The 'R' Files: Energy Policy in Western Australia

Article excerpt

THE WA ECONOMY

At a steady annual 6 per cent, WA's rate of economic growth rivals the Asian 'Tiger' economies.

Projected growth in WA's energy consumption, at 5 per cent a year, is over twice that of other States. Growth is being propelled by a renewed mineral development surge and increased interest in processing. But the energy growth projections in Figure 1 will be stunted-as will the associated increase in prosperity-if the price is not right.

OVERALL ENERGY POLICIES

The WA Government is opening up the energy market to competition.

Robust competition is one of the keys to ensuring lower prices: competition ensures that suppliers are constantly vigilant in seeking out cost savings in order to improve their position against rivals. But the opening of WA's market has been too slow, and so prices are higher than they could be.

WA businesses are far less free to choose their own supplier than those in other States. Under announced policy, only the largest twenty firms will be free to choose their own supplier by July 1999. By then, all but the smallest businesses and households will have been freed up in NSW and Victoria, with SA and Queensland not far behind.

In electricity, Western Power has failed to match the efficiency of power producers in the Eastern States-and those producers in turn have been far less efficient than many overseas counterparts. And though Western Power is involved in a vigorous outsourcing exercise, this brings little competition within WA's market structure. There are, moreover, no plans to have Western Power's generation plants disaggregated into competing sources. This puts considerable-and on past record, unwarranted-confidence in the abilities of a centrally-controlled authority to find low-cost ways of meeting consumer needs.

Again in the case of gas, announced plans cover the release of only the very largest users from `captive customer' status.

The enormous gas quantities available at world prices from the North-West Shelf offer WA an energy advantage over other Australian States and potential competitors overseas. But the present gas price in WA is not particularly low, being comparable with that in South Australia and Victoria. There are several reasons for this:

*the long distance that the gas is transported adds 50 per cent to the original costs by the time the gas is delivered to the Perth market; some such cost penalty is inevitable, but transport costs are considerably higher than those of comparable pipelines as a result of the high operating costs and the excessive initial costs of the Dampier to Bunbury Natural Gas (DBNG) Pipeline;

*the relatively high contract price believed to have been agreed for the gas contracted by the NorthWest Shelf Joint Venturers;

*competition is constrained because the existing pipeline is close to capacity, and there are very limited opportunities for end-users to contract directly with the suppliers;

*moreover, shippers must supply LPG-rich gas or incur a penalty.

THE NATIONAL REFORM AGENDA

The national competition reforms following the Hilmer Report have lent increased urgency and an added discipline on State governments to open up markets to competition and neutralise any commercial advantage enjoyed by State-owned businesses. Not only are such measures beneficial to the efficiency of State economies, but the Commonwealth also agreed to share the benefits it obtains in terms of higher income taxes from more efficient, more profitable businesses. These payments depend on each State's satisfying the National Competition Council that it is taking appropriate action to implement reform.

States therefore stand to make a dual gain from opening previously closed markets to competition-the increased productivity of their supply industries is augmented by special payments. WA's share of the $16 billion payments is about 10 per cent. …