NIS Again: SA’s Interconnector

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I coined the phrase ‘Numeric Incompetence Syndrome’ a while back, and yesterday an article in my local newspaper delivered another glaring example. In summary…

South Australia’s connection to the national electrical grid is to be enhanced with a new 900km interconnector to New South Wales and Victoria. The capital cost is expected to be $1.53 billion. The article states: “To cover that, households would pay $9 a year in SA and $5 in NSW.”

Assuming an average household size of 2.7 persons (as in 2016 nationally), there are about 0.65 million households in SA and 3.11 million in NSW. So the total annual amount recovered from households would be ($9 x 0.65M) + ($5 x 3.11M) = $21.4 million. Even allowing for future population growth, this comes nowhere near “covering” an investment of $1.53 billion: to amortise such a sum over a 20-year life at a discount rate of 5%pa would cost $123 million per year, before considering any maintenance costs. So that’s error No.1.

The article goes on to say, “[ElectraNet] estimates the project would deliver overall benefits of $924 million over 20 years…” but adds that “the Australian Energy Regulator … has downsized the project’s 20-year benefit to $269 million.”

Who, in their right mind, would invest $1.53 billion in something that will deliver benefits of only $924 million over 20 years?! How can any sub-editor not see that this cannot be true?! Perhaps the word “net” was omitted, but surely “overall” was inserted to make clear that the writer means gross benefits.

My stroppiness is going off the scale. Journalism is not just about regurgitating people’s press releases; it has to involve some critical thought, some fact-checking, some exercise of common sense for heaven’s sake!

I have emailed the Editor of the newspaper with a link to this post and an invitation to respond and/or to publish a correction.

Privatisation

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I was always a reluctant believer in the conventional wisdom of privatising everything that wasn’t nailed down, and much that wasn’t. Some services really should be provided by governments, I thought, especially in cases where:

  • There is a natural monopoly.
  • Access should not be restricted by ability to pay.
  • Private control may confer disproportionate power.

I deplored the rush to privatise utilities, transport infrastructure and a mind-boggling range of government activities including even prisons and aspects of the military.

Land Titles Office, South Australia

The stupidest example to come to my attention recently was the South Australian Land Titles Office in my home state of South Australia. Did the cash-hungry Labour government never pause to wonder why a consortium comprising a commercial bank and a foreign pension fund would be willing to part with A$1.6 billion for the right to run the LTO for 40 years?

Anyway, I have just read a concise and well-documented article by Ross Gittings, economics columnist with Fairfax Media, entitled ‘The Experts Told Us Not To Worry’. I recommend it – if you can find a way to read it without subscribing to the Sydney Morning Herald. He chiefly blames state governments and their supposedly expert advisors, who little dreamt of the depths to which private investors would sink in the pursuit of monopoly profits, or the enormity of the loopholes in the regulatory frameworks conscientiously erected in a vain effort to protect consumers.

Do you have a favourite privatisation horror story to share?

Nuclear Waste

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Today is the 5th anniversary of the Fukushima accident.  It comes at a time when my state (South Australia) is contemplating setting up a nuclear waste depository.  Proponents say that this would close the circle of the nuclear fuel cycle, since Australia mines and exports much of the world’s uranium ore.  Opponents point to the obvious risks.

Mrs SG and I have second-hand experience of the consequences of mismanagement in the nuclear industry, having spent two years in Belarus and longer in Ukraine, both countries still heavily affected by the Chernobyl disaster.  But on balance I support continuation and expansion of nuclear power generation and, as a corollary, the reprocessing and safe storage of spent nuclear fuel.

NuclearWasteDrums

I also support South Australia’s entry into this final stage of the fuel cycle. We have a huge area of desert, with no ground water vulnerable to contamination, and stable geology.  And having lost our automotive and most other manufacturing industries, what else are we going to do to maintain our material living standards?

Every economic unit – be it a country, a state, a town, an enterprise or a household – has to find an economic niche where it has an advantage. Saudi Arabia has oil.  Singapore has a great harbour in a great location, a lot of smart people and ready access to cheap labour in neighbouring countries.  New Zealand has sheep and cows and the Tolkien films.

If one’s natural endowments cannot support the lifestyle to which one aspires, one has to look for economic activities that other people don’t want to be involved with. They may be dirty, risky or morally questionable.  In most cases they require changes in policy and law.  I’m thinking of assisted suicide services, driverless cars, drugs trials on human subjects, legalisation of marijuana, storing other countries’ unwanted migrants… and storing other countries’ nuclear waste.