Plan A from
the rulebook for side stepping questions at parliamentary hearings is to cite
confidentially. The reason why it’s confidential is also confidential. This is
a corollary to Plan A.
Plan B is to use
the sub judice rule where a matter might be the subject of legal action. Plan B
also has corollaries. Canvassing legal options, even a litigant’s thought
bubble are covered by Plan B.
Plan A has
been used at current parliamentary public accounts committee hearing into the
State’s electricity companies following the Basslink outage.
The government has now invoked Plan B and asked the
committee to call a halt to proceedings “to enable arrangements to be put in
place to protect the state's interests in the context of contractual matters
related to the BassLink failure.”
What are
these contractual matters?
Basslink’s
parent company, Keppel is listed on the Singapore Stock Exchange. Its latest
half yearly report dated 18th July has more to say about the
Basslink failure than Hydro and the government are prepared to tell.
The report
says:
“Based on current circumstances and subject
to further professional advice and investigation, Basslink believes that the
outage is a force majeure event. The cable has since returned to service on 13
June 2016 and Basslink has been in discussions with Hydro Tasmania and the
lenders on matters arising from the outage. The insurer has confirmed that the
physical loss and damage to the cable as well as time element loss (such as
business interruption loss) arising from the incident are insurable (subject to
the relevant terms of the insurance policy) and Basslink is working with the
insurer on Basslink’s claims under the insurance policy.”
Basslink believes the outage is
a force majeure event. In other words, an act of God. It has insurance cover
for such an eventuality.
Hydro on the other hand does
not. The estimated cost to Hydro is between $140 and $180 million.
Hydro’s risk assessment
analysis apparently showed outages longer than 60 days were highly unlikely.
This period was nominated in the original specifications and confirmed in the
Basslink Operations Agreement signed by the Tasmanian government. The 2012
Expert Panel report into Tasmania’s electricity industry disclosed however
there were no financial penalties relating to non performance.
If an outage wasn’t expected to
last 60 days, the cost to cover longer outages would arguably have been
minimal.
Even now Hydro is unable to
tell the parliamentary hearing the cost of such insurance or whether it plans
to take cover in the future.
If a force majeure event occurs
the contractual obligations of the parties are temporarily suspended whilst
things are fixed. Penalties
may not apply unless the relevant legal contracts specifically address the
matter.
Given Basslink had insurance in
place to cover a force majeure event they would be keen to ensure this was the
case. Finding the source of the fault proved difficult and more cable was
removed than the replacement length originally earmarked. An extra length necessitated
three joins. This left a length of discarded cable which Hydro would like to
have tested but Basslink won’t bring to the surface. Exhibit A which may prove
cable failure was other than an act of God is still on the seabed about 100 kms
north of Georgetown.
Legal action between Hydro and
Basslink is not new. An earlier dispute about the cable required former Chief
Justice Murray Gleeson’s mediation skills. Hydro made a couple of references to
the dispute buried deep in annual returns but when asked about the amount
finally awarded to Hydro, CEO Steve Davy resorted to Plan A by telling the June
hearings it was commercial in confidence.
Not so in Singapore. Keppel
revealed publicly the amount was $6 million.
There was a time when Hydro’s
annual costs of Basslink were provided in annual returns. No longer. It is now
commercial in confidence. The annual financial statements record an estimate of
the overall Basslink liability and the amount expected to be paid in the
ensuing 12 months. But the amount actually paid is commercial in confidence.
Not so for Keppel. It discloses
what it receives from Hydro but the amount is in Singapore dollars and the
financial year end dates are different so it’s a little hard to line up with
Hydro’s accounts.
The Basslink fee contains an
interest rate component. If rates go up then so does the fee, and vice
versa. Hydro decided to swap this
component with Macquarie Bank and not risk the fee rising with rising interest
rates. Macquarie Bank agreed to pay Hydro the amount of the fee resulting from
higher interest rates while Hydro agreed to pay Macquarie the amount of the fee
saved should the fee fall with falling rates. To date this misadventure has
cost Hydro about $200 million. The exact figure is commercial in confidence, as
is whether or not the swap arrangement with Macquarie still applies when the
fee is waived. According to Hydro’s last
financials, based on current low interest rates, the swap arrangement is
expected to cost another $340 million.
Hydro’s insurance against
rising interest rates have therefore cost $540 million and its failure to
insure against an extended Basslink outage another $140 to $180 million.
The very person at the table
when these fateful matters were first considered is now advising the government
on energy security. Geoff Willis it yet to follow Justice Brian Martin recent
example in the case of the NT royal commission into juvenile detention and
exclude himself on real or even perceived conflict of interest grounds.
The inquiry which promised so
much is in danger of degenerating into a pathetic embarrassment. Mr Bacon is solely
interested in finding a paper trail to the Minister’s office. The two Liberals members
are acting like Praetorian guards protecting their masters and blaming their predecessors
rather than bothering to address their minds as to how it all works, what went
wrong and where do we go from here.
Combined with a ready
willingness to withhold information where possible, the only result will be a
more disillusioned public once again let down by the political process.
