CEOs recoil in horror at leadership spill

The headline in the AFR was Leadership spill: ‘Someone threw a grenade in the swamp’ – CEOs recoil, raising the spectre of capital flight.

APA Group chief executive Mick McCormack, whose company owns gas pipelines and is building wind and solar farms in Queensland and WA, said it was disappointing after the government secured “broad agreement” on the National Energy Guarantee to see “politics blow it up, destroy it, crush it”.

In fact:

    Ed McManus, chief executive of wind farm operator Kiwi-owned Meridian Energy Australia and its retail arm Powershop, raised the spectre of international capital flight in response to the chaos in Canberra.

They say alarm among business leaders is greater than at any time since the former Labor government’s revolving door prime ministerships.

Indeed PNG looks good right now.

    Oil Search chief executive Peter Botten said the crisis in Canberra made Papua New Guinea look stable, as business leaders warned instability would hurt investment and drive foreign capital away.

He said:

    “I’m actually glad that I work primarily in PNG where the fiscal regime and policy settings seem to be substantially more stable in key areas of energy development than in Australia,” Mr Botten said, at the oil and gas company’s results on Tuesday.

The reaction wasn’t uniform, but:

    Oceania CEO of Ernst & Young, Tony Johnson also joined others in warning that investment plans will be hurt.

    “The instability in Australian politics comes at a high cost to business confidence, as companies delay plans and stall investment,” he said. “This comes at the cost of jobs and economic development. The business community needs policy certainty.”

AFR reporter Ben Potter felt moved to write an opinion piece What’s left of energy policy after the NEG omnishambles. He says:

    in terms of the energy trilemma – affordability, security and emissions – that drove two years of work by Chief Scientist Alan Finkel and Kerry Schott and the Energy Security Board, we’re pretty much back to square one. That’s why veterans of Australia’s destructive energy policy debates have a desperate, haunted look about them.

    Nearly three years after the government signed up to cut carbon emissions by 26-28 per cent of 2005 levels by 2030, there is no carbon emissions target for the electricity system, let alone one that would go close to fulfilling that pledge. There is nothing for transport, agriculture or heavy industry. There is no bipartisan policy, and no possibility of investor certainty.

Craig Emerson in the AFR says Welcome to climate war without end. Indeed:

    On Saturday Abbott confirmed, via Twitter, that: “To have a chance of winning the next election, the Coalition must create a policy contest on energy, not a consensus.”

    Get that? Whatever position Labor adopts in an effort to end the climate wars Abbott and his band of malcontents will adopt the opposite.

Turnbull is similarly anxious to avoid consensus with Labor.

Potter’s article, which was written before the leadership challenge, identifies some policy issues which would upset industry players.

Matthew Stevens in another article written before the spill – Energy policy replaced by ‘big stick’ politics – points out that Turnbull has become a fist-pounding prime minister who has put his name to a range of punitive threats to the power industry that might serve to undermine their property rights.

Snowy 2.0 was a government intervention which upset what was supposed to be a privatised industry. Imagine the effect when you get headlines like Turnbull fast tracks coal plan to clinch NEG. People in the power industry know that this is commercial nonsense. Imagine planting a government funded coal station in the middle of an extensive range of renewable developments in North Queensland.

Stevens said the NEG was presented as a pivotal victory by Turnbull after the party room meeting, but:

    By week’s end Turnbull was determined to neuter the NEG’s emissions commitment and go bovver boy all over the power industry.

    This failure has delivered us faux muscularity. We now have a fist-pounding prime minister who has put his name to a range of punitive threats to the power industry that might serve to undermine their property rights and that deliver, unrequested, powers of enforced vertical disintegration to the Australian competition tsar.

And:

    The government has cast the power industry as “bandits” and “gougers” to justify picking up a very “big stick” indeed to bring them to heel.

    The government wants to assume powers to direct commercial operators to continue to operate existing power plants or face losing them to government management. This is unnecessary overreach that puts at risk the capital investment programs that will anticipate the coal-fired closures ahead.

That was obviously aimed at AGL’s plans to close Liddell.

I get broker research on listed companies, including AGL. Profits this year were eye-catching, partly because they have been pretty lousy for a large company in recent years. However, the outlook is for flat earnings for the next three years. The return on equity is about 11%, which is below par for the companies I follow.

Today’s AFR has another article by Ben Potter Pulling out of Paris climate deal would be a ‘slap’ to trade partners.

Peter Dutton has talked about pulling out of the Paris Agreement. According to industry and energy analysts:


    Pulling out of the Paris agreement on climate change would leave Australia in a club of two with Donald Trump’s America.

    It would put the country at risk of “capital flight” and trade sanctions and at a disadvantage when it came to negotiating trade deals with big economies such as the European Union.

