Further to our post in March, the Rees Government has announced an unusual plan to privatise NSW Government owned electricity assets. The plan comprises:

1. A trade sale of the three energy retailers it owns – Energy Australia, Integral Energy and Country Energy;
2. The sale of trading rights in power supplies from its three electricity generators;
3. The sale of seven power station development sites; and
4. A potential sale of the Energy Australia gas business.

However, if the sales process does not result in the creation of a new player in the generation market, the Government will press ahead with creating a new, vertically integrated energy company based around Integral Energy and selling it off via an IPO. The Government has also threatened that this might occur anyway should the bids not meet its price expectations.

The sale process appears quite unorthodox, with bidders being able to pick and choose which assets they might wish to acquire. I’m sure that will make the Government’s (or its advisers’) task of comparing bids challenging to say the least.

AGL and Origin Energy have both previously expressed interest in acquiring assets in the sell-off to strengthen their positions in the NSW market. They are also the strongest local bidders given their solid balance sheets. However, the Government needs to ensure strong interest from overseas companies such as International Power (owner of Simply Energy) and China Light & Power (owner of TRUenergy) as well as from private equity in order to maximise the sales proceeds (and degree of competition).

So what might this all mean for consumers? If AGL and Origin snap up two of the retailers then it could lead to less competition in the NSW retail market, although the market is currently not very dynamic. However, if a strong third player is created then there might start to be a reasonable degree of competition leading to better discounts and products for consumers.