Next page . . . . Previous page . . . . Speeches . . . . Contents . . . . Debates(HTML) . . . .

Legislative Assembly for the ACT: 1999 Week 4 Hansard (20 April) . . Page.. 1000 ..

MS CARNELL (continuing):

mergers, strategic alliances and contracting arrangements. That is why the two streams of work are occurring in parallel. As members would be aware, negotiations with New South Wales are not well advanced and responses to the expressions of interest are not due until 10 May 1999.

Any proposal must be judged by the Assembly on merit, rather than making hasty decisions based upon misinformation, deliberate or otherwise. Yet we have those on the other side already making sweeping, ill-informed comments well before any option can be considered in any detail. On 10 April in the Canberra Times we had Mr Stanhope saying that the investigation of partnering options was a "pre-emptive strike" by the Government to "unload ACTEW" and that he will "have to respond on the basis that this is really subterfuge for sale". It is a shame that Mr Stanhope is attempting to throw a spanner into the works before any partnering options have been investigated properly, even though partnering options were recommended by Mr Quinlan. As for a merger being a sale by stealth, that is totally wrong; but we will deal with that suggestion later, Mr Deputy Speaker.

On 9 April on ABC radio Mr Quinlan asserted, and he said it again today, that GSE would have to pay the ACT Government $800m to $900m to merge with ACTEW. He went on to say that, considering that the Government had questioned whether ACTEW could afford $300m to $400m being taken out if it was not sold, there was little chance of more than twice that amount being paid by GSE, and he said that again today. These comments are rather confused and serve only to confuse any informed debate. I have to say that I expect that to be Mr Quinlan's intention here.

The Government has never questioned ACTEW's ability to make a capital repayment of $300m. We do, however, accept that this is about the upper limit that ACTEW could afford without losing its investment grade credit rating. What the Government did reject was the ill-informed recommendations of the Australia Institute, which claimed that $580m could be withdrawn and, indeed, a dividend larger than the profit withdrawn indefinitely. Mr Quinlan's claim regarding the need for GSE to pay $800m to $900m is based upon a very simplistic examination of book values in the company's annual reports. That is a basic, yet unsurprising, mistake made by Mr Quinlan.

To illustrate the risks involved in using accrual numbers to derive valuations, one could look at Telstra's balance sheet and conclude that it has a value of about $11 billion, based upon the net asset value in Telstra's balance sheet as at 30 June 1998, whereas Telstra's capitalised value - that is, the market value of the organisation according to its share price - is $71 billion as at 30 June 1998. Actually, the capitalised value now has risen to about $100 billion. So, if you use Mr Quinlan's approach, Telstra would be worth $11 billion. Obviously it is not worth $11 billion on the market, Mr Deputy Speaker.

I accept that GSE has a smaller asset base than ACTEW. However, it should be noted that GSE generates similar levels of profit. Considering that an asset's value is based upon its earnings potential, it is clear that a simple comparison of accounting book values, as undertaken by Mr Quinlan, will not be the basis of any merger. In the same item Mr Quinlan went on to say that if the ACT and New South Wales were to be equal partners, the equity held by the ACT would have to be reduced to the New South Wales level. Well done, Mr Quinlan; 10 out of 10 on that one! That is exactly why the

Next page . . . . Previous page . . . . Speeches . . . . Contents . . . . Debates(HTML) . . . .