Legislative Council Thursday 25 June, 2020

Ms FORREST question to LEADER of the GOVERNMENT in the LEGISLATIVE COUNCIL, Mrs HISCUTT

A follow up question to the answer received 25 March 2020, wherein it was stated that the underlying cause of a decline in the value of Hydro Tasmania’s balance sheet of $195.83 million was a commercial in confidence matter not to be shared with the beneficial owners, the people of Tasmania.
I note the Government has been trying to gain support for various projects to build on our strengths in renewable energy generation. Adopting a secretive approach, prima facie appears to undermine the search for a social and economic license especially given the balance sheet loss represented almost 10 per cent of Hydro Tasmania’s value.

My questions are:

1. Was the Government aware of the terms of the contract to which this loss relates before it was signed?

2. Did the Government have any input into the terms and conditions of this contract?

3. Did the Government insist on any specific conditions as they related to prices and/or the term of the contract, or was it left entirely to the discretion of Hydro Tasmania’s Board?

4. What is the term of this contract?

5. When was this contract signed?

ANSWER:

1. Was the Government aware of the terms of the contract to which this loss relates before it was signed?

• The provision referred to in note 16 on page 51 of the 2019 Annual Report relates to a number of different contracts, as opposed to a single contractual arrangement. The accounting approach used for the provision is in accordance with Australian Accounting Standards.

• The contracts largely relate to offtake arrangements, which assist renewable energy projects to be built, financed or partially sold. At the time of entering into these offtake arrangements, they are generally NPV positive. If the market price for energy and/or large-scale generation certificates falls during the term of an offtake arrangement, it may become onerous, i.e. the unavoidable costs of meeting the obligations under the offtake arrangement may exceed the economic benefits expected to be received under it.

• On 5 September 2017, Hydro Tasmania was directed to enter into an offtake arrangement with Westcoast Wind to facilitate the construction of the Granville Harbour Wind Farm. This Ministerial direction to perform a community service obligation was issued by the Energy Minister and the Treasurer pursuant to section 65(1) of the Government Business Enterprises Act 1995 (Tas) (GBE Act).

• For the other offtake arrangements, Hydro Tasmania would have consulted with and sought approval from the Government where required to do so under relevant legislation and guidelines, dependant on a range of factors including the size and materiality. These requirements stem from the GBE Act, Hydro Tasmania’s Ministerial Charter and Guidelines for Tasmanian Government Businesses (Capital Investment, and Subsidiary Companies and Joint Ventures).

2. Did the Government have any input into the terms and conditions of this contract?

• Contractual terms and conditions are a commercial matter for Hydro Tasmania.
• As outlined above, Hydro Tasmania consults with the Government as required, dependant on a range of factors.

3. Did the Government insist on any specific conditions as they related to prices and/or the term of the contract, or was it left entirely to the discretion of Hydro Tasmania’s Board?

• Unless acting in accordance with a Ministerial direction to perform a community service obligation, the Hydro Tasmania Board is required to act in the best interests of the Corporation. The offtake arrangements entered into were based on sound commercial decisions and were not onerous to begin with.

4. What is the term of this contract?

• The average term of the contracts was 10 years.

5. When was this contract signed?

• The earliest of these contracts was entered into in 2009 and the latest in 2017.