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Under treasurer faces big three

NOTHING ever seems to worry John Langoulant, WA’s under treasurer and the man most directly responsible for the State’s finances.

However, beneath the Joe Cool facade John is almost certainly thinking very deeply about three events making his job a lot tougher.

First is the way Eric Ripper, his boss as well as being Energy Minister, has blamed civil servants and others for the problems at Western Power. Hmm, thinks John, whatever happened to the Westminster system of ministerial responsibility and, am I next?

Second is the potential for a bruising financial crisis at the tunnel being dug under William Street for the government’s pet southern railway.

Third is the looming collapse of attempts to sell the Dampier to Bunbury natural gas pipeline.

Drawing a link between Western Power, which ran out of gas a few weeks ago, the tunnel and the pipeline might seem to be a bit unusual. It’s not, because all are linked by two common threads – cash, and an astonishing inability of the government to understand that most basic fundamental of business (said in a hushed tone "profit").

Cash first. Last week, by opening its purse, Western Power found that spare gas was indeed available. All it had to do was make an offer to Wesfarmers and Alinta to buy a bit of their gas. It is very curious as to why this simple step was not taken on the day the gas ran out, after all, it really only needed two phone calls – or did it also need Minister Ripper’s approval?

Now the tunnel, which might also involve an unexpected call on the State’s cash – on top of evicted building owners and tenants claiming higher payouts. Amid a flood of media statements work has started on the courageous tunnel under William Street.

Briefcase has no civil engineering qualifications (but we’ll come back to the matter of qualifications later) but it does have a nose for missing financial detail.

In the case of the tunnel there are six words in a February 14 media statement by Planning Minister, Alannah MacTiernan, which raise more than eyebrows. The words can be found in this extract, where she talks about contractual responsibilities .. "under the design and construction contract, other than for limited specified events, the contractor is responsible etc etc…"

The six key words are: "other than for limited specified events". And what, pray tell, might they be? In one interview, the minister used the example of cables used to hold the walls of buildings up during construction but which are meant to be removed.

Consider that a bit more carefully. One of the "limited specified events" appears to be the Government accepting responsibility for what happens when those cables are cut. Wow! It is at this point that we enter the twilight zone called "what happens if" – such as a cable, or the nearby tunnelling, disturbing the foundations of the AMP or AXA building. Is that one of the "limited specified events" that might cause John to open a "what if" column as he prepares the next State Budget – and will Eric stand by him when he does?

The third worry for John is the apparent failure of Epic Energy to attract many (if any) bids for its pipeline. While owing its banks around $1.8 billion the closest indicative offer is said to be around $1.5 billion – but even that is not a formal offer because the potential bidders will not touch the pipeline while they have doubts about the intentions of the Government (through its regulator) to set the price for shipping gas.

Oh, how delicious. Minister Ripper, who staunchly defends the regulator, is about to find out just how damaging it is to have price controls on assets that someone wants to sell – which leads to the question of understanding business and to wonder whether events of 20 years ago are effecting what we see today.

Back in the 1980s then Premier, Brian Burke, got into bed with business and woke up with a nasty rash. Today, there are key men in the Government who refuse to even go near the bedroom. Such is their desperation to avoid contamination that their ignorance of how business works is staggering and the State is starting to pay a heavy price for being run by a covey of one-time school teachers and former union officials.

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SPEAKING of the Epic pipeline it is now becoming a bit clearer as to why Wesfarmers a few weeks ago withdrew its interest in the sales process. It was an early spotter of the twin issues of buying something which has government price controls stamped all over it – and the likelihood that the pipeline might be cheaper in a mortgagee’s sale.

Market talk is that the best indicative offer for the pipeline is around $1.5 billion, though nothing formal has been lodged because no-one knows what the Government regulator has in store for them, or whether Eric understands how important certainty is when writing out a cheque with so many noughts on the end.

If a low-ball bid is made, which forces Epic’s bank syndicate to take a number one haircut in the order of $300 million then it is likely that they (the banks) will take possession of the pipeline. If no dinkum bids are made it is almost guaranteed that possession of the asset passes to the banks.

Then the fun really begins, starting with an explanation from Eric as to how a prime piece of infrastructure suffered such a financial collapse, what he proposes to do about the regulator and, the king hit, how he proposes to encourage a new owner to invest another $300 million expanding a pipeline which is under strict Government price controls, effectively killing the profit in the deal – or is profit such a dirty words that those in Government who live with the memory of Brian’s rash refuse to acknowledge its primacy in business.

 

"There is no fortress so strong that money cannot take it." Cicero.

 

 

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