Beattie's why generation

You have to hand it to Peter Beattie. While New South Wales chases its tail, Queensland is quietly but surely privatising a selection of its energy assets.

It has secured a handsome price from Origin for the bulk of Energex retail customers without any major political fall-out.

But the difficult question still stands: what to do with the generation side of the equation? While NSW has put itself into a fix due to ideological dogma, the Premier and his deputy, Anna Bligh, are at risk of becoming too pragmatic, only doing what they have to do rather than implementing policy based on sound principles and vision.

Queensland's so-far successful privatisation formula is built around a simple and practical set of principles.

First, the community is convinced that competitive markets are great for the community but risky for shareholders. Intense competition provides for innovation, keeps prices down and hopefully services up. But it's not very compatible with public ownership.

Governments don't have a good record. Public ownership works in theory, but it takes 100 per cent continual commitment and focus, something most politicians and bureaucrats are unable to give.

Governments are too slow to make commercial decisions, are overly risk-averse and find it hard to cough up additional capital for growth.

Voters can easily become nervous about pouring billions of dollars into businesses that could just as easily be run by the private sector. This is especially the case when funds are needed in traditional government areas like health and education.

Second, the sale proceeds should be dedicated to long-lived public infrastructure investment.

A major fear with privatisation is the prospect the proceeds will be spent on short-term political imperatives. This has led to the emergence of the "Future Fund" concept. It was used by John Howard for Telstra and will now operate in Queensland to help develop water assets and support clean coal technologies.

The third prong in the privatisation package is don't sell monopolies.

The sale of retail does not include Energex's network of "poles and wires". The infrastructure system that transports electricity around the state will remain in public ownership. The community sees sense in not privatising assets that face no direct competition.

The final part of the equation is a plan for dealing with blue collar workers. The public sector has traditionally had too many staff on inflexible working conditions.

Employment and economic growth are strong, as is demand for semi-skilled and trade workers. There is no better time to shift public sector employees away from uncompetitive industrial relations arrangements.

Beattie has made it even easier by offering up carrots. Non-contract staff at the companies being sold to Origin and AGL will be able to retain their EBA conditions for a period. They will also receive an incentive payment for committing to the new owners.

Alternatively, they can stay in the public sector with the Energex network.

In contrast to Queensland, NSW is still locked into an all-or-nothing mindset about electricity privatisation. The Labor Party hasn't recovered from the body blow it took in the mid-1990s when its plan to offload the industry was rolled by unions. The public has been sceptical of ideology ever since.

By drifting towards an anti-ideological extreme, Beattie risks tripping himself up by allowing policy to be driven by the relative need for budget funds. At a principle level, refusing to contemplate selling Queensland's generation assets is utterly at odds with the current sale process.

Publicly-owned generators face intensifying competition from the private sector, including Origin and AGL. In fact, these risks will increase when the electricity retail customers are sold.

While it owns both retail and generation, Queensland has a natural hedge through its shareholding in businesses which sit across the negotiation table from each other.

If Tarong, Stanwell or CS Energy sell electricity too cheaply, the retailer profits but most of the return remains in the public loop. If these generators get it wrong post sale, the windfalls will be pocketed by the private sector.

People like politicians to be pragmatic and listen to their concerns. However, they also crave consistency based on a vision formed according to agreed principles. If Beattie believes that Queensland taxpayers should not be in energy retailing, then he should also support arguments for the sale of electricity generation.