Free trade fears in Snowy backflip
June 12, 2006
THE last-minute scrapping of the $3 billion Snowy Hydro float, attributed by the Government to the public outcry at the prospect of losing control of an "icon", may have been partly prompted by fears it would contravene Australia’s free trade agreement negotiated with the US last year.
As opposition to the sale plan gained momentum, government backbenchers forced the introduction of a 15 per cent cap for each foreign investment and a maximum overseas holding of 35 per cent.
At the time, the restrictions might have seemed like good politics, but had they been implemented, the move may have raised the hackles of the Americans, according to lawyers with trade expertise, who asked to remain anonymous
AUSFTA, in its provisions on investment, says nationals of both countries must have the same rights to assets in the country of the other, which makes limitations on foreign investments a problem.
Existing arrangements, such as capping Qantas’ maximum foreign ownership at 49 per cent, are accepted under the pact, but any new limits would require negotiation.
Also, the FTA gives free rein to investments valued below $800 million.
As 15 per cent of the Snowy sale would have amounted to $450 million, that would put the restriction below the threshold allowed for examination of shareholdings.
A spokesman for Prime Minister John Howard referred The Age to Mr Howard’s comments at the time the sale was scrapped, saying public opposition was overwhelming and this triggered the decision.
Snowy Hydro chief Terry Charlton is expected to break his silence this week on what his strategy will be now that the company will not get access to equity markets.
Originally it planned to spend $1 billion buying assets to aid its transition from a hydro generator to an integrated power company. But those funds will now have to come from borrowings.
Already debt ratings agencies are stirring.
Moody’s Investors Service, which cut Snowy’s rating one notch to Baa1 on the prospect of losing government support, is re-examining the situation for a potential upgrade. But Snowy’s ratings levels in the longer term will be determined by Mr Charlton’s expansion policies, not simply a relationship with three government owners.
Snowy does not benefit from public ownership as much as most government-owned generators.
Typically, NSW coal generators have ratings not far below the State Government because they have a single owner and their debt is handled by the state debt authority. Snowy, meanwhile, must negotiate with three owners, and manages and issues its own debt.
All that makes it more risky and as a result, its credit ratings are lower.
At the forefront of industry interest when Mr Charlton announces his strategy will be Snowy’s ambitions in Queensland.
The State Government there plans to sell off its power retailers for about $1 billion.