek, ‘by
technocrats and members of a powerful trade union, the Confédération Générale
duTtravail (CGT).’ Such a situation would have been abhorrent to Thatcher and
other neoliberal ideologues, with their opposition to unions, state owned
enterprises and the public sector in general.
In
the UK electricity sector, apart from the French EDF, there are a number of
large private corporations most of which are not from the UK.
The
German based E.ON made a successful takeover of the British privatised Powergen
in 2002. E.ON is huge, with operations in over 30 countries. It is listed on
the Dow Jones Global Titans 50 index, an index of the 50 largest corporations
in the world.
Other
big players in the sector are: RWE of Essen, the second largest electricity
producer in Germany (behind E.ON) with interests also in gas and nuclear power.
It too has operations in many countries.
The
Spanish Iberdrola company, another multinational with interests in 4 continents
and which employs approximately 33,000 people, bought up former publically
owned electricity providers in North Wales, Merseyside and the south of
Scotland.
There
are banks, such as Australia’s Commonwealth Bank, operating in a consortium
which includes the US financiers J.P. Morgan and other obscenely rich
individuals such as Hong Kong based Li Ka-shing and US based Warren Buffet, all
keen to be part owners of British electricity production and distribution. Why?
Because it’s immensely profitable!
A
key assumption of privatisation promoters is that competition amongst
businesses will always reduce prices to the customer and lead to more efficient
production. What the British experience shows with electricity privatisation is
that competition has not led to reduced costs and greater efficiency, but
increased complexity with foreign multinationals dominating the sector.
Regarding
costs to the consumers, Meek points out that the ‘wholesale price of
electricity [became] so complicated that the only people who understood it were
the people who run the companies in whose interest it was for it to be as high
as possible.’
Moreover,
the big private players manipulated the market by using appalling practices
such as temporarily shutting down power generating stations, with the ensuing
shortage of capacity leading to a rise in the price of electricity. Practices
such as these are not illegal in the UK. For these and other reasons, prices to
consumers have risen.
As
Meek points out, the six dominant suppliers of UK electricity have such control
in the market that for ‘individual households and small businesses [they] can
choose to switch from one oligopolistic supplier to another [but that] doesn’t protect
them from sharp unpredictable swings in prices.’
Decisions
about how to generate power through gas or coal fired generators or nuclear for
example, are largely taken back in corporate headquarters, driven by the goal
of profit maximisation. Clearly this is an erosion of British national
sovereignty; the energy security of the nation has a clear chance of being
compromised by multinational malfeasance.
Australian experience
Meek’s
essay is important, not only because it highlights the invidious nature of
privatised electricity production and distribution in the UK, it also is useful
in comparing it with the situation in Australia. In Victoria the State
Electricity Commission (SECV), the monopoly power generator and distributor,
was disaggregated by Jeff Kennett’s government and the remaining companies were
fully privatised between 1995 and 1999. The Texas based electricity retailer
TXU bought into the Victorian electricity sector and it in turn had its assets
bought by the Singapore state run Singapore Power Corporation, reminiscent of
what happened in Britain with the French state owned EDF.
Like
in the UK, Victorian electricity consumers have witnessed a steady increase in
the price of electricity. In other states, which have not gone down the full
privatisation pathway, prices have risen too.
One
of the main drivers of price rises, according to a submission to the current
Senate Select Committee inquiry on electricity prices by Bruce Mountain of
Carbon Market Economics is the practice of ‘gold-plating’. Gold plating is the
term applied to overspending on electricity infrastructure for transmission and
distribution. The costs are passed on to consumers via increased prices.
In
Victoria, foreign multinationals such as SP AusNet (a subsidiary of Singapore
Power) and Spark Infrastructure (Hong Kong based parent company) have complex
systems of fees that they remit back to the parent companies. SP AusNet remits
a fee to Singapore Power for a percentage of the money it expends on
transmission and distribution infrastructure. For Singapore Power, the more SP
AusNet spends, the more it earns. SP AusNet has paid Singapore Power $12
million every year since 2007!
These
are just some of the UK and Australian experiences of the privatisation of the
electricity sector. It is truly a boon for multinationals and a burden for the
masses. We must promote the demand to nationalise key industries such as power
generation, so they operate to benefit the people. This is a fight for
Australian independence and socialism.
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