Also:

    Environment Victoria senior climate and energy adviser Erwin Jackson said capital flight was also a risk because “the Paris agreement provides a bedrock on which national policies to reduce emissions sit”.

    “If you start cracking the bedrock it makes national policies more uncertain. The core driver [of investment] is domestic policy but what Paris has done is provide confidence to markets that the direction of policy is only going one way,” he said.

The uncertainty is unlikely to affect the 7800 megawatts of wind and solar projects that the Energy Security Board says are already financed and under construction, or covered by Queensland and Victoria’s ambitious renewable energy targets.

However:


    Bloomberg New Energy Finance puts the pipeline of wind and solar plants that are permitted but not financed at 16,600 megawatts, worth about $25 billion to $30 billion, with another 30,000 MW of clean generation projects and 10,637 MW of battery and pumped hydro storage projects announced and having begun planning applications.

    Mr Jackson said a decision to pull out of the Paris agreement could affect the posture of other countries towards Australia on a range of issues because most signatories to the agreement took it seriously and were investing heavily in reducing their carbon emissions.

    “If you are not seen to be taking the Paris agreement seriously, other countries will be less interested in pursuing other things that Australia is interested in – such as defence or trade,” Mr Jackson said.

Enough said.

14 thoughts on “CEOs recoil in horror at leadership spill”

  1. At the moment price gouging by the retailers is functioning as a very effective carbon tax that is driving high levels of investment in renewables. For me the questions are:
    Should we do something about price gouging at the risk of reducing the incentive to invest in renewables? (Getting rid of price gouging would make investment in renewable power more risky.)
    Should governments use renewable energy auctions or some equivalent to drive investment in renewables above that being made by individuals and companies? (The risk disappears once the contract is signed and it is safe to educe price gouging.)
    Anything we can do to bring forward the replacement of the LNP government with Labor? (Brings sanity to the investment climate.)
    Should state governments tell the feds to rack off and leave power generation to the adults? (At least some states and territories are doing sensible things.)

  2. The Longman result was actually a plus for the LNP given the 2pp was less than the average swing away from the sitting Government.

    But The Garbageian’s Van Badham never lets history and facts get in the way of “ her truth “, being a self confessed communists and all.

  3. Fun fact: It is almost inevitable that Jumpy’s response to anything with which he disagrees will be to call the author names.
    Evidence suggests he is incapable of dealing with the message without shooting the messenger. #sad

  4. The message was addressed and the varsity of the messenger also.

    Capability check – Confirmed.

    It’d be good if you and Van held yourselves to the same standards that you condemn in others.

    Give it a try.

  5. Ed McManus, , raised the spectre of international capital flight in response to the chaos in Canberra.” Yep. He got that right. Now then, exactly who would benefit if that happened? Find those potential (maybe, ‘actual’ by the time you read this) beneficiaries and you will, most likely, have found the inciters or commanders of all this leadership farce.

    By the way, it’s just too much of a coincidence that this circus has come to town right in the middle of the N.E.G. brawl. Perhaps someone has dusted off their old ‘Sixties handbook, “How to Make a Fortune out of Newly Independent Black African Nations and Third World Banana Republics”?

    Of course, the whole thing just might be a contest between contenders for political power within the conservative ruling party of a middle ranking power – and I’m sure the Easter Bunny and Prester John would both agree.

    [Sorry, haven’t been around lately; had been hospitalized with a serious illness but now 99.98% recovered – however, throughout it all I was in far better shape than is the LNP at present 🙂 ],

  6. Graham, sorry to hear, but good you are back and in form.

    John D the Feds won’t rack off because the Coalsheviks will make coal-fired power a condition of the Coal-ition, no matter who heads the Liberal Party.

  7. Andrew Vesey of AGL has quit.

    Peter Dutton has threatened a royal commission.

    Vesey has decided there is no point hanging around, so he’s back to the USA.

  8. The Van Badham article is 90% on the money. The 10% she missed was the Liberal created “rich” self serving negative gearing policy which is essentially a ling term property accumulation siphon.

    Good to see its back to being just plain old Jumpy.

  9. Good to see you back here, Graham Bell, after your time in hospital. Best wishes for good health.

    A

  10. John, the states can’t stop the Feds from interfering. They couldn’t stop Snowy 2.0, would not be able to stop them building coal power with the Northern Development fund, and couldn’t stop laws that allowed the Feds to force the sale of Liddell, because the Feds have the power over corporations.

  11. Brian: You are right to point out that the feds can do something like Snowy 201 provided that they put up the money but the didn’t stop the likes of Telstra building solar PV to cut their power costs. Ditto the ACT’s ability to pursue their renewable energy auctions.
    Keep in mind that the NEG had to be agreed to by COAG and could not be imposed by the feds.

